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q?0  Collection: Paul A. V olcker Papers Call Number: MC279  Box 10  Preferred Citation: Congressional Correspondence, July 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 / c431 and https:/ / fraser.stlouisfed.org/ archival/ 5297  The digitization of this 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 u ed for educational and research purposes ("fair use") a per Unit d States copyright law. By accessing this file, all users agree that their use fall within fair u ea defined by the copyright law of the United States. They further agree to request permi sion of the Princeton University Library (and pay any fees, if applicable) if they plan to publish, broadcast, or otherwise disseminate this material. This includes all forms of electronic distribution.  Copyright The copyright law of the United States (Title 17, United tates Code) govern the making of photocopies or other reproduction of copyrighted material. Under certain conditions p citied in the law, librarie and archives are authorized to furni h a photocopy or other reproduction. One of these specified conditions is that the photocopy or other reproduction i not to be "u d for any purpose other than private study, scholarship or research." If a user make a reque t for, or later uses, a photocopy or other reproduction for purposes not permitted as fair use under the copyright law of the United States, that user may be liable for copyright infringement.  Policy on Digitized Collections Digitized collections are made accessible for research purposes. Princeton University ha indicated what it knows about the copyrights and rights of privacy, publicity or trademark in its finding aids. However, due to the nature of archival collections, it is not always possible to identify this information. Princeton University is eager to hear from any rights owners, so that it may provide accurate information. When a rights issue needs to be addressed, upon request Princeton Univer ity will remove the material from public view while it reviews the claim. Inquiries about this material can be directed to: Seeley G. Mudd Manuscript Library 65 Olden treet Princeton, J 08540 609-258-6345 609-258-3385 (fax) mudd@princeton.edu   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Culy l i 198e  5a1taaar Corrado .,30sidwatesnmieeionert kuerto Rico 41t VA/presentative. aaahin.jton, D. C. 20515 Lear roir. Corradal Thank you very much for your letter of June LI in which so* rOCOmmend Grevorio Igartua Zor or.rloynent with the Federal RemerVe 1;eard. r. 11;aztaa's apgqication faiterialt 'have 1,een zvceived in the 1.c.,ardle Local nivizion Ana arc currer.t1 xuccivinu carctul consideration ly that rAvision'aro Lessional U-dve.lokuebt Committee. Kr. 19artua will le contacted ver.,i, e.00n concerning Lis application. ye a.i,)r reciate your interost in the Doerd'e ;;Airit 14:o-1x- wt. !Ancoxely, SJau k Vol er  JL:DJIL:vcd (#17-2C1) h;cc.  J. Lawton ! ,xs. Ballardi (2)  • ·eAL TASAR CORRADA Rcs1oc,-rr  COMM I S SION[R , PUf"RTO  R ICO  JOSEE". DEL VALL£: ADMINI S TRAT IVC A SS ISTA"fT  •  •  Action ass1gnea Mr. Shannon  WASHINGTON C>rf"ICC :  13I1f  Hou s O1'nCt: DUILDINO 0 C 20515 ARCA Cooc : 202-225-2615  LONGWORTH  WASHINGTON,  Qtongrcss of tbc illnitcb ~tntcs  or o;TR ICT o,-nc c,; OC0ITAU Fror RAL BUILDING  C:DUCATION AND LAB O R INTCRIOR ANO  INSULAR Af"FAIRS  ;l)ouse of nrpreiientatibes  ROOM 229 CH4ROON STRC[T HATO  Hla~bfngton, ~.~. 20515  t  I  R ,co  00918  P .O . Box 128 Rrco 00731 ARCA Coot:, 809..a•J-56t0  (  I  l !  RTO  PoNCC, PvCRTO  June 18, 1980  J  Rev. Pu  ARCA~ : 809-75J..42A0  ,,  ~1r. Paul A. Volcker Chairman Federal Reserve System Washington, D. C. 20551 Dear Mr. Volcker: , .l  1y constituent, Attorney Gregorio Igartua of has applied for a position as a lawyer wit the International Law Division of the Federal Reserve System in Washington, D. C. I know Attorney Igartua personally. He is a highly qualified lawyer as well as an excellent individual, a person of great integrity and responsibility, who I am confident would prove to be an asset to your organization. I support and endorse Attorney Igartua without reservation for the position for which h has applied or any other position for which his credentials may qualify him. I should very much appreciate that every consideration be given to his application and that I be informed of any action taken on this matter. Enclosed please find copy of Attorney Igartua's professional resume and of his SF 171 form. With best wishes, I remain Cordially,  I  I  I  I  ,  I IBaltasar Ii 11 I I  I/I , ' / ; ;  Corrada, M. C. Resident Commissioner, Puerto Rico  Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  Removal Notice  FRASER®LY-  The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to personally identifiable information.  Citation Information Document Type: Resume and application forms Citations:  Number of Pages Removed: 14  Resume and SF 171 form with supplementary information, Gregorio Iguartua, 1980.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  auly 1, 1980  The Honorable Tei31liaa Proxmire Chairr...an Conmittas oz Basking, liousin9 and Urban Affairs United States Semite 20510 washingtoas D.X. Laar atairmas Proxmire: The letter that yos exd imeater nein* sent Me on Piril 22 asked for a repeat elt the question of foreign acquisi-  tions of T.S. banks and ea the policy issues V.iat this development haa raised. 2 ma pleased to forward the anoloned report toy. Tho report 1)rinlia out clearly that our experience with foreign acNuisitiona, thoulh limited, has provided no evidence at this point that foreign ownership in itself has led, or is likely to lead, to bank suiservisory problems. for hove the banks involved or the eowlunities they nerve been harmed as a result. Indeed, the eaperieeee to date is that in many eases the banLs, and rresumably their eillialinitioa r have benefited from the crating* in ownerships weekesed beaks have been strengthened 4:t, infusions of capital and by the NOMagement resources of n voiced about the foreign hank. Some concerns that foraivn takeovers, such as possible loss o 3ooel bankim aervioesse have not materialised. These, I believe, are important Unclip's that should weigh beavily in public policy discuszions on foreign acquisition. I do not deny that there are potential prohlens asuociated with foreign bankinu operation in this country. The 4.4o4;t notable of these is tLe Troblezl of olAaining and verifying information eboet foreign banYs, in the firrt instance when they seek to operate in the United States, and later On a continuing basis. In the case of individuals acquiring hanks, the Informational 14rob1em, difficult enouoh in the demotic eentext, is compounded when foreiser individuals are involved. As the rezort brings out, however, the Board is rutting in place a cowprehensive prolram ior rtoniftrinv and suvervfaing foreign bank operations in this country which it believes sufficient to meet these problems.  The Reparable William Proxmire Page Two  This sountry has a long tradition, which as served it well, ad welesming foreivs inveetment and of prometimg tree flown of used* sad capital. The hoayitality that we have *hewn foreign banks is is keeping with that tradition * *ad appear* to have onhaseed eempetitive environment. The banking eapervicorz are aware of the potential emblems involved and are mnitorinc developments' to see /that the shrehleme de aet materialise* In the eirsumetances, I beliek eittelaion of the sanatorium OR tareign sequimAtions of U.S. 'banks SOMPOS no real purpoee. Medea*. it could be eounterproductive by closing off a potential searce of additional capital for our banks and by raising CORSO= that this country's long-stamding policies ea foreign invest may be reversed. tither members of the Beard loin me in urging that the moratorium on forein acquisitions not Ipe extended. We reeognise that our laws in a some may actually secourage torsi-gm acquisitions in certain failing ban): situations because those laws de not permit U.S. banks from other statea to be potential purehasers. The arpropriate tawof deelinq with that "diecrimimatime would be to enact the Legislation that has been raseavaeadad by the bank's, agencies to remove barriers to interatate actluisitions in f bank situations, as you are aware, the International Basking Act itself called for review. of restrictions of interstate banking. At this time there is ao certainty that Cou%reas will resolve e'er issues surrounAing these restrictiona promptly or in a way that will allow increased interstate activity. In this cituation, tha Doard does not believe that a moratorium on foreign entry would be in the national interest. have requestod that the Board take this opportunity to review the possibility of proposing any clarifications or other modifiestioas of existing law goveran5 foreign entry, aad will shortly inform you of our conclusions on that rpatter, isgalbor with speoific comments on the approaches %-i-potbetically propeeed in your letter. Sincerely*  WO-P* ' 4 Enclosure EtrGspjt (41V-160) beat hr. Gemmill • Mrs. Nallardp  Identical letter also sent to Senator noinz.  ... WILLIAM P'..OXMll.r, WI~ .. CHAl"MAN  •  ~1AR"IS0N A. WILLIAMS, J ... , HJ. ALAN CRAN~TON. CALI,-. ADLAI IC . STCVCNSON, ILL. ROBERT MORGAN, NC. OCNALO W . Rlf"GLIE. JR .. MICH. P'AUL S. SARBANES, MO. OONALO W. STEWART, ALA. P'AUL E. TSONGAS, MASS.  .  ction assigned to Jack Ryan  JAKI[ a.ARN , VTAH JOHN TOWCR. TCX. JOt-fN Hl:INZ, ,.A , WILLIAM L. AR'-4STRONO , COLO. NANCY LA'400N KAS!lrOAUM. KAN ■ . "!CHARO C . LUGA.A, INO.  KENNETH A. MC LEAN. STA,-,- DIRECTOR M. CANNY WAL!.. MINORITY STAFP' OIACCTOA M""Y ,.iv.HCC ■ Oil LA ,.AVA, CHICP' Cl..V'K   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  COMMITTEE ON BANKING, HOUSING, ANO URBAN AFFAIRS WASHINGTON,  ?7 /\ prl·1 '"'",  The Ilonorablc Paul Chairman Boar<l of Governors fccJeral Reserve Washington, n. C.  0.C.  20510  1980  /\. Volcker of the System 20551  Dear ~tr. Chairman: 11 . R . 4 9 8 6 r c c en t 1 y c n a c t e d i n t o 1 a \v p 1 a c e s a temporary moratorium on foreign takeovers of United States b~nks. This issue was addressed in three separate pieces of legi lation introduced last year. One of those bil1s, S. J. Res. 92, became the basis of Title IX of the Depository Institutions Deregulation and 1onetary Control ct of 1980, signed into law on ~larch 31. Title IX imposes a moratorium on foreign acquisitions of U. S. banks of more than $100 million 1n  ...  d e p o s i t s u n t i 1 .J u 1 y 1 , 1 9 8 0 .  The question of limits on the degree or manner of foreign bank penetration or the dome tic bank market was not specifically aJdrc scd in the International Banking Act of 1978 or any other federal legislation. You made this point in a speech you delivered last spring, while serving as the President of the Federal Reserve Board of 1C\\' York. (ongress determined to hold the status quo pending a study of the implication of foreign takeovers of U. S. banks. We feel that it is imperative for the Federal Reserve Bank to use this t·me to prepare a report on the question of for ign acqu·sition of U. S. banks, since it is an issue which is not likely to wane with the passing of time. Drawing on questions raised in . legislation addrc ing th·s problem, we would expect the following question to be addressed in your report.  .. .  -·  • The Honorable Paul Volcker Page Two  Lt.  1) the impact on the United States economy and United States banking system of the takeover of United States financial institutions by foreign persons; 2) the effect of foreign takeovers of domestic financial institutions on competition in world banking markets, in the national banking market of the United States, and in the regional banking markets within the United States;  Lomb  • 1.•••••••....  3) the effect of foreign takeovers on credit granting by domestic financial institutions; 4) the effect of foreign takeovers of domestic financial institutions on the monetary policy of the United States; 5) the potential impact of various possible foreign policy changes, including changes of foreign governments, on domestic financial institutions which are owned or controlled by foreign persons; 6) the adequacy of the current regulatory structure and of the laws relating to domestic financial institutions; 7) whether takeovers by foreign banks and persons have been financed to date by domestic or foreign funds; 8) the possible consequences of the following: (a) if the foreign persons acquiring United States banking institutions are constrained or influenced by the foreign policy of other nations; (b) if the foreign persons acquiring United States financial institutions are corporate organizations that own or control businesses not related to banking, which a United States bank holding company would not be permitted to own; (c) if more than 50 percent of all commercial bank assets in any single SMSA become owned, directly or indirectly, by foreign persons,  •  I  LIME•MININIM.  • I  •  •  JI   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The llonorab1c P;iul Volckcr Page Three  9) specify what changes to existing statutes and rcgt1lations should be made and what new legislation should be enacted in the event that the Congress determines that it is appropriate to: (a) prevent hostile takeovers of United States financial institutions by foreign persons; (b) prevent takeovers of United States financial institutions hy foreign persons where such takeovers will have an anticompetitive effect; (c) prevent more tl1nn ten percent, measured by total aggregate <lcposits and 1oans, of all Unite<l States financial institutions from heing owned or controlle<l, either directly or in<l·rectly, by foreign persons; (<l) prevent the tak over of any United States financial institution by any foreign person organized under the laws of or the resident of, a foreign country which docs not grant the same takeover privilege to United States persons; and (e) permit Federal bank and avings institutions regulatory authorities to l1ave such supervisory and investigatory powers over foreign persons which own or control a United States financial institution (i) as are equivnlent to the powers that agencies have over United States persons which own or control United States financial institutions, and (ii) as arc necessary to ensure safe and sound practices by United State financial institutions owned or controlled by a foreign person. We greatly appreciate your cooperation in this matter, and we look forward to your report. In making this report, w would expect the Federal Reserve to coordinate with the Comptrol lcr of the Currency and the FDIC. Since the moratorium expires on .July 1, we hope that your report will be delivered to the Committee in ample time for review prior to the expiration date.  ~  .. ,,,  Sincerely,  n Heinz n·ted States  ., :.., _--,,,....  •  .. .  July 1, 19RO  neuus The Honorable Henr:i Chaiallian Committee on Dankiny, rinance and Urn Affairs House of Reilresontatives aullinton, D. C. 20515 Dear Chairman Reuss, Thank you for your letter of June 2E regarding your Committee's hearin:js on the conduct of monetary polic, purzsuant to the liumphrey-Lawking Full rukloyLlunt and Calancee Growth Act of 1978. am lookin  forward to appearint.,i on July 23 at  10.00 as.m.  Sincerely,  gfaill A. WOK  CO:vcd (tV-270) bcc;  Mrs. Mallardi (2)s.//  0  Action assignei Mr. Corrigan; Info copies to Messrs. Corrigan J. WILLIAM STANTON. OHIO Mr. Allison CHALMERS P. WYLIE. OHIO  HrtjoRY S. REUSS, V•IS CHAIRMAN THOMAS L. ASHLEY. 01-410  •  Wit LIAM S. MOORHEAD. PA. FERNAND J. ST GERMAIN. R.I. HENRY B. GONZALEZ. TEX. JOSEP14 G. M , NISH. N.J. FRANK ANNUNZIO, ILL. JAMES M. HANLEY. N.Y. PARREN J. MITCHELL. MO.  •  U.S. HOUSE OF REPRESENTATIVES  RICHARD KELLY, FLA. JIM LEACH. IOWA THOMAS B. EVANS. JR EEL. S. WILLIAM GREEN, N.Y. RON PAUL. TEX. ED BETHUNE. ARK.  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  WALTER E. FAUNTROY. D.C. STEPHEN L. NEAL, N C. JERRY M. PATTERSON. CALIF-. JAMES J. BLANCHARD, MICH.  NINETY-SIXTH CONGRESS 2129 RAYBURN HOUSE  OFFICE  CARROLL HUBBARD. JR.. KY. JOHN J. LAVAL CE. N.Y.  STEWART B. McKINNEY. CONN. GEORGE HANSEN. IDAHO HENRY J. HYDE. ILL.  NORMAN D. SHUMWAY, CALIF. CARROLL A. CAMPBELL, JR.. S.C. DON RITTER. PA.  BUILDING  WASHINGTON, D.C. 20515  JON HINSON. MISS.  GLADYS NOON SPELLMAN, MD. LES AuCOIN, OREG.  7.25-41241  DAVID W. EVANS. IND. NORMAN E. D•AMOURS. N 14. STANLEY N. LUNDINE, N.Y.  O  JOHN J. CAVANAUG1-4, NEBR. MARY ROSE OAKAR, OHIO JIM MATTOX, TEX. BRUCE F. VENT°. MINN. DOUG BARNARD. GA. WES WATKINS, OKLA.  June 26, 1980  ROBERT GARCIA. N.Y. MIKE LOWRY, WASH.  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System 20th and Constitution Avenue N.W. Washington, D. C. 20551  C.--  Dear Chairman Volcker: We look forward to your appearance before the Committee on Banking, Finance and Urban Affairs onWednesday, July 23, 1980, at 10:00 a.m. in our Committee chambers, 2128 Rayburn House Office Building. Your report on the conduct of monetary policy, pursuant to the Humphrey -Hawkins Full Employment and Balanced Growth Act of 1978, will be important to the members of our Committee. We will be especially interested in hearing your statement of objectives and plans with respect to the ranges of growth or diminution of the monetary and credit aggregates for the ensuing calendar year.  Sincere  Henry S. Reuss Chairman  julyi i  Tho i-,oneraLwls tto?.-ioxt icAp giaotommolor  keuit tca gertement4tivs* *4 C. Itn5 !-,xv Ilz..eatecgmtles  Ttenk :vou tor you, letter of JUA6 2' ireuw4tir!..:R OOMMOSt tiUtP4-4'ar. of AmoSes*on of tNe ,,,olsy 01,4 ; OUx LtLzj zillanle mooloraril the r*Ofeevtioz tod a Tmilaury bOte for tNtis r,,trli;ht (*MA iLie*er. ometooes &oat Zoe the. * VIA retie/gal sexerve acts Lofting amd votteoptioe of Tireasurr Txookwe rcPep*sUctut ir meaucitlea. la tki ‘i11.40eityi it la okalgeted to folliw the Ticoasury's krososibe4 tato amd rftulationa, ilte Zieler's Vseamery 60t*4 loose outwitted to the Federal Eeserve Seek of Chisegs t;;;, the AffiliAted ta*Y. it the Lattam vett of Juno 1375 with a request thin the speouritli be tmemotetted to a trout Lot bet at their beak. lb* isicaritiee were o4Ausmed to tbe bank beeause they wet* net a000manied by the 44:eseptietie teem* toquirad to Ultimate a ttansfax. The seousitios wove submitted *gel* atoms vett the peoper form* oa 41114 1Se and lerwerded to the Memo et the tublio Debt tot Asearve koseessin44 ii4beegeemt1y# the tsioasory vatted the 4WA, to proses* tbe transfer Seek to toll thee that it would tot im4 the securities toter, the Ostssity 4ette et September Se et4 to ask the Won*,*Mee to ask the Lea wtether etel old at new holior a the atemaity Amid be laid the totem* ass* WASlated eskeii C-,at the iateeset be *eft,* miss Rioter emd 000 the peelc4i44012 Leo= to sew seemrItie* be met to them as metmeity• Ibmp /*decal asaorwe did soothing further beessoe it wen **a nal the Isteeeen wasted the eliestle not Just/0000i to oltiattr to per the seiretity at estmeritoidit weieldi ham 664 to stAutorlaio At by seedius a wise to that, oiSmat$ heeesse the laeattury wee is peeeseelso .1 the useseriv. too *rot themetex.0 Seimordies sewed this letter owl yew i7Alim1nc;1 coccoareedieee  74e Ilatioamtlo Tokert  L. taltantioias  of :414cur1tiagia Opara Alt• ..utast 4. ulikamono Oirostar4 nivinion Tivaaury. UMW* SIMMOSO et the riblio IOWA, Devartmant a Ofs s holiAttil to you. P.1.04w. bops fibta listormatiom yam ittatee. 1111t ICA illww it I wsn lso 11 further as*L Siseasolyo.  (Signed) Donald J. Wpm  040014 J. Wit; apeolai assistiaskt te.  CC:!.  %o4art J, Deimos%  LS.CO:vcd (1V-265) bcc:  Mr. Snyder Mrs Wallace Mrs. t.allardi  "Care  Action assigned Mr. Wallace  BOB KASTENMEIER 2o DisiIvor. Wi5coNsim  JUDICIARY •  •  232 Hotrat Orrtcr Dim bipes PHONE: AREA CODE 202, 225-2906  COMMMTLE ON  Congte55 of tbe "Liitittb  CMAIR MAN. suncomMITTFE ON Iry NTII'R APH) (MI/ rr., CIVII 11104 liii Al:MINVII JIJ511C.1SUBCOMMITTEE ON CRIME  FromE OFFICE: SUITE 505 119 rviEINONA AVENUE MADISON, WI:CONSIN  53703  PHONE: AREA CODE 608, 264-5206  31)ottEq of ilepresUntatibe Ularsijington, D.C. 20515  COMMITTEE ON INTERIOR AND INSULAR AFFAIRS 5U11COM PA I FT I 15 014. NATIONAL PARKS AND INSULAR AFFAIRS  June 20, 1980  Mr. Paul A. Volcker Chairman Federal Reserve Board Washington, D.C. Dear Mr. Volcker: Enclosed is some correspondence I recently received from one of my constituents, Mr. Gary A. Anderson, regarding an extraordinary delay he experienced in receiving a check, from the Federal Reserve Bank for matured U.S. Treasury Notes. Frankly, I share his belief that a six month delay in this instance in unforgiveable. I would very much like to know if there is any mechanism by which interest for that period of time might be paid on the Notes in consideration for the undue delays? Thank you for your attention to this matter, and I look forward to your response. With kind regards,  Sincerely,  RWK:ml Enclosure  j ROBERT W. KASTE ,IER Member of Congress  •  Affiliated Bank of I lilidale  June 9, 1980  <;UPI  logo,  Mr. Otto Festge Office of Congressman Robert W. Kastenmeier 119 Monona Avenue Madison, Wisconsin 53703 Dear Otto: On July 13, 1979 we forwarded some United States Treasury Notes maturing on September 30, 1979 to the Federal Reserve Bank. We were advised that at maturity we would be sent a check for the principal and interest. Due to several errors made at the Federal Reserve Bank, we did not receive the funds until February 22, 1980. We filed a claim for the loss of interest during that interim period with the Bureau of the Public Debt as we were requested to do. The claim was denied in a letter indicating that regardless of the reason for the delay, interest could not be paid. This seems extremely unfair. The Government has had the use of those funds for 5 months at a time when interest rates ranged between 12 and 16 percent. Our customer has had a substantial loss as a result. If we were to be even one day late with the payment of income tax, we would have interest owed at the rate of 12 percent. The same is true with the payment of the Federal Estate Tax. Even where we have permission to pay the Federal Estate Tax in installments, interest at the rate of 12 percent is charged by the government. If we were to take the same action within our bank when an error was made, we would have half a dozen Federal Agencies demanding that we pay our customer interest for the period in which we had use of his money. I would appreciate very much if through your good offices you could seek to redress the grievance that I have indicated here. Enclosed are copies of all of the documents in our file on this matter. Anything you could do to help would be greatly appreciated. Thank you. Very truly yours,  Gary Vice  _Anderson resident and Trust Officer  GAA:rg Enclosures  401 North Segoe Road • Madison, Wisconsin 53705 • Phone 608 / 238-9373   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  FEDERAL RESER VE BANK OF CHICAGO FI SCAL AGENT OF TI 11 :.  N ITE D STA.TES  2)0 SOUTH LI\ S,\LLE STREET CHICAGO, ILLINOIS 60690  (312) 322-5322  June 6, 1980  Mr. James E. Saunders, Trust Officer Affiliated Bank of Hilldale 401 North Segoe Road Madison, Wis 53705 Re:  Your letter of 5/12/80  Dear Mr. Saunders: In a conversation with Mr. Thomas Tracey at the Bureau of the Public Debt, I learned that an employee of his department spoke with Ms. Sharon Blank, Trust Operations Manager of the Affiliated Bank of Madison, on May 5, 1980 regarding the late payment of 8-1/2 Note F-1979. A letter was also directed principal on to her on May 20, 1980. I hope this information will help you resolve this matter.  DEPARTMENT OF 1 HE TREASURY  .4,  FISCAL SERVICE  - rim  WASHINGTON, D.0  BUREAU OF THE PUBLIC DEBT  IN YOUR PEPLY REFER TO  Control: Case of:  20226  116-0194 Keifer, Delight Owen  Ms. Sharon L. Blank Trust Operations Manager Affiliated Bank of Madison One West Main Street Madison, WI 53703  UM 20 A990  Dear Ms. Blank: This is in reference to your May 5, 1980 telephone conversation with Marjorie Waskewich of this Division and your letters of March 17, 1980 and April 23, 1980 written on behalf of your customer, Delight Owen Keifer, requesting back interest on a matured Treasury Note due to the delay in payment of the principal thereon. The circumstances resulting in the delayed delivery of Ms. Keifer's 'redemption check are sincerely regretted. Unfortunately, there is currently no authority under law or funds available to permit the payment of additional interest on Treasury securities regardless of the reason for the delay of the check. Please reiterate our apologies to Ms. Keifer. Very truly yours,  mzJIL' Robert J. Benson, Director Division of Securities Operations  Keep Freedom in Your Future With U.S. Savivs Bonds  •  • 1 y 12, ·1980  c  r 1  e ll  1  o  CJ  230 South L Sall tre ct Ch c o, Il~inois 60690 G  ntl m n:  0  :; c  L.Or  C  .tl -  r  fo 0  C •  r·  0  )c  ferr d to  t ns-  1 32 .  Bee of th ould be held ould be r itted to . init at primo.ri y r .sul e in ymc t th th ha b ·  WC  v r  it  h  r ·t  · t ime Ir.  qu ~n  ic y  at nt  of tle ii.. m.  Sub qu nt ·o tle ay e1 f th pr C , 1 tu i .y paid i t rat for th p riod fr h s for gon for tl t nti claim the int the f h ve writ n • W wi h  o h v  thi  Plea e advis. ll  y  · Jame . Sanders Tru t Officer JES: rg   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ·tter reso ve  a  d not b 1 c 'boner mu t  ~O  re  .  r  1  e•  k 1g  o  our  fficerfor  e  Affiliated flank oi Nladison MEMORANDUM  TO: jim Saunders  FROM:  Sharon Blank  DATE:  5/7/80  RE: Delight Owen Keifer I'm attaching copies of the form we mailed with the security along with some recent correspondence I have made in regard to claiming interest on the delinquent principal. I have been in touch by telephone with a •Federal Reserve various times Nancy Bryzinski at the during the delinquent period regarding this problem. Our first contact was made at the end of October and the most recent was in February. When I spoke with her in February she explained that they had finally traced the item and that because 2 different departments had become involved that each department had thought the other had paid the maturity. I'm also enclosing a copy of the check so that you can tell when the actual payment was made. If I can be of any further help, please let me know.  One West Main Street • Madison, Wisconsin 53703 • Phone 608/252-5800 29640  • *.r(Dau Ya3hin,./on,  -  51- inch 0 • • •  Dear Mr. Tracy: irh 17t1-: I'm enclosing a cony .--).1f nv ?oproatct for:73 for r.1:1=-1t ,:: i.iic;1 -Dui ,1117.1 onr cultc,rer, rii o;: 1 3tt: ,r I tial). ci .:17I rcciv.:10_ rally co=3s7,- coived no _forms nor 1. 7:onaence rocfardi.lq this .._lituation. Your 7.,ronpt . tt-2ntion to thi:; ratter -ill be appreciated. Very truly yours,  narf-,nL. 111,11.91.1.7u3t On,2rationf; :7anager 252-5962  crnol,:..)!;urc  •  I,  -  •  .,  •  1\f  •  (  ii· c tee Be 11li nae iso11 March 17, 1980  Burea u of Publi c Debt Divis ion of Secu rity Oper ation s Wash ington , DC 20226 Attn:  Mr. Thoma s Tracy Corre spond ence and Claim s Branc h Re:  Delig ht Owen Keife r  Gentl emen : I was given your name by the Fede ral Reser ve Bank in Chica go as the perso n to conta ct regar ding delin quen t paym ent of U.S. Treas ury Notes . Throu gh an error in the offic es of the Fede ral Reser ve Bank in Chica go our bank did not recei ve paym ent on par U.S. Treas ury Notes due 9/30/ 79 until the end of Febru ary of 1980. We feel our custo mer is entit led to the back inter est for that perio d and I am looki ng to you for the appro priat e forms in filin g a claim for this inter est. Pleas e forwa rd the appro priat e forms to my atten tion at the Affil iated Bank of Madis on, Trust Divis ion, P.O. Box 830, Madis on, WI, 53701 . Your antic ipate d coop eratio n is appre ciate d. Very truly yours ,  ;Z_____ d ~~  Sharo n B. Streb e Trust Oper ation s Mana ger  lfm  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  One West Main Street • Madison , Wiscon sin 53703 • Phone 608 / 252-5800  t ••  t  •  • •I '  •. .' .., .  .. '·  ',  !. ' ~,.  . -.. \,  ··,  .  ......... f  .  ·•·  . :·.  , ..  .,..  • !,\ ••  .......  ,I  I  ,. r  11•  1 •  J  ,  ;  '·  1 •·-'  ,.  ·,  I•,•  ,  .  I•. I  .  '  .  -= .:-•~ .  ,  :\  ,  .'  ..  . '  .. .. .. . t . ~  . '.. .,  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ·. f  ...  : ,: ·; X. ) -. :.;•,, . .;) ~  ,.  ::~, ·-::  •  • FORM PD 1832 Deot. of the TreJsury Bur. of the Public Debt , (Rev. Mar. 1977)  ··'·  SPECIA L FORM OF DFTACH ED ASSIGN MENT FOR UNITED STATES REGIST ERED SECURI TIES  FOR VALUE RECEIVE D I assign to  Affilia ted Bonk of Eilldal c Tr11stee u/a with Delight Y-:iefer <ltd , March 2 7, 19 79  P  Box 830  (Name)  Madi  (Taxpayer Identifying number and addrec;s of assignee)  the following-described registered securities of which I am --(we are) the owner(s) or the duly authorized representa tive of the owner: TITLE OF LOA~ and/or ISSUE _ _ _ _ _ _ _ _ _ 8_N_o_t_e_B_-_8_6_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ (Include Interest rate, series, Issue date and call and maturity dates)  DENOM INATION  SERIAL NUMBER S  REGIST RATION (Exact inscription on oach socurity)  ,.  .•  -  ...,  -  Delight Owen Keifer  •'.  ...-;::..·'::."'.': ..... ,., ·,· ~  .. and hereby authorize discharge of registratio n thereof on the books of the Departme nt of the Treasury.  !2llfoi }:_~~ 7 , ~~~~~~~~~ly t/4 /l~ A- /(.~-{2A  / ~_/ Ju  ------0Tf"{/nf Delight wen~ er  (Slgnaturl! OYJOr on behalf of owner)  Delight Owen Keifer  (Atldltlonal slynature, If required)  I CERTIFY that the above-named person(s) as describ d, whose identity (or the identity of each of whom) is well known  ,,.,.  I~-.J  /  or proved to me, pers.ona I1y :ippe,,rcd before me this-- ------ day of _ _ _.,..:.__ ..;.~-- ------- 19 71,/. , ---,,, / .  ,  )  at '  1  /,  ) "' ✓   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1')• ~, , / , 1  r •  /  1'  .t'l  1_...; '  ' · / :, ·_  , and signed the above assignment.  iC:lty .1:id State)  I/  L, ✓  / ·  I /  \"",..  (Signature and title of certifying officer)  (SEAL) '\ I  \  •  ::,··) 7/  I 1  ,. 1  ,. ~11  . I I /, J✓• ! /• ' ~.3 7(~; (Address)  •  •  '\ > r  SPECIA L FORM OF DETACH ED ASSIGN MENT FOR UNITED STATES REGIST ERED SECURI TIES  FORM PO 1832 Dept. of the Treasury Bur. of tile P11bllc Ocht (Rev. Mar. 1911)  Affilia ted Bank of Hilldat e Trustee u/a with Delight Yiefer (NamP.) March 27, 1979 dtd  FOR VALUE RECEIVE D I assir,n to  (Taxpayer identifying number and addre\S of assignee)  representa tive of the following-described registered securities of which I am (we are) the owner(s) or the duly authorized th e·owner: 8 1/2 Kotc F-79 _ _ _ _ __ TITLE OF LOA 1'J and/or ISSUE _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ (Include Interest rate, series, Issue date and call and maturity dates)  -  ,  .,  I/  /  /  REGIST RATION  SERIAL NUMBER S  DENOM INATION  ...  /  '~  \  I  I  (Exact inscription on each security)  Delight Owen Keifer  /.  ,,,,,  </  /  ;  ·-'  ':>  I  /  r· \  .. -  I,,  ,~  /  ·-  . ,  - '·  J  .  /  (  J  , I  .,!//..JI I')  ///// h.1/  /'"lC. C· /'. u /~". ,/. ,...., )~ /r"'. ~ ~ ~//  ~fi-"'/  .9/,J  1/o/ ~•  and hereby authorize discharge of registratio n thereof on the books of the Departme nt of the Treasury.  +  0/JA,, ){  I  Kicf er  ~~~~::~~~ly(Slqnatu,~bM.9.~ ~f0Dcljr,h t 01Jtn Keifer  (Add It Iona I sl9nature, It reoulred)  well known I CERTIFY that the above-named person(s) as described, whose identity (or the identity of each of whom) is ()'-='-/ -/'-', - - - - - - - - - - - , 19 j· ' f / / · ....,bf ·•1 · day of----=or proved to me, person"" y ap~oare'-1 ~ ore me this  /r;  ,-·)1 I  at   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I  '  ; ' '7/  ,;  "/  (_/  ,  )  · ' ' _____ ___ , and signed the above assignment.  /)'  ·  (Cit•/ ane1 State)  ,, I ,:  .,//' r,,•,; _;  /;-' I,(•  /"1 ;;.. '/,;/ -::i,.•  I  I .' /,,/ / I1,/,. 1"' I /h  ,-'I  \  , , ._)) /~-/', /.'' / ,),.-  f5._.,/71J._,(Address)  -- c,"~·  I  /,  (Signature and tltle of certifying officer)  (SEAL)  -/  ',,,/11• ~• , / .. , . • .  faL·_y j~ 'u/4· I  • -  July 1, 1,80  Tige Honorable Mean S. 'texas Chairman .7orattlittiie on 'tanking, rthenCla and Urban Affairs Nous* of lopeorsontatives waehimides, D.C. 20515 Dear Chairman Reuss Thank you for your letter of June 25 recommending r.r. Shelby Southard as a kleaer of the Board's Consumes Advisory Council. mr. Southard's view* is on file with the leamd, and you may be assured that his qualifications will reelable ftll consideration thelri the Aoard makes the 1091 appointments to the Council. The Voard appreciates your rememLnation el 4. Southard and 'four interest in the Cesemmear Advisory Council. Sincerely. Sd441 10.1101,_  COtiljt (tV-271) Lcc. Ann Marie Bray (w/copy of incoming) nrs. Mallardi  HENRY s,Pruss, W'S.. CHAIRMAN THOMArL. ASHLEY, OHIO WILLIAM S. MOORV-IEAD, PA.  iinei Congressional Liaison Off' Action assi 0 e  PERNAND J. ST GERMAIN, R.I. HENRY B. GONZALEZ. TEX.  U.S. HOUSE OF REPRESENTATIVES  JCSEP)-4 G. MINISH. NJ. FRANK ANNUNZIO. ILL.. JAMES M. I-4ANLEY. N.Y.  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  PARREN J. MITCHELL. MO. WALTER E. FAUNTROY. D.C. STEPHEN L. NEAL. N.C. JERRY M. PATTERSON. CALIF.  2129 RAYBURN HOUSE OFFICE DUILDING  GLADYS N00.4 SPELL MAN  RICHARD KELLY, FLA.. JIM LEACH. IOWA THOMAS B. EVANS. JR.. DEL. S. WILLIAM GREEN. N.Y.  CARROLL A. CAMPBELL, JR., S.C. DON RITTER. PA.  CARROLL HUSBARD. JR., KY.  WASHINGTON. D.C. 20515  JOHN J. LAFALCE. N.Y.  GEORGE HANSEN, IDAHO HENRY J. HYDE. ILL  RON PAUL TEX. ED E/ETHUNE. ARK. NORMAN D. SHUMWAY. CALIF.  NINETY-SIXTH CONGRESS  JAMES J. BLANCHARD, MICH.  J. WILLIAM STANTON. OHIO CHALMERS P. WYLIE. OHIO STEWART B. MCKINNEY. CONN.  JON HINSON, MISS.  MO.  LES AUCOIN, OREG. DAVID W. EVANS, IND. NORMAN E. OAMOURS, N.H. STANLEY N. LUNDINE. N.Y.  27.5-42417  June 25, 1980  JOHN J. CAVANAUGH, NEBR. MARY ROSE OAKAR, OHIO JIM MATTOX. TEX.  F.  BRUCE VENT°. MINN. DOUG BARNARD, GA. WES WATKINS, OKLA. ROBERT GARCIA, N.Y. MIKE LOWRY. WASH.  Ms. Janet Hart Division of Consumer and Community Affairs Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Ms. Hart: It is my understanding that the Federal Reserve Board is considering nominations of qualified persons for appointment to the Consumer Advisory Council. Currently, Mr. Southard of the Cooperative League of the USA serves on the Consumer Council. I was happy, among others, to have recommended Mr. Southard for this position previously. I can offer my strong recommendations to you for consideration of Shelby Southard as a member of the Consumer Advisory Council again. Sincerely,  S Henry S. Reuss Chairman  Cc:  Chairman Paul Volcker Board of Governors Federal Reserve System  1  . •.. f .G.Qy' · .  .. ·~~. .. . ..  . .. .  ~-  -·  .·o...,  .  I- •  ..  • -I  .. .,.  ..  .. . .  .....  .  ..  •  BOARD OF GOVER JORS OF THE  FEDER AL RESER VE SYSTE M WASHINGT ON, 0. [. 20551  ..  PAUL A. VO LC KER CHAIRMAN  ....  July 1, 1980  The Honor able Willia m Proxm ire Chairm an Comm ittee on Bankin g, Housin g and Urban Affair s United States Senate 20510 Washi ngton, D.C. Dear Chairm an Proxm ire: The letter that you and Senato r Heinz sent me on April 22 asked for a report on the questi on of foreig n acqui sitions of U.S. banks and on the policy issues that this develo pI am please d to forwar d the enclos ed report ment has raised . to you. The report brings out clearl y that our experi ence with foreig n acqui sition s, though limite d, has provid ed no eviden ce at this point that foreig n owners hip in itself has led, or is likely to lead, to bank superv isory proble ms. Nor have the banks involv ed or the commu nities they serve been harmed as Indeed , the experi ence to date is that in many cases a result . the banks, and presum ably their commu nities, have benef ited from the change in owner ship: weaken ed banks have been streng thened by infusi ons of capita l and by the manage ment resour ces of Some concer ns that have been voiced about the foreig n bank. foreig n takeov ers, such as possib le loss of local bankin g servic es, have not mater ialize d. These, I believ e, are impor tant findin gs that should weigh heavil y in public policy discus sions on foreig n acqui sition . I do not deny that there are poten tial proble ms associ ated with foreig n bankin g operat ions in this countr y. The most notabl e of these is the proble m of obtain ing and verify ing inform ation about foreig n banks, in the first instan ce when they seek to operat e in the United States , and later on a In the case of indivi duals acquir ing banks, contin uing basis. the inform ationa l proble m, diffic ult enough in the domes tic contex t, is compou nded when foreig n indivi duals are involv ed. As the report brings out, howev er, the Board is puttin g in place a compr ehensi ve progra m for monito ring and superv ising foreig n bank operat ions in this countr y which it believ es suffic ient to meet these proble ms.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable William Proxmire Page Two  well, of of goods banks is enhanced  This country has a long tradition, which has served it welcoming foreign investment and of promoting free flows and capital. The hospitality that we have shown foreign in keeping with that tradition, and appears to have the competitive environment..  The banking supervisors are aware of the potential problems involved and are monitoring developments to see that the problems do not materialize. In the circumstances, I believe extension of the moratorium on foreign acquisitions of U.S. banks serves no real purpose. Indeed, it could be counterproductive by closing off a potential source of additional capital for our banks and by raising concern that this country's long-standing policies on foreign investment may be reversed. Other members of the Board join me in urging that the moratorium on foreign acquisitions not be extended. We recognize that our laws in a sense may actually encourage foreign acquisitions in certain failing bank situations because those laws do not permit U.S. banks from other States to be potential purchasers. The appropriate way of dealing with that "discrimination" would be to enact the legislation that has been recommended by the banking agencies to remove barriers to interstate acquisitions in failing bank situations. As you are aware, the International Banking Act itself called for review of restrictions of interstate banking. At this time there is no certainty that Congress will resolve the issues surrounding these restrictions promptly or in a way that will allow increased interstate activity. In this situation, the Board does not believe that a moratorium on foreign entry would be in the national interest. I have requested that the Board take this opportunity to review the possibility of proposing any clarifications or other modifications of existing law governing foreign entry, and will shortly inform you of our conclusions on that matter, together with specific comments on the approaches hypothetically proposed in your letter. Sincerely,  /&d'Ve&t Enclosure  July 2, iste  The IloseiraiAls Treat Lt-At Beim t sepassestetivea easblegissi Does, 3111511 Dew $ao Sett4 I /0 pleased to zetad to.:Icluza. Utter of JOSS 32 SU behalf el peer easetitaients kfair• 11stL tr1uy4 esseimilise the essestative beardiat,, of passieeo The auderetealia9 that yea have et the peusy situation is ktiolaslig eimect is that poop hearling ha* 4iiestod a very large dem. tax the is thasspbeat the aatteso The peablari is easeed set ealiy by the ispeatilettsa besirdiag of pesetas, but also by the allINIMILtetiell Cle pasaisa at belie by the gobileo Za ass offset to volition the pserest attaatiess the Kist has isimaesi its peadhistiass if peraties by 21 sat. Is additiest as abeam is the eesampowlep eharkt Seeerwas Smoke bay* sardiarett est SV011egs if 30 pereant aim paimies fres the *it, .if he alhAppoll 11 pewee* sate pansies is tbe eassiateta1 beaks woe the poet tams saolhe thas der/mg tbe *ass peeled last year. The lismosa if the Hist hoe also xastsd ea adatitiesel pristios taus Cespease se ildist pe4wtiaa eau be turtber. limn* stops of milastimo will net solve the. tat are aterely attempts to sellasve sass of the coarsest preasereo The Sint *moot pireasea met*s.tes to meet the aposulotkve leilth its evateest the Peden& aseesve is Waal; sitiesktsge of wary appertesity be disasegle pwle ens heandbie pasaime for speculative plepeosao Ilyselag Isv1ess mai in mese iielesses/ the ant. bee stasseed the fest Oat is ores, few speealattes to Weak eves as their timeliest the Tori,os of sapper limn baim ltheagb the price 4114 rough a high to abash $1.5. psr is the swot siut. at $1.43. pair puma la ad44ekersury* it has sines arappeil to 4S sista per pessil, ahleb ashee epeoalstive heargiag et peados as -00fits.ble hsaimerso Partheri the tiablie is Wag eimeasinmpd to aelbrins atioasulatimaa vit pseates  T* ..iortora; t.rtt Xtt F  to circulatIon. It i% interatitinti to net. that oven though 120 iiLi*penalise bav,4 .41,AftrA rAnted and placed into circulation since 1111„S9, it AA eatimtg4 that only 40 !Anion of thee. are currautly in Wassiatiore.  us appassiato yeur conatituitat'% corscrn and assure you that, meg* 40649 Orilythaltc poesDwle in ex- ezort-term to *ace the intrdene et the pefbeent shortago. Sincerisay Volchk  1:nclonuire DE7:JP3spjt (IV-253) bcc; Deftald JacLzon Mr. Wallace Hrs. Mallardi (2)%./  Jr  ‘Mk.  ion assigned Mr. Wallace  i  TENT LOTT 5T1-4 DISTRICT, MISS:SSIPPI  •  2400 RAyaurm. BuiLDING WASHINGTON, D.C. 20515 202-225-5772  COMMITTEES:  RULES CHAIRMAN. REPUFILICAN RESEARCH COMMITTEE  Congrt55 of tbe Unita( btate.  DISTRICT OFFICES: GULFPORT, MISSISSIPPI  39501  601464-7670  )13tiVe of le eprt5entatibe5  ADMINISTRATIVE ASSISTANT TOM H. ANDERSON. JR.  HATTIESBURG, MISSISSIPPI  394CI  8oi-582-3z46 LAUREL, MISSISSIPPI  Wattington, 73.C. 20515  39440  IBA-W-1231  June 12, 1980  Honorable Paul A. Volcker Chairman Federal Reserve System Federal Reserve Building Washington, DC 20551 Dear Mr. Chairman: I am taking the liberty of contacting you in behalf of Mr. Tom Leatherbury, President of the 1‘.1erchants & Marine Bank in Pascagoula, Mississippi. Mr. Leatherbury contacted me regarding the shortage of pennies, which we understand is a nationwide problem and is the result of speculative hoarding on the part of many citizens.  !PP"'  I would greatly appreciate your advising me of any plans to alleviate this critical problem for banks. Thanking you and with best wishes, I am Sincer ly yours, Trent Lott '11LADf  IC-  upasem,  •  V- z BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20 551  PAUL A. VOLCKER CI-1AI RMAN  July 2, 1980  The Honorable Paul E. Tsongas United States Senate Washington, D.C. 20510 Dear Paul: Thank you for your letter of June 13 concerning a letter you received from the New England Fuel Institute regarding the status, under the Board's consumer credit restraint regulation, of certain bank loans made for energy conservation purposes. The Board's Legal Division has advised the New England Fuel Institute that bank financing arranged by fuel oil distributors for the purchase and installation of more energy efficient heating units is the kind of credit the Board intended to exempt and would not constitute "covered credit" under the Board's consumer credit restraint regulation. For your information, I have enclosed a copy of the Legal Division's response to Mr. Burkhardt. Also, when the Board modified the Special Credit Restraint Program on May 22, it informed the Chief Executive Officer of all commercial banks that this program is not designed to exert restraint on energy conservation credit. Sincerely,  Enclosure  e  A cf'on as sign el Mr. Mannion PAUL TSONGAS MASSACHUSETTS  •  11Cnifeb Zfalez Zertale WASHINGTON, D.C. 20510  June 13, 1980 Honorable Paul Volcker, Chairman Board of Governors of the Federal Reserve System 20th & Constitution Avenue, NW Washington, DC 20551 Dear Mr. Volcker: We have received a communication from the New England Fuel Institute regarding the unintended impact that the Federal Reserve's recent audit regulations are having on home energy conservation activities. Members of the N.E. Fuel Institute have been assisting consumers in New England in cutting heating costs by installing new, more efficient oil heaters and burners in their homes. These new units are providing fuel savings of 10-40, in a region where heating costs are about the highest in the nation. New England banking institutions until now have been financing these installations, but now tell the dealers that conservation loans can no longer be made because of the Federal Reserve Board's new restrictions on credit. This lack of clarity in the regulations appears to be frustrating a clear national energy policy, established by Congress, of encouraging home energy conservation measures. I would appreciate it if the Board or its staff could issue an interpretive ruling, or a question and answer, that would clarify the issue and aid the greatly needed energy conservation efforts in New England. Thank you for your interest and coo  ration.  S' 1/nce //vPe rely  E. TSONGAS nited States Senator PET:nrh  July 2i 1990  law Memorable Past 11. Sesbemem ealted Statute Semete  leeekkagtee, D.C.  20510  Deer Paull Thank yoa to yaux lotter of :use 2? meememaim, lir, James 41. Minks, at. as e member et the Deerd oe commuter Aodvisory Council. em assure yee tbet 74.r. Nemke, qualification' vill 100001,0 tall csesideration uhes the Board Wyse thc 1961 ev4voiintammis le the Ceemcil, ?he Meerd  *tee rows/vim your Meeeemendstion  and your interest is to Consumer Advieory Connell. Sinaerely s Sg_aul YOGiwi  CO:pjt (IV-278) Lce: Ann Marie Bray (w/copy of incoming) nrs, Nallardi (2) %,  S.  j:II  MARYLAND  ?-1Cniteb Zfatez Zertate WASHINGTON, D.C. 20510  June 27, 1980  Paul Volcker, Chairman Federal Reserve System 20th & Constitution Avenue, NW Washington, D. C 20551 Dear  Chairzan:1-  I am wrng to recommend strongly James J. Hanks, Jr., for an appointment to the Consumer Advisory Council, Federal Reserve Board. It has been my pleasure to know Jim Hanks for a number of years and to be aware of his outstanding academic and professional career which is reflected na enclosed resume. A graduate of Princeton University, with law degrees from the University of Maryland and Harvard University, he served as Law Clerk to Judge Charles Fahy, United States Court of Appeals for the District of Columbia Circuit, and as an attorney with the Center for Study of Responsive Law. Since 1969 he has been a member of the well-known Baltimore law firm of Weinberg and Green, with extensive involvement in his private practice in consumer banking law. Jim Hanks is exceptionally quaed to serve on the Consumer Advisory Council, and I very much hope you will give him the most serious consideration for appointment to the Council. I believe he would bring great strength to its work. With best regards, Sincerely,  Paul Sarbanes United States Senator PSS/bmg  July 7, 19$0  The lionorable Ponald M. mottl House of Representatives Washington, r.c. 20515 Dear Mr. Matti.: Thank you for your letter of June 20 on behalf of your constituent, Mr. Joseph Begawan of Lakewood, Ohio. As you roqueated, I am pleased to enclose a copy of the Board's response to Hagemano tlith reepeet to tho consumor credit restraint program, you may be intereeted in the onclosed release announcing the Doard's plans to complete em 1,hase-out . of the special measures ol credit restraint. I hope this information is useful to you. let me know if I can be of further assistance.  rlease  Sincerely your*,  13. 71.firi'n.,.',1•!01  Jay P. Brenneman Special Asgistant to that noare Encloauras  Mts. dtd. 6/27/80 to Mr. Hagman from Mr. Wallace; p.r. dtd. 7/3/80.)  CO:pjt (#V-267) bcc: Mrs. Mallardi  a  Con ressional Liaison Office will handle SUBURBAA CAUCUS FOUN DER AND CO-CHAIRMAN  . RONAI_D M. MOTTL 23RD DISTRICT, OHIO  •  COMMITTEES: VETERANS' AFFAIRS SMICOMMIPMES, SPECIAL INVESTIGATIONS (CHAIRMAN) MEDICAL FACILITIES AND BENEFITS  INASHINOTON orricr: 1232 LONGWORTI1 HolP;I" Or ricr E3(JILDINGI TELEPHONE: (202) 225-5731 DISTRICT OFFICES:  Comarc55 of tk latitcb 4Z)tatc5  INTERSTATE AND FOREIGN COM MERGE SUBCOMMITTEES: OVERSIGHT AND INVESTIGATIONS COMMUNICATIONS  3i)otuSe of ActiresSentatibesS  2951 Fe i,t RAI  f  CLEVELAND, Onio  TELEPHONE:(216) 522-4382 14812 DETROIT AVENUE, #207 LAKEWOOD, OHIO  Uliagbingtott, D.C. 20515  44107  TELEPHONE: (216) 522-7152 5393 PEARL RoAD PARMA, OHIO 44129 TELErHoNE: (216) 888-3636  June 20, 1980  Hon. Paul Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551  )  Dear Mr. Chairman: Enclosed is a copy of a May 15, 1980, letter to you written by a constituent of mine. This constituent, Mr. Joseph Hageman of Lakewood, Ohio, raises a number of questions concerning policies pursued by the Board and the Federal Reserve Bank of Cleveland. I would appreciate it very much if you could respond to the issues raised by Mr. Hageman. And I would welcome having a copy of your communication to him. Thank you for your attention to this request. Sincfr„ely 1  ./( RON LD,M. MOTTL Member/Of Congress RMN:gw  MD DINO 44199  •  •  Chairman P011 A. Volck~r Hoard of Governors -Fed ral Jteserve ~ystem Constitut ion Avenue ~a5hingto n, D.C.  Lear Chairman Volcker: I believe that, efore on~ writ~s a 1 tter of co~~laint about actions t~ken by a nubljc official, one shn11ld wPit until tho e actions have had a direct imryact upon one's af:airs.  Thi5 belief  narallels the case or contra~ rsy reauireme nt for filing suit in ~e~eral court, and has si~ilar benefits.  Well, Society National  Bank of Cleveland that had issued ~Pa ~~ster  (Carci/Cha r~e/~hat-  evtr) cr~cit card informed me that after V~y 3~, 1080, it would cost $20 per year to use it.  Th~ir action was one of ~any si~ilar  charges instituted by other banks su~pos~dl y in resnonse to your recent regulation ~ issu~d March 14th to 5unnosedl y control credit and, suoposedl y as a conseouen ce, to control inflation .  It ~eem~  to ~e that another $20 oric~ incre2se forced u~on the con~umer coes not control but instead contribut es to inflation .  Also, your  role in arranging for over a billion dollar loan to the Hunt commodity soeculato rs seems to show a bia~ in favor of the rich and 11ltra-ric h, even thou~h the cr~dit i~ u~~d fnr ~ctivitie~ th~t directly cause inflation (witness the nrice increase in ~ugar caused by commodity s~eculatio n)  •  Please snare~~ your carerulI  ly worded half denials that aopeared in the ores5 and convinced no one.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  In fact,  I believe that your rec~ntly iss~ed restrictio ne on  Chair~3n Volcker  •  •  nar,e 2  credit cards served as nothing more than a device to facilitate price fixing by the hanks.  The bank~ ureviously were reluctant  to, one at a time, i~nose yearly fe~5.  The banks were nrobably  justifiably .fearful that unless al11ost all the b2nl<5 i"lnosed .fee~ si~ultaneously , an unaccentable number of crerlit card holder~ of the first bank im~osing fees woulo switch credit card accounts to banks i'Tinosing no fees.  TRking their cue .fro11 the oetroleum  co~~2nies and the nhony gasoline shortag~s they created, the bank~ created a suDoosed inflation crisis when tor-ether they raised their nri~e rates (talk about conscious oarallelism nlus).  To  ~ake sure credit card holders wouldn't shoo for th~ best deal (that sounfs susoiciously like what co"1netition is sunnosed to allow) , the banks all toP-ether l~t it be known th~t new credit c2rd ~nolicatjons woul~ be turned down, suncos~dly hecaus~ of your  15% reserve reouire11ent for incr~ased cr~dit halanc~!5.  lJnfortu-  nately, the success of legMl action against this nrice fixing i~ oroble'Tiatical due to th~ lin~ of cases where fe0eral re,g11lation exemnts or i~~unize3 (I'll let the law urofessors argue th~ choice of words) the particinants. The bottom line, to use their terminology, is that with your help the little guy _p-ot hurt again. 1  :Jhat  do you hnv~ agc:!in5t the little guy?  The above is only  an acditional oiece o: evicence showing the Federal Re3erve Sy!5tern'~ lack of concern for the interests of neonle thAt finally nay for your onerations.  Another action reflecting the lack of concern i~  the change in Aoril which no lonR~r allow~d inrivifual~ to ~ubmit partial payments uoon tencering a bid for Treasury ~ecuritie~. Instead of requiring a minimu~ bid amount for partial ~yn,ent   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  Ch a i r rn an Vo 1 ck er  •  •  which would apply to institutional bicider~ al!5o, this narticular change only affected the little  ~~y  indivi0ual inve~tors.  The  naoerwork and staff nrocessing time consumed for an institutional s~all bid with oartial n2yrnent should be the same a~ for a partial nayrnent frorn an incividual bidder.  This, I b~lieve, 5hov•~ that the  true ~otiv~tion behind the change lay in the Fe~'~ di~dain for c oing business ,-,·i th the 1 i ttle guy.  Further evidence of the Fed's disdain for the little p-;uy can be found in the increciibly ~cilling policy of estahlishing a window exclusively for bank ~essengers in the lobby of the Cleveland Federal Reser've Bank Ruilcing.  How would you like to be  tanding  •in line, a long line, w2iting to sub~it a nonco~oetitive bid for -  Treasury securities, and watch a hank messenger ju~n the cue? '.'lh 2 t make s this  n2  rt i cul ;:i r 1 y d i tr e s s in g i s th • re c1 1 i z a ti on th~ t  the staff has to take time fro~ s~rvicing th~se wc1itinV- in the long lines to take c2re of the bank messenger, thus further delaying those in line.  A~ you can see, I sent a cony of this letter  to the Preside~t of the Federal Res~rve Bank of Cl~veland and would like an ex~lanation fro~ both  or  you why thfs outrage i~  heing oerpetuated on the nublic. To end this letter on a ~orr po~itive note, I make the following seven recommencations: 1. Immediate abolition of the bank messen~er window nnd ~ny sirnil~r divrr~ion of ~tnff nw~y from eaual treat~ent of all customer~ of the Feceral Re5erve Bank of Cleveland (or for that ~atter abolition of all such nolicie~ of any Federal Reserve Bank)  2. An analogy for pa3t deviation~ from  equal treatment posted in the lobby of the Bank Building  3. Im-  mediate abolition, not just vague promises ahout ~o~ething ~o~e time in the future, of the }'.1e3rch 14th credit control~, in T)arti-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  Chairman Volcker  nage 4  cular the 15% reserve set aside requirement  4. Issuance of a  rule rolling back all credit card customer charges to what they were before March 14th  5. Congressional review of the operation-  al budget of the Federal Reserve System (where are you Wright Patman when we need you)  6. Apnointment of public representatives  to the district bankS' board of directors thatare truly renresentative of the little guys in the nublic (no ex-Politicans or corooration executives are acceptable)--this recommendation can be immediately implementd by filling the present director vacancy in Cleveland with someone like me  7. Adoption of monetary Policies  that will not throw millions of people out of work as the present disastrous Policies are doing.  I would appreciate receiving any  comments or reaction you may have to my seven recommendations.  Sincerely, •1.  .;..  ;  "3 1 0-d.•  „s e•  •  .••• ;,_•.  Joseph M. Hageman cc: President Jimmy Carter Senator Howard Metzenba-unt Senator John Glenn (5ilgressman Ronald.Mottl President Willis J. Winn, Cleveland As you can Probably tell, this letter was typed on a little guy's typewriter.  •  (  ZRily 10,, 1980  Tho Nonoralo I:onry 1;. Reuss Chairzn Colittee on narilUn:J, Vim:rico ein‘l Urban Afiairs ioueo of IZe.scintativei'; Washirvjton, D. C. 20515 Dear Chair::,an geuss. TIlank ycu for ycur letter of July 1. lookini iorward to diEcuLnin duxin  the iszAto.s. ycu 1;ave raized  the hoarin,, on July 23. Sinccrely,  CO:vcd (V-230) idcc.  Mr. Prell Mrs. Mallardi (2)  1 am  Mr .•  orrigan:  copy sent to Mr.  HCNRY S. R USS. WIS., CHAIRMAN TH0._1,,.,;-; L. ASHLEY. OHIO  A . od  WILi• 1AM S. MOORHEAD. PA . rE"'1NANO J. Si GERMAIN, R.I. • HENRY B GONZALr7. , TEX. Joc-rrH G Mlr-1:°SH. NJ . FRAr.'°,< ANNUNZIO , ILL. JAµf<; M , HANL[Y. N , Y f'ARf1rN J , MITCHn l . MO . WAL 11 f ' F". ,-AUNTROY, O . C. STC:r>H[ 'I L , NL.t.L, N . C. J[RRY M F'ATTER<;ON CALIF. J,._ Mr<; J. BLANCHARD, MICH .  U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-SIXTH CONGRESS 212!} RAYBURN  House  OFFICE BUILDING  CARRO L HUBBARD, JR . , KY. JOHN J . L.t.F,.LCC. N.Y. GLADYS NOON SPfl LMAN, MO. LCS AUCOIN, OREG. DAVID W. EVANS, IND. NORMAN E. D'AMOURS. N.H. STANLEY N. LUNDINE, N.Y. JOHN J. CAVANAUGH. NEBR. MARY ROSE OAKAR, OHIO JIM MATTOX, TEX. BRUCF" F". V NTO, M:NN. DOUG BARNARD. OA. WES WATKINS, OKLA.  WASHINGTON, D.C.  20515  J. WILLIAM STANTON. OHIO CHALMERS P. WYLIE. OHIO STEWART B. McKINNEY, CONN. GEORGE HANSEN, IOAHO HENRY J, HYDE, ILL. RICHARD KELLY, FLA. JIM LEACH. IOWA THOMA.S B . EVANS . JR. DEL.  S . WILLIA'-1 GREEN, N . Y. RON PAUL, TEX. CD BETHUNE, ARK . NORMA.ND . SHUMWAY, CALIF. CARROLL A . CA."'1PBELL, JR . , S.C. DON RITTER, f"'A.  JON HINSON, MISS.  225-42'7  .. . July 1, 1930  ROBERT GARCIA, N . Y. MIKE LOWRY, WASH.  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. Dear Mr. Chairman: I have no doubt that the recent turn of the economy is as disturbing to you as it is to the American public. Since January, we have entered a steep slump. Housing, autos, steel, and other basic industries are in cr1s1s. Unemployment, already too high, is going higher. Bank lending is down sharply, signalling perhaps a retrenchment that will ensure a long recession and a slow recovery. At the same time, inflation remains intolerably high. Inflation has dropped sharply, but past experience and the current political environment suggest that the recession has milked about as much out of the so-called "Phillips curve" as it is going to do. Significant further reductions in inflation cannot be obtained through prolonged recession. The outlook on both fronts is therefore very grim. I do not wish to point the finger of blame at the Federal Reserve or anywhere else. Nevertheless, I have been struck by the dissonance between the notions on which recent policy has apparently been based, on one hand, and the actual course of events on the other. For years now, the Federal Reserve, the Administration and we in Congress have labored under the belief that, properly done, monetary and fiscal policies could steer a narrow course between excessive inflation and excessive unen1ployment. In recent times, a particular variant of th.is view has predominated: that monetary policy, through careful control of the growth of the monetary aggregates, would bring down the rate of inflation slowly, while avoiding a sharp short-run contraction of output. This Committee has led in urging that such a policy be adopted. In each of our three reports on monetary policy under the Humphrey-Hawkins law we have written, with nearly unanimous support, that the Federal Reserve should ''pursue monetary restraint without precipitating recession''. We have made clear that we believed control of the aggregates was the appropriate policy tool. We assumed, in short, that there did exist a feasible stable path, and that monetary policy could get us on that path if properly conducted.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .,  • The Honorable Paul A. V. ., July 1, 1980  •  Page  ker  •  Tv10  Last October 6th, the Federal Reserve made a decisive move to stable monetary control: it abandoned its federal funds target and shifted the emphasis of open market policy to control of aggregate bank reserves. The stated purpose of this change was "to support the objective of containing growth in the monetary aggregates." Monetarists applauded the move. Sin.ce then, the Federal Reserve has -no one can seriously question -- made every effort to implement the new policy. This Corrmittee's report of April 15, 1980 took note of this fact: "Control of the money aggregates was finally attained after the Federal Reserve, on October 6, started conducting daily operations by targeting reserves instead of interest rates, a change we applaud." One cannot look at the results without dismay. Against the pressure of rapid growth in bank loans and strong inflationary pressure in the period from November through February, the Federal Reserve drove interest rates to historic levels, to the point, indeed, of financial crisis for mutual savings banks, savings and loan association s, and some large commercial banks. Monetary expansion accelerated nevertheles s. Still more severe measures were applied in March. Monetary expansion halted as the economy collapsed underneath. Then, as the economy tumbled, inflation tumbled rapidly toward, but not below, the high levels of last year. The failure of monetary policy to control expansion of the aggregates from November to February contradicted our expectation that a policy of steady deceleration could be implemented in the face of a strong surge of inflationary credit demand. The sharp slump of March to May contradicte d our expectation that a policy of steady deceleratio n could avert recession. I am not suggesting a change in monetary strategy at this time. The appropriate policy in a slump is to provide liquidity to the economy, letting interest rates fall where they may. This objective is well-served by a policy of attempting to stabilize money growth. But the experience of recent months demonstrates that monetary and fiscal policies alone cannot by themselves offset the present instability of our domestic and internation al economic affairs. We need urgently to develop comprehensive stabilizatio n policies, i clu · industries olic to revive our industrial base d re-establish com n wor markets, an an incomes po icy to get our u ra e of inflation under contra . estrained monetary expansion is a necessary but wholly insufficien t tool.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I would appreciate your thoughts on this at our hearing July 23.  -  ,,..  Sincerely,  1-~  s .(2 ._____  Henry S. 1euss Chairman  July 11, 1980  The ronorable il1i Proxrire Chairman Cemaittee on Banking, Hoesiaq and Urben Affairs United 5tates Senate Wasbingtoia, D.C. 20510 Dear cbaimeen Proxmire: Meek yes for your letter of July 2 regardin  your  Committee's hearing or the banking provision of S. 2718, the Export Trading Cowany Act of 1980.  am pleased to inforv, ,,,ou that C.overnor Renry C. will appear on behalf at the Board on July 25 at 10400 a.u. Sincerely,  COgpjt (W-289) boo: Gov. Wallich Mr. lammill Mrs. Mallardi (2)  •  WILLIAM PROXMIRE, WIS., CHAIRMAN HARi:SON A. WILLIAMS, JR., N.J. •LAN CRANSTON. CALIF. ADLA I  STEVENSON. ILL. PoSERT AADRCLAN, N.C. DOKLALD  RIEGLE, JR.. MICH.  'PAUL S. SARPANIES, PAD. DON•LE1  JAI,  GARN, UTAH  JONN TowER, TEX. IONKI HE INZ. PA. WILLIAM L. ARMSTRONG. COLO. NANCY LANDON KA SSER•UM, KANS RICHARD G. LUGAR, ONO.  TE WART, ALA  PZCilifeb .. (z.ifatez Zettate  GEORGE J. MITCHELL, MAINE KENNETH A. MC LFAN STAFr DIRECTOR M. DANNy WALL. ‘411.1oniry STAF F DIRECTOR  COM M ITTEE ON BANKING. HOUSING, AND URBAN AFFAIRS  MARY FRANCES DE LA PAVA, CHIEF CLERK  (.i.K1iI.II D.C. 20510  July 8, 1980  The Honorable Paul Volcker Chairman Federal Reserve System Washington, D. C. Dear Mr. Chairman: This will confirm this Committee's invitation for you to testify on the banking provisions of S. 2718, the Export Trading Company Act of 1980. The hearing will be held on Friday, July 25, 1980 at 10 A.M. in Room 5300, Dirksen Senate Office Building. Enclosed for your information is a copy of the Committee's Guidelines for Witnesses. Sincorely,_  1 r liam Chairman WP:lmg  July 11; 1980  The Honorable lirmset P. Hollings Chairman Committee on the Sudget United States illeftete Weehinf,Iton, D.C. 20510 Dear CLairman Rollin/el Thank you for  yOUX  letter of July 2 regarding your  Committee's hearitz 1.reparatory to action on the Second Concurrent 1),esolutiun for YY 1981. I air looking for*rerd to arrearing on July 24 at 10.00 a.r.. Sincerelyi uqt  COlpjt (111-288) bcc. Liohline mrs. :iallardi (2)  e  r. Kichline preparing testimono  FRNERT r. HOLUNGS, S.C., CHAIRMAN 410IP , ON, WASH. VeARF'EN G. MAGNU LAWTON cHILEs, FL.A JOSEPH R. ISIDEN. JR.. DEL. J. tENP4.7r" OHNSTON, LA. JIM SASSER TENN.  HENRY RELLMON. OKLA. PE-1E V. DOM[NIG'. N. MEX. SOO PACKWOOD, OREG. WILIJAM L ARMS1RONG, COLO. NANCY LANDON KASSEBAUM. KANS.  GARY HART COLO PUCY SO...—..HWITZ, MINN. HOWVIO M. WETZENSAUMI, OHIO ORRIN G. HATCH, UTAH DONA! D W PICGLE. JR., MICH. LARRY PRESSLER, S. DAK. DANIEL PATRICK MOYNIHAN, N.Y. J. JAMES EXON, NERR. GEORGE J. MITCHELL. MAINE  'ZICItifeb ,cz.)* fatez „Senate COMMITTEE ON THE F3IJOGET  WASHINGTON, D.C. 20510  JOHN T. MC EVOY. STAFF DIREC.TOR ROSERT IE. BOYD. MINORITY STAFF DIRECTOR  July 2, 1980  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Constitution Avenu e at 20th Street, N.W. Washington, DC 20551 Dear Paul: I am pleased to confirm your appearance before the Budget Committee on Thursday, July 24, at 10:00 A.M. in 6202 Dirksen Senate Office Building. As you know, this in a series of hearings preparatory to Committee action Second Concurrent Resolution for FY 1981.  Senate Room " is one on the  • Your appearance will give the Committee the opportunity to discuss with you the prospects for unemployment, inflation, and interest rates in 1980 and 1981; the coordination of monetary and fiscal policy in FY 1981; and the response of money markets and Federal Reserve policy actions to the projected level of the deficit in FY 1981 and to possible fiscal policy actions such as changes in taxes or spending that would change the level of the deficit.  Pursuant to Committee rules, would you please submit 100 copies of your prepared statement to Alice Aughtry, Room 215, 301 First Street, N.E., Washington, D.C. 20510, no later than 5:00 P.M. on Tuesday, July 22. The Committee appreciates your consideration of our schedule in agreeing to this hearing date, and I look forward to your testimIIy.  July 11, 1:40  The Memotable William iroxluire Chsix.aaa A Committee en Nanking, Reusitv: nn_ Urban Affairs United Etates Sonata Vashineiton• D. C. 20510 Dear Chairman ProxLiro This is in reskomse to your letter requestin4 iniorma Upon related to Gorrempendonco from lour constituent, Pay.. ArtM3r J. Ailler, ooncernin$, the failure of a k),eaLer bank to disclose ctrtain inforaiatiee concexnial the reifulation )64 early withdrawal ienalty. Your conatituent states tLat the beak refused to pay a depositor's gAitured time depooit at etturity. and indicated that it would only oty the deposit et the juaxterly interest date. In this instanee, Yr. tAtillet's time deposit 1lAtured on January 19, 1990, 1..mt the L;ank refused to oty the deposit until Naroh 1, 19110, Alter conductin4 an informal survey of bankirv; ingtitu tient: in Wisconsin, the Voard's staff has advised that the rrsotics desoribed is used by a numLer of institutions in wiaconsin and elswwLore when the account is a UN* dekosit, open account rather than a tius certificate al del:,osit. This procedure facilitates the ability vi a depositor to melte additional dtnosits to the seas account. As ixovided ouct, a term should .4 4' krookrli to depositors in the deAtlit agrownent. Unless additional informetion had 114min .i rovided to Mr. taller at the time he ok-ened the account, it does not appear that tlie documents adequettel advised Litti of tl-,o raturity date, oi $C62.2$ was coml.uted by The intorotut rate of S-1/4 .,er pent resalculatias interest trc ism 1.441-.1. at (the savin4s deposit rats) sad deductini this emouTit from the total interest previouell. credited, and, in addition, imkopIng a peaalty of three months of interest at the passbook rate. This peeelty is requised es deo:wits made prier to July 1, 1$7,, altheesti. a meebee bask is permitted to Impose the new less oompleK early withdsawal penalty of six menthn of interest  PIMP  -7..rmer  The tIonoraiiie Page Two  it the Aeresitor conseuts. Tie rederal Mrservo 74tOr. of Chicasto has advised tLat they have no4 receivosi any *my:Uinta; frov tiewositora ooncernia, situatioLzt tinall:t re,,rot the 0:otraoted delwz in providinl * courting& to iota imitary. 0.**ac lct me know it 1 can kie OX iuxter assiatAncc, Ancor/44r (Signed) Do-21d J. Win  • ••,^  CTS DJW:ved (#117-50) Lcc.  Mrs. Nallardi Mr. ScLwartz Le‘.;a1 Recordr;! (2)  Donald 3. inyl ci31 Assistant to the ioard  .,.  WILLIAM P'ROXMIR£, WIS., CHA"HAAN  HARRISON A . WILLIAMS, JR., NJ. AL.AN CRA/'lSTON, CALIF'. AOL.Al E. STEVENSON, ILL. ROBERT MORGAN, N .~. OONALO W . RIEGLE, JR . , MICH. f'"UL S. SARBANES, MO . OONALO ~ STF'WART, AL.A, PAlJL I", TSON~S, MASS.  •  Assigned to Jack Ryan  GARN . UTAH JOHN TOWP:R, X. JOHN Hl:INZ, PA . WILLIAM L. AR"'ISTI! O NO , COl.O. NANCY LANDO~ KAS'>r"BAUM, KANS. RICHARD G. LUGAR , IND .  JA,·  COMMITTEE ON BANKING, HOUSING. AND KENNETH A. MC LCAN. STAl"F' 01R£'CTOR M. DANNY WALL. MINOl'> ITY STArF' DIRECTOR MARY F'RANCEI DE LA P'AVA, CHIEF' CLERK  URBAN AFFAIRS WASHINGTON,  D.C.  20510  February 12, 1980  The Ilonorablc Paul A. Volcker Chai rmG n Board of Governors of the Federal Reserve System Washington, D.C. 20037 Dear Chairman: I have enclosed correspon<lence from a constituent who believes th;1t a member bc1nk failed to c.lisclosc certain metterial information relating to redemption of his time cl e p O s i t . j, 1y C O n s t i t u e n t a 1 s O J i s p u t e s t h C a CCur a Cy O £ the bank's interest calculation . A member of my stnff was informed by Mr. Buell of the staff of the Federal Reserve Bank in Chicago that it is a common practice for lank in Wisconsin to redeem such time deposits only on quarterly jnt rest payment <lay~. 1lr. Buell further s tat e c.l t 11 at he mcm be r bank , South r i Jg c , i s sues a disc 1 o sure of thi practice to depositors. I wish to know: 1.) whether redemption only on a quarterly basis is, in fact, an accepted banking practice in Wisconsin; 2.) whether th Board's staff believes that notice of this practice should be disclosed on a form signed by the customer; 3.) whether the bank's interest calculations are correct; and 4.) wh ther the Federal Reserve Bank of Chicago has received any imilar complaints from Wisconsin residents within the past year. I would appreciate a response at your earliest conv n1ence.  1a1rman Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I  •  •  • ·' 'I :I I .. ,·..  , ',. January 27, 1980 '  j •I  •  ·,; i 11 i am .:' r .1: :: .i re 5?41 Dj --:-~:s ~n ..:>enate (J -f-fiC"L' B11ildin oc:-  ~as~\n 5 ton, D.C.  ?0510  I  l  r l  rtonorable Senator: Hav8 ;you ever ~!ad a Banker offer to loan you your o·.vn money a·~ a hi c hcr: in ., erest rate, a fi; r~r: fi.rst marin g it impossible to w i th d r a ·-v yo u . ,. . i po s i t ·h;r i. rri no sing a 1 a r p · e penal t y ? Thi s hap pc n e d to us at the Southricl .r. Bank, G.rernda1P, ',','i• ·con~d n. The enclosed letter to th Federal Heserve exp] ~ ins the situation. In the en~losed Investmcut Contract or agreement we only agreed to exactly 2 1/2 years, no more and no less. We would not have accente this agree~ent unde-r• Any other terms. 1~owhere is there any re erence to the Bank's hidden rules for delayed redemption o~ our deposit in this contract. ~e were never told of any delayed payment rules and I think the reason for this was that they knew we would not have accepted such an indefinite ~ agreement. Their rules are not only vague and incomplete, but also conflicting and contradictory . First, the Bank Book states, "Automatically Renewable if not redeemed in 10 days of maturity for the original term and at the current interest rate.'' Then their Rules ir.dicate that the redemption may be made f ro m one to three ~onths after. the maturity date of the Time deposit. Un1er Fei~ r al Regulations this ~ime Deposit that has been automatically r e ~e wed, ~a y not be with drawn prior to maturity without having a p enalty i~posed, which in our case would be another? 1/2 ye ' rs. This is the :ririiculous situation that the :,;outhridge Bank ha s put us in. J2.n11 Etry 19, 1980 'NRS the maturity d8.te of our de posit but Jhe J);:i~n.-<: refused to redeem it. J:ccording to their rules, this reposit beromes automatically renewed aeainst our ""ishes 0:1 Janua r -1 29, l ': )80. Sometime after r.~arch 1, 1980 the Ba n~ clai~s that they will redeem our deposit without Penalty even tho·1 ~h t:'": i s is a 6;: -. inst ?erleral Regulations.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Fi t,t •,;·isc.in r:a tional Bank o f-~ il\'.kee inforJ11s rr.e that thf~.v ·,i.:0111 ,l nut h ·t 11,}1<') husi1 es.; this ·.•. ay. Sen( t.nr how wide s pre a d j t · · h i ~_, d i s r 1:. , i; ---1 1· d o r · F ~ d e · , l Hc c 11 1 a t i o n s ? ·l. How r1any 1 ank. OT1' ,·ate 1•,j_ t'1 he old ru1e s tri,1 ~ conflict with Federal H eula tion s and v:li--, are the v al 101,•, ed to do ::,o? ~ . ~-: hy were w ~? not notific·l o:' ;-in ,~xtended period after the maturity d 1. t e , R n d on 1 y t~iv en a c o py o f th e r u 1 e s a. f t e r rr. r1 tu r i t .v • 3 • .:iena tor vhy , r0n' t ;111 Banks required to ectablish c.i final rn1turi t~, dr1.te Oll al] '1 ir1e Deposits c~nd give a copy of the rules for the benefit of the Public. :l  1  Further 1 acr.o--r:-rlin_g__ to '""lY.__cor 1nuta tion the Bank has faile1 to reco:rq the nroner clr:1011!.!._~- of 1n t ·3 r.est in our Account. 'ihey ar~ :'1ort:_ annroxi~ ·t ely o ln the firc:-t qu a rter of 1977 that was deposited ac .O 81 the Rank Book shows only I~ 'd. 1  In view of the above may I request th~ fo]Jowing : 1. Ask the Federal Reserve, 230 So. L838lle, Chicago, Il}jnois to issue an order to thi:-· Hank to redeem ·our deposi.t with out Penalty immedia.t0 ly .. If tHliy don't we wi 11 lose over on lost Intere.::;t. 2 . Call ror an ir1!11cdiate Audit of this bani{ becau c of the shortage 1n our account of r1.nd the threat of a Penalty on a Time Deposit Acco'u'ri'tt 'hat has Maturr.~~ Specifica lly how did they ar ive at , or is this another error? I am writing this to you becausse the Federal He erve states that they can't help hefore a month ann we need that immediate order for a release of our account or we lose over • 0  Further there is the othe ~ to be taken into account.  interest due which has  Furthe-r this Bank is long overdue for an Audit not only on its Accounts, but also their }olicies an Procedure s regarding Penalties . I hope you will follow through on this matter in the interest of the Public.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I will appreciat e your help in this matter.  Very truly yolrs,  ;  /1,,c✓l\,t\ a 11,\ 1cUu I  Arthur J.: I.:iller  SOUTIIRIDGE \\  IJAJ~K , ... ... 'Ill, ·.  To Sou t .rid ge Ban k:  I w o u 1d 1i I , e t , , r of De po: .i in t!1c  I  n v s ! th c pr o , e e d s o 1 n 1 y zn a l u r i n g 8 ·1• % Cc r ti fi cat e ollo vii g n1.: n11 er: r  6  6~-% 7 "'1 rr/f' 1 ,, . 7 > ' ,,  Re gul ar Sr1 xin gs Ac cou nt 90- l ay Go lde n Pas sbo ok Ac cou nt ·J-Y ear Go lde n Pas sbo ok Ac cou nt -Y ear (io lde n Pas sbo ok Ac cou nt 4-Y ear Ce rtif ica te of De pos it 6-Y ear Ce rtif ica te of De pos it  z;  5. 20% 5. 73% 6. 27% 6. 81%  An nua l An nua l An nua l An nua l 7. 52% An nua l '7. 79% An nua l  Yie ld '  \  Yie ld Yie ld  Yie ld Yie ld Yie ld  If pro c eds are to be dc· pos ited to an exi stin g acc oun t, ind ica te acc oun t num ber  Re inv est pri nci pal and firi al int ere st che ck. Re inv est .pr inc ipa l onl y and ma il fin al int ere st che ck.  X  Oth er ins ~ru ctio ns  in ter es t che ck an  Re -in ve st Pr inc ipa l and add ~8 38. 92 fro m. fin al av ing s 54 59 -6 for To tal of $1 5,0 00 .00 .  -  I do not wis h to rei nve st; ple ase ma il pri nci pal and fin al int ere st che ck.  J}~d,c;:k'\ , /.. _.I;, { j / l [A Social Security No. IF A JO INT A~ co uN ;, :Jco, ;nl s~~ NA ;U RE /.::/4.,/.:- ~, '-1-:" ' SIG NA TlJ RE .  Tel eph one Nu mb er:  545 4   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  SOU TH  76n ~  STR EET  GRE END ALE . WIS .  531 29  421 -41 00  -  I •  ..  •  •  •  - - ... .- . .  0 TI CI : 0. . . : I' I.~ 1\ 1,·1 Y F() . E,\ J~ L \' \\"I fl 11 >!~,\\\ I\ l.t..OL JT\1 l· l >El'OS IT  1hi : c!cposit ic; !icing :ir(.cp lcd by thic; banl-. tt~ :1 'TJri.1E 1).EJ'O 'IT'' 1nclcr federa l Rcgub tions, a ·11ri.1F: DEI'O SIT is a d<'posit \\hich the· dcposil c>r ag1tc·s tn lr:1vc: in th;it institu tion in that form for a rldinit c p< rind of time, in re 11rn. th(' i:1'.ti·u t1on is :illowc n to p:1y higher rates of interes t than arc:Hlthori.,_cd for ~;n·i11g5 ckpn.sit~ -.1,rh :i~ ri ·i:11l.11 pas.shoc,J. ,c;;l\'inp :1ccou nts. These same Rcr,ub tions, howev er, wliich ;ire r;lllihr for all f111 :! 11li;tl inst :11Jtic,n<. prO\id c I hid :i__ lj!r~~-tl_cpnsi!:_m,1y 11ot he withclr ~wn 11ior to !.!1 :1t11ri1\'..1 c~C"<J)t with tliL· u,n<..< nt of_the:.• ir.c:tit~i.Q[1 _;111cl lhat S~.!..~.h.5..9.n_:--cn t r.rnrio t hs_giv cn 11ntil the rcc1uli t 1 f.!..,r \\'ithrl1 .1wd jc; c 111.•ll in;idr._l_l_<.:urh _c, •11:-cnt is th<'n l'i"·n th~.s.5.J:;l.111 c R~~ul ations rcq~ire that a r.c n:il_bJ2c 1rnnr~c;.ld. 1  The P c:gulatio11s provid e :i two -p r ..rngcd penalt y· (1) If ,my of the clc:posit is withdr awn c::irly, t11c L.111k can p~y from the <late of deposi t :or the last mritur ity cbtc on multip le matur ity deposi ts. v,hich cvcr is btcr) on such witl1d rawn p, r1i,,n ~I· the rate of intcrc.!-t ,,111 h it,m.1y pay at th~ dc1tc of such \\.;thd rawal on rq;ul.•! ~:1vings dcpo.si t:.; ;uHl (~!) ir1..!~d,Jit•0n: the dl }•"·,tt(., must [m_ frit ttic- l_l_s_s_r;r of: (;-i) thrre month s• intc1cs t at su h sa,·in::;s deposi t tatc, or (b) i111c1cst at the: ~:" ·ings clcp0si t rate from the date of deposi t. Jf necess :ny to compl y \\'ith this rq~ub tion, i.hc b,rnh. m.1y be 1cquir cd to ~.ubtrt ict excess interes t already paid from ti 1c .im oun t 1lie dcp p:-; j tor rcquc!> ts to ha, c ,., it h<lr.1wn. 1  . For c--::impl c, su ;ipn<.:e t h;.i t a S 10,000 time dcposi t ,\·ere made on Octob rr ] , 1973 1 for four year.sat a rate of '""o (. nrl ma im1:r11 c;.,1,·in~!- ckp0 it rates at withdr awal were 5%). If the depos itor then wished , \\ith the in tituti(m 's on,cn t, to \\Jlhdr aw ~5,000 six month s later, the institu tion would have to recom pute the interes t on the S-S,00 0 tc1 be ,·.itr.clr.1,·.n ,1t the 5% ma,;rn urn s=i\'in~ s deposi t rate from Octob er), 1973 to th d:He of" ithdr.1,-. ,ii, th 11<- dctvi r.~1nir.~ the rnc1ximum allowc.1ble amoun t of intcres !t ,-.hich could have been p.ti<l on the $5,000 withdr ;1,·;n (-s,noo X 5% f r six month s, equals $125 ma imum) . It v,•ould then h 2,·c tP ~ul tract from th :1 t :1n:r,11llt a i"'~:lr lt, ;1 mount equil to three month s interes t i\t the saving s deposi t r.itc of:,';, (S5,00 0 X :/1;1 for tLrL·c :~1c,i1ths, (q:1als SG~ 50 penalt y), in 01dcr to dctum ine how much int• rest it could pJ)' the dcpc , ito;- c,n the ~!mc,1111t bc1n~ ,\ithdt awn ($125 m?. ·imurn :1110,vablc minus SG~.50 pen:1.lty, equals $G~ .5r. n•:t r,1 :-: ::-:imuf1 intncq ;~llowa ble to deposi tor). If there were insuffi cient int ·rest J.cc1ucci to cqurt! the ';: 1~,1H1nt r"quir cd to be forfeit ed under the 1q;ula tion, the $5,000 princip al being \\'tthdr ,nvn "ould h,t\'C ic, 1:" rc:-c: :1c..:d l.Jy the amoun t by \\'hich the accrue d intere st was less than the am0tm t requir ed to be \'~ithhclc: ,'~.~ 1 ·,:,, dcp0si tor's withdr :iwal check ,..,0uld cciu d SS,00 0 Jess that amoun t. For cur..p:i ri ·o n, the $5,000 i,:i': ~ :! i: :: ·•~: i for frx month s \\'Otdd ha,e c:1n1L·d ~:uo (S.5,00 0 X 8% for six month s) had it not been withclr :l\·;n. T;;c rL·,.~2.ining $5,000 not withdr a\\'n in the above cxamp ]e would in any c·Hnt c~111 the full $200 fc,r ~· 1c: ~:., : :. ::--.: ~1s if left on ckposi t to full m:1tur i:y.  - -- - - - - - - - - - -- - - ·- - - - The for g<'ing . '(l'IJC: L >F J':.~·. \11\' I·OR f:\JU. Y \\lTII Dl' \\\'\L OF TI lE DE p Os] T I. ~! ~ Ll ~ t" !i p :- ~\. I d (' d J n d C >- r 1. \in e d t O l 11 e ( u s) . Am0u nt  Dcpo . itor(s) :  Tc:rm:  n,\, c: l>.uc   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  --- ---- ----  -  -  •  • J nuary 23, 1980  i', .  nucll  :Feie ral Reser ve 230 ~outh La~a lle Chica go, Illin ois Dear J-.;  60690  Buel l:  Refer ence is Made to my telep hone call of Jnnua ry 21, 1980, and my comp laint abou t the South ridge Bank of Green dale, Wisc onsin . in a Savin gs Acco unt On July lQ, 1977 we depo sited /2%. Never was any in this Bank for a term of 2 1/2 ye~ notic e given , eithe r verb ally or writt en, that matu rity mean t anyth ing other than exac tly 2 1/2 years from date of depo sit. On Janua ry 19, 1980 Robe rt ~nac kert, who claim s to be Cash ier / and ~.ana ger of the South ridge bank, refus ed to redee m our Depo sit • His claim is matu rity is not unles s we paid a pena lty of matu rity but rathe r some unk~o ~n date in the futur e which they will deter mine after the end of the ~erm. The decep tion of this polic y is clear ly evide nt in the follo wing stamp ed Notic e in our Bank Book: "Auto matic alJy Renew able if not redee med withi ng 10 days of matu rity for the origi nal term and at the curre nt inter est rate. " By refus ing redem ption excep t unde r their own inde finit e terms for an exten ded perio d of tirne after matu rity, clear ly indic ates that we are being force d into a Pena lty situa tion in the futur et The above Bank Book Notic e makes it very clear that matu rity is 10T one to six month s after the depo sit term has ended . Ask iv'r }.nae vert how this notic e appli es to his hidde n rules ? By the ter~s o~ the e~clo se1 depo sit contr act we agree d to exac tly? 1/? years and not 2 1/? years plu0 an inJef inite numb er of dayso The Fir:::>t ,Visc onsin :.atio nal Ban1< of l,iilwa ukee has state d that thev would not use these n~oce dures in the redem ption o~ a depo sit and force anybo dy into- a pena lty situa tion.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • 0-  •  •  I n vi E. w o f th c above q u e st i o 11 c. b 1 (! tac Li c s ·., e are re q u e sting the follow ine-; : 1. An ·.r1111ecli;-1t0. :-nicti t of this bank. each day that this drags on we are 2. A~ we are losing requestinr; Lltr:t you issne an immediate order to this Bank to rert~n;: our ,Jey)osi t "· hout a Fcnal ty. he · o , 1 d r; ha r g e u s i s 3 . As k ... . ;.~ n, c ~: r t why the Pen a 1 t y more than half the yearly interest? How could hear ive at this when the term of the Depo~it had alrer1.dy ended'? 4. How many other people have been affected this way? 5. Order this tank to pay us the cixpenses they have caused . (Loss of interest, etc.) 6. Force this Bank jn the future to estaolish a specific maturity date on a]l t·me deposits. This should be a mandatory Hationwide Rule. 7. Require that all hidden rules be given to all depositers and explained. Mr Buell do you realize that this Bank has had the use of this money since 1972, and then to treat us in this manner when we want to use it. Finally this was the most galling and frustrating part of this affair. and almost added insult to injury. How would you like to sit there and have the Banker, after. first making it almost impossible to withdraw your deposit, offer to loan you in effect your own money at a much higher rate of interest than what you-are getting? That is exactly what happened. Pl ase notify us of your findings and any actions taken in this case.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Thank you for your cooperation in this matter.  Very truly yours,  Arthur J. :~·iller.  July 14, 1 30 The amoraLle william kroxwire CLairu:ian Committee on, Banking, nousinj and Urban Affairs United States Senate .4ashinsiton, D. C. 2C410 Dear Chairman Proxmire. at few days, py staff has had dissuasions Luriaj the with your Comittee staff about our prosresa on the implementation of thiga monetary Control. Act. Overall, the effort is coming elon9 itlite well. Three vrol=osed rulations on reserve requirements, aus-through arrangementE :or reserve the diaoount window, a uiaintenance have been ut out for kublic eemmeat, good progress La bein4 made on the dovgloptlant of internal cnorating preeedures, and work on the pricin%., of services is easily within the schedule.  Public comwiant on the croL-ouGd regulations 'will !-)e received this month and Nic will then have the Utah of analvain7 t'nc commentg and adokting final reo.11ations. nowever, siastantial effort will still be required to complete and distribute recortin Lorms, prepare operations manuala, and familiarise a lar;e numl-,er of depository institutions of variou.s types with the new require Lienta and procedures. It is clear to us ttAt4t tho sroot and orderly taplementation of the nonetary Control Act could be at somc risk if we ittempt to oomllete all of these efforts--1-Articularki the educational neede--by September 1. Conseviuently, an alternative timetable that we believe is realistic has been discunve4 with your staff. We feel that it is very ilmportant that the institutions affected by the Nometery Control Act understane fully all of the new requitoc,cnts and lerocoduree, Consevently, as soon as the , 1-ortin9 forms and instructional mammals are completed, we plan rc! to hold meetings with all of ti.ie affected institutions. This will be dcpne in two stat;es. The first net of meetings will be held with inatitutions with $1 million or more in assets 4 with the objective that the new reaerve ret4uireuentA for these meml,er  'RP"' .  .•  -  1  The nonovalle willizz Vrouti.irct Pago Two  arid Elon-or inatitution2 will .1e in place by early NovemLer. order to conform to the l'..reivisions of the Act, member Lank rouorves 14cluld be &Ousted so that reserven for the full year vA.:4u1C Lc the we as if the reduction of romervas had atarted in In the case of very small depository irlutitutionu institutions of lean than $1 17411lion in asseta--we arc conte ilatini; a bit sore time since it is unlikely that any of tl.ose institutions would have to Loot rozerves at the Fed in the: tirao frame of the next few months, :;recifically, we vlan to 11,c,et with them later in the year so that rb;.,orting can bovin in late December prior to the authorisattion der rationwide NOv accounts. Tbc.uG relatively minor accommodations in the irilatz.entation sol:odule wc.uld greatly ease the adjustsent*fer all of the affected institutions (including the Federal Reserve), and T understand tlat your staff was lieneralli receptive to this schedule. In elosin(4, let we add that we are progressin very well in the ivricin,4 for servicoe area. We expect to publish for puLlio cozwent a set of ericin4 principles and & proposed scht,dule of fees for itx.lcral neservo services by neptember, and our current Flan is to leioin the phase-in of actual pricing by January 1981, &Lead of tbe date ru:Nired by the legislation. Indeed* Iam reasonabll confident that we will be well along the path to full 111-4141kitentation :44k:tember 1 Ill, Vle date when the 1,ct directs us toc, bersin the 1)roccess of i;utting into effect a selodule of fees Lor uerviceci.  SijaulAdIVo.tcher  2GC:DJW:X5ivcd bccz  Mrs. Nallardi  IDENTICAL LETTERS TO  Chairman Nenry S. Reuss Senator Jake Camn Comiresnraan J. 11.111am Stanton  July 14, 19$0  The Ronorable rrank Lorton Housaof raProsentatives washinutom# D. C. 2015 Deer 3r. uortops I em pleased to respond to your letter of July 2, in • In asked for ow views OD the problems tacini the American ; autecoative industry. I &ware the OODOONS yOU sad our constituent the Presie!ort halm exvressod o and F.01:414 that the program proposed on jul:;, 8 will helite ameliorate ths situation* To coOreAU extent4 the sharic falloff we have seen in the for Alto cars and trucks-4-41M the resultiog layoffs of auto ta the inevitable censequence of the current contraction Pas OCOOCOLILC IrOwtlel is restored &wend for in ocoafx..ic zaC UV 4zotor veLieles should 1:ick up as well. Also, *4140 earlier In the yeas probably waro constrained somewhat bi tit credit conditions, even though automobile credit was specifically exempted froka most of the restraints cn credit adopted by the rederal Loutrve in March. More recently, tanks and otter lenders arently have shown increased williolneAs to extene credit fox VAI: kurchsse of new ears as financial conditions have become tore relaxed. In edditioo* the Vresident plans to authorise the small Dwane.. Administration to guarantee loess to doalorn to help them Limnos their existini; inventories. , t iiinerican autoucf Lie However o the difficulties t.tia :-.74rufacturerO aro now faCinv reflect s more funds:mental Larva increased' in 4asoline prices over the past year !.leve a premium on small fuel-efficiont cam sod D. S. automakers axe currently net produoing abou4h of thou, ears to meet the demand. The introduction of now i„roduct linos for the 1911 model year should LLerove .the situation t;oesigilet? but some further assistanco may be neode4 to facilitate the adcttation of exiat/44; facilities for the prcduction of smeller cars.  U  Nonoranlic. rrank Lorton Lave Tve  an hccordiniily. the kresident elan* to ask the Congrasa for titan overitin emissions and cafety uXtiøtu easing of t possibility derdigo aad thalA4m4altittation La aloe itudying the writa-offs for of allevinis as esseXexaties of depresiation tax the outmoded equipment• Cheeses at this nature would allow to re-Ameriean autemakere te devote acre ef their calih flow cart ands Wolin tor the production of email fuel-eficient tc i.roduce CAR* 1 trunts ampule greatly it.4!„rovc their that are competitive with itorts. hops these comments arc eaeful to ;ou. Lie know if 1 can :;.4t ci further assistance, Zineerely,  OW& ito  Alt:Encnn.vcd (W-281) Lev;  A. Kusko E. McKelvey J. Richline Nrs. nallardi (2)  rleaao  FRANK HORTON •  U.S. REPRESENTATIVt 34m DisTRICT OF NEW Yowx  •  WASHINGTON OFFICE: 2229 RAYBURN BUILDING WASHINGTON. D.C. 20515 •- (202) 225-4916  CompArrirrrl  GOVERNMENT OPERATIONS RANKING MINORITY MEMBER  Concste55 of tbt Unita'6tate5  SELECT COMMITTEE ON COMM I TTEES  31)ou5e of ikepresSentatibefi tiliaitington, D.C. 20515  DisTRIcT Opiricirs• 314 FEDERAL BuILDING ROCHESTER. NEW YpRK 14614 (716) 263-6270 FTS-473-6270 WATNE COUNTY OFFICE BUILDING LYONS, NEVI YORK 14489  July 2, 1980  Honorable Paul Volcker Chairman Federal Reserve Board Federal Reserve Building Washington, D.C. 20551 Dear Mr. Volcker: My constituent, Mrs. Geraldine Barber of Rochester, New York wrote to me recently regarding problems our American automotive industries are currently facing. I am complying with her request and forwarding a copy of her letter to you. I share Mrs. Barber's concern over the invasion of America's auto market with foreign imports, and the subsequent lay-offs in our auto industry. Any comments you might have on this growing problem and its effects on our economy would be appreciated. I look forward to hearing from you at your earliest convenience. With kindest personal regards, Sincerely, / Horton  FH:sg Enclosure  •  •  •  May 16, 1980  .....  Ho .. oral:lc Fra . .:: rt . Horton Senate Office Builui ,G WashinGton, D.C. 20510   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Frei.nk Horta Does an . . 'OO' " ii~ ,·:as:·. .:.r.[.;-Lo .. , D. C. ha· re a.r.,.: idea of the serious?;e s s of 1  tie auto::-.:)tivc indus~ries' situation and wl.av impact it will have on T!1e at: vor:10-:.:ixe r:ia "t-erial suppliers have not ye.:, t>ef;· :. ~o :'8el the cru .. c1  - - how :;-.2.ny more people will be une~loyed  I I I ....... "' ,.. ....  •.,;  . ..,..  ➔  i.,l:c  JO'J..r!.,!. ...  story) ~a:.d he 'w::..ll re·.r · c,-:  L/  _.....<: .,,,✓  ~/  J.:rs . G r:!.ldi: c 3c.rL r  } a ·l ·,·01C'; r>r !-'c ,-1 er·· l He,.. eY"'.' _ l•o:.:: l C!~a ~ r,  ~  Removal Notice  FRASER®LY-  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: Newspaper article Citations:  Number of Pages Removed: 1  "U.S. Car Sales Plunged by 42% For Early May." Wall Street Journal, May 15, 1980.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  Th. Uomorable Iteary Sell&ton United Ltates Senat* Washiniiton e D, C. 20510 Deer Senator Dellmow Thank you fog your letter of June 23, 1900, regardin4/ the possible purchase of Cuaranty Truat Company of Ponca City. Oklahoma, a bankrupt industrial bank by Reputlic t.ancorporation, Tulsa, Otlabesa, Nincorporation filed a On Jul' 2, 19001 wriallainary application for the eurcheat of duarty Trust Company with the Tecicral Reeerve Dank of Xaaaaa City. The necessary ailditions ax d revisions to that preliminary application should La ...Aade in the near future by Republic Pancorporation siA, that the awilication can be formally accerted by tLo Feral 0XIMI System for -k.roceusinv. As your letter indicated: t:le oard has a ninety-eta:I :1,eriod to mamma and considor sue, avsji cations. This processin4 :;1 -eriod is meeessary to ensure ttlat t!e puLlic is afforded on o.e ortunity to comeamt as the proposal, and that the financial, oanagerial an..! competitive aapecto of the applicatLoa are consistent with t'ith statrtery factor,' the Board must comsides. It should be acted that a great Najority Of akplications are process& and Noted as in less then ninety days after acceptance. The federal Rossrvo Systeal will make *very effort to ixocess the application of k:uaranty Trust Company in a tiLoaly zieliarter*  rincerely, Si.Pa4.I A. VoIckec  JII:CO;JPB;vcd (1V-269) uffman boo; Jiz Jack Ryan nallardi (2)  HErNRY BELLMON  tion assigned Mr. Ryan  ib  OKLAHOMA  '  raCnifcb  Zfafe  •  ovate  commitTcni BUDGET APPROPRIATIONS ENERGY AND NATURAL RESOURCES  WASHINGTON. D.C. 20510  June 23, 1980  The Honorable Paul Volcker, Chairman Board of Governors of the Federal Reserve Board Constitution Avenue and 20th Street, N.W. Washington, D.C. 20551 Dear Mr. Chairman: There is a petition currently pending before the Federal Reserve Bank in Kansas City which would enable the Republic Bancorporation, Inc. of Tulsa, Oklahoma, to purchase the now bankrupt Guaranty Trust Company of Ponca City, Oklahoma. This purchase has already received the necessary approval from the Securities and Exchange Commission. It is my understanding that the Federal Reserve Board has a time period of ninety days to consider this petition. I would like to urge the Board to consider this petition as soon as reasonably possible. The depositors with the Guaranty Trust Company have not received interest on their deposits for eighteen months. However, they have indicated their support to me for the current agreement by sending over three hundred letters to that effect. While I understand that the Board may need time to research the details of this purchase, I would encourage the Board of Governors to act as quickly as prudence will justify. Thank you for your cooperation in this matter. Sincerely,  Henry Bellmon HB:mm  July 15, 1980  TLe f:onorable Frank Thompson, Jr. CLairman Joint Conmitteo on Printing Conliress of the United States vaushinuton, D. C. 20310 Dear Chairman  Tbeppeou  se writing in response to your notice of may 12, requestin heads of deiAartments and agencies to furniah inform* tion on officials currently 4esignated to sign corren,ondence and conduct liaison with the Joint Comittes on Printing. The statute UkOn which the Governmont rrintin13 and Linding limulationv are based doos not apply to the Feral Reserve aystow inauch as our fund aro not constrwed to be overnmont funds or appropriated '11one:is, Enclosed is a copy the Committee's It 241 1957, concurrence in this view. Therefore, as discuzsed i t.te.n.lters of our resiAlctivo staffs on July 2, the Comittee'a request for Connittee correopondoncc and liaison designations is not applicable to tl:c rederel PAserve. Sincer m_l A. Volckee  Lnclozure ETM:JPB.vcd (#17-290 & 1290) bcc  nra. zIallardi (2) Mr. Anderson ?x6. Mulrcnin  ."RANK THOI,IPSON. JR.. N!ARISENTATIVE CHAIRMAN  111:"M NEW JERSEY,  CLAIBORNE PELL. SENATOR FROM RHODE ISLAM VICE CHAIRMAN AUGUSTUS F. HAWKINS REPRESENTATHIE IReM CALIFORNIA WILLIAM L DICKINSON. REPRESENTATHit FROM ALABAMA HOWA:id W. CANNON. SENATOR FROM NOMA 0 HATFIELD. StNAT:m rpcm 01E:•.•.N  111  COMMITTEE NO011 S-151, U S CAPITOL **SWINGE:N. D C. 20516 NINE. 224-5241  Congres'5 of the aniteb *tate5  GORDON ANDREW McKAY. STAFF DiRECTOR AND GENERAL COUNSEL  joint Committee on Vrinting  EA1E M PADGETT, DEPUTY STAFF DIRECTOR  11  July 7, 1980  Chairman, Federal Reserve System 20th & Constitution Ave., N. W. Washington, D. C. Dear Mr. Chairman: The Joint Committee has not received any communication from you in response to the enclosed letter from the Chairman dated May 12, 1980. We would appreciate your response as soonas po ssible. Incerely,  Gordon Andrew McKay Staff Director and General Counsel  Enclosure  le_  MIAMI•'rpm•Nis  Cow NIT-TEE Room  ItziET.  131. U.S CAptiol • •  .L SOLO!), MON *MOM I &LUND. AMA/ CaLIFDatuu MAWKIOCS DDDDD itoiriarn DICKiNS004. IlfrIng‘TATT•it IrJig ALABAMA  1110  CA 414001. SI NATO@ IRON 14(VADA  • 0. HATFIELD. SENAtoe 'woe  Oncost  GORDON ANDREW liacKAY, STAFF DIRECTOR AND GENERAL COUHSEL  tswi.H.To•L D C. MIS PNDNE.  Congrt55 of tlie Ziniteb tate5 30int committee on Vrinting  •PATE M. PADGETT, DEPUTY STAFF DIRECTOR  May 12, 1980  TO:  HEADS OF ALL FEDERAL DEPARTMENTS AND AGENCIES  The head of each Federal department and agency is responsible for applying and enforcing the Government Printing and Binding Regulations and the provisions of Title 44 referenced therein concerning Federal printing, binding, and distribution of government publications. Your attention in particular is directed to paragraphs 24-1 and 24-2 of the Printing and Binding Regulations, issue No. 24 dated April 1977, i.e.: "24-1. Correspondence and Liaison With Committee. --All official correspondence for the consideration of the Joint Committee on Printing is to be signed by the head of the department or an official designated by him. The committee shall be notified in writing by the head of the . department of any official so designated "24-2. All matters pertaining to printing (composition, platemaking, presswork, binding, and microform), and the distribution of printed matter, shall be referred to the committee by and through one designated source in each department." It is requested that the Joint Committee receive written notification covering current designations, including position titles, addresses, and telephone numbers by June 2, 1980. With kind regards. Cordially yours, Alka-4-4  1  Frank Thompson, Jr. Chairman  Copy to:  All Designated Printing and Publishing Representatives in Federal Departments and Agencies  224-5241  ...  •  (  BOARD OF GOVERNORS  •  □ FTHE  FEDERAL RESERVE SYSTEM WASHINGTON , □ .  C . 20551  PAUL A . VO LC KER  CHAIRl,-fAN  July 15, 1980 The Honorable James R. Jones United States House of Representat ives Washington, D.C. 20515 Dear Congressman Jones: I am pleased to reply to your letter of May 19, 1980 which enclosed excerpts from another letter, concerning certain administrat ive and practical problems associated with the Board's credit restraint regulations . You asked for specific comments addressing these problems. Your constituent was concerned about the complexity of the credit restraint program, believing that certain areas should be clarified. Central to his concerns are possible actions of Congress, the states, and the Department of Energy to override the Board's action of April 2, 1980, establishin g a uniform national rule for creditors to follow if they impose or increase finance charges, change the method of computing the balance against which charges are applied, or increase minimum payments required on consumer credit accounts. On July 3 the Board announced the phasing out of its credit restraint regulations , including those regarding consumer credit. However, because some creditors were in the process of changing terms in accordance with the Board's credit restraint regulations at the time of the July 3 announcemen t, the Board adopted a rule that kept its change-in-te rm regulation into effect for all change-in-te rms notices mailed on or before September 5, 1980. The Board selected this course of action to provide an orderly phase-out of this aspect of the program. Most of the concerns raised by your constituent will not jeopardize the remaining portion of the change-in-te rms provision. The threatened litigation cited by your constituent has not materialize d and the Department of Energy has expressed its agreement with the Board's position that its "prohibitio n on stricter credit terms does not apply to those certain stricter terms expressly authorized by the Board," by amending its Normal Business Rules. This amendment may be found at 45 Fed. Reg. 36,359. I have enclosed a copy of the DOE statement for your convenience . Finally, your constituent expressed concern about possible congression al action to override the Board's regulation. The reference is apparently to H.R. 7339, sponsored by Congressmen Annunzio and Vento,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • The Honorable James R. Jones  -2-  which is now pending before the Consumer Affairs subco mmittee of the House Committee on Banking, Finance, and Urban Affairs. In view of the phase-out of the credit restraint program, it is unlikely that this bill, if enacted, would interfere with the remaining portion of the change-in-terms rule. I hope that this letter is of assistance to you in responding to your constituent's concerns. Please let me know if I can be of further assistance.  --111111441... •  Act. assigned Mr. Kichline JAMES R. JONES F,RST DISTRICT. OKLAHOMA  •  WASHINGTON OFFICE! 203 CANNON HOUSE OFFICE BUILDING (202) 225-2211  MEMBER! r , -)M MIT TEE ON WAYS • AND MEANS TRADE SUBCOMMITTEE  Congre55 of tbe Elniteb :4)tate5  DISTRICT OFFICE. 4536 FEDERAL BUILDING TuLsA, OKLAHOMA 74103  30ott5e of ileprefientatilee5  (918) 581-7111  COMMITTEE ON THE BUDGET  117.1azbington, AC. 20515  $..:r""--  May 19, 1980  Honorable Paul A. Volcker Chairman Federal Reserve Board Washington, D. C. 20551 Dear Mr. Chairman: Recently I have been concerned about certain effects of the Presidential Executive Order of March 14th as it relates to consumer credit controls. I would appreciate your specific comments on the attached excerpts attached to my letter. I would also.like to know what is being done to resolve the practical administrative problems described therein. I appreciate your consideration and await your reply. With best wishes, Sincerely,  JONES of Congress  •  l  •  As you a re aware President Carter i .  d Executive Order No. 12201 on ~A h 14, 1980, which authorized the Federal Reserve Board (FRB,,..,to exercise authority under the Credit Control Act of 1969 to regulate and control consumer credit. The FRB regulations are designed to dampen the growth of unsecured consumer credit. General provisions require banks to limit their growth in loans to 6-9% while if possible maintaining the availability of funds. to small business, farmers and home buyers. Credit qrantors with two million dollars or more in unsecured credit-outstanding on ,\arch 14, 1980, are required to maintain a special noninterest bearing deposit with a Federal Reserve Bank equal to 15% of 14, outstanding consumer credit exceeding the base period of March 1980. Although it was the intention of the FRB to keep the Credit Restraint program relatively simple, it has become very complex. If it is to continue and be successful, clarifications in several areas are needed to help creditors, especially those  ,-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .  . --   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  -2-  in the petroleum industr y, initiat e constru ctive procedu res. The FRB issued the regulat ions withou t the usual 60 day notice and opportu nity for public comment. As a result the origina l rules imposed very serious burdens on credito rs because there were few or no procedu ral changes that could be made. State laws requir d notific ation periods of three to twelve months before credit chanoes could be initiat ed and contrac tual aareements in effect prevent ed modific ation of terms. In additio n the use of the t•: a r ch l 4 da t e a s a ba s e for the s pe c i a1 de po s i t pl aced a special hardshi p on retaile rs. This date represe nted a low period for their accounts receiva bles and did not conside r s asonal increas es especia lly for Christmas and Easter. ~  To remedy these on April 2, the FRB amended the regulat ions to allow an alterna te seasona l base for calcula tion of the special deposit . Also recogni zing that 3-12 month notific ation require ments were unreaso nable the FRB allowed credito rs to impose more restric tive terms if the customers were given 30 days written notice and the right to repay existin g balance s under existin g terms if they would not use their account after the .eff ctive date of the change. This amendment preempted state laws, modified Truth in Lending requirem ents and allowed changes in contrac tual agr ements. The ar1endments were helpful but not without problems. One of th problems is the relucta nce of at least one state, \~isconsin ~nd Derhaps others) to go along with the FRB amendment and litigat ion is expecte d. Also the House Banking Committee's Consumer Affairs Subcommittee has approved legisla tion designed to undo the FRB amendments. The bill approved changes the notice requir ment to 60 days and prohib its any change in terms to outstan ding balance s. We believe that the full Banking Committee will conside r this bill shortly . Of special interes t to the petroleum industr y is the restric tion imposed by the Department of Energy (DOE) in their Normal Business Practic es Rule (10 CFP 210.62( a)) which prohib its gasoline supplie rs from imposing stricte r credit terms. The FRB has consult ed with the DOE and obtaine d agreement that the FRB regula ions superce de DOE regulat ions to the extent that they are incons istent but both agencie s have been relucta nt to define exactly what the agreement means. It is especia lly importa nt that explic it interpr etation be publish ed to preclud e misunderstandin gs in the future. The American Petroleum Institu te, the American P troleum Credit Associa tion and individ ual gasolin e rnarketers have been activel y trying to reconci le this matter but have had no luck so far.  •  .  .  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  -3-  The petroleum industry has another problem with the regulations. As the retailers were faced with an increase in receivables because of seasonal fluctuations, the petroleum industry is faced with price and tax increases with the latter especially onerous. In mid-May, an assessment of the $4.62 a barre~ tax on imported oil becomes effective. This fee will increase gasoline prices 10¢ a gallon and as a result the industry's accounts receivable will increase approximately 400 million dollars by year end. This tax alone will require a 42 million dollar deposit. Because this increase is beyond the control of the industry and because we believe that the intent of the regulation is to control credit rather than artifically increase the deposit, the FRB has been requested to exempt it from the reporting requirements. We are not encouraged that the exemption wi 11 be a 11 ov1ed. Banks and retailers, in endorsing the credit restraint program, have started to boost minimur, payments, assess annual membership fees, rlecrease credit limits, curtail credit card promotions and tighten ~pproval criteria for new applicants. Mobil Corp., the only motor gasoline marketer to announce changes at this time, stated thy will no longer accept new credit card applications, and wil 1 increase monthly revolving payments. Others would have probably announced chan9es except that they believe they ~re seriously limited by DOE regulations. Some relief from the DOE .tn this area is needed at this time. For the petroleum industry 1n general, credit controls of one fashion or another have existed since the oil embargo of 1974. During that time the industry has promoted gasoline conservation and as a measure of this has limited growth in credit activity. Petroleum er dit cards outstanding have remained at the same level, aprroximately 135 million, for the past three years, while others especially bank cards have seen growth steadily. Although there are some critics who believe that the previous measures of the FRB had already started a si~nificant trend toward credit restriction and therefore the new credit restraint regulations were not needed, we support the program and hope it will have a salutary effect on the present inflationary trend. We appreciate the opportunity to present this brief and if the opportunity arises, ask for your support in unraveling the uncertainties between the FRB and lations. If you wish any additional information we to supply it. I  •  ..  ,. .  •  .-  overview especially DOE reguwill be happy  v  July le o 1980  The Honorable bruce F. Vento Houze of Repreuentatives 'ashinqtono D.C. 20515 Dear !:r. Vento I apoloqise for the delay in respomding to your recent letter regarding money market mutual fund Lorestments in the large CDs of smaller banks and thrift institutions. Your letter raises inportant questions out the impact of money fund investments on financial flows. As you know, it was in part a ooneern about this impact, especially in an environnent of overall credit stringemsy, that led the Board to impose a special deposit requirement on the money funds as a component of ow klatch 14 credit restraint prograa. In view of the change in seememic and financial circumstances, the Board has now announceel a phase-out of that program. With the easing of interest rates and credit conditions that has occurred in the past few wonths o the pressures on small tanks and thrifts have been alleviated; inflowa,of email time and savings deposits have grown, especially at thrifts; and earnings and liquidity positions have improved. think, though, that there remains a longer-ransc question regarding the ALCCe03 of smeller depository institutions to the money r4arkets. reeards the development of marketing mechanisms for the CDs of small institutions, there are signs already of innovation in the private sector that may help solve this knotty problem. rrill Lyncti has announced a plan for distributing negotiable CDs in $100,000 pieces on a retail level; it also has indicated that it will rrovide a secondary market for the CDs it sells. Mile the Merrill Lynel prosram is initially directed at serving large banks, it may be that a further evolution of thia narket would encompass smaller issuers. Certainly, the pattern in the mortgage-related securities market over recent years has shown the ability of private institutions to develov means of coping with the needs of smaller inatitutionu (for example, through the assembling and resale by private coE:Tanies of vools of loans from several swinge institutions).  The Honorable Bruce F. Vento Page Two  Indeed, the money market funds themselves represent a glowing example of the ability of the private sector, driven by the profit motive, to create new forms of intermediation where it can prove beneficial to borrowers and lenders. Although there may be some considerable hurdles ahead, it is my judgment and that of my staff that the private sector should be given the opportunity to respond to the very recent development of full insurance on $100,000 CDs before considering the creation of a governmental instrumentality in this field. In the meanwhile, however, it would seem entirely reasonable to devote some attention to the regulatory and statutory constraints on money market fund investment in the CDs of small banks and thrifts, given the new insurance law. Sincerely,  lite a 06,1u-‘  // ,wav,,go-f 4 duiz i -cafie4 //,, 4edg,,ofidiiq K cad -4, lakticelAtizaid41 4a act. /0  The Honorable Bruce F. Vento Page Two  Indeed, the money market funds themeelves repreeent a glowin5 example of the ability of the rrivate sector, driven by the profit motive, to create new formm of intermediation where it can prove beneficial to borrowers and lenders. Although there may be some considerable hurdles ahead, it ia my judgment and that of my staff that the private sector should be given the opportunity to respond to the very recent doveloprtent of tall insuranee on $100,000 CDs before considerinq the creation offe voverMmental instrumentality in this field. In the meanwhile, however, it would seem entirely reasonable to devote sem attention to the regulatory and statutory constraints on money market fund investment in the Cbs of small tanks ane thtifts, given the new insurance lay.  /linear:sly, I  SATIE Voteake  UJP:JPIltpjt (IV-268) bcc: niko Prell 1:rs. Ifillardi (2)  Action assignei Mr. Axilrod 'BRUCEF.VENTO 4TH DISTRICT, MINNESOTA  •  •  HOUSE COMMIT EE ON BANKING. FINANCE AND URBAN AFFAIRS c‘iriCOMMI T Trr4.  230 CANNON 1.101.PIE OTEICE BUILDING (202) 225-6631  Congrezz of tly  (fill HAW: fl 1 A1111 I/A I 1, 4.4  iutcbcptate5  CONSU MLR AFFAIRS HOUSING AND COMMUNITY DEVELOPMENT  DisTRICTOFFIcE.  jPotifq of Iltpregentatibe5  Ro0m150 MEANS PARK PLACE  n.c.  405 SIBLEY STREI- T SAINT PAUL, M 1NNEOTA  55101  HOUSE COMMITTEE ON  20515  INTERIOR AND INSULAR AFFAIRS  (612) 725-7724  SUBCOMMITTEES: ENERGY AND THE ENVIRONMENT  June 19, 1980  NATIONAL PARKS AND INSULAR AFFAIRS  Mr. Paul Volker Chairman Federal Reserve System 20th and Constitution N.W. Washington, D.C. 20551 Dear Mr. Chairman: One of the major problems facing the financial industry community today is the flow of deposits out of small banks and thrift institutions. A partial solution to this situation may be found by allowing money market funds to purchase certificates of deposits from smaller financial institutions. Currently, approximately one third of money market funds are invested in certificates of deposit from large commercial banks. To the extent which these investments could be made by money market funds, they would assist smaller institutions by providing them with badly needed deposits. However, money market funds are prohibited from investing in certificates of deposits from smaller banks and thrifts with less than $100,000,000 in assets because of rules of the Securities and Exchange Commission. With the $100,000 insurance provided in the 1980 Banking Act, governmental agencies could work together to develop a secondary market for certificate of deposits of smaller banks and thrifts. This would also provide these institutions with the liquidity necessary to meet the requirements of investors. Other mechanisms could be developed to encourage money market funds to invest in certificates of deposits issued by smaller banks and thrifts. One possibility would be to allow smaller institutions to pool their resources on a state or regional basis, in order to have a large enough offering to attract the money market funds. I realize the concept would entail changes in federal laws and regulations. However, the enhanced competition between banks and the reduced concentration of funds in a few institutions would benefit investors, borrowers and the economy in general. At present this is an idea which T would appreciate your cooperaLion in developing. T would hope that your staff could take a careful look aL this proposal and advise me of what steps towards this end may be taken.  : Bruce F7-Vento Member of Congress  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  :July 16, 1990  Ibmillissemeble Charles K. Percy United 11606es Seembe washAested4 D.C. 20510 Dew  Sesiter Perloyi  theft yes der your letter of Jun* 13 requesting coemert OS OSIMOSSIOSSOSOO 116414114 yea resolved from Mr. Dower C., Cray, ilteetaost, rirat Sank of cabins, Cobden, Xllineis. we. Crwl is conosimed about thO krplicatIon to his beak of the 40Mittory Control Net of 19$0,(Tit3e I of P.L. 14-221) and its requirement that certain forver rumbas beaks of the !Federal reserve *yet.= continue to f4aintain fun reilier.1 reserve*.  me. Gray's request that his hank not be required to maintain full Federal reserves ha3 bees reviewed in light of tLt Gtstntory  ts of the tometery Control Act of MO  end the Boaruin inteeprepatiou implemeatinq those requirements  (32 cast. s  204.120)1 asd has beam denied. Enclosed is a staff rionoranduit cofteeruing Tint Bulk of cobdeo which diseusses this request in more detail. 1 hope this iniesesties is of aaai3tanoe to you. I vas be of further help, io sot hesitate to contact as. sinoorlaY. S/Paut A, VoIckeL  E4scloeure DLR:JIMpjt (IV-257) bee; Dan MAW* mrs. Mallardi (2)  If  4, Action assignei to Mr. Peteion (Rhoarls attorney working on this case)  'ZICniteb ,Statc55 Zonate WASHINGTON. D.C. 20510  June 13, 1980  Mr. Paul Volker Chairman Federal Reserve Constitution Ave. between 20th & 21st Sts. Washington, D.C. 20551  ' 02  Dear Chairman Volker: Enclosed you will find a copy of a letter I received from Mr. Roger Gray of Cobden, Illinois. I have indicated to my constituent that I have brought this matter to your attention and would appreciate your thoughts and comments. Thank you for your assistance in this regard. Sincere  Charles H. Perc United States Senator CHP/az Enclosure  -   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ~  ~ First A'ational B,1nlr P. 0. BOX 2~8  •  ROGER G. GRAY Pruldent  May 5, 1980  Honorab le Charles Percy U. S. Senator Senate Office Buildin g Washing ton, D. C. 20510 Dear Senator Percy: Our bank is current ly in a very frustra ting positio n. We began procedu res to withdra w from the Federal Reserve Syst min August, 1979 after having discuss ed this move for several months. At the time of our officia l withdrawal, the Monetar y Control Act of 1980 was passed. We do not disagre e with the requirem ent of reserve s for all banks. We do, however , disagre e with the date of July 1, 1979, requirin g all banks withdra wing after that time to be treated as though they were a nationa l bank. The other date which gives us great problem s is the date of March 31, 1980, set by the Board of Governo rs, requirin g any bank withdra wing after that time to maintai n full reserve s until the phase down process later this year. That date affects only two banks in the entire United States. One of which is ourself . We had made plans for the use of our reserve s. Some of those plans were already under way and by our having to continu e our reserve account , this will severel y effect those plans and our bank operati on. We beg your h lp in convinc ing the Board of Governo rs of the Federal Reserve System to grant a waiver to us requirin g full and immedia te reserve s until the phase down process begins later this year. We are also seeking an immedia te  •  Honorable Charles Percy Page II  and total pJ•11.e down on August 28, 1980, which would, in effect, let us be phased up to the new reserve position over an eight year period. I am enclosing a copy of our appeal, along with its attachments, which we sent to the Board of Governors. A few months ago you asked my opinion as a member of the Illinois Bankers Association Council of Administration, I n the Chrysler loan guarantee dilemma which you were studying. I now badly need your help with our appeal to the Board of Governors. I would like to hear from you after you and your staff have had a chance to review our appeal. ou4ioope  Ver Y Rog President RGG:gm Enclosures  a  AO,  S 17181 Vim./flak P. 0. BOX 248  •  COBDEN, ILLINOIS  •  618-893-2121  ROGER G. GRAY President  May 1, 1980  Mr. Theodore E. Allison Secretary of The Board Board of Governors of The Federal Reserve System 20th Street and Constitution Avenue N.W. Washington, D. C. 20551 Re:  Regulation D, Docket No. R-0287, Part 204 Reserves of Member Banks Board of Governors, Final Interpretation  Dear Secretary Allison: On April 1, 1980, our bank officially terminated its membership in the Federal Reserve System and became a state, non member bank. Our Board of Directors and Stockholders had considered membership termination since June 30, 1978. We delayed a decision several times because it appeared Congress was ready to take action relative to membership. Congress delayed several times and finally, on August 22, 1979, our board and stockholders approved membership termination. (Attachment A) Letters were sent to the Illinois Commissioner of Banks and Trust Companies, Federal Deposit Insurance Corporation, Comptroller of The Currency and the Federal Reserve Bank of St. Louis, (Attachments B,C,D,E) advising each of our decision to convert to a state non member bank and requesting their assistance to us in making the conversion.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  Mr. Theodore E. Allison Page II On December 3, 1979, we compJlet d and mailed the required conversio n forms to the Illi·nois Commissio ner of Banks and Trust Companies . (l\ttachmen t:. F) On January 18 , 1980 , our ank was examined by lhe Ill_'nois Commissio ner of Banks and Trust Companies . On FPbruar-y 27 , 1980, we received a elephonc call from the Illinois, Commissi oner's office stating approval of our xaminnlio n report and.advis ing us that they would da c our state ch rter ·mmediate ly or any other such date we chose . After discussin g the matter a few days , we decided to date the charter l\pril 1 , 1980 , -o avoid the quarterly state assessm nt fee. l\ letter fr-om the Illinois Commissio ner confirm'n g the arbi rary dat:c selection is nclosed . (Attachme nt G) The stat cht1rlor was mt1il ~c:· by the Illinoi~ Commissio ner on Mt1rch 27 , 1980 , c1nd £_cei_vcd by us on March 28 , 1980 , (A t.achments II,I , J) primary reason for our wi hdrawal was to be able to use our r,scrvcs to build and rc~place our eighty year old bank buildi'ng . At the time we dE!cidcd to convert to a state bank we also began studiPs for a new bank building . (Attachme nt A) Our s -udi s de t rmin d hat our modest building 1 roject was mc1rginal b cause of its im 2.!.Ct on earnings and that our Federal Rs rvc b lance would t·c essPntial to th building r roj "ct. A  hhil we huv not begun con~;truc tion , w h vc incurr d , rchit_ctu ral and surv y f •s , telephone cable removal and old building demolitio n cos~- of $35 , 988 . 00 . The buildings ~hich we removed from our cc_nstruc tion site produced annual ren o us of $4 , 080 . 00 Our small ru al comrnuni y oE 1100 has had no major cons ruction or developme nt within ·ts ccJrI or te limits in several ye rs . The prosp ct of a nC'w bank t~uilding was an exciting community proj ct nd one which we feLt certain would encourage other developme nt o kce our vill. age alive .  • Mr. Theodore E. Pdge III  •  . Allison  Our bank has deposits of $16,377,548, loans of $9,616,300 and total equity capital of $1,138,531. Our final reserve ba1unce was $481,017. (Attachment K) This small reserve baJunce is a very insignificant amount to the Federal Res rve System and one which will have no affect on Monetary Control. The reserve balonce is, however, av ry significant omount to our bank und is xtremely important.to our operatic~. and comrnuni y.  ...,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  We, peal to he Bo rd of Gov rnors of The Federal Reserve System to allow our bank to be treated as the fifty five ban}~s which withdrew from Federal Reserve membership from July 1, 1979 to March 30, 1980, thereby waiving any re erve r quir ment until August 28, 1980, for the following reasons: 1.  Our unambiguous irrevocable d cision to wi hdraw from m mborship (Attachment A) and our notifica ions h , 1 of . (Alt c:1 ch men t B , c , o n d E)  2.  Page 2, cction 1, Paragraph 2 of your pr ss release stal s "Wit.hr gc1rd o na ional bank, the date of wi hdr wal is the date on which such national bank receiv d a sta c char er wh ther be conversion, ~ r g - ro r c o_n so l i d a l ion " . ( A t a ch men t L ) We r c e i v e d our s le char r on Ma ch 28, 19 80, as evid need b·y h a tach d gistered mail r ceipt. (Attachment I, J)  3.  Our stat charter and conv rsion could have been as rly as Febru y 27. (Attachment G) Our d cis·on was arbitrary and we were unawar of Congressional action and inactment of The Monetary Control Act of 1980.  4.  The s v _c_ h rdship on our bunk u.nd community bccaus of th probabl t rmin tion of our building program.  5.  two small Onl t1nks l I1 th ntir Uni d Sta es are affcc cd by th Bo rd of Gov rnor decision to r quire bank Wl hdro.wing from rn mb rship on and after M rch 31, 1980, main ain full r s;crves for the period of 0 March 31, 1980 0 August 28, 1980. 1  Theodore E. Allison Page IV  We further appeal to The Board of Governors to make an immediate and total phase down of our reserves which would be required on August 28, 1980, and to allow us to have our reserves phased up over an eight year period, as other state banks, for the following reasons: 1.  Our bank had considered membership termination because of the burdensome reserves and the need for a new bank building since June 30, 1978.  2.  Our small rural community needs every possible development to stay alive. Burdensome reserves may not allow us to continue our building project and service our community of 1100 in terms of deposit services and loans.  3  Only fifty seven banks are affected by the July 1, 1979 date imposed in the new act. Even many of those banks will be exempted because of their decision to withdraw prior to July 1, 1979, even though actual withdrawal took place after that date. The reserves of the remaining banks, who will be required to carry higher than normal reserves over eSur year phase down period, will be gncant to Monetary Control and will create many bank hardships.  4.  Surely Congress and President Carter did not intend to discriminate and create a hardship on so few banks.  We will appreciate your prompt and careful consideration and approval of our appeals. ily  Grav, Pre lent Firl--- Bank of Cobden Cobden, Illinois RGG:gm Enclosures CC: Bradley G. Glass, Senior Vice President Federal Reserve Bank, St. Louis Honorable Paul Simon, U. S. Representative 24th Congressional District, Illinois -// HonorabLe Charles Percy, U. S. Senator, Illinois  ATTACHMENT A  7 7: 1 REGULAR CALLED MEETING WEDNESDAY, AUGUST 22, 1979 The Board of Directors of The First National Bank of Cobden met at the Holiday Inn in Carbondale at 5:30 P. M. with Directors Hobart R. Clutts, John J. Goebel, Roger G. Gray, Melvin C. Lockard, Charles M. Long, G. Wallace Rich, and Richard E. Zemenick present. Michael Harleman, Auditor was also present. The Meeting was called to order by Chairman Rich. Minutes of July 18, 1979 Meeting, as previously printed and distributed for examination, were unanimously approved without further reading or change. REGULAR ITEMS OF AGENDA: 1. Commercial/Real Estate Notes from 32243 through 32326 and Instalment Notes 1031 .through 1066 were approved by printed and serial reference, these notes having been pre viously authorized by the Discount Committee, both as to new and renewal extensions, the renewals having been reviewed in adva nce of maturity. All loans $10,000.00 and over were specifically discussed. Current loan commitment and demand for funds wdre reviewed in detail. 2. The Notes maturing in September were read, reviewed and discussed. The Past Due Loans were examined and considered to be under proper management. A Loan Volume Reporting, reflecting total dollar amounts of new loans and repayments received, was examined. 3. The Board then studied the Daily Statement and Comparative Statement of Earnings to-date. It was indicated that total resources, though well ahead of last year, were behind usual mid-summer growth due to delayed crop receipts and lack of county tax payment receipts. The Board also reviewed the bank's Liquidity position, which was reported at 27.07%. The Monthly Instalment Loan analysis was inspected and discussed. Dealers' Contingent Liabilities and Reserve balances were reviewed. All the foregoing reports were accepted and approved on motion Zeme nick, seconded Lockard and unanimously carried. NEW AGENDA ITEMS: 1. The Report of Natipnal Bank Examination, as conducted on the Bank on Juile- 18, 1979, was presented for study and general  752 REGULAR CALLED MEETING WEDNESDAY, AUGUST 22, 1979 (cont) review. The Report was read and signed by each Director and pages one and two threof were especially noted. 2. Corporate Resolution for Conversion to a State Bank. After detailed study of the plans and requirements for our future banking operation, on motion Gray, seconded Lockard, the following Resolution was unanimously adopted: CORPORATE RESOLUTION (Bank Conversion) WHERF,AS, 'The First National Bank of Cobden, Cobden, Illinois, v.'as organized under the laws of the United States and received its charter to begin business on November 23, 1900, under the name of The First National Bank of Cobden; and WHEREAS, the Federal Reserve Bank of St. Louis requires The First National Bank of Cobden, as a member of the Feder al Reserve Systcm, to maintain non-interest bearing reserves; and WHEREAS, The First National Bank of Cobden as a member 'of the Federal Reserve System maintains such non-interest 1SI*1]Uii reserves in excess of $300,000; and WHEREAS, the conversion of The First National Bank of Cobden to a state charter would allow such reserves to be available for investment; and \VIE REAS, the investment of these funds would enable the Bank to better serve the convenience and needs of the community; NOW THEREFORE BE IT RESOLVED, by the Board of Directors of Thc First National Bank of Cobden, that the Plan of Conversion of The First National Bank of Cobden into a State Bank, which Plan is attached hemto and made a part hereof, is hereby approved and adopted. BE IT FURTH ER RESOLVED, that such Plan of Conversion be submitted to a vote d the shareholders at a special meeting duly called in accordance with the provision of Title 12 USC  •  •  REGULAR CALLED 1'.1EET1 : ,1G \VEDNESD AY, AUGUST 22, 1979 BE IT FURTHER RESOLVED , that manageme nt of The First National Bank of Cobden is authorized , empowered and directed to: (i) prepare and file with appropriat e authorities documents for lhc conversion of the charter of The First National Bank of Cobden to a charter under the la'\\1 s of the State of Illinois; ( ii) a s s is t t. h c Co 1 n rn i s s ion e r of Bank s and Tr u s t Co1np nics in any xarnination and investigati on made by hirn and to pay the expenses th rcfor;  ...,.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  \ (iii) notify th Rt.-·gional Adn1inistr ator of National Banks of th· conv rsion and prepare and file any required do un1cnts ......,it.h the Regional Adrninistra t.or; ( iv ) n1 a k a pp 1i c at. i o n, u n d c r t. h c p r o vi s ion s of s<·ction 5 of the · ('dcral Res ·rve Act, to the Federal R<'s rvc Bank of Sl. Louis for the cane Hat.ion of shares of stock of the F ·d ral R serve Bank of St. Louis allotted to and held by Th First National Bank of Cobden and to eipt for any balance due this bank by said r ·c iv · and r Fc·dcral r serv Bank on account of cash paid subscriptio ns, or oll1crv:i e, and any s' urities or ot.h 'r valuabl s belonging . to this lJank, and to do such acts as n1ay b, n ·cessary to ounls b twe n this bank and the said , cljust. and s lt.le t11' } ·d  ral Rcscrv  Bank.  ff ·ctivc date BE IT 1' URTllER RESOLV}..,D , that upon th of th, conversion , $450,000 frorn undivided profits be transferred lo Surplus. Surplus aft.er such transfc r will a.inount to  $750,000. In onjunclion ,..x.:it.h the abov R solution, on motion Goebel, seconded Le ng, a 11 Plan of Conv 'r sion 11 '\Vas unani1nous ly adopted and app ar s a s an A DD }_.. D /\ lo th • s ' Jv1 i nut s •  forth ho 1cl s Goeb dopl  3. H ·solution for 11 0thcr R al Est.al · 11 • In order to set the nl· ·els and r ·quir -n ents of the bank op ration to have and p c i f i c 11 0 l h c r R a 1 Es tat. ' 1 1 f o r c x pans i o n p u r po s e s , on n1 o ti on 1, second d Clutts, the following Resolution was unanimous ly ~d:  - --  . --  754 REGULAR CALLED MEETING WEDNESDAY, AUGUST 22, 1979 (cont) CORPORATE RESOLUTION (Other Real Estate . WHEREAS, The First National Bank of Cobden, Cobden Illinois now owns Lots 1, 2, 3 and 4 in Block G of Wiley's addition to the Village of Cobden. WHEREAS, the present banking quarters are now crowded with no physical expansion possible to the existing building. WIIEIZEAS, the Bank has experienced substantial growth in recent years and anticipates substantial growth in the coming years. NOW THEREFORE BE IT RESOLVED, by the Board of Directors, of The First National Bank of Cobden, that the intended use of the said lots shall be that of bank building or facilities construction. BE IT FURTHER RESOLVED, that management be directed to study the economic feasibility of a building program and report their findings to the Board for further consideration. 4. Sale of certain portions of "Other Real Estate". President Gray explained the bank had owned, without development, tv,o parcels of Other Real Estate for 8 and 7 years. Disposition action on these parcels was now required. In accordance the rewith, Gray reported that the property had been appraised on July 31, 1979 by Emma Baggott, Cobden, Illinois, Illinois Licensed Realtor, and that the Appraisals were as follows: A.  Lot Number Six in Block G in the Original Plat of the Town of South Pass, now Village of Cobden, Union County, Illinois. (Our Reference: Ballard Building) Appraisal Value $17, 500.00  13.  The North 1 /2 of Lot 5 in Block G in Wiley's Addition to the Village of Cobden, Union County, Illinois, together with an undivided 1 /2 interest in South wall of building situated on South line of Lot 6 in Block G and aim an undivided 1/2 interest in the North wall of the building situated on  REGULAR CALLED MEETING WEDNESDAY, AUGUST 22, 1979 (cont) the North line of the South 1 /2 of Lot 5 in Block G, all in said Wiley's Addition to the Village of Cobden, known as Casper Building. (Our Reference: Foreman Building) $ 4, 500. 00 Appraisal Value On motion Goebel, seconded Lockard, the Board voted unanimously to sell the above two parcels of ground, for $17,500.00 and $4,500.00, respectively, to Union Bancgroup & Co., with the transaction to be consummated when all title transfer conditions are in order. • 5. Bid for State Funds, President Gray reported that we would have $150,000.00 maturing in State af Illinois Time Deposit Open Accourt funds on September 4, and $100, 000.00 maturing October 1, He further reported that Bids had been made for new funds totaling $800,000.00 at rates of 9% and 9. 1 /4%. The Board confirmed this action. 6. Decla.ration of Dividend. On motion Goe bel, seconded Lockard, the Board voted the payment of a $22, 000.00 Cash Dividend ($4.40 per share), payable to stockholders of record on September 10, 1979. 7. Loan Charge-Offs. On motion Zemenick, seconded Goebel, Instalment Lon No. 355 for Jerry Blagg in the amount of $418.13, was authorized as a charge-off to Reserve for Bad Debts. No further business, meeting adjourned at 6:55 P. M.  Secretary APPROVED:  Chairman of the Board   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  75G  A DD · ND A TO BO ARD J\ 11 NUT r::s OF AUGUST 2 2, l 9 7 9 PLAN OF CONVERSION OF THE FIRST NATIONAL BANK OF COBDEN (a National Banking Association) I  1  TO A STATE BAJ'\K UNDER TBE PROVISIONS OF  THE ILLINOIS .BANKING ACT, to be known as .FIRST BANK OF COBDEN THE.FIRST NATIONAL BANK OF COBDEN, a national banking association, or g anizcd u ndc r the la"\v s of the Unit d States ( the "Converting Bank") shall, upon issuance of a Certificate of Ccnversion by th Comn1i. sioner of Banks and Trust Companies of th State of Illinois,.. be converted into an Illinois State Bank, organized and existing under the Banking L "\VS of the State of Illinois (said Illinois State Bank re s u 1ting fr om s a id con v e r s ion being re r in after so n1 e times called the "Resulting Bank"), as follows:  1. The nain · of the R sulting Bank shall b~ · IRST ANK OF COBDEN, with principal offices at Cobden, Illinois 62920, the pr sent location of the Converting Bank • . 2. The Resulting Bank shall be an Illinois State Bank and shall b subJc t to and shall hav and possess all of the privil ges, pow rs and franchises provided f r under th Illinois Banking Act. Th Resulting B c nk sh a 11 be con s id c r 'c] the s a1 1 bu s in · s s and c o r po rat e n tit y as th e Converting Bank, · anc~ subj ·ct to lh Banking Lav-..•s of th Sate of Illinois, shall continu to hav . and possess all of th p v ·rs, property rights, duti s and obligations of th ,onv rtin Bank. Th R sulting Bank shall b liable for all the liabilities of the Conv ·rting .B 1 k and all of the rights, franchises, interests of the Conver ·ng Bank in and to every species of · prop ·rty, real, personal and mix ·<l, and chos sin action shall be transfcrr ·d to and v ·sled in th R sulting Uank without any deed or oth ·r transfer, and th Resulting Bank shall hold and enjoy the same and all right of properti s and franchises ana int r sts, including appointrnents, designations, norninations and all oth r rights and int.er ·sts a s tr u st c e , c x · cut o r, ad 111 in i s t. rat o r, r cg i s t. r a r , tr an s f e r a g c n t of s to k s and bonds, guardian, onservator, assign· , re civ rand in every oth ·r fiduciary capacity, in th· arn n1ann r and to th _ arn · ·J·t.ent as th Converting Bank; and any reference to the Converting Bank in any writing, "\vhcthcr cxccut. d or taking effect b fore or after said conversion, shall be d cm d a reference to the R sulting Bank if not inconsistent with other provisions in such writing. 1  •  ,. . 5,-,  '  '   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  ADDEN DA TO BOARD ?v1INUT E S OF AUGUS T 22, 1979 (contin ued) 3. Th capital , surplu s and undivid ed profits accour t s of the R sulting Bank shall be the san1e as the Conve rting Bank, and as of the conver sion the Resulti ng Bank shall have author ized, issued and outstan ding capital stock of the same classe s, numb er and par value and having the sa.n1.e terms and conditi ons as the capital stock of the Conver ting Bank authori zed, is sued and outstan ding on th effecti v date, viz, 5, 000 shares of $20. 00 par . value commo n s toe k. The c rtificat c s r cp res nting the capital stock of the Conver ting Bank shall continu . tor presen t the capital stock of the Resulti ng Bank until duly exchan ged for nc\v certifi cates. 4. Th By-law s of th Conver ting Bank shall be the By-law s of the Resulti ng Bank and shall continu e ,in full force and effect until .: duly altered , amend ed or rep aled. . . I ' •  5. Th· Direct ors of the Conver ting Bank on the effecti ve date shall onstitu t th Board of Dir ctors of the Res.1 lting Bank .and shall s rv, until the n·xt annual m eting of th shareh olders and until their succ ·ssors ar · hos n and shall hav qualifi ·d, as provid ed in the y-la\vs of th R sulting B nk. Th Offic rs of the Conv rting Bank, on the cff ctive date, shall .autoni atically occupy th sa1n office in th Result ing Bank as ·ff ctivc date in ,th Conv rting Bank. they occupi ed on th  6.  7. ln the ·v nt. any s1 rchold ·r of the Conve rting Bank shall dis s cnt f rorn th conv 'rs ion and the Resulti ng Bank shall have paid to such shar hold r th fair 1nark t value of his or h r har ·s, as pro\·icJ d for by th Nation al Bankin g act, the shar('S so acquire d by rn •d to b cancel l d but shall be the R 'Sulting Bank shall not be d in1n1ed ial ·ly resold for th acquis ition price ther of by the Resulti ng Bank lo th .. shar hold •r!=; cf th R sulting Bank. All shareh olders of the R ·s 1ltin° Bank shall be giv ·n notic of the availab ility of such sl1ar s and all such shar ·s shall b allotted an1ong th> variou s ·l 'Cling to purch s such shar •s ratably in accord ance shar holder \Vilh thC' n n1b 'r of shar ·s th n held by each of such purcha sing shar ,}1olu rs, r spcctiv ·ly. 8. This conver sion shall bcco111 of this P 1an by th Bo a rd of Di r c tors of c pprova l by the sharch old 'rs of the Conv approv als by th Cornm ission r of Banks Slate of Illinois ; and th date upon which  -· ·-  - .... -  effecti ve upon th approv al th c Con v r ting Bank and its ·rting Bank and the nee ssary and Trust Compa nies of the th.is Plan is approv ed by th  75S ADDENDA TO BOARD MINUTES OF AUGUST 22, 1979 (continued) Commissioner of Banks and Trust Companies of the State of Illinois shall be the effective date of the conversion. Notwithstanding anything herein to the contrary, 'this Plan of Conversion may be terminated and the conv-ersion abandoned any time prior to the effective date by a majority vote of the Board of Directors of the Converting Bank.  ATTACHMENT A  CI1A RTER for the operation of the FIRST BANK OF COBDEN as a state bank under the provisions of the Illinois Banking Act  •N  On the date of issuance of•a Certificate of Conversion by the Commissioner of Banks and Trust Companies: 1.  The name of the bank shall be "First Bank of Cobden".  2.  The location of the bank shall be Cobden, Illino is 62920.  3.  The duration of the bank shall be perpetual.  4.  The bank shall have: a.  one claSs of stock, namely: common stock, of which tlare• shall be 5,000 shIs ares issued and outstanding, each having a par value of $20. 00.  b.  Surphs of $750, 000. 00.  c.  Operating reserves (undivided profits) of not less than $180, 000. 00.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  SPECI AL STOCK H C)LDER S' MEETI NG ~Vcdne sday, August 22, 1979 The Stockh olders of The First Nation al Bank of Cobden met at the Jlolida y Inn in Carbon dale, Illinois , August 22, 1979, at 6:55 P. M. The Meetin g was · conven ed urrl er the provis ions of a -~•Unan imous \V ritten . Consen t of Stockh older .s 11 uncle r .date of .Augus t 2 2, 19 7 9. A count was taken of the stock represe nted, by shareh olders and proxy, and ·w as found to be as follows : ,  STOCE IJOLD ER  I  ,  I  PROXY  Hobart R. Clutts John J. Go ·bcl Rog ·r G. Gray }.1 · l vin C. Lo c kzr rd Charl s 1'v1. Long G. '\V a 11 a c c Ri ch harles Teachc nor Richar d E. Ze111cn ick  .  ,  , , I,  SHARE S 50  ,  50 50 50 I  50  • • •  •  50  I  J\1i c hacl Bar I rnan  4650_  50  TOTAL STOCK REPRE SENTE D: ,.  •  I  5000 Shar s.  I  •I '  ;  A Plan of Conve rsion,  for changin g this Bank from a Nation al Barikin g Associ ation to a State Chart r Bank, as approv ed by H. ·solutio n an 1 referr ·d from lhc Board of Direct ors, was unanirn ously acloptec l. (The Plan of Convc rsi n, as adopt d, is as r<: cord ·cl in the 130 rd of Dir •clors J\.1inute s of th M ·cting of August 22, 1979). No furlh · r bu sin  'SS,  rn ·cting adjourn ·d at 7:10  . }.1.  1 I <..._  I .  t.,  : L(  ~ / ~ • / _/ .( • : •~ , / / • / ~ i  · Secret ary APPR OVED :  ~ - / 5 --/',/Z o  Chairn 1an of th .. Board  S  758i  •  THE FIRST NATIONAL BANK OF.COBDEN  Unanimous Written Consent of Stockholders  The undersigned being all the stockholders of The First National Bank of Cobden, hereby waive publication of the notice of a special meeting of stockholders to be held August 22, 1979, for the purpose of voting on a proposal to convert the charter of the Bank to a state charter.  Dated:  August 22, 1979  zp/ Hobart R. Clutt  Charles M. Long  Charles E. Teachenor  44:-,vg_15  Melvin C. Lockard  Richard E  nick  ATTAC:IMENT B  August 27, 1979  State Commissioner of Banks & Trust Companies Reisch Building - Room 400 4 West Old Capitol Plaza Springfield, Illinchis 62701 Gentlemen: On August 22, 1979, our Board of Directors and Stockholders approved the conversion of our bank from a national to a state bank. We are enclosing a copy of our Resolution, The Unanimous Written Consent of Stockholders and Plan of Conversion. We have been a national .bank for almost 80 years and have enjoyed our relationship with the Comptroller of the Currency and the Federal Reserve System, however, we can no longer justify the high, -non-interest bearing reserve requirement as a national bank. Please send us forms for application to become an Illinois State Bank and advise us of the necessary procedures for conversion. We will appreciate your help to us and we look forward to working with your office in the coming months and years. Very truly yours,  Roger G. Gray President RGG:gm Enclosures  •  •  •  ROOM 100 REISCH BLDG.  STATE OF ILLINOIS BLDG. 160 NORTH LASALLE STREET CHICAGO, ILLINOIS 60601  4 WEST OLU STATE CAPITOL PLAZA SPRINGFIELD. ILLINOIS 62701 217/782-7966  312/793-2043  STATE OF ILLINOIS  JOSEPH CIACCIO FIRST DEPUTY COMMISSIONER  ROBERT L. RADMACHER DEPUTY COMMISSIONER  COMMISSIONER OF BANKS AND TRUST COMPANIES SPRINGFIELD WILLIAM C. HARRIS, COMMISSIONER  September 7, 1979  Mr. Roger G. Gray President The First National Bank of Cobden P.O. Box 248 Cobden, Illinois 62920 Dear Mr. Gray: This will acknowledge receipt of your letter of August 27, 1979, advising us on the matter of converting from a national to a state bank. As per your request enclosed are application forms used for a conversion, as well as financial statement and reference forms which each applicant (Board of Directors) must file. A filing fee of $1,500 shall accompany the application at the time of filing. Upon the filing of your application we will work into our schedule an examination of the bank. This usually occurs within a sixty (60) day period after filing. If you have any questions, please do not hesitate to contact us.  Very truly yours,  Harold F. Boede Executive Assistant •  HFB:bm Enclosures  •  -  ATTACHMENT C  August .25, 1979  Federal Deposit Insurance Corporation Chicago Regional Office Sears Tower, Suite 6116 233 Wouth Wacker Drive Chicago, Ii. 60606 Gentlemen: On August 22, 1979, z-Aan Board of Directors and Stockholders agreed by resolution to convert our bank from a national bank to a state bank. Our decision is based primarily on our requirement, as a national bank, to carry substantial non-interest bearing reserves with the Federal Reserve System. We believe these reserves should be an earning asset while maintaining the same liquidity. A copy of our Resolution and,Plan of Conversion is enclosed. Should you have need for additional information please let us know. Very truly yours,  Roger G. Gray President RGG:gm Enclosure  ••  V  ATTACHMENT D  August 27, 1979  Mr. Rufus 0. Burns, Jr. Regional Administrator Comptroller of the Currency 7th National Bank Region Sears Tower, Suite 5750 233 South Wacker Drive Chicago, Illincbis 60606 Dear Mr. Burns: On August 22, 1979, our Board of Directors and Stockholders, by resolution, approved the conversion of our bank from a national to a state bank. A copy of the Resolution, Consent of Stockholders and Plan of Conversion are enclosed. Our decision was based primarily on the requirement to hold substantial non-interest bearing reserves with the Federal Reserve. We believe these reserves should be an earning asset while maintaining the same liquidity. We have a great appreciation for the integrity and fairness we have received from your office and in particular the examiners we have worked with during the past many years. Please let us know if there are any requirements of your office in making this conversion. Very truly yours,  Roger G. Gray President RGG:gm Enclosures  -  • Comptroller of the Currency Administrator of National Banks V Seventh National Bank Region Sears Tower, Suite 5750 233 South Wacker Drive Chicago, Illinois 60606 312-353-0300  September 5, 1979  'N  Board of Directors The First National Bank of Cobden P. O. Box 248 Cobden, IL 62920 Dear Board Members: We have been advised that your bank intends to convert to a state-chartered institution. Under the provisions of Title 12 U.S.C. 214a, a national banking association, by approval of the Board of Directors and by affirmative vote to the holders of at least two-thirds of each class of its capital stock, may convert to a state-chartered institution. Should the proposal be approved by the state banking authority, the following should be furnished to this Office: 1.  Two certified copies of the resolution (Form 7022-01) adopted by a majority of the board of directors approving the conversion.  2.  Two copies of a Secretary's Certificate (Form 7028-31) certifying that the shareholders approved the conversion in accordance with the provisions of title 12 U.S.C. 214a.  3.  Two certified copies of the certificate of conversion issued by the state banking authority indicating the effective date of conversion.  4  Two copies of a statement of condition of the national bank as of the close of business immediately preceding the conversion.  First National Bank of Cobden Page Two  5.  Charter certificate number 5630 as well as branch certificates issued by the Office of the Comptroller of the Currency.  6.  All examination reports received from the Office of the Comptroller of the Currency.  Very truly yours,  John T. Ber Regional Director for Corporate Activities  JTB:dv  ATTACHMENT L  August 25, 1979  Mr. Lawl-ence K. Roos, President Federal Reserve Bank of St. Louis P. 0. Box 442 St. Louis, Missouri 63166 Dear Mr.  (SI.JI  On August 22, 1979, our Board of Directors and Stockholders approved by resolution the conversion of our bank from a national to a state bank. As a result and when the change becomes effective, we will terminate our membership in the Federal Reserve System. We have enjoyed our relationship with the Federal Reserve System for many years. We have always been treated very well by the St._Louis Federal Reserve Bank and regret the necessity of our membership termination. However, we can no longer justify carrying the high, non-interest bearing reserves which are required of us as a member. We have followed the proposals of change for reserve requirements. It does not appear to us that there is any change to come about in the near or intermediate future. We will continue to watch this very closely and should significant changes take place prior to our termination, we will strongly consider remaining a member of the Federal Reserve System. A copy of our Resolution and Plan of Conversion is enclosed. Please have any necessary forms sent to us for our membership termination. We will complete those on a timely basis with this conversion. Very truly yours,  Roger G. Gray President RGG:gm Enclosure  FEDER. RESERVE BANK OF SWOUIS P 0 Pox 442 ST LOUIS. MIssouni 63166  HAROLD E. UTHOFF II( wow VICE POIr3'OrW1   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  August 29, 1979  Mr. Roger G. Gray, President The First National Bank of Cobden P. O. Box 2.48 Cobden, Illinois 62920  Dear Mr. Gray: This is in response to your letter of August 25, 1979, addressed to President Roos, advising of your plan to convert to a State chartered nonmember bank. In this connection there are enclosed three copies of Form FR 86b "Application for Cancellation of Federal Reserve Bank StockConverting National Bank." Two executed copies of FR 86b and your stock certificate should be returned to us. The subscription value of this stock, plus the accrued dividend, will be credited to your reserve account as of the close of business on the last day of your membership in the Federal Reserve System. When returning this material to us, it will be appreciated if you will advise us as follows:  1.  The conversion date as finally determined, together with a copy of the letter or certificate of approval of the conversion issued by the Illinois Commissioner of Banks and Trust Companies. We cannot cancel your Federal Reserve stock and close accounts between us until such time as we receive a copy of your State supervisor's approval of the conversion.  2.  Instructions for the disposition of your reserve account. If the account is to be transferred to a correspondent with an account on our books, it might be desirable to arrange with that bank to accept for charge to your account adjustments necessary because of any uncleared transactions at the time membership is terminated. A letter from your correspondent agreeing to accept any such charges for your account should be sent to me.  -2  Mr. Roger G. Gray  3.  Instructions for the disposition of securities held in safekeeping.  When the conversion date is determined, please advise our Securities Department in order that they may send you new forms and stamps to insure your bank's continuing status under its new title as an issuing and paying agent for savings bonds and as a government depository. We will, of course, continue to hold securities you have pledged as Treasury Tax and Loan collateral. We sincerely regret your decision to withdraw from membership in the Federal Reserve System. However, if you have any questions regarding this matter or if we can be of any further assistance, please call on us. Very truly yours, • // .*4 A1Pr iv Harold E. Uthoff Enclosures - 3  •  ATTACHMENT  December 3, 1979  Mr. Harold E. Boede, Executive Assistant Commissioner of Banks and Trust Companies Room 400 Reisch Building 4 West Old State Capitol Plaza Springfield, Illinois 62701 Dear Mr. Boede: We are enclosing an application for the conver sion of First National Bank of Cobden to an Illinois State Chartered Bank. In addition, we are also enclosing financial statements and reference forms for each of our board members who are the applicants for this state charter. Our filing fee of $1,500 is enclosed. Please review our application, financial statements and reference forms and advise if additional information is needed for this application. We look forward to hearing from you and becoming a state chartered bank. Very truly yours,  RGG:gm Enclosures  CONSULT POSTMASTER FOR FEES 0  OPTIONAL SERVICES All3A1130 1VID3rIS  Roger G. Gray President  S334 ONY 3OVIS0d 11/101  PS Form 3800. Apr. 1976  RETURN RECEIPT SERVICE  0  r71 0 ,1  CD  •  Cert. Mail/ret. rec.  444  4.•  4 , 4  4,••  1  F-1  1'  •  ATTACHMENT G Room 400 Reisch Bldg.  State of Illinois Bldg. 160 North LaSalle Street Chicago, Illinois 60601 312/793-2043  4 West Old State Capitol Plaza Sorinpf ield, Illinois 62701 217/782-7966  JOSEPH CIACCIO First Deputy Commissioner  State of Illinois  BRUCE J. BRIZZOLARA Deputy Commissioner  COMMISSIONER OF BANKS AND TRUST COMPANIES  WILLIAM C. HARRIS, COMMISSIONER  April 28, 1980  Mr. Roger G. Gray President The First Bank of Cobden Front Street P. 0. Box 248 Cobden Illinois Re:  Date of Conversion  Dear Mr. Gray: This is in response to our telephone conversation relative to the conversion of The First National Bank of Cobden. The bank could have been converted to a state charter on any date after February 27, 1980. This fact was discussed by us on February 27, 1980. On March 5, 1980 it was decided that you would wait until April 1, 1980 to convert. ing Our report of examination was mailed on March 24, 1980 indicat that the Commissioner approved the plan of conversion. The Certificate of Conversion was held and not mailed until Enclosed March 27, 1980. It was received by you on March 28, 1980. is a copy of the return receipt. Very truly yours,  // John E. Treston, CFE Chief Examiner JET:bc Enclosure  • i  ,  ••• t' 1,4 • "elf"- wi•-1  $  •vi  ••••  .t  • •  t  .•  •  •  r=  A  , •  •  • •  4. ‘  •  A.Lodalaa ...oLOLAIL.  sta-AIA• to-01 1. 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'4, 14.• ;.,'.'Sl.f.1,t,l'.." r ;.-',--"•-•.'*; :.-...i -J.iC.1C; ,-,='i.,f.:r:.`ei .  •• r  Pi• 1:  •t, •: 1;1..':"4. •  • ; ""t- •el./61,1  . ,) ,• • o.*IAA.. • t   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ATTACHMENT K 123  •  THE FIRST NATIONAL STATEMrNT Or 03/31  gas.  RESOURCFS 11  CASH FIRST  132,753,17 NATION4  RANK...MATTOON ' 221,806,19 10,000,00 25,261,2U 251 U66.12_ - (481,017,34  I  1, 1   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ....  „  MANuFAcTU3ERs 7-HANOvER, N. Y. MERCANTILE TRUST --ST, LO0TB NORTHERN TRUST CO.--CMICAGD FEDER4L1 RESERvE BANK --ST. LOUIS TOTAL CASH AND DJE FROH BANKS  B96,300.0E1 *  U. S._30ViRk4qNT SECURITIES U. S. GOVERNmENT AGENCIES STATE 4ND MUNICIPAL SECURITIES OTHER BONDB.& SECURITIES FEDERAL( RESERVE 3ANK sTocK FEDERAL' FJ.4r . )5 SOLD BANKERS ACCEPTANCES __ TOTAL INvESTMENTS  7,5u5,265,14 *  BANK SJIL)ING AND LAND AcCUMULATED DEPRECIATION - BUILDING FURNITJRE.AND FIXTURES ACCUMULATE) DEPP..- FURN. & FIXTURES OTHER REAL ESTATE ACCmULATED DFRRECIATIoN - OTHER P.E. CONSTRJCITON TN PRO[;RESS TOTAL FIxED ASSETS  112,97B.44 bb,u37.06142,946,e1  p706.27 *  REAL' ESTATE AND OTHER LOANS INSTALLMENT LpAN5 DVERDRA r: TS LccOuNTS R=LEIvABLE FINANCING  7,403,548.13 2,126,402.82 3,51R,62  17.F29.95 516,?99.52 *  TOTAL LOANS . INTEREST ; 7 "ARNED, NOT COLL.--LoANs INTEREST F_ANED, NOT CDLL.--SECURT7TES PREPAID INSURANCE PRE'AI) Et4PoyEE 0ENsiov ppDGRAm_ PREPAID F.D.I.C. ASSESBmrNT ELECTR)NIC PUNDS ILLINOIS _CHARGE CARD HOLDOvER  160 ,101.66 lo1,719.77 11,770,47 113.00 ,000.00 420.99  TOTAL OTHER RESDOR:ES  T1TAI  prent10^Ct  279.125,89 *  I  n  r r  so< Or  COBDEN  L I ABILITIES 2,691,614,71 3,518,62  :USTD 6iER DEPOSITS OVERDRAFTS DIVIDENDS UNPAID TOTAL DEMAND DEPOSITS  2,695,131.33 *  SAVINGS DEPOSITS _ TIME CERTIFICATES OF DEPOSIT REPURCHbSE AGREEMENT STATE DEPOSIT TIE DEPOSIT'--DEN ACCOUNT TT P. LOAN.-NOTE OPTION CHRI51MA5 CLUB REP_O_RCHASEAGREEMENTS_  3,737,605.27_ 9,115,618.1a 425,000.00 200,000.00 14,570.71 42,020.50 147,_60_0.00  I r.  -74 11.?„  .  I  5•.  :Z1  TOTAL TIME DEPOSITS  13,682,414.62 *  TOTAL DEPOSITS  16,377,547.95  7•  BORROi'ED FUNDS  *  Z55  • I  **  -1  ••  t.P4EARNED DISCOJT--INSTALLMENT LOANS AccRuED INTEREST ON PASSBOOK SAVINGS  313,049,93 50,575.00 164,642.29 392.25 1,987.02 8,002.03 828.97 25,836.05 3,585.00 2,6a0.00 6,750.00 2,235.60  A:CPJED INTEREST ON TIME CDS ALCRjED_INTERFST_DN CHRISTMAS_SAVINGS A:CPJED INTEREST - REPURCHASE ASREEMENTS ACCRJED INTEREST ON SUBORDINATED NOTES DEFERRED TAX-.DISCDUNT ACCRETION ESTJATED FEDERAL INCOME TAXES ACCRUED R.E. AND °ERSONAL PRORPRTY TAXES ACCRJED EMPLOYEF PENSION PROGRA4 A:CPUED-OTHER EXPENSE UNEARNED BOY RENT  ..*".  • •i • • _ r• I  TOTAL OTHER LIABILITIES  001, -424.94 **  ci 71  :ESE;iVE FOR BAD DEBTS-.VALUATIDN ,-;ESERVE_FOR BAD DE5TS.-.CONTINS 7- NT RESERVE FOR BAD DE3T5-.DEFERRED 1AX _  TOTAL LIARILIT1ES  t,  611,7b6.96 ** 15,81.148 ** 13,526,65  S. •  -  ••  17,073,169 98 *** :  -  SOBORDINATED NOTES AND DEBENTJRES 17AL SURPLUS UNDIVIDED PROFITS _ CURPEN1 YEAR EAPNINGS TOTAL CAPITAL  200,000,00 100,000.00 300,000.00 092,655.25 45,675.65 1,330,530 90 ***  UN°0STED ITEMS TOTAL LIABILITIES- *NLD" CAPITAL  ***  18, 1  700.h8 *44*  7  ATTACHMENT L  TITLE 12 -- BANKS AND BANKING CHAPTER II -- FEDERAL RESERVE SYSTEM SUBCHAPTER A -- BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM [Regulation (Docket No. R-0287) PART 204 -- RESERVES OF MEMBER BANKS Implementation of the Monetary Control Act of 1980  AGENCY:  Board of Governors of the Federal Reserve System.  ACTION:  Final interpretation.  SUnt.ARY: The Board of Governors has adopted an interpretation of sectio n 19(b)(8)(D) of the Federal Reserve Act (12 U.S.C. S 461(b)), as amended by section 103 of the Monetary Control Act of 1980 (Title I of P. L. 96221). This interpretation applies to the reserves that will be require d of any bank that was a member bank in the Federal Reserve System on July 1, 1979, and which subsequently withdraws from membership, and to banks involved in mergers. In addition, this interpretation discusses the availability of Federal Reserve services to banks maintaining reserves. EFFECTIVE DATE:  April 21, 1980.  FOR FURTHER INFORMATION CONTACT: Paul S. Pilecki, Attorney (202/4523281), Legal Division, Board of Governors of the Federal Reserve System, Washington, D. C. 20551. SUPPLEMENTARY INFORMATION: Under authority of section 19 of the Federal Reserve Act (12 U.S.C. S 461), as amended by the Monetary Control Act of 1980 (Title I of P. L. 96-221), Regulation D (12 CFR Part 204) is amended by adding a new section 204.120 as follows: S 204.120  Implementation of Monetary Control Act of 1980.  . The Monetary Control Act of 1980 (Title I of P. L. 96-221) ('Acts) provides that any bank that was a member bank on July 1, 1979, and which withdraws from membership in the Federal Reserve System during the' period beginning on July 1, 1979, and ending on March 30, 1980, is required to maintain reserves in an amount equal to the amount of reserves it would have been required to maintain if it had been a member bank on March 31, 1980. The Act further provides that any bank that withdraws from membership in the Federal Reserve System on or after March 31, 1980, shall maintain reserves in the same amount as member banks. The Board of Governors has established certain policies and procedures to implement these provisions.  2  ship. 1. Determination of Date of Withdrawal from Member Any bank that was a member bank, but which withdrew from membership determined below, in the Federal Reserve System prior to July 1, 1979, as 1980, will be subject to Federal reserve requirements on September 1, Control the effective date of the remaining provisions of the Monetary reserve Act. Such banks will be entitled to an eight-year phase-in of memberrequirements. A bank that is determined to have withdrawn from e reship on July 1, 1979, or thereafter, is subject to Federal reserv bank. quirements pursuant to Regulation D in the same manner as a member The date of withdrawal from membership in the System for a l State member bank will be determined by the date on which the Federa Reserve Bank received notice of the decision of the bank's board of aw from directors (iDd shareholders where State law requires) to withdr awal membership.-2 With regard to a national bank, the date of withdr whether is the date on which such national bank received a State charter by conversion, merger, or consolidation. In recognition of the fact that there may have been individual acquisihank circumstances that delayed an individual bank's withdrawal or tion of a State charter, the Board, consistent with the legislative a former history of section 103 of the Act, will consider evidence from withdraw member bank that it made an unambiguous irrevocable decision to eightfrom membership before July 1, 1979, and, thus, is entitled to an member year phase-in of required reserves. A bank that was a State bank whose directors (and shareholders where State law requires) voted al to leave the System prior to July 1, 1979, or a bank that WdS a nation bank whose shareholders voted to convert to a State charter (including and was conversion by merger or consolidation) prior to July 1, 1979, not a member bank on March 31, 1980, may present the Board with clear, unambiguous documentation of such actions. Upon review of such information, the Board may then determine that the date that an individual bank made such an irrevocable decision is its date of withdrawal from membership. Any bank that believes that it meets these criteria, should submit full documentation to the Board as soon as possible, but in any sed event, no later than June 16, 1980. Such submissions should be addres to Theodore E. Allison, Secretary of the Board, Board of Governors of W., the Federal Reserve System, 20th Street and Constitution Avenue, N. Washington, D. C. 20551. 2. Reserve Requirements of Former Member Banks. The Board has determined, with respect to banks that withdrew from the System and (other than by merger or consolidation) on or after July 1, 1979, 31, ceased maintaining reserves pursuant to to Regulation D prior to March 1980, to waive all Federal reserve requirements for the period from  ks of 1/ See 126 Cong. Rec. E 1619 (daily ed. March 28, 1980) (remar March 28, Rep. Brademas and Rep. Reuss); 126 Cong. Rec. S 3176 (daily ed. 1980) (remarks of Senators Bayh, Proxmire and Lugar).   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1  3  March 31, 1980, through the maintenance period ending August 27, 1980.2/ Such banks will be required to maintain currently prescribed levels of Federal reserves commencing with the reserve maintenance period that begins on August 28, 1980. A former member bank may commence maintaining reserves with a Federal Reserve Bank beginning on or after June 5, 1980, in order to have sufficient balances available for Federal reserve requirement purposes for the August 28-September 3, maintenance period. A former member bank that maintains full reserve balances on or after June 5, 1980, will receive access to all System services. The Board recognizes that certain former member banks may experience hardships by being subjected to Federal reserve requirements in the same manner as a member bank, notwithstanding the delayed effective date that has been established. In order to accommodate former member banks that may incur significant hardship by maintaining full reserve balances by the maintenance period beginning August 28, the Board will consider granting limited extensions beyond that date in extraordinary circumstances. A former member bank that placed its Federal reserve balances, prior to March 31, 1980, in assets that have declined significantly in value and that cannot be converted to cash before August 28, 1980, without incurring significant losses may be granted a limited extension of time by the Board to maintain full Federal reserve requirements. A former member bank requesting such an extension should submit information concerning such placements of reserve balances withdrawn by July 15, 1980. Such submissions should be addressed to Theodore E. Allison, Secretary of the Board, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N. W., Washington, D. C. 20551. Any bank that maintained Federal reserves pursuant to Regulation D during the maintenance period that included March 31, 1980, and any member bank that withdraws from the System (other than by merger or consolidation) on or after March 31, 1980, is required to maintain Federal reserves against its deposits in the same manner as a member bank. 3. Mergers. Banks that withdraw from membership due to mergers or consolidations on or after July 1, 1979, will be required to maintain Federal reserves in the same manner as a member bank on the proportion of their deposits attributable to former member banks. The date of a merger will be determined in accordance with the procedures established in item 1 above.  2/ Such banks will continue to be subject to the special deposit requirement on managed liabilities pursuant to Subpart C of 12 CFR Part 229.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  4  Where a nonmember bank merges or consolidates on or after July 1, 1979, with a member bank and the surviving bank is a nonmember bank, the bank is required to maintain Federal reserves in the same manner as a member bank on a proportion of its deposits attributable to the absorbed member bank. This proportion will be the ratio that daily average deposits of the absorbed member bank were to the daily average deposits of the combined banks during the reserve computation period immediately preceding the date of the merger. For example, if during the last full computation period before the date of a merger or consolidation between a member bank and a nonmember bank, the ratio of member bank daily average deposits to the daily average total deposits of the merged entity is 25 per cent, then the surviving nonmember bank will maintain Federal reserve requirements in the same manner as a member bank on 25 per cent of its deposits. The portion of the surviving hank's deposits representing nonmember bank deposits, that is, 75 per cent, will be subject to Federal reserve requirements on an eightyear phase-in schedule under the Act. A ratio also will be computed for vault cash, and only the proportion of the vault cash attributable to the absorbed member bank will be permitted to be used in determining the amount of reserve balances required to be held at the Federal Reserve. For example, if during the last full computation period before the date of a merger or consolidation between a member bank and a nonmember bank, the ratio of member bank daily average vault cash to the daily average total vault cash of the merged entity is 35 per cent, then the surviving nonmember hank will take that proportion of its vault cash into account in computing the reserve balance required to be maintained against its deposits attributable to the absorbed member bank. For mergers or consolidations taking place between July 1, 1979, and August 27, 1980, where the surviving bank is a.nonmember bank, Federal reserves will be required to be maintained on that portion of the bank's deposits representing member bank deposits during the maintenance period beginning August 28, 1980. Mergers and consolidations that take place on or after March 31, 1980, between a member and nonmember bank that was engaaed in business on July 1, 1979, where a member bank is the surviving bank will be treated on a proportionate basis for reserve purposes. However, only the amount of deposits and vault cash of the nonmember bank outstanding on a daily average basis during the computation period immediately preceding the date of the merger will be eligible for an eight-year phase-in of reserves. The balance of the deposits of the surviving member bank will continue to be subject to member bank reserve requirements.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  V- 431  gib  firlARD CF.nO'vEr7 NCIP z -  --••• /..)•>4\4'.•  ' r 7  FEDERAL RESERVE SYSTEM s,s  PA'11. A. VOLCKER 41••• Zb•ii.,:f1MAN  July 17, 1980  The Honorable Henry S. Reuss Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, .1). C, '20515 Dear Chairman .Reuss: • As earlier promised, I am enclosing a detailed staff study of,the data ,we collect on interest rates charged on_short-t erm business lending by banks over recent years. The study clearly indicates that much of the explanation for the phenomenon you noted of larger volumes of "below prime" lending at New York City and other large banks during recen t quarters can be explained by very large loans of very short maturity. The share of those loans in banks' lending activ ity ha ; L, increased in recent years as large banks have competed more actively wiLh the open market -- particularly the commercial paper market -- to accommodate the very short-term finan cing requirement oC businesses; and interest rates on such loans are therefore very closely related to money market rates . This approach, datino back at least to 1977, was initially devel oped to provide customers using commercial paper with transition al facilities to bridae gaps of a few days in commercial paper issuance. Thus, the bulk of below-prime business at large banks is related to a special market that does not involve smaller loans or indeed large loans with maturities of more than a few days or weeks. After allowing for this factor, experience among banks of different size is much more comparable. Because these particular below-prime loans have such short maturity, their relative position in banks' portfolios is, of course, much less than would be indicated by their share in the volume of new extensions over any time interval. I believe it is reasonable to, in effect, adjust the data for this activity with large borrowers -- borrowers which, in any event, have access to the commercial paper market. The question remains as to the situation with respect to more usual   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  os  The Honorable'Honry S. Reuss - Page 2. loans extenaing over longer periods. The study does -Mot clearly indicate a, more favored position for large borrowers in the market for credit, at maturities that are more typically relied upon by both large and.small borrowers. In fact, the aver age cost of short-term 'business, loans maturing in more than a month has risen moe for large loans than for small loans over the last three years, and at the peak rate period, rates for large loan s appear to - have exceeded those for small. Analysis of these data is necessarily obscured by lack of information about precisely how many loans, and their distribution by size, during rising rate periods may have been made under preexisting commitments having interest rate "cap s." However, the data appear; consistent with other indications that special loan programs for smaller businesses were one factor in moderating increases EFL' Ehose borrowers during periods of peak rates. In sum, the data you cited in your letter do not them selves appear to justify sweeping charges of discriminati on against particular groups of borrowers. A more subtle ques tion that cannot be conclusively answered on the basis of avai lable data remains as to whether the prime rate is somewhat less indicative of the minimum rate on the "best" ordinary busi ness loans (i.e., those of more than a few days or weeks maturity ) than the nomenclature implies. Moreover, I would note a lag in a reduction of the prime rate relative to short-term mark et rates may work in some instances to the relative disadvantage of customers that do not have access to the open market for large short-term business credit. Since ely yours, ,/  /aid  Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  •  •  • c,  PnAPE) PF `.71C".EPN7P. '  7:1 \ '•••  FEDERAL RESERVE SYSTEM  •!‘! I •  • .•••  • ffirrr, .'  •  GOVi .  ,  1‘.%•  •  i.AHINTON, O.  --  .•EJLEKE .; ••• A :N.  July 17, 1980  Th ,, Honorable Henry S • Reuss Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, I:. C. 20515 Chairn.ln As earlier promised, I am enclosing a detailed staff study of the data we collect on interest rates charged on short-term business lending by banks over recent years. The study clearly indicates that much of the explanation for the phenomenon you noted of larger volumes of "below prime" lending at New York City and other large banks during recent quarters can be explained by very large loans of very short maturity. The share of those loans in banks' lending activity has increased in recent years as large banks have competed more actively with the open market -- particularly the commercial paper market -- to accommodate the very short-term financing requirements of businesses; and interest rates on such loans are therefore very cicsely related to money market rates. This approach, dating back at least to 1977, was initially developed to provide customers using commercial paper with transitional facilities to bridge gaps of a few days in commercial paper issuance. Thus, the bulk of below-prime business at large banks is related to a special market that does not involve smaller loans or indeed large loans with maturities of more than a few days or weeks. After allowing for this factor, experience among banks of different size is much more comparable. Because these particular below -prime loans have such short maturity, their relative positin.) in banks' portfolios is, of course, much less than would be indicated by their share in the volume of new extensions over any time interval. I believr: , it is reasonable to, in effect, adjust the data for this activity with large borrowers -- borrowers which, in an event, have access to the commercial paper market. The question rcmains as to Lhe situation with respect to more usual   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Henry S. Reuss - Page 2.  lons extein,j over longer periods. The study does not clearly indicate a more favored position for large borrowers in the market for credit at maturities that are more typically relied upon by both large and small borrowers. In fact, the average cost of short-term business loans maturing in more than a month has risen more for large loans than for small loans over the last three years, and at the peak rate period, rates for large loans appear to have exceeded those for small. Analysis of these data is necessarily obscured by lack of information about precisely how many loans, and their distribution by size, (haring 'rising rate periods may have been made under preexisting conmitments having interest rate "caps." However, the data appear consistent with other indications that special loan programs for smaller businesses were one factor in moderating increases for those borrowers during periods of peak rates. In sum, the data you cited in your letter do not themselves appear to justify sweeping charges of discrimination against particular groups of borrowers. A more subtle question that cannot be conclusively answered on the basis of available data remains as to whether the prime rate is somewhat less indicative of the minimum rate on the "best" ordinary business loans (i.e., those of more than a few days or weeks maturity) than the nomenclature implies. Moreover, I would note a lag in a reduction of the prime rate relative to short-term market rates may work in some instance S to the relative disadvantage of customers that do not have access to the open market for large short-term business credit. Sincejely yours,  Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF EJOVERNORc-,  i /12 FEDERAL RESERVE SYSTEM WASHINGTON, D.C. 20S51 HENRY  C. WALLiCH  MEMBER OF THE BOARD  July 18, 1980  The Honorable Benjamin S. Rosenth-,1 Chairman Subcommittee on Commerce, Consumer and Monetary Affairs Committee on Government Operations House of Representatives Washington, D. C. 20515 Dear Chairman Rosenthal: During the course of my testimony before the Subcommittee on June 25, Congressman St Germain asked that I furnish for the record a statement of the criteria considered by the Boar d in determining whether to approve or disapprove an application to acquire a United States bank. It is a pleasure to provide this information for thw Subcommittee. The Bank Holding Company Act directs the Board to consider several specific factors in acting on applications to acquire ownership or control of United States banks. Those factors are as follows: first, the financial and managerial resources of the acquiring company and the bank to be acquired; second, the future prospects of each; third, the convenience and needs of the community to be served; and finally, the effects of the proposal.n competition (12 U.S.C. 1842(c)). Simi lar criteria are set forth in the Change in Bank Control Act as grounds upon which a federal banking agency may disapprove a proposed acquisition (12 U.S.C. 1817(j)(7)). A substantial body of case law has been accumulated rega rding each of the factors listed. The factors that the statute requires the Board to consider do not differentiate between foreign and domestic acquirers. This reflects the national policy of nondiscrimination with respect to foreign investment in general and foreign investment in U. S. banks in particular. The Board has carried out its responsibilities in keep ing with the spirit of that policy. The context in which Congressman St Germ ain's inquiry arose reflects a concern with regard to the factors the Board might consider if it were dete rmined that, as a matter of national poli cy, the assets of foreign-owned U.S. banks should not exceed a certain perc entage of domestic banking assets. First of all, it must be noted that fore ign-owned U.S. banks account for only 4 percent of the total domestic banking assets of insured commercial banks. Not only is this small, it is diverse both geographically and by the size of bank and is spread among owners from many different countries.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  41Io  The Honorable Benjamin S. Rosenthal Page Two  •  1.n individual markets, it is conceivable that a significant share of the loca l banking market might be dominated by foreign controlled banks. Congressman St Germain mentioned up-State New York in this connection. In my judgment, the best protection against adverse effects from events of this kind is the maintenance of competitive banking mark ets through ease of entry for new banking groups. Moreover, the experien ce with foreign bank holding companie s to date has been good and there is no evidence that foreign ownership of a U.S. bank has had adverse effectc on its customers. Assuming that there were some point at which the percentage of U.S. banking assets subject to foreign cont rol would be a matter of concern, it would appear that that point is not at hand. Any effort to establish a percentage limit would have to be undertak en only with a clear understanding of the problems that such a limit woul d be designed to remedy as well as the costs (loss of foreign capital, banking expertise, possible reaction abroad, etc.) that establishing a limit would incur. If, despite those costs, a limit were established, it is doubtful whether the Board in considering applicat ions to acquire United States banks would apply any different criteria than it does currently under the Bank Holding Company Act. However, as Comp troller Heimann noted in his testimony, the creation of a quota itself may have the unintended effect of inducing acquisitions that would not otherwise have been made. Many of these proposals could pass muster under the Bank Hold ing Company Act standards as currently administered and yet not produce the optimum benefits for the acquired banks or their communities. The Board, of course, would be mindful of this in acting on applications in the environm ent of a quota on foreign acquisitions. I hope these comments are helpful to you and to the Subcommittee. Sincerely yours,  Henry C. Wallich cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Fernand J. St Germain  •  •  BOARD OF GOVERNORS  •  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551  PAUL A. VOLCKER CHAIRMAN  July 18, 1980  The Honorable William Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Proxmire: I wanted to write to you and bri ng you up to date on the status of our studies--in coo peration with the Treasury, the SEC and the CFTC--of "financia l futures" and related markets. While considerable progress has been made in these studies, I regret to say that our analysis and thinking has not yet proceeded to the point that will permit us to offer any firm legislative recommendations. Nev ertheless, I believe the work to date has helped to shape our thi nking in such a way that does permit us to be somewhat more con crete than was possible at the time of my testimony on S. 2704. Broadly speaking, the work to dat e has proceeded along two related lines. First, for pur poses of facilitating the analysis, the "financial" future s and related markets were divided into segments as follows: Treasury and related securities; foreign exchange; equity and rel ated instruments; precious metals; and, other debt-like ins truments including commercial paper and CD's. For each of these areas, preliminary working papers have been drafted which, for the underlying instrument and all derivative instruments and markets, describe the structure and operation of the various mar kets including their current regulatory apparatus. Among oth er things, this analysis is designed to provide us with better insights into the interrelationships among various segments of the markets for a given underlying asset as well as the relationships across markets for various types of financial assets. At least in a preliminary form most of the background work referred to above has been completed. The second line of our overall inquiry has centered on a series of interviews conducted by the study group with representatives of various entities that have an interest in these markets. In all, some   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable William Proxmire Page Two  30 interviews have been conducted in Washington, New York and Chicago. Those interviewed include representatives of the various exchanges, trade associations, domestic and foreign related banks, brokers and dealers, industrial market participants and insurance companies who are users of the various markets. These interviews were completed on July 14 but in some instances follow-up discussions may be required. Thus, the study group has not yet been able to fully digest and assimilate all of the information and impressions that emerged from that effort. Not surprisingly, however, I am told by my staff that the interviews revealed a wide range of attitudes as to the nature of the problems--if any--in these markets and as to what should be done about the problems. I also have the distinct impression that some if not most of the people from the various agencies involved in the process have come away from the work performed to date--including the interviews--with the attitude that the issues involved are even more complex than was anticipated at the outset. In an organizational and timing sense, the work has also been made a bit more complicated by P.L. 96-276 which, as you know, requires that the CFTC, in consultations with other agencies including the Federal Reserve, submit a related report to the Congress by October 1, 1980. At this time, I understand that the CFTC report will concentrate largely--but not exclusively--on the recent silver situation. However, even if that study is limited to silver, there is the obvious potential for overlap. For our part, and independently of these joint 'studies, we have been exploring what steps might be taken by the Federal Reserve (and other bank regulators) to help insure that we have better and more timely information at our disposal in regard to the behavior of banks in financing activity in these markets. Specifically, we are exploring modifications in our regular reports on bank lending with a view toward singling out categories of loans that may be associated with "speculative" activity in these markets. At the same time I have asked the bank examinations staff to look into what further changes in bank examination procedures could be made to assist in that process. I expect that effort will, in the near future, result in the submission to the Federal Financial Institutions Examination Council of new guidelines, procedures and instructions that will focus more attention on this area in the examination process. As to the larger questions to which our study and S. 2704 are directed, there are a number of related issues that   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis    The Honorable Willie Proxmire Page Three  •  have emerged from our studies that are suggestive of the directions in which constructive changes in the operation of the markets and/ or the regulation of the markets might be made. For example, it would appear that position limits might have a role to play in limiting speculation, although I would be the first to concede that the difficult problems of enforcing and admi nistering such limits need more study, especially where there is a world-wide market for the asset or instrument in question . At the same time, and looked at in the context of efforts further to solidify the financial integrity of the markets and the exchanges, as well as deal with excessive speculation, efforts migh t be properly directed at issues relating to the amount, nature and form of margins. In either case, it seems to me that ther e is a clear need for improved coordination of rules among the exchanges and for the increased availability of information regarding activity and positions in the markets. I myself am now more inclined to the view that at least some steps are needed in all of these areas. Having said that, I will also confess that ther e is an open question as to the best way to achieve the necessary changes once it is more definite what the changes should be. I am not, for example, persuaded that all such authorit y need be lodged in the first instance with a government instrume ntality, particularly if some kind of firm standby or veto auth ority could be placed with a government agency or a public oversight body . The important thing, of course, is that the public interest is clea rly and unequivocally represented. In the final analysis, however, I know you recognize that the question of where any such authorit y is placed is not independent of the decision as to precisely what new or additional authorities should be adopted, and whether financia l futures are dealt with differently than the traditional comm odity markets. At least in a small way, the nature and complexi ties of the situation we are facing in these markets have been illustrated by the recent chain of events in which certain exchanges introduced new contracts in Treasury securities. Both the Federal Reserve and the Treasury were opposed to the introduction of these contracts and the CFTC, for its part, has attempted to bar trad ing in these new contracts. While this matter is still under judicial review and the outcome is not clear, the episode is troublesome. Indeed, at the very least, it suggests to me that it might be appropriate to firmly fix in law authority whereby the Federal Reserve or the Treasury would have veto power over the introduction of any new futures contracts in Treasury securities and perhaps in fore ign exchange as well. Similar consideration should be given to the potential interests of the government--including the SEC --with respect to the emerging markets for futures on equities and indices comprised of equity securities.  https://fraser.stlouisfed.org • Federal Reserve Bank of St. Louis  ,  r  .  ,  III  The Honorable William Proxmire Page Four  III  We will continue our efforts to complete our study in the shortest possible time frame. However, because of the scope of the effort and the role that must be played by other agencies, I am a little hesitant to commit to a firm completion date at this time. We will, you can be sure, keep you fully apprised of the status of the effort.  F WILLIAM PROXMIRE, WIS., CHAIRMAN  •  wor MARF...ON A. WILLIAMS, JR., N.J. AL AN OrtANSTON, CALIF.  JAKE GARN, UTAH JOHN TOWER, TEX,  •  AoLAI E STEVENSON, ILL.  JOHN HEINZ. RA.  ROBERT MORGAN. N.C. DONALD W. RIEGLE, JR., MICH. PAUL S. SARBANES, MD.  W LLIAM L. ARMSTRONG, COLO.  Action assigned Mr. Corrigan; info copies to Messrs. Ryan and Pete/Ili  NANCY LANDON KASSEBAUM, KANS. RICHARD G. LUGAR, IND.  CKOIALD W. SI EWPRT, ALA.  ';11Crvitcb ( ,..Ltafez- ,Senctle  GEORGE J. MITCHELL, MAINE  COMMITTEE ON BANKING, HOUSING. AND KENNETH A. MC LrAN, STAFF DIRECTOR DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCES DE LA PAVA, CHIEF CLERK   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  URBAN AFFAIRS WASHINGTON. D.C.  20510  June 13, 1980  Honorable Paul A. Volcker Chairman of the Board of Governors •of the Federal Reserve Board Federal Reserve Building Twentieth and Constitution Washington, D.C. 20551 Dear Mr. Chairman: On May 29, 1980, you appeared before the Committee on behalf of the Federal Reserve Board to present testimony on S. 2704. The bill would authorize the Board to impose margin requirements on a broad spectrum of financial instruments. During the course of both your prepared and oral remarks, you described in detail your opinion that further study was needed before you could endorse any specific legislative or regulatory approach to the issues raised in the hearings. More importantly, you indicated to the Committee that the Board in consultation with other government agencies, has undertaken an intensive study of the issues raised by S. 2704 with a view toward developing specific recommendations to the Congress for legislative action. This letter will confirm your statement and the Committee's expectation that the preliminary conclusions b.ased upon this ongoing study will be transmitted to the Committee by the middle of July. Adherence to this timetable will make consideration of this measure by the Committee, and perhaps the full Congress, possible prior to adjournment. Because of the Committee's interest in your study, I would like to receive immediate notification of any slippage in the schedule.  ncer  WI Chairman' WP/hmw  dxmire  July 18, 1980  The Honorable William Prommiro Chairman Committee on flanking, Reusing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Proxmire: Thank you for your lctter of July 2 encloeing a cory of your concurrent resolution on nonetary policy exrvesvin,7 the sense of Congress that the Federal Ileserve adhere to a long-run anti-inflation policy until significant progress hap been made in reducing inflation. As you requested, I have brought the resolution to the attention of tho other members of the Board and the Federal 0i,en Market Committee. / will be pleased to give you my thoughts on the resolution at your hearings on the conftot of nonetary policy on July 22. Sincerely. SZPaul A liolwv,L  Dal;pjt (#V-283) bcc Lrs, Mallardi (2)./-  •  C44  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  PAUL A.VOLCKER CHMRMAN  July 18, 1980  The Honorable Henry S. Reuss U. S. House of Representatives 2129 Rayburn House Office Building Washington, D.C. 20515 Dear Mr. Reuss: I am enclosing information you requested on certain employees of the Board of Governors and the Federal Reserve Banks. This information shows the sources from which employees were hired in 1978-1979 and where employees went after separation during 1978-1979. Similar information is provided for officers during the period of 1975-1979. I am also providing information on individuals who have had contracts with the Board of Governors to act as consultants who were not simult aneously regular employees of the Board during 1979. Please let me know if I can provide further assistance. Sincerely,  Enclosures  HENRY  •  REUSS. WIS., CHAIRMAN  THOMAS L. ASHLEY, OHIO WILLIAM S. MOORHEAD, PA. FYIRNAND J. ST GERMAIN, R.I. 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 COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  WALTER E. FAUNTROY, D.C. STEPHEN L. NEAL, N.C. JERRY M. PATTERSON, CALIF. JAMES J. BLANCHARD. MICH. CARROLL HUBBARD, JR., KY. JOHN J. LAFALCE, N.Y. GLADYS NOON SPELLMAN, MD.  NINETY-SIXTH CONGRESS 2129 RAYBURN  HOUSE  OFFICE BUILDING  WASHINGTON, D.C. 20515  LES AuCOIN, OPEC. DAVID W. EVANS, IND. NORMAN E. D'AMOURS. N.H. STANLEY N. LUNDINE, N.Y.  J. WILLIAM STANTON. OHIO CHALMERS P. WYLIE. OHIO STEWART B. McKINNEY. CONN. GEORGE HANSEN, IDAHO HENRY J. HYDE, ILL. RICHARD KELLY, FLA. JIM LEACH, IOWA THOMAS B. EVANS, JR., EEL. 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. U5-4247  July 11, 1980  JOHN J. CAVANAUGH, NEBR. MARY ROSE OAKAR, OHIO JIM MATTOX, TEX. BRUCE F. VENTO, MINN. DOUG BARNARD. GA. WES WATKINS, OKLA. ROBERT GARCrA, N.Y. MIKE LOWRY, WASH.  Honorable Paul Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. Dear Mr. Chairman: I would like to obtain some information on Federal Reserve employees in the Board of Governors and at the twelve regional banks for selected classes of present and past employees in recent years. The information concerns the industries that employees were in before coming to the Federal Reserve and after leaving the Federal Reserve. Also, I would like information on individuals who have had contracts with the Federal Reserve to act as consultants who were not simultaneously regular employees of the Federal Reserve. The details of this request have been worked out in detail by our respective staffs on July 11, 1980. Sincerely,  Henry SI. Reuss Chairman  -daff  BOARD OF GOVERNORE OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  &AL RE•5 • •..• •  CHAIRMAN  July 18, 1980  The Honorable William Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Proxmire: I wanted to write to you and bring you up to date on the status of our studies--in cooperation with the Treasury, the SEC and the CFTC--of "financial futures" and related markets. While considerable progress has been made in thes e studies, I regret to say that our analysis and thinking has not yet proceeded to the point that will permit us to offer any firm legislative recommendations. Nevertheless, I believe the work to date has helped to shape our thinking in such a way that does permit us to be somewhat more concrete than was possible at the time of my testimony on S. 2704. Broadly speaking, the work to date has proceeded alon g two related lines. First, for purposes of facilita ting the analysis, the "financial" futures and related mark ets were divided into segments as follows: Treasury and rela ted securities; foreign exchange; equity and related instruments; precious metals; and, other debt-like instruments including comm ercial paper and CD's. For each of these areas, prelimin ary working papers have been drafted which, for the underlying instrument and all derivative instruments and markets, describe the structure and operation of the various markets including thei r current regulatory apparatus. Among other things, this analysis is designed to provide us with better insights into the interrelationships among various segments of the markets for a given underlying asset as well as the relationships acro ss markets for various types of financial assets. At least in a preliminary form most of the backgrou nd work referred to above has been completed. The seco nd line of our overall inquiry has centered on a series of inte rviews conducted by the study group with representatives of various entities that have an interest in these markets. In all, some   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  PAUL A. VOLCKER  The Honorable William Proxmire Page Two  30 interviews have been conducted in Washington, New York and Chicago. Those interviewed include representatives of the various exchanges, trade associations, domestic and foreign related banks, brokers and dealers, industrial market participants and insurance companies who are users of the various markets. These interviews were completed on July 14 but in some instances follow-up discussions may be required. Thus, the study group has not yet been able to fully digest and assimilate all of the information and impressions that emerged from that effort. Not surprisingly, however, I am told by my staff that the interviews revealed a wide range of attitudes as to the nature of the problems--if any--in these markets and as to what should be done about the problems. I also have the distinct impression that some if not most of the people from the various agencies involved in the process have come away from the work performed to date--including the interviews--with the attitude that the issues involved are even more complex than was anticipated at the outset. In an organizational and timing sense, the work has also been made a bit more complicated by P.L. 96-276 which, as you know, requires that the CFTC, in consultations with other agencies including the Federal Reserve, submit a related report to the Congress by October 1, 1980. At this time, I understand that the CFTC report will concentrate largely--but not exclusively--on the recent silver situation. However, even if that study is limited to silver, there is the obvious potential for overlap. For our part, and independently of these joint studies, we have been exploring what steps might be taken by the Federal Reserve (and other bank regulators) to help insure that we have better and more timely information at our disposal in regard to the behavior of banks in financing activity in these markets. Specifically, we are exploring modifications in our regular reports on bank lending with a view toward singling out categories of loans that may be associated with "speculative" activity in these markets. At the same time I have asked the bank examinations staff to look into what further changes in bank examination procedures could be made to assist in that process. I expect that effort will, in the near future, result in the submission to the Federal Financial Institutions Examination Council of new guidelines, procedures and instructions that will focus more attention on this area in the examination process. As to the larger questions to which our study and S. 2704 are directed, there are a number of related issues that   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable William Proxmire Page Three  have emerged from our studies that are suggestive of the directions in which constructive changes in the operation of the markets and/ or the regulation of the markets might be made. For example, it would appear that position limits might have a role to play in limiting speculation, although I would be the first to concede that the difficult problems of enforcing and administering such limits need more study, especially where there is a world-wide market for the asset or instrument in question. At the same time, and looked at in the context of efforts further to solidify the financial integrity of the markets and the exchanges, as well as deal with excessive speculation, efforts might be properly directed at issues relating to the amount, nature and form of margins. In either case, it seems to me that there is a clear need for improved coordination of rules among the exchanges and for the increased availability of information regarding activity and positions in the markets. I myself am now more inclined to the view that at least some steps are needed in all of these areas Having said that, I will also confess that there is an open question as to the best way to achieve the necessary changes once it is more definite what the changes should be. I am not, for example, persuaded that all such authority need be lodged in the first instance with a government instrumentality, particularly if some kind of firm standby or veto authority could be placed with a government agency or a public oversight body. The important thing, of course, is that the public interest is clearly and unequivocally represented. In the final analysis, however, I know you recognize that the question of where any such authority is placed is not independent of the decision as to precisely what new or additional authorities should be adopted, and whether financial futures are dealt with differently than the traditional commodity markets. At least in a small way, the nature and complexities of the situation we are facing in these markets have been illustrated by the recent chain of events in which certain exchanges introduced new contracts in Treasury securities. Both the Federal Reserve and the Treasury were opposed to the introduction of these contracts and the CFTC, for its part, has attempted to bar trading in these new contracts. While this matter is still under judicial review and the outcome is not clear, the episode is troublesome. Indeed, at the very least, it suggests to me that it might be appropriate to firmly fix in law authority whereby the Federal Reserve or the Treasury would have veto power over the introduction of any new futures contracts in Treasury securities and perhaps in foreign exchange as well. We will continue our efforts to complete our study in the shortest possible time frame. However, because of the scope of the effort and the role that must be played by other agencies, I am a little hesitant to commit to a firm completion date at this time. We will, you can be sure, keep you fully apprised of the status of the effort.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  July 21, 19R0  Ihe Memorable Weary Z. news* Cheiseem Ceinsipttse es Sankieq, animas amd elbow Affairs Meeseof Sepesseatatives Westismies4 D.C. 20515 004t C1air040 ;;IOUS*; The staff here and at the Reserve Sank* 40114Pbaaa lookinv Labe the loan women's* that Kr, Stuart Tisdale of Pta-Pite Indmatiamat moo sent to yoe• MB bens leaned that the 744rties to the loan alresomot felt aoomittod to the loan prior to my Ootabor :3 letter mad that there are Andioations that negotiatioas had been laderway *Los e early in Oetc&cr. lbe Oetiher 23 letter vas the first ommo oltsation that specifically emOhasised take-over loana. Movoattioloso, a questioa ramegasi is ay SAM 40 to wlyi the ::',anIcs had ast; boos zentlittro to the roloos000 of this 00m/tweet to earlier adosoitiorta about finaneime peeely Unseals& sad speculative aetivity that did not eeetelbeft to aseasoto powfOnosaae. Is that onneetion I hams ostedi the peowision to Moo almoomoot that tho d;iseeede of the lam will ha used to aogaire as unidantified "tergeW If CAI ttaggee wee also laheown to lenders, it La difficult to *es how t aseld Show that te loan was a transaction that would coat to the leenewycs verfornenes• lb* geoeval request for restraint in this type of 100diag--.aad before Octeber 23 it was admittedly loos explicit-does not, of oeuroo, hero the loom of vagalatioa• NOwevow, the loam raisee ot woollies as to whether the banks emeseiseely cseatxued or disregaNded the spirit of the Pederal Meserveie efforts in this area, I have *eked the Beeerve Dank Presidents to diaoms4 this loan with the top officials of the beaks involved oraphasiaAng the tere of SOMOOrns About the transaction and 4uakinl ilootairi that the seed SON cooperation in ouch efforts is undarsteed• ill000soly Ks:pjt 0V-275)  boa.  •Kallardi r  WEL mew  t 11111ENRY •  e  S. RPUSS, WIS., CHAIRMAN -HOMAS L. ASHLEY. OHIO ILLIAM S. MOORHEAD, FA. FERNAND J. ST GERMAIN. R.I.  HENRY B. GONZALEZ. TEX. JOSEPI-4 G. MINISH. N.J. FRANK ANNUNZIO, ILL. JAMES M. HANLEY, N.Y. PARREN J. MITCHELL. MD. WALTER E. FAUIYTROY, D.C.  Action  O  igned Mr. Corrigan; info copieto Messrs. Petersen & Ryan J. WILLIAM STANTON. OHIO CHALMERS P. WYLIE. OHIO STEWART a. McKINNEY. CONN.  U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  STEPHEN L. NEAL, N.C. JERRY M. PATTERSON. CALIF. JAME'S J. OIL ANCHARD, MICH. CARROLL HIJOBARD, JR.. KY. JOHN J. LArALce. N.Y.  NINETY-SIXTH CONGRESS 2129  RAYOURN HOUSE OFFICE BUILDING  WASHINGTON, D.C. 20515  GLADYS NOON SPELLMAN, MO. LES AuCOIN, OREG. DAVID W. EVANS. IND. NORMAN E. DAMOURS, N.H. STANLEY N. LUNDINE, N.Y. JOHN J. CAVANAUGH. NEBR. MARY ROSE °AKAR. OHIO JIM MATTOX, TEX.  GEORGE HANSEN. IDAHO HENRY J. HYDE. ILL. RICHARD KELLY, FLA. JIM LEACH, IOWA THOMAS O. EVANS. JR DEL. S. WILLIAM GREEN. N.Y. RON PAUL. TEX. ED BETHUNE. ARK. NoRMAN O. SHUMWAY. CALIF. CARROLL A. CAMPBELL. JR.. S.C. DON RITTrR. PA. JON HINSON, MISS. 22S-42.47  June 26, 1980  BRUCE F. VENT°. MINN. DOUG BARNARD. GA. WES WATKINS, OKLA. ROBERT GARCIA, N.Y. MIKE LOWRY. WASH.  Honorable Paul Volcker Chairman, Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Chairman Volcker: Mr. Stuart Tisdale, Chairman and President of Sta-Rite Industries, Inc., has called to my attention the enclosed loan agreement, between five large banks and Nortek, Inc., in the amount of $40,000,000. The purpose of the loan, as stated on page 3, is explicit: "(i) to purchase outstanding equity securities and securities convertible into or rights to acquire equity securities of a corporation (a 'Target') pursuant to a solicitation by the Company or a subsidiary of the Company of tenders of such securities, or in one or more negotiated, block, market or other transactions not involving a tender offer, or a combination of any of the foregoing; (ii) to make a Target a Subsidiary pursuant to a merger, purchase of assets or other reorganization providing for the issuance to the holders of the Target's then outstanding equity and convertible securities, in exchange for such securities, of cash or securities of the Company or a Subsidiary, or a combination thereof; to purchase the business or integral part of the business of a Target; and (iv) to pay fees and expenses related to any of the foregoing." This loan agreement is dated October 25, 1979, just two weeks after your letter to large member banks of October 10, 1979, in which you stated, "This is not the time to finance activities that have little to do with the performance of the American economy."   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  41/ Honorable Paul Vo]cker June 26, 1980 Page Two  Your letter of October 23 to all member banks made this point even clearer: ...credits for extraordinary financial transactions would be viewed as questionable by the Board. Examples would include loans ... for corporate takeovers that simply substitute one source of financing for another and do not clearly promise improvement in economic performance." Please provide this Committee, in advance of your appearance on July 23rd, a written report that answers the following questions: 1) What, if anything, does the proposed Nortek takeover of StaRite contribute to the performance of the American economy? 2) Given your explicit injunctions of October 10 and 23, and the unambiguous nature of this loan, why was it made? 3) At what time did the Federal Reserve become aware of this loan, through the reporting requirements of the Special Credit Restraint Program or otherwise, and how? 4) What actions do you consider appropriate for the Federal Reserve to take under these circumstances, and 5)  What actions have you taken?  On a related matter I am disturbed by news that Mr. N. B. Hunt's daughter has entered the silver business. Her purchase of a stake in Corp. silver exploration business suggests that the Goldfield Hunt brothers are determined to use their extensive network of family and other relationships to carry on the speculative activities that they themselves are precluded from by their loan agreement with the banks and with Placid Oil. The 'Interim Report' presented by the Federal Reserve to Congress in May includes the following statement of the terms of the bank loan to Placid and the Hunts:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  l The agreements relating to the partnership and the Hunt ' guarantee provide that the Hunts and all related entities cannot make any new investments in securities (except appropriate money market instruments) or take any position in commodities or any other futures position for any speculative purpose or otherwise while the Placid loan is outstanding or the partnership is in existence except investments necessary for the prudent operation of the farm, ranching and sugar businesses owned by the Hunts. Furthermore, the Placid loan agreement prohibits Placid, while the loan is outstanding, from engaging in any similar speculative activity including using the proceeds of the loan to finance acquisitions that would be inconsistent with the intent and purpose of the credit facility."  •  Honorable Paul Volcker June 26, 1980 Page Three  •  The banks should not permit the Hunts to engage in so transparent a circumvention of the terms of the loan. The Federal Reserve, which has repeatedly assured the Congress that a watertight guarantee against new silver ventures would be included and enforced, should not allow the banks to wink at this transgression.  Sincerely,  Henry Reuss Chairman  `1  'Ekl.i--11B ill) 2 REVOLVING CREDIT AND TERM LOAN AGREEMENT Revolving Credit and Term Loan Agreement, dated as of October 25, 1979, among NORTEK, INC., the BANKS and STATE STREET BANK AND TRUST COMPANY as Agent for the Banks under this Agreement.  GEN-ERAL rrERms.  1.  1.1. Th. Loans. Each of the Banks agrees, subject to the terms and conditions of this Agreement, to make Loans to the Company, and the Company' agrees to borrow from the Banks, at the respecti‘e office of each Bank in accordance with the following provisions: (a) Beginning on the Closing Date, but prior to the Conversion Date, subject, to the provisions of this Agreement, including without limitation, paragraphs (d)-(f) hereof, the Banks will make from time to time Revolving Loans of up to $40,000,000 to the Company by lending to the Company on the Closing Date and from time to time thereafter on at least three banking days' prior notice to each Bank (or five banking days' prior written notice in the case of a Loan described in paragraphs (e) or (f) hereof), such amounts ic integral multiples of $500,000 as . may from time to time be requested by the Company; prot-id(d, hou.cl•tr, that the aggregate outstanding principal amounts of the Revolving Loans from each Bank shall not at any time exceed the following respective maximum commitments:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  American Security Bank, N.A. .. Continental Illinois National Bank and Trust Company of Chicago First Pennsylvania Bank N.A. State Street Bank and Trust Company United States Trust Company of New York  Percentage of Commitment  Maximum  25.0%  $10,000,000  25.0 25.0 12.5 12.5 100.05C-  10,000,000 10,000,000 5,000,000 5.000.000 $40,000,000  (b) On the Conversion Date the Revolving Iioans then outstanding shall convert into Term Loans and on such date the Banks shall make such additional Term Loans as the Company may request upon three days prior written notice to each Bank, provided, however, that the amounts of such Term Loans shall not exceed the amounts of the respective maximum commitments of the Banks set forth in paragraph (a) hereof, as reduced from time to time pursuant to paragraph (d) hereof. (c) The proceeds of the Loans shall be applied as provided in Section 1.5 hereof. The obligation of each Bank to make a Term Loan is conditioned upon repayment on the Conversion Date of the entire principal amount of the Revolving Loans then outstanding to each Bank; provided, that such repayments and the making of such Term Loans may occur simultaneously and the proceeds of such Term Loans may be used to make such repayments. (d) Prior to the Conversion Date, the Company may from time to time upon at least three banking days' prior written notice permanently reduce the aggregate maximum commitments of the Banks to make Revolving Loans, such reductions to be applicable to each Bank pro rata in accordance with its respectil-e maximum commitment to make such Revolving Loans set forth in paragraph (a) hereof. (e) No Bank shall be obligated to make its share of any Loans hereunder if after giving effect to the making of such Loans the aggregate amount of Loans outstanding hereunder would exceed $15,000,000, unless such Bank shall have determined in its sole discretion that such Loans satisfy the credit standards of such Bank. (f) No Bank shall be obligated to make its share of any Acquisition Loans (as hereinafter defined) hereunder unless such Bank sh.all have consented thereto if after giving effect to the proposed application of the proceeds of such Loans the Company and its Subsidiaries would own  I  •  in the aggregate (i) 57( or more of any class of equity securities of the Target , (A) if such class • of securities is registered pursuant to Section 12 of the Securities Exchange Act of 1934, or (B) if thr Target is an insurance company and such class of securities would have been required to be so registered except for the exemption contained in Section 12(g)(2)(G) of said Act, or (C) if the Target is a closed -end investment company registered under the Inves tment Company Act of 1940, or (ii) 107( or mom of any class of equity 6ecurities of any other Target.  = 16. •oxiiisslitezZargail way 101111 . Each Bank shall be deemed to have objected to the making of its share of such Loans unless such Bank notifies the Company of its consent thereto within five business days after receipt of notice from the Company of the amount of such Loans requested and the purposes to which the proceeds of such Loans are to be applied. The Company shall furnish each Bank with such financial and other information with respect to such Loans as the Bank shfll have reason ably requested. In the event that any Bank does not consent to make its share of ruch Loans, each of the consenting Banks agrees to make the aggregate amount of the Loans requested in accord ance with and up to the unused portion of its respective maximum commitment set forth in paragraph (a) hereof. The consent of each Bank to the making of its share of such Loans shall be in writing and may be conditioned upon such further matters as such Bank may determine in its sole discretion. (h) The obligations of the Banks to L-.ake Loans hereunder are several and not joint. If any Bank defaults in the performance of its obligations hereunder, such defaul t shall not relieve the other Banks from their obligations here-a: ser, but no such default shall obligate any Bank to make Loans in excess of its respective ma;.;:num commitment set forth in paragraph (a) hereof. 1.2. The Notes. The Revolving Loans made by each Bank shall be evidenced by a Revolving Loan Note in substantially the form of Exhibit A hereto with appropriate insertions; the Term Loan made by each Bank shall be evidenced by a Term Loan Note in substantiall y the form of Exhibit B hereto Nv t h appropriate- insertions. The Revolving Loan Notes shall be dated the Closing Date; the Term Loan Notes shall be dated the Conversion Date. Each Note shall be executed and delivered by duly authorized officers of the Company and shall be payable to the order of the appropriate Bank. shall be (i) in the original principal amount specified opposite such Bank's name in Section 1.1 hereof in the case of the Revolving Loan Notes and (ii) in the original principal amoun t of the Term *Loan being made by such Bank in the case of the Term Loan Notes, and shall mature (i) in the case of the Revolving Loan Notes, on the Conversion Date, and (ii) in the case of the Term Loan Notes, in 16 consecutive quarterly installments each equal to 1.16 of the original princi pal amount of the Term •:••• '•-• • •'• Loans payable ulED5201111VIIINifoll — - :4.14 c• • • 1.1 I...  astamsaugar*.A1421117& 1.3. interest. The Notes payable to each of the Banks shall bear intere st on the unpaid principal balance thereof from the date thereof until paid at a rate per annum equal to 1/27c above the Prime Rate of the respective Bank which rate shall change when and as the Prime Rale of such Bank changes. . • $$ ,w-ier=aite . ..  /c1  0.$7imtmzaidInCE2F1•54  ;  sais  st  a.: •  W311 'I pa)d.  1.4. Voluntary Prepayment. The Company, upon three days notice to each of the Banks, shall have the right at any time, or from time to time, to prepay the Notes, in whole or in part, in integral multiples of $500,000, ,a-,lhout premium or penalty; provided, however, that interest accrued to the Prepayment date on the amount of the Term Notes so prepaid shall be payabl e on the date such prepayment is made. Amounts of Revolving Loan Notes prepaid pursuant to this Section 1.4 may, subject to the terms and conditions hereof, be reborrowecl to the extent of availability pursuant to Section 1.1 hereof. Any prepayment of the Term Loan Notes shall be applied to the instal lments of principal due thereon in the inverse order of their normal maturities, except that at the option of the Company any 2   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  prepayment may he applied first to the one insLllment of principal due next succeeding the date of such prepayment. 1.5. Application of Proceeds. (a) The Company will use the proceeds of the Term Loans first to retire then existing debt due the Banks under the Revolving Loans and will use the balance of the proceeds of the Term Loans and will use the proceeds of the Revolving Loans for general corporate purposes in-eirtding but not limited to any one or more of the following purposes: (i) to purchase outstanding equity securities and securities convertible into or rights to acquire equity securities of a corporation (a "Target") pursuant to a solicitation by the Company or a subsidiary of the Company of tenders of snch securities, or in one or more negotiated, block, market or other transactions not involving a tender offer, or a combination of any of the foregoing; (ii) to make a Target a Subsidiary pursuant to a merger, purchase of assets or other reorganization providing for the issuance to the holders of the Target's then outstanding equity and convertible securities, in exchange for such securities, of cash or securities of the Company or a Subsidiary, or a combination thereof; (iii) to purchase the business or integral part of the business of a Target; and (iv) to pay fees and expenses related to any of the foregoing.  _ Any Loan obtained directly or indirerity for the purposes specified in parts (i) through (iv), inclusive, of this Section 1.5 (a) is sometimes herein referred to as an "Acquisition Loan". As used herein the term "Target" shall mean any corporation, trust or other organization, of which the Company proposes to acquire, the securities or assets, irrespective of the proposed method of acquisition. (b) The Company wilianot directly or indirectly apply any part of the proceeds of any Loan, other than any AcquisitionThoan, to the purchasing or carrying of any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or any regulations, interpretations or rulings thereunder as from time to time in effect, or to refund any indebtedness incurred for such purpose, or to the making of any foreign direct investment prohibited by Executive Order No. 11387 of the President of the United States of America, as from time to time in effect, or any regulations, interpretations or rulings thereunder or any substantially similar orders or regulations substituted therefor or promulgated in addition thereto. (c) The Company will not apply any part of the proceeds of any Acquisition Loan in violation of Regulations U or X of the Board of Governors of the Federal Reserve System, or any regulations, interpretations or rulings thereunder as in effect on the closing date with respect to such Acquisition Loan or to the making of any foreign direct investment of the type referred to in paragraph (b) of this Section 1.5. 1.6. Manner of Paying and Prepaying. All payments and prepayments of principal and payment of interest on the Notes shall be made, not later than Noon, local time, on the date called for hereunder to the respective Bank at its office, in immediately available funds at said office. 1.7. Pro Rata Treatment. Except as provided in Sections 1.1 and 6.2 hereof, each borrowing from, and each payment and prepayment to, the Banks hereunder shall be made pro rata according, in the case of borrowings, to the unused portions of the maximum commitments stated in Section 1.1 hereof, and, in the case of pay-mems or prepayments, to the principal amount of the Notes outstanding which are being paid or prepaid. 1.8. Commitment Fee. In consideration of the commitment by the Banks to make the Revolving Loans provided for in Section 1.1 hereof, while each such commitment is outstanding, the Company will pay quarterly in arrears on :March 31, June 30, September 30 and December 31 in each year beginning December 31, 1979 to each of the Banks for its account an amount equal to interest on a daily basis at the rate of 1/2% per annum (computed on the basis of the actual number of days elapsed   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  3  •  •  over a 360-day year) on the difference betc;een thc maximum commitment of such Bank set forth in Section 1.1(a) hereof, as reduced from tin( to time pursuant to the provisions of this Agreement, and the actual principal amount of the Revolving Loans outstanding from such Bank from time to time during such quarter. 1.9. Confidentizlitv of Information. The Banks each understand. that some of the information furnished to them pursuant to this Agreement or otherwise in their dealings with the Company may be received by them prior to the time such information shall have been made public, and each Bank agrees that it will keep confidential all information so furnished, including without limitation any information furnished with respect to a proposed Target, and will make no use of such information until it shall have become public except in connection with this Agreement and in making credit analyses of the Company or lending transactions proposed by the Company, subject, however, to such Bank's obligations under law or pursuant to subpoenas or other process to make information available to government agencies and examiners or to others. 2.  REPRESENTATIONS AND WARRANTEES. The Company represents and warrants to each of the Banks as follows:  2.1. Corporate Existence ond Power. The Company is, and will continue to be, a duly organized and existing corporation under the laws of the State of Rhode Island and Providence Plantations in good standing and is duly authorized to enter into and perform its obligations under this Agreement and the Notes. Each Subsidiary is and so long as it remains a Subsidiary, will continue to be, a duly organized and existing corporation in good standing under the laws of the jurisdictici. of its incorporation. The Company and each Subsidiary have all requisite corporate power and authority to own and operate their properties and to carry on their businesses as now conducted and now proposed to be conducted. ‘).`). Qualific.otion. The Company and each Subsidiary are, and will continue to be, duly licensed or qualified as foreign corporations and are, and will continue to be, in good standing in all jurisdictions where thr nature of the business transacted by each, or the ownership or leasing of their properties, makes such licensing or qualification necessary. 2.3. Corporal c and Other Authority. The execution, delivery and performance by the Company of this Agreement and the Notes have been duly authorized by all necessary corporate action. This Agreement is, and each Note upon its execution and delivery will be, the valid and binding obligation of the Company, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy or similar laws relating generally to inc enforcement of creditors' rights The ot violate .igatioLs under this Agreement and the Notes performanee by the Company of any provision of law or of its certificate of incorporat'nn or by-laws or any agreement, indenture, judgment or order which is binding upon it or its property. The Company is not required to obtain any consent, approval or authorization of, or currently required to make any filing (except filings the Company may be required to make with the Securities and Exchange Commission) with, its shareholders or any governmental authority in connection with the execution, delivery and performance of this Agreement and the negotiation, offer, issue, sale and delivery of the Notes pursuant hereto. 2.4. Pension Plan. No fact, including, but not limited to, any "Reportable Event" as that term is defined in Section 4043 of the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time (herein, including any and all such arnendmcits, called the "Pension Reform Act"), exists in connection with any defined : .nefit pension plan (t.' In called a "Plan") of the Company or any of its Subsidiaries which might l.onstitu t e grounds fm he termination of any such Plan by the Pension Benefit Guaranty Corporation or for the appointr ..nt by the appropriate United States District Court of a trustee to administer any such Plan. The Company and each of its Subsidiaries either is in compliance in all material respects with the provisions of the Pension Reform Act, or the time specified for compliance with such provisions has not expired.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4  •  •  •  2.5. Subsidiaries. At the date of this Agreement the Company has no Subsidiaries except those listed in Schedule A hereto and owns the outstanding shares of each such Subsidiary as indicated in Schedule A. 2.6. Financial Conditii)n. The consolidated balance sheet of the Company as at December 31, 1978 and the related statements of income and surplus for the Fiscal Year ended on said date, all certified by Arthur Andersen & Co., and the consolidated and consolidating balance sheet of the Company as at June 30, 1979 and the related statements of income and surplus for the six months ended on said date certed by the Company's principal financial officer, true and correct copies of which have heretofore been furnished to each Bank, are completeand correct and fairly present the consolidated financial condition of the Company as at said date's and the results of its operations for the I•riods then ended. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods covered thereby. There has been no material adverse change in the consolidated financial condition of the Company from that set forth in the balance sheet as at June 30, 1979. 2.7. Title to Properties, Liens and Leases. The Company and its Subsidiaries have gcxxl and marketable title to all of their respective properties and assets, including the properties and assets reflected in the consolidated balance sheet as at June 30, 1979 referred to in Section 2.6 hereof except properties and assets transferred in the ordin'aiT course of business, and there are no liens, mortgages S r other encumbrances thereon except as permitted by Section 4.1 hereof. 2.8. indebtedness and Contingent Liabilities. Neither the Company nor any Subsidiary has any Indebtedness or any contingent liabties except as permitted by Sections 4.2 and 4.4 hereof and as disclosed pursuant to the provisions of Section 2.11 hereof. 2.9. Investments, Loans and Advances. Neither the Company nor any Subsidiary has any investment in, or any loans or advances to, any person, firm, corporation or other entity, directly or indirectly, except as permitted by Section 4.7 hereof. 2.10. Tax Returns and Payments. The Company and each Subsidiary have filed all tax returns and reports required by law to be filed. and all taNeF, fees, a.ssessments and other governmental charges (other than those currently payable without penalty or interest and those which the Company or any Subsidiary is contesting in good faith by appropriate proceedings being dently conducted) upon the Company or any Subsidia7 or upon any of its properties, assets, income or franchises which are due and payable have been paid. To the best knowledge and information of the Company, all federal income tax returns of the Company have been audited by the Internal Revenue Service and settled for all fiscal years through its Fiscal Year ended December 31, 1973, and for its Fiscal Year ended December 31, 1975, and the results of such audits are fully reflected in the financial statements referred to in Section 2.6 hereof. Tbere have been no claims or adjustments proposed for the Company's Fisc,al Years ended December 31, 1974, 1976, 1977 or 1978 which 3:could r ult in additional taxes due and payable. •  Litieoation. Except as disclosed in writing of even date herewith by the Company to •. •_. of the Banks, there is no suit, action, proceeding or investigation pending or, to the the officers of the Company and its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries in any court or before any regulator•y•commission, board or other administrawhich, if adversely detertive governmental agency (or any basis therefor known to teImpan mined, would have a material effect on the financial condition, business or operations of the Companv and its Subsidiaries, taken as a whole. /Os  eir  2.12. Patents, Trazientorks, etc. The Company and its Subsidiaries own or possess all the patents, trademarks, service mark.s, trade names, copyrights and licenses, and rights with respect to the foregoing necessary for the conduct of their respective businesses as now conducted, without any known conflict with the rights of others.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  5  •  •  •  2.13. Schedules. The information and data contained in all of the Schedules hereto is true, accurate and complete in all material respects as of the dates thereof and there has been no material change in the information and data contained in the Schedules since the date thereof. 2.14. Compliance with Apr(cments, rte. Neither the Company nor any Subsidiary is in default uralcr any maTtria) agreement or instrment to which it is a party or which is binding upon it. There are no terms of any such agreement or instrument which materially adversely affect or in the future may (so far as the Company c.an now foresee) materially adversely affect the business, operations, affairs or condition of the Company and its Subsidiaries (talicn as a whole). The Company and its Subsidiaries are in compliance in all material respects With the provisions of all laws and governmental regulations applicable to it or them, including without limitation the requirements to file statements and reports with the Securities and Exchange Commission and the American Stock Exchange. 3.  AFFIRM A TIVE COVENANTS.  So long as any of the Loans shall remain available to the Company, and until the payment in full of all Notes and interest thereon and the satisfaction of all other obligations of the Company hereunder, unless all of the Banks shall otherwise consent, the Company agrees that: 3.1. Financial Statements cud Reports. The Company will, and will cause each Subsidiary to, maintain books and records in accordance with generally accepted accounting principles applied on a consistent basis, and the Company will furnish to each Bank: Each Fiscal :( and in any event within 90 days after the end (a) • soon as prac. Year. consolidated and co! ;.iating balance sheets, consolidated and consolidating statements of income, and a consolidated statement of changes in financial position of the Company and its Subsidiaries as at the end of and for such Fiscal Year, all in reasonable detail and accompanied by a certificate of Arthur Andersen & Co. (or such other nationally recognized independent public accountants as may be selected by the Company) to the effect that such financial statements, in Company and its Subsidiaries as at the their opinion, fairly present the financial position of end of such Fiscal 'Year and the results of their operations for such Fiscal Year in conformity with genErally accepted accounting principles applied on a basis consistent with that of the preceding Fiscal Year, provided that the certificate of such accountants may be limited to the consolidated balance sheet, consolidated statement of income, and consolidated statement of changes in financial position of the Company and its Subsidiaries, in which case the consolidating balance sheet' and consolidating statement of inc . t-of the Company and its Subsidiaries shall be certified by a principal financial r accounting c:")••,..r of the Company;   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  event v • •:.in 45 da: after the end of each month (b) As soon as practicable and ir. (other than the months of March, June, September and December), consolidated balance sheets and consolidated statements of income of the Compa - :- and its Subsidiaries as at the end of and for such month and for the period begin- ing with the first day of the Fiscal rear and ending on the last day of such month, accompanied by a statement signed by a principal financial or accounting officer of the Company to the effect that such financial statements, in such officer's opinion, subject to year-end adjustments, fairly present the financial position of the Company and its Subsidiaries as at the end of such month and the results of their operations for the periods covered thereby, in conformity with generally accepted accounting principles applied on a basis consistent with that of the corresponding period for the preceding Fiscal Tear; SOOD as practicable and in any event within 45 days after the end of each of the first (c) three qua:-ters of the Fiscal Year, consolidated and consolida-',ig balance sheets and consolidated and consolidating statements of income of the Company an: s Subsidiaries as at the end of and for such quarter and for the period beginning with the firs-. day of the Fiscal Year and ending on the last day of such quarter, all in reasonable detail and accompanied by a statement signed by a principal financial or accounting officer of the Company to the effect that such financial statements, in such officer's opinion, subject to year-end adjustments, fairly present the financial 6  •  I  position of the Company and its Subsidiaries as at the end of such quarter and the results of their operations for the periods covered thereby, in conformity with generally accepted accounting principles applied on a basis consistent with that of the corresponding period for the preceding Fiscal Year; (d) Together with the financial statements delivered pursuant to subparagraphs (a) and (c) of this Section 3.1, a statement signed by a principal financial or accounting officer of the Company (i) to the effect that he has reviewed the terms of this Agreement and has no knowledge of any event or condition which constitutes an Event of Default hereunder or which, after notice or lapse of time or both, would constitute such an Event of Default or, if he has such knowledge, specifying the nature and period of existence of such -default; and (ii) demonstrating in reasonable detail compliance at the end of and, where appropriate, during such accounting period with the covenants contained in Sections 3.5, 3.6, 3.7, 4.4(b), (d) (e) and (f), 4.5, 4.6, 4.7(b) and (g), 4.E and 4.9 hereof; (e) Together with the financial statements delivered pursuant to subparagraph (a) of this Section 3.1, a statement signed by the accountants who have reported on the same to the effect that in connection with their examination of such financial str.tements they have reviewed the provisions of this Agreement and have no knowledge of any event or condition which insofar as the same pertains to accounting and financial matters constitutes an Event of Default or which, after notice or lapse of time or both, would constitute such an Event of Default or, if they have such knowledge, specifying the nature and period of existence of such default; (f) Promptly upon their becoming available, copies of all financial statements, reports, notices, proxy statements and other communications sent by the Company to its shareholders generally, all annual. periodic or special reports or registration statements filed by the Company (including without limitation any filings made by the Company in connection with any tender offer or acquisition of securities of a Target) with any securities exchange or with the Securities and Exchange Commission or any governmental authority succeeding to any of its functions, any filings with state securities authorities made in connection with the acquisition or proposed acquisition of securities of a Target, and any analyses of the Company's or any Subsidiary's internal control, accounting or management methods or procedures prepared by the Company's auditors in the course of their annual fiscal audit; (g) Forthwith upon the chief executive officer or any principal financial or accounting officer or any other officer of the Company having direct knowledge of the terms of this Agreement obtaining knowledge of any condition or event which constitutes, or which after notice or lapse of time or both would constitute, an Event of Default, a statement of such officer specifying the nature and period of existence thereof and what action the Company has taken or its taking or proposes to take with respect thereto; and (h) Such other information regarding the business, affairs and condition of the Company and its Subsidiaries as such Bank may from time to time reasonably request. 3.2. Maintenance of Properties. The Company will, and will cause each Subsidiary to. at all times keep all of its respective properties, useful or necessary in the conduct of its business, in good working order and condition. 3.3. insurance. The Company will, and will cause each Subsidiary to, at all times maintain with financially sound and reputable insurers insurance with respect to its properties and business against such casualties and contingencies of such types and in such amounts as is customary in the ease of corporations of established reputations engaged in the same or similar business, and as shall be satisfactory to the Banks.  •I/  3.4. Payment of Tazes. The Company will, and will cause each Subsidiary to, pay and discharge all taxes, fees, assessmEnts and governmental charges or levies imposed upon it or upon its income or profits, or upon any property belonging to it, prior to the date on which penalties attach   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  7  "*"•••••••"T"...."Wir   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • upon its property, thereto, and all lawful claims which, if unpaid, might become a lien or charge levy or claim the provided that it shall not be required to pay any such tax, fee, assessment, charge, and N:rth respect payment of which is being contested in good faith and by appropriate proceedings and are being to which, in the opinion of the Company, adequate reserves have been established maintained. l of not less 3.5. Working Capital. The Company will at all times maintain Working Capita than $25,000,000. Current 3.6. Current Ratio. The Company will at all times maintain E ratio of Consolidated Assets to Consolidated Current Liabilities of not less than 1.75 to 1. 3.7. Tangible Effective Net Wor1/1.. Net Worth of not less than $50,000,000.  The Company will at all times maintain Tangible Effective  the Banks of all 3.8. Notice of litigation. The Company will promptly give notice in writing to determined, would litigation affecting the Company or any of its Subsidiaries, which, if adversely Company and its Subhave a material effect on the financial condition, business or operations of the ent for monetary sidiaries, taken as a whole, or which, if adversely determined, would result in a judgm 90 days after the damages in excess of $1,000,000, and in addition will furnish to each Bank within end of each of the Company's Fiscal Years, a summary of all such litigation. Subsidiary to, 3.9. Access to Books one Inspection. The Company will, and will cause each business hours give any representative or representatives of any of the Banks access during normal properties, books, recto. and permit them to examine, copy or mak€ (Ntracts from, any and all of its Subsidiaries to, make ords and documents relating to its affairs. The Company will, and will cause its ts of the Company and its officers available to discuss with the Banks the affairs, finances and accoun requested. its Subsidiaries, all at such reasonable times and as often as may be reasonably to, (a) at all 3.10. Pension Plan. The Company will, and will cause each of its Subsidiaries funding standard set times make timely payments of contributions required to meet the minimum to each of its Plans. (b)* forth in Sections 302 through 305 of the Pension Reform Act with respect "Reportable Event" as notify each Bank immediately of any fact, including, but not limited to, any connection with any Plan that term is defined in Sectim 4043 of the Pension Reform Act, arising in t Guaranty Corporawhich might constitute grounds for the termination thereof by the Pension Benefi of a trustee to administer tion or for the appointment by the appropriate United States District Court or, such additional inforrnat.}- • Plan and (c furnish to each Bank, promptly upon its request theref tio-., concerning any Plan as may be reasoriab)y requested.  4.  NEGATIVE COVENANTS.  ny, and until the payment in full So long as any of the Loans shall remain available to the Compa all other obligations of the Company hereof all Notes and interest thereon and the satisfaction of ny agrees that: under, unless all of the Banks shall otherwise consent, the Compa iary to, create, incur, assume or 4.1. Liens. The Company will not, nor will it permit any Subsid or encumbrance upon or of any of suffer to exist any security interest, mortgage, pledge, lien, charge enter into any arrangement for the acquisiits property or assets, now owned or hereafter acquired, or other title retention agreements, tion of any property through conditional sales, iease-purchase or except: sation, unemployment insur(a) Deposits or pledges to secure payment of workmen's compen ance, old age pensions, or other social security; (b) Those liens listed in Schedule B hereto; 8  •  •  (c) Mortgage liens on certain real prop( rty and improvements employed or proposed to be employed in the business of Tooltech, Inc. and Pioneer Finishing Corporation and described in Schedule C hereto;  •  (d) Tax liens and mechanics', workmen's, landlords', materialmen's or other like liens arising in the ordinary course of business in respect of obligations which are not yet due or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been established and are being maintained; (e) Security interests in and liens on the assets of Subsidiaries securing Indebtedness owing •to the Company; (f) Encumbrances in the nature of zoning restrictions, easements and rights or restrictions of record on the use of real property and landlord's and lessor's liens under leases on the premises rented, which do not materially detract from the value of such property or impair the use thereof in the business of the Company or any Subsidiary; (g) Purchase money security interests (which term shall include mortgages, conditional sale contracts, capitalized leases and any other title retention or deferred purchase devices) in addition to those otherwise permitted by this Section 4.1 in property acquired after the date hereof by the Company or a Subsidiary existing or created at the time of acquisition thereof; provid(d, however, that no such purchase money security interest shall extend to or cover any property other than the property the purchase price of which is secured by it, and that the principal amount of Indebtedness (whether or not assumed) with respect to each item of property subject to such a security interest shall not exceed the fair value of such item; (h) Security interests in and liens on Canadian assets of the Company or its Subsidiaries incurred in connection with industrial development financings by Canada or its Provinces of the acquisition of or improvements to such assets; and (i) Security interests in or other encumbrances upon the assets of any Subsidiary existing at the time of acquisition of such Subsidiary.  4.2. Indebtedness. The Company will not, nor will it permit any Subsidiary to, create, incur or assume any Indebtedness, including Indebtedness under this Agreement, if immediately after giving effect to the incurrence thereof and to the retirement of any Indebtedness which is concurrently being retired .therewith, Funded Indebtedness other than Subordinated Funded Indebtedness would exceed 1502 of Tangible Effective Net Worth.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4.3. Corsolid.atiern, Merger or 8n1c. The Company will not, and will not permit any Subsidiary to: (a) Consolidate or merge into or with any other corporation except that (i) Vitta Corporation may merge or consolidate with any other corporation, (ii) any Subsidiary may merge or consolidate with the Company or any other Subsidary, and (iii) any Subsidiary may merge or consolidate with any other corporation, provided that the surviving or resulting corporation is wholly-owned, directly or indirectly, by the Company and provithd, further that immediately following such merger or consolidation no Event of Default, or P,n y other event which, with notice. or lapse of time, or both, would constitute an Event of Default, shall exist under this Agreement; (b) Sell or transfer (other than in the ordinary course of business and other than a sale or transfer of investments permitted under paragraphs (b) (ii-iv), (c), (d) and (e) of Section 4.7) assets having an agp-egate value (taken at the greater of book value or selling price of such assets) of more than 52 of their consolidated total assets during any one of the Company's Fiscal Years on a non-cumulative basis, except that any Subsidiary may sell or transfer its assets to 9   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • another Subsidiary or to the Company a:-.3 that the Company may sell or transfer its assets to any Subsidiary; (c) Sell, transfer or otherwise dispose of any shares of capital stock of any Subsidiary, except to another Subsidiary or to the Company; or (d) In the case of a Subsidiary, issue any additional shares of capital stock except pro rata to its existing shareholders, except that any Subsidiary may, to the extent required by applicable law, issue or sell directors' qualifying shares. Notwithstanding the foregoing, or any other covenant or representation of the Company enntained herein, the Banks con..- :nt to the sale of substantially all the assets and businecc of the Whitney Blake Company division of the Company and to the sale of the capital stock or substantially all the assets and business of Vitta Corporation. 4.4. Conlinger, LiabOitirs The Company will not, nor will it permit any Subsidiary to, assume, guarantee, endorse, or contingently agree to purchase or to provide funds for the payment of, agree to maintain the net worth or working capital or any other financial test of, or otherwise become liable upon, any obligation of, any person, firm or corporation except: (a) In the case of the Company or any Subsidiary, by the endorsement of negotiable instruments for deposit or collection or similar trancactions in the ordinary course of business; (b) The Company or its Subs:a'aries may become contingently liable with respect to letters of credit issued on behalf of the C,.:-Tany or its Subsidiaries in an aggregate principal amount outstanding in the ca.s€ of foreigm letters not to exceed ,S).1.100.000 in the aggregate at any on( of credit and $2,000,000 in the aggregate at any one time outstanding in the case of domestic letters of credit; (c) The Company's guaranty of lease rental payments on that certain lease of computer equipment by Capcom Systems, Inc. not to exceed an aggregate contingent liability for the Company of $250,000. (d) Ourantees by the Company of contingent liabilities of its Subsidiaries with respect to letters of credit permitted by Section 4.4(b); (e) Guarantees by the Company of obligations of its Subsidiaries (in addition to guarantees permitted under Section 4.4(d) hereof) not to exceed an aggregate contingent liability for the Company of $1,500,000 at any one time outstanding; (1) Cuarantee€ of collateralized personal )ea'- to key employees not to exceed $350,000 in the aggregate outstanding in connection with executive incentive and empk)yee benefit plans; and (g) Guarantees and contingent liabilities incurred by the Company in connection with the sale of substantially all the assets and business of the -Whitney Blake Company division of the Company not to exceed an amount equal to the aggregate liabilities of the Company, contingent and otherwise, in respect of such divisioL existing as of 11,e date of such sale. 4.5. Leases. The Company will not, DOT Will it permit any Subsidiary to, lease as lessee, or enter into as lessee any lease agreement (including any agreement which is analogous in either purpose or effect to a lease agreement) for the lease of any property, if after giving effect thereto, the aggregate amount of all lease rental payments required to be made by the Company and all Subsidiaries pursuant to all such lease agreements (exclusive of all capitalized leases, leases between a Subsidiary and ie Company or any other Subsidiary and leases of vehicles, data processing equipment, office machin• try and vending machines) permitted pursuant to this Section 4.5 would exceed $4,000,000 during any one of the Company's Fiscal Years. 4.6. Stock Payments. The Company will not: '(a) Except as provided below in this Section 4.6, make any dividend on any of its shares of any class of its capital stock (other than a dividend payable solely in shares of the Company) or 10  •  •  make or conimit to make any other Stock Payment in respect thereof, unless any such dividend is declared to be payable not more than Isays after the date of declaration, and unless after gg effect to the proposed Stock Payment, at the date of declaration in the case of a dividend or at tbe date of payment or distribution or commitment therefor (whichever is earlier) in the case of any other Stock Pay-rnent, I10 default exists under Sections 3.5, 3.6 and 3.7 hereof of which the Company is aware and no Event of Default exists under any covenant contained in Section 4 hereof, und the aggregate amount of all dividends (other than dividends in shares of the Company) declared during the period commencing January- 1, 1979 and ending on such date and the agg-regate amount of all other Stock Payments made since January 1, 1979 (and any commitments for such Stock Payments made since January 1, 1979 and outstanding on such date) shall not exceed K)0, plus 507( of Consolidated Net Income for the period, plus the aggregate net proceeds (in cash or, if for a consideration other than cash, the fair value thereof as S.termined by the board of directors of the Company) received by the Company from the issue or Bale after June 1, 1979 of shares of stock of the Company or warrants to purchase shares of its stock, and the aggTegate net proceeds (in cashfor a consideration other than cash, the fair value thereof as determined by the board of directors of the Company) received by the Company from the issue or sale after June 1, 1979 of Indebtedness of the Company to the extent such Indebtedness shall have been converted into shares of stock of teSmpan prior to such date. Notwithstanding the foregoing, the Company may retire any of its shares of any class in exchange for, or out of the proceeds of the sale of, other of its shares of any class, or out of the proceeds of the sale of any Indebtedness which shall have been converted into its shares of any cla.ss. and II such retirement shall be included in any computation provided for in this Section 4.6(a), provided that any such retirement of shares shall occur not more than 180 days following the receipt of such proceeds. For the purposes of this Section 4.6, the purchase or redemption by the Company of any Indebtedness convertible into any class of tsSmmon Stock shall not be deemed to be a Stock Payment. (b) Permit any Subsidiary to purchase or otherwise acquire, or at any time hold, any shares of any cla-s.s of the Company if under the provisions of this Section 4.6 the Company would be prohibited from malthng such purchase; provided, however, any such purchase by a Subsidiary shall for the purposes of this Ag-reement be deemed a purchase by the Company. 4.7. Loans, Advances, Investments. The Company will not, nor will it permit any Subsidiary to, make any loan, advance, investment or extension of credit to, or purchase or make any commitment to purchase any stock, bonds, notes, debentures or other securities of, any person, firm, corporation or enterprise whatsoever, except: (a) 'Unsecured or secured loans and advances by the Company to any Subsidiary or any unsecured loans and advances between Subsidiaries or by any Subsidiary to the Company or loans eviI- nced by notes receivable set forth in Schedule D hereto;   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (b) Investments in (i) Subsidiaries, (ii) securities of any corporation whose securities are listed on a national securities exchange or quoted on the automated quotation system of the National Amociation of Securities Dealers at an aggregate cost not exceeding $15,000,000, (iii) in Targets as contemplated by Section 1.5 hereof, and (iv) in any other corporation not to exceed .$5,000,000 in the aggregate in any one Fiscal Te.ar on a non-curnulative basis; obligations of or obligations guaranteed by teIted States of (c) Investments IS America, or any agency or instrumentality thereof; (d) Investments in certificates of deposit, time deposits and bankers' acceptances issued by any United States commercial bank or branch or subsidiary thereof, or issued by anv United States branch or subsidiary of a foreign bank, having at the time of in-vestment capital and surplus of at least $25,000,000; (ej. Investments in commercial paper issued by any corporation and rated at tbe time of iI vestment A-2 or better by Standard & Poor's Corporation or Prime-1 or better by Moody's 11  Investors Service, Inc. and, in either case, maturing within 270 days or less after the date of tS e acquisition thereof; (f) Travel advances made to officers, employees a_nd directors of the Coropany and its Subsidiaries in an aggregate amount not exceeding $100,000 at any one time outstanding; (g) Advanc in respect of collection of existing note.s owed to the Company as a result of the operations, financing and disposition of its former land development and land sale busine.sses in an aggregate amount not exceeding $150,000 in any one Fiscal Year on a non-cumulative basis; (h) Subject to the provisions of Section 4.10 hereof, purchase- redemptions, or other retirements of any of the Company's securities through the issuance of stock or the sale of treasury stock in exchange for such securities, or with the proceeds of any issuance of stock or sale of treasur3. stock within 160 days after the receipt of such proceeds; (i) Advances necessary to protect the Company's position under its guaranty of lease rental payments on that certain lea..se of computer equipment by Capcom Systems, Inc. in an agp-egate amount not exceeding $200,000 at any one time outstanding; and (j) Trade and customer accounts receivable and any extensions thereof. In determining the amount of such loans, advances and investments permitted under this Section 4.7, investments shall always be taken at the original cost thereof, regardless of any subsequent appreciation or det,reciation therein, _ric3 loans and advances shall be taken at the principal amount thereof then remang unpaid from time to time. 4.E. Dispositio'n of Notes and Accounts Receivable. The Compan3 will not, nor will it pen-nit any Subsidiary to, Sel, or otherwise dispose of with recourse any of its notes or accounts receivable (other than notes se; forth in Schedule D hereto and any note arising from the Company's guaranty of lease rental payments of Capcom Systems. Inc.) in excess of $1,000,000 in the aggregate in any 000,000 in the aggregate at any time one Fiscal Year on a non-cumulative basis or in excess of outstanding. 4.9. Sole and Learba.ck. The Company will not, nor will it permit any Subsidiary to, enter into any agreement, directly or indirectly, for the sale or transfer of any of its property now owried, or hereafter acquired, with a concurrent or subsequent acquisition by lease or rental of such property after giving effect to such sale or transfer, the aggregate book value of all such or like property prI perty sold or transferred exceeds $500,000 in any one Fiscal Year or 5,1,500,000 in the agg-regate in respect of all such arrangements at any time outstanding. 0aymc7.- of Indebtedness. The Company will not retire, purchase, redeem or prepay before the stated maturity thereof any Indebtedness subordinate as to time or right of payment to the payment of the Notes other than the Company's 6% Convertible Subordinated Debentures Due June Subordinated Debentures DU(' December 1, 19E9; 70-orifird that this 15. 19‘.6 and 7'7- Con\ Section 4.10 shall not prohibit the conversion of any of the Company's Indebtedness comenible into Common Stock of the Company in accordance with the terms thereof or the retirement, purchase, redemption or prepayment of any Subordinated Funded Indebtedness of the Company as required by the terms thereof, and provided further, that such retirement, purchase, redemption or prepayment is not in contraventio7). of any subordination provisions applicable thereto. 5.  SFr-OFT.  .0%  If the Company becomes insolvent, howsoever evidenced, or any Event of Default occurs, any indebtedness from the Banks to the Company may be offset and applied toward the payment of any indebtedness from the Company to the Banks, whether or not such indebtedness, or any part thereof, shall then -be due. The Banks hereb3- agree as among themselves that, so long as any principal of any Note is outstanding, any indebtedness from any Bank to the Company which is offset pursuant to this   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  32  S  •  Section 5 shall be applied toward the payment of the Company's indebtedness under the Notes and shall be applied to each Bank in the proportion that the Company's indebtedness due each Bank under the Notes bears to the Company's aggregate indebtedness due the Banks under the Notes; provided, however, it is expressly agreed and understood that the order in which such application is to be made by any Bank to the indebtedness due to it under the Notes shall be in the sole discretion of such Bank. The Banks hereby further agree as among themselves that, so long as any principal of any Note is outstanding, if any Bank shall receive from the Company or any other party, whether by distributions hereunder, exercise of the right of set-off, voluntary payment, counterclaims, cross actions, suits at law or in equity or by proof of claim in bankruptcy, liquidation or similar proceedings, or by payments made under any policy of insurance or otherwise, any amount in respect of the Notes in excess of the aforesaid proportion applicable to it (after the deduction of any expenses or costs incurred in connection therewith), such Bank shall make such disposition and arrangements as soon as reasonably practicable with the other Banks (except for any Bank which has elected not to accelerate its Notes) with respect to such excess, either by way of distribution, participation, assignment of claims, subrogation or otherwise, as shall result in each such Bank receiving in respect of Notes held by it, a proportionate payment as contemplated by this Section 5. If any such disposition or arrangements in respect of any such excess are made by any Bank pursuant to this Section 5 and if such excess payment or any part thereof is thereafter recovered from such Bank, the related disposition and arrangements with the other Banks shall be rescinded and any distribution or payment restored as to the portion of such excess payment so recovered, but without interest. The Banks hereby agree among themselves that each Bank will promptly notify the other Banks or the Agent upon obtaining knowledge of any material Event of Default under this Agreement. 6.  EVENTS OF DEFAULT AIM REM EDITS.  6.1. Events of Default. The occurrence of any one or more of the following events shall constitute an Event of Default by the Company under this Agreement:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (a) The Company shall fail to make any payment of principal on any Note when due, whether by acceleration or otherwise; or the Company shall fail to pay interest on any Note or any other amount required to be paid to the Banks or the Agent pursuant to this Agreement when due and failure to pay such interest or other amount shall continue for five days; (b) Any representation or warranty made by the Company herein or in any certificate, statement or report furnished by or on behalf of the Company hereunder shall prove to have been false or breached in any material respect when made; (c) Any default by the Company in the performance of any covenants contained in Sections 3.5, 3.6 or 3.7 hereof which shall not be remedied by the end of the second fiscal month following the end of the fiscal month as of which such default shall have occurred, or any default by the Company in the performance of any covenant contained in Section 4 hereof; (d) Any default by the Company in the performance of any other covenant contained in this _Agreement and such default is not remedied within ten days after notice to the Company by any Bank; (e) The Company or any Subsidiary shall default in any payment of' principal of or interest on any obligation for borrowed money (other than principal or interest due on any Note, but including without limitation: any obligations under conditional sales or other title retention agreements; any obligation issued- or. assumed as full or partial payment for property whether or not secured by purchase money mortgage; or any obligations under notes payable or drafts accepted representing extensions of credit) beyond any period of grace provided with respect thereto, or, after any notice required to be given with respect thereto and beyond any period of grace provided with respect thereto, shall be in default in the performance of any other agreement, term or condition contained in any agreement under which any such obligation is created (or if any other default under any such agreement shall occur and be continuing) if the effect of any such default 13  S  •  ion (or a trustee on or other default is to C.1111M, or to permit the holder or holders of such obligat prior to its stated behalf of such bolder or holders) to cause, such obligation to become due maturity; of creditors, (1) If the Company or any Subsidiary shall make an assignment for the benefit become due, or shall or shall admit in writing its inability generally to pay its debts as such debts r or liquidator apply for or consent to the appointment of or taking possession by a trustee, receive part of its prop(or other similar official) of the Company or any Su.:Isidiary or any substantial the federal erty, or shall commence a case or have an order fo; relief entered against it under or state bankbankruptcy laws, as now or hereafter constituted, or any other applicable federal ty sharerunc3-, insolvency or other similar law, or if the Company or its directors or majori holders shall take any action looking to the dissolution or liquidation of the Company; of a (g) If, within 15 days after the commencement against the Company or any Subsidiary other applicable case under the federal bankruptcy laws, as now or hereafter constituted, or any ed federal or state bankruptcy, insolvency or other similar law, such case shall have been consent ings to by the Company or any Subsidiary or shall not have been dismissed or all orders or proceed or if thereunder affecting the operations or the business of the Company or any Subsidiary stayed, after the stay of any such order or proceeding shall thereafter be set aside, or if within 15 days official) of the the entry of a decree appointing a trustee, receiver or liquidator (or other or any substantial pL—, of its prc.nerty, such deer, shall not have Company or any Subsid:.. been vacated or stayed; or Sr.:' Subsidiary °Lie or more judgments (h) There shall be entered against the Corn; or decrees not paid by or fully covered by insurance involving in the aggregate for the Company shall and all Subsidiaries a liability of $250,000 or more and all such judgments or decrees not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (i) The Company shall default in the performance of any agreement or instrument delivered pursuant to this Agreement. of such 6.2. Rem(dies. If any Event of Default occurs, any Bank may declare the obligations ted, Bank to make the Loans hereunder to be terminated, whereupon such obligation shall be termina and all and declare the principal of the Notes held by such Bank and the accrued interest thereon pon such Notes other amounts due to such Bank hereunder to be forthwith du, and payanie, whereu payable, and the accrued interest th(reon and su0, other amounts shall forthwith become due and all of which are hereby expressly notice o: any without presentment, demar,;.. pro-test or( waived.  7.  CONDMONS OF LENDING.  waived The Loans are to be made only if the following condition: shall have been satisfied or pursuant to Section 30.2 hereof: d 7.1. Exccution of Notes. A duly authorized officer or officers of the Company has execute and delivered the appropriate Notes evidencing such Loans to the respective Banks. the 7.2. Corporatc Action and Documtnts. Each Bank shall have received copies, certified as e: of the hoard Closing Date by the Secretary or Assistant Secretary of the Company of the re, . lutions of this Agrec:-.ent of directors of the Company authorizing the execution, delivery and performance ze the execution, and the Notes and of all other corporate action taken by the Company to authori and such delivery and performance of this Agreement and the execution and delivery of the Notes; of the Federal other papers, including, without limitation, Form U-1 of the Board of Governors Reserve System, as the Banks or their counsel shall reasonably request.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  14  7.3. No Default. At the time of and after giving effect to any Loan, no Event of Default or any other event which, with notice or laps€ of time, or both, would constitute an Event of Default shall have occurred or be continuing, and the Company shall be in compliance with all of its covenants and agreements contained in this Agreement and the Notes. 7.4. Representations and warrantits Correct. Except as affected by the transactions or events herein contcmplated or permitted, the representations and warranties contained in Section 2 hereof shall be true and correct on and as of the Closing Date with the same force and effect as, though such representations and warranties had been made on and as of such Closing Date, and the representations and warranties contained in Sections 2.1 and 2.3 hereof shall be true and correct on and as of the date of each Loan with the same force and effect as though such representations and warranties had been made on and as of such date. 7.5. Opinion,c of Counsel. Each Bank shall have received from Ropes & Gray, counsel for the Company: (a) At the Closing Date a written opinion satisfactory to the Banks and their counsel, dated as of the Closing Date, to the effect that:  1  (i) The Company is duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, is duly qualified as a foreign corporation and in good standing in the jurisdictions listed on a schedule attached to said opinion, and has all requisite corporate power and authority to own and operate its properties and to carry on its business as now conducted; (ii) This Agreement has been duly authorized, executed and delivered by the Company and is a legally valid and binding obligation of the Company, enforceable in accordance with its terms against the Company, except to the extent that such enforcement may be limited by bankruptcy, insolvency, reorganization or similar laws of general application affecting the rights and remedies of creditors and except to the extent that the availability of the remedy of specific enforcement or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought; (iii) The issuance of the Not has been duly authorized and the Revolving Loan Notes have been duly executed and delivered; • (iv) The execution and delivery of, and performance by, the Company of this Agreement and the execution and delivery of the Revolving Loan Notes will not violate any provision of law or its charter or by-laws or to the knowledge of such counsel any agreement, indenture, judgment or order binding upon the Company and will not result in the creation of any lien, charge or encumbrance upon any property or assets of the Company pursuant to any other agreement or instrument of which such counsel is aware to which the Company is a party or by which the Company or the property of the Company may be bound or affected, it being understood that such counsel may rely upon a certification of an appropriate officer of the Company as to the existence of any such agreement, judgment, order or instrument; (v) The Notes are entitled to the benefits of the subordination provisions of the indentures under which the Company's outstanding Subordinated Funded Indebtedness was issued; (vi) No authorization., approval, consent or other order of any governmental authority is legally required to be obtained by the Company for the execution and delivery of this Agreement or the Notes, or to the extent that the same may be required it has been validly procured; and  -   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (vii) To the knowledge of such counsel there is no suit, action, proceeding or investigation pending or to the knowledge of such counsel threatened against or affecting the Company dr any of its Subsidiaries in any court or before any regulatory commission, board or 15   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  determined, would have a material administrative governmental agency ihich, if adversely the Company and its Subsidiaries, effect on the financial condition, business or operations of to the Banks. taken as a whole, except as previously disclosed in writing ed SI:t1f1.F of America and The With respect to the laws of any jurisdiction other than the Unit that they arc not licensed to practice Commonwealth of Massachusetts, such counsel may state dictions are relying upon the opinion or law in such jurisdictions and as to the laws of such juris counsel who are satisfactory to such opinions (which shall be addressed to the Banks) of other upon certificates of public officials or counsel and the Agent, and such counsel may also rely corporate officers as to matters stated therein. . a written opinion satisfactory to the (h) At the time of the making of each F.evolving Loan t of borrowings then outstanding thereBanks and their counsel, to the effect that, to the exten lving Loans. the Revolving Loan Notes are under, after giving effect to the making of such Revo ceable in accordance with their terms. the valid and binding obligations of the Company enfor (i) enforcement of the rights and remedies Such opinion may he qualified to the extent that anization and similar laws of general created thereby is subject to bankruptcy, insolvency, reorg and (ii) the availability of the remedy application affecting the rights and remedies of creditors, the discretion of the court before which of specific performance or injunctive relief is subject to any proceeding therefor may he brought. satisfactory to the Banks and their counsel, (c) On the Conversion Date, a written opinion and are the valid Term Loan Notes have beer ruly executed and delivered to th( effect thP' accordance with their terms. Such opinion and binding obligations of the Company enforces: in . (b) hereof. may be qualified to the extent provided in paragrap:. s hereunder, such opinions as the (d) At the time of the making of any Acquisition Loan the transactions contemplated by this Banks shall have reasonably requested with respect to Agreement. ved: 7.6. Compliance Certificate. Each Bank shall have recei ng Date executed on behalf of the (i) On the Closing Date, a certificate dated the Closi tance satisfactory to the Banks and their • Company by its chief executive officer, in form and subs 7.4 hereof on and as of the Closing Date: counsel, certifying compliance with Sections 7.3 and Conversion Date executed or behalf of (ii) On the Conversion Date, a certificate dated the and substance satisfactory to the Banks and the Company by its chief executive officer, in form 7.3 hereof, (b) that, except as affected by their counsel, certifying (a) compliance v•ith Section )ermitted by this Agreement, the representations and the 1.ransactions or ever ts conternplatec: are true and correct on and as of the Conwarranties contained in Sections 2.1 and 2.3 hereof ion of officers of the Company exeversion Date, and (c) as to the incumbency and due authorizat cuting !hi Term Loan Notes; and Date or the Conversion Date, a cer(iii) On the date of each Loan not made on the Closing the Company by its chief executive tificate dated the date of such Loan executed on behalf of s and their counsel, certifying compliance officer, in form and substance satisfactory to the Bank with Section 7.3 hereof on and as of such date.  8.  DEFINITIONS.  ement, the exhibits and schedules Unless the context otherwise requires, as used in this Agre ons or supplements to this Agreement, such attached hereto, the Notes and any amendments, modificati following meanings. which meanings shall be exhibits or the Notes, the following terms shall have the forms of such terms, as the case may be: equally applicable to both the singular and plural on 1.5 hereof. "Acquisition Loan" shall have the meaning given in Secti 16  "Agent" shall mean State Street Bank and Trust Company, or such other Bank as may become Agent pursuant to Section 10.1 hereof, in its capacity as Agent for the Banks under this Agreement and not in its individual capacity. "Agreement" shall mean this agreement between the Company, the Banks and the Agent and any and all amendments hereto and extensions or renewals hereof. "Banks" shall mean, collectively, American Security Bank, N.A., Continental Illinois National Bank and Trust Company of Chicago, First Pennsylvania Bank N.A., State Street Bank and Trust Company,'United States Trust Company of New York, and their respective successors and assigns. "Closing Date" shall mean the date  as  of which this Agreement is executed and delivered.  "Company" shall mean Nortek, Inc., a corporation organized under the laws of the State of Rhode Island and Providence Plantations. "Consolidated Current Assets" shall mean all assets of the Company and its Subsidiaries, including the portion thereof, if any, allocable to minority interests in Subsidiaries which would, in accordance with generally accepted accounting principles, be classified upon a consolidated balance sheet of such corporations as current assets. "Consolidated Current Liabilities" shall mean all liabilities of the Company and its Subsidiaries which would, in accordance with generally accepted accounting principles, he classified upon a consolidated balance sheet of such corporations as current liabilities, provided, however, such terms shall not in any event, be deemed to include any Indebtedness from time to time outstanding under this Agreement. "Consolidated Net Income" for any period shall mean the amount of consolidated net income (or net loss) of the Company and its Subsidiaries for such period, excluding the portion thereof, if any, allocable to minority interests in Subsidiaries, all determined in accordance with generally accepted accounting principles; provided, that, in no event shall there be included in any such computation (i) the net income (or net loss) of any business acquired by the Company or any Subsidiary for any period prior to the end of the Company's Fiscal Year next preceding the date of such acquisition (whether accounted for as a pooling of interests or a purchase), (ii) any amortization or write-off of goodwill arising in connection with a merger, consolidation or acquisition of stock or assets to which the Company or any Subsidiary is a party, or (iii) the Company's or any Subsidiary's equity in the undistributed net income (or net loss) of investments (other than investments in a Subsidiary), whether or not at the time the equity in such undistributed net income (or net loss) would be includible in accordance with generally accepted accounting principles. "Conversion Date" shall mean the day following the third anniversary of the Closing Date or, if such date is a Saturday, Sunday or legal holiday, the next succeeding business day. "Event of Default" shall mean the occurrence of any one or more of the events described in Section 6.1 hereof which shall not be remedied within the period of grace, if any, provided therein. "Fiscal Year" shall mean a calendar year. "Funded Indebtedness" shall mean, at any date, all Indebtedness of the Company and its Subsidiaries which would, in accordance with generally accepted accounting principles, be classified as funded indebtedness. Whether or not required by generally accepted accounting principles, Funded Indebtedness shall also include all Indebtedness, whether secured or unsecured having a final maturity (or which, pursuant to the terms of a revolving credit agreement or otherwise, is renewable or extendible at the option of the borrower for a period ending) more than one year after the date of the creation thereof, and shall include payments in respect thereof (whether installment, serial maturity or sinking fund payments or otherwise) required to be made by the borrower less than one year after the date of any computation of Funded Indebtedness. Any Indebtedness which is extended or renewed (other than pursuant to an option of the borrower) shall be deemed to have been created at the date of such extension or renewal.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  17  for money borrowed "Indebtedness" of any person shall includt all obligations of such person with generally accepted acor the deferred purchase price of property which would in accordance ties of such person and counting principles be classified upon a balance sheet of such person as liabili in any event shall include: by such person (i) all Indebtedness guaranteed, directly or indirectly, in any manner of business) or or endorsed (otherwise than for collection or deposit in the ordinary course discounted with recourse; person through (ii) all Indebtedness in effect guaranteed, directly or indirectly, by suel: advance or supply an agreement, contingent 07 otherwise, (1) to purchase such Indebtedness or to sell or lease (as lessee funds for the payment or purchase of such Indebtedness, (2) to purchase. sell transportation or or lessor) property, products, materials or supplies, or to purchase or such Indebtedness services, primarily for the purpose of enabling the debtor to make payment of of the delivery or nonor to assure the owner of such Indebtedness against loss, regardless or non-furnishing of delivery of the property, products, materials or supplies or the furnishing contribution or other the transportation or serv-ic-. or (3) to make any loan, advance, capital , as,et base, working investment in the debtor lc- the purpose of assuring a minimum equity the payment of any capital or other balance shee-. -ondition for any date, or to provide funds for to or in any liability, dividend or stock ;.-uidation payment, or otherwise to supply funds manner invest in the debtor. : .d ional sale agree(iii) all Indebtedness f - .)ch person create,' or arising under any condit t of a lease of ment 07 other title retentiy: agreement or the amount of liabilit: in respec accounting principles, property, real or personal, v--aich, in accordance with generally accepted would at such time be required to be capitalized on a balance sheet of the lessee. or separately. "Loans" shall mean the Revolving Loans and the Term Loans, collectively or separately. "Notes" shall mean the Revolving Loan Notes and the Term Loan Notes, collectively Bank from time to time "Prime Rate" shall mean the per annum rate of interest charged by each red, commercial loans. to its largest and most credit-worthy commercial borrowers on 90-day unsecu n 1.3(2) hereof "Revolving Loans" shall mean, collectively, the Loans made pursuant to Sectio evidenced by the Revolving Loan Notes. ed to in Section "Revolving Loan Notes" shall mean, collectively, the Revolving Loan Notes referr evidencing the Revolving 1.2 hereof executed, issued and cieliNered in the form of Exhibit A hereto Loans. of the Company or any "Stock Payment" shall mean any dividend on shar( of capital stock any of its shares of capital payment on accoun.. of the purchase, redemption or other retirement of or indirectly, and whether in stock or any .her distribution made in respect thereof, either directly payable solely in shares cash or property or in obligations of the Company, ems,— that a dividend nt. The amount of any of any class of stock of the Company shall not be deer.,ed a Stock Payme r of the fair value of Stock Payment in property of the Company shall be deemed to be the greate net book value of such such property (as determined in good faith by the board of directors) or the ting principles) on property on the Company's books (in accordance with generally accepted accoun nt or distribution in the the date of declaration in the case of a dividend or at the ea,e of payme case of any other Stock Payment. d Indebted"Subordinated Funded Indebtedness" of the Company shall mean, at any date, Funde Due June 15, 19SS, 7c,} ness represented by the Company's 65-c Convertible Subordinated Debentures 121,:.* Subordinated Sinking Convertible Subordinated Debentures Due December 1, 19S9, and Company which is issued subsequent Fund Debentures Due 1999 and Funded Indebtedness of the containing provisions for the to the date of this Agreement under an indenture or other instrument nce shall be made in the specific subordination of such Indebtedness (to which appropriate refere 18   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  instruments evidencing suc h Indebtedness) to the Notes identical to the provisions dination stated in the Indent relating to suborure dated a.s of June 1, 19 79 of the Co mpany providing for the Compan 121' /2% Subordinated Sinking y's Fund Debentures Due 1999 (o r in such other form as is satisf each of the Banks and their actory to counsel) and which is amo rtizable not faster than ratably ending after September 30, over a period 1986. "Subsidiary" shall mean any corporation, association, partne rship, trust or other organizat which the Company shall ion of at the time, directly or ind irectly through a Subsidiary, hav voting power to entitle it e sufficient to elect immediately or to have had elected (giving consid provisions in the charter or era tion to any bylaws of such organization limiting the powers of stockholders directors in office, or the like) to remove a majority of the board of directors or similar governing bod vided, however, that such ter y ; prom shall not include (i) any organization until the Company has such sufficient voting power possessed for 90 days or until the Co mpany shall have actually electe of the board of directors or d a majority similar governing body of suc h organization, whichever is sooner any organization of which , or (ii) the Company has acquired such sufficient voting power, so chief executive officer of the long as the Company certifies in writin g to the Ba nk completed its acquisition of all s that the Company has not of the outstanding securities of suc h organization, that the Compan has the present intention of y completing such acquisition wit hin the ensuing year, and that it would not be, in the best interests of the Company to elect a majori ty of the board of directors or governing body prior to the similar completion of such acquisition. "Tangible Effective Net Worth" shall mean the sum of (a) stockholders' equity in all classes stock of the Company (except tre of asury stock) plus (b) additi onal paid-in capital plus (c) ret earnings plus (d) Subordinated ain ed Funded indebtedness less (e) all amounts attributable to goo patents, trademarks, trade name dwill, s, licenses, franchises and oth er intangibles, all determined on solidated basis for the Company a conand its Subsidiaries. "Target" shall have the meanin g given in Section 1.5 hereof . "Term Loans" shall mean, collectiv ely, the loans made pursuant to Section 1.1(b) hereof eviden by the Term Loan Notes. ced "Term Loan Notes" shall mean , collectively, the Term Loan Notes referred to in Section 1.2 hereof executed, issued and delive red in the form of Exhibit B hereto evidencing the Term Loa ns. "Working Capital" shall mean the excess of Consolidated Cur rent Assets of the Company an its Subsidiaries over their Consolida d ted Current Liabilities. 9.  NOTICES.  All notices, requests and demands required or permitted to be giv en pursuant to this Agreement shall be given to or made upon the respective parties hereto as follows: The Company: Nortek, Inc. 815 Reservoir Avenue Cranston, Rhode Island 02910 Attention: Richard L. Bready , Treasurer with a copy to: Roger Moore, Esq. Ropes & Gray 225 Franklin Street Boston, Massachusetts 02110 The Banks and the Agent: Their respective addresses set forth below their names in the signature page of this Agreemen t   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  19  •  Oh  with a copy to:  Allen M. Bornheimer, Esq. Choate, Ball & Stewart 60 State Street Boston, Massachusetts 02109  or, as to each party, at such other address as shall be designated by such party by notice to each other party. All notices, requests and demands inven or made in accordance with the provisions of this Agreement shall be deemed to have been given or made when deposited in the mails, postage prepaid, or in the case of telegraphic notice, when delivered to the telegraph company, charges prepaid, or in the case of telex, TWX or telecopier notice, when received by the other party, all addressed as specified herein.  10. Miscra..LAN-Eotts. 10.1. Agent. The respective obligations of the Banks hereunder are several and not joint and none shall be, nor be construed to be. the partner or agent of any other, except to the extent that State Street Bank and Trust Company is expressly made the Agent of the Banks in accordance with the terms hereof. The Agent may execute any of its duties hereunder by or through its agents, officers or employees, shall be entitled to rely upon the advice of counsel as to its duties and shall not he liable to any of the other Banks for any action taken or ornitte-d to be taken by it in good faith, shall not be responsible to any of the other Banks for the consequences of any oversight or error of judgment and shall not be answerable to any of the other Banks for any loss unless the same The Company agrees to furnish F hall happen through its gross negligence or wilful misconduct. to the Agent sufficient executed copies of all statements, notices, certificates and other instruments deliverable to the Agent hereunder so that the Agent may furnish an executed copy thereof to each Bank. Thf Agent shall receive no compensation hereunder hut the Agent and each Bank shall he promptly reimbursed by the Company for its out-of-pocket expenses in connection with the printing, administration and enforcement of this Agreement and the Notes. At any time the Agent may resign upon 10 days' written notice to the Banks and the Company and be replaced as Agent by such other Bank as shall be consented to by all of the Banks. The Company shall be entitled to rely on any written communication to it s-igned by the Agent or on any communication sent to it by telex, TWX or telecopier notice by the _;•ent. .Amendments one 7raivers. With th onsent of all of the Banks, thr Agent and the Company may, subject to t::.. provisions of this Section 10.2, from time to time enter into agreements st:t,-iplemental hereto for the purpose of adding any provisions to, or deleting. waiving or modifying any provisions of, this Agreement or changing in any manner the rights of th Banks or of the Company hereunder. Any oral consent to such amendment or waiver shall subsequently be confirmed in writing to the Agent by the Bank giving such oral consent.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  10.3. Waivers. No failure on the part of the Banks to exercise, ane no delay in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy. power or privilege, and no waiver whatever shall be valid unless in writing signed by the Company and the Banks and then only to the extent specifically set forth in such writing. 10.4. Remedies. All remedies, rights, powers and privil([ es, either under this Agreement or by law or. otherwise afforded the Banks shall be cumulative and not be exclusive of any remedies, rights, powers and privileges provided by law and shall be available until the Notes and all interest thereon have been paid in full in lawful money of the United States of America. The Banks Trl a V exercise all such remedies in any order or priority. 20  • 10.5. Costs, Expenses and Taxes; Ind(mnifi.c.a:icrn. The Company, whether or not Loans are made, agrt-es to pay all costs and expenses incurred by the Banks (including the reasonable fees and expenses of each Bank's counsel and of special counsel for the Banks) in connection with the preparation of this Agreement and the transactions contemplated hereby and in connection with the enforcement of this Agreement and the Notes, as well as any and all costs of collection if default is made in the payment of any principal or interest owing on the Notes and all stamp taxes (including interest and penal;y) and will save the Banks harmless from any and all liabilities with respect to, or resulting from, any delay or omission to pay such taxes. The Company agrees to indemnify each Bank and each of its directors, officers and employees and hold each of them harmless from and against any and all damages, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by such Bank or such other person in connection with any litigation or threatened litigation involving such Bank or such other person arising out of any Acquisition Loans (whether or not such Loans are actually made), except (i) damages, liabilities and expenses resulting solely from . any matter as to which such Bank or such other person shall have been finally adjudicated to have acted in bad faith or to have wilfully violated any provision of law as a'result of the improper use of any confidential information furnished to such Bank or such other person by the Company or by any other customer of such Bank or to have wilfully violated any fiduciary responsibility to any such customer, or (ii) as to any such litigation which shall have been settled by such Bank or such other person without the prior written approval of the Company. which approval shall not be unreasonably withheld. The Company shall promptly reimburse each Bank and each such other person for all such damages. liabilities and expenses on a current basis as and when they are paid by such Bank or such other person. Promptly upon receipt by any of the Banks or any of such other persons of notice of the commencement of any action, such Bank or such other person shall, if a claim in respect thereof is to be made against the Company hereunder, notify the Company in writing of the commencement thereof and permit the Company to participate in the defense of any such action. 10.6. Survival of Representations and Covenants. All representations. warranties and covenants made by the Company and the Banks in this Agreement shall survive the execution and delivery of the Notes. 10.7. Payment on Non-Banking Days. Whenever any payment to be made hereunder or under the Notes shall become due on a Saturday, Sunday or legal holiday under the laws of the jurisdiction in which any Bank is located, such payment shall be made on the next succeeding banking day in such jurisdiction and such extension of time of the payment of principal shall in such case be included in computing interest in connection with such payment. 10.8. Benefit of Aprfement. This Agreement shall be binding upon and inure to the benefit of the Company and the Banks and their respective successors and assigns, except that the Company may not assign or transfer any of its rights under this Agreement without the prior written consent of the Banks. 10.9. Accounting Computations. Unless otherwise expressly provided herein or unless the Banks otherwise consent in writing, all financial statements and reports furnished to the Banks hereunder shall be prepared, and all computations and determinations pursuant hereto shall be made in accordance with generally accepted accounting principles, practices and procedures applied on a basis not materially inconsistent with those applied in the preparation of the financial statements referred to in Section 2.6 hereof. 10.10. Governing Lau. and Construction. This Agreement has been executed and delivered at Boston, Massachusetts, and shall be construed in accordance with and governed by the internal law, and not the laNy of conflicts, of The Commonwealth of Massachusetts. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under such applicable law. 21   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  10.11. Transfer of tht Notes. Each Bank represents that it shall acquire its Notes for its own account and not with a view to the distribution thereof, provided that the disposition of its Notes shall at all times be within the control of such Bank. Each Bank agrees that it will not transfer any of the Notes unless it records thereon or on a paper annexed thereto prior to such transfer the date and principal amount of all Loans evidenced by each Note and the date and amount of all payments of principal and interest made in respect of each Note. The Company represents that the Notes have not been offered to such other persons as would require that the issuance of the Notes be registered under the Securities Act of 1933. 10.12. Prior Agreonents. This Agreement supetttedes all prior agreements among the Banks and the Company relating to the subject matter hereof. 10.13. Counterparts This Agreement may be executed by the parties hereto individually, or in any combinations of the parties hereto in several separate counterparts, all of which taken together shall constitute one and the same agreement, and in proving this Agreement it shall be sufficient to produce a counterpart of this Agreement signed by each party hereto. 10.14. Headings. Section headings in this Agreement are for convenience of reference only and shall not govern the interpretation of any of the provisions of this Agreement. kW*  22  IN WITNESS WHEREOF, the parties hereto have caused this .Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above 'written. NORTEK, INC. [SEAL] By /S/ RICHARD L. BREADT Executive Vice President STATE STREET BANN AND TRUST COMPANY Individually and as Agent By /Si GEORGE R. MiNur Vice President 225 Franklin Street Boston, Massachusetts 02110 AMERICAN SECLTRITY BANK, N.A. By /S/ JAMES R. ANDERSON Vice President 15th Street and Pennsylvania Avenue, N.'W. Washington, D.C. 20013 CONTINENTAL ILLINOIS NATIONAL BANN A.ND TRUST COMPANY OF CHICAGO JOHN R. RuncrE rice President 231 South LaSalle Street Chicago, Illinois •60693 FIRST PENNSYLVANIA BANK. N.A. By /S/ ERICK SCHILLING Vice President nn First Pesylvania Tovcer Centre Square Philap del hia, Pennsylvania 19101 UNITED STATES TRUST COMPANY OF NEW YORK By /s/ C. WILLIAM STunamAN Vic( President 45 Wall Street New York, New York 10005  23  •  EXFEEBIT A REVOLVING LOAN NOTE Boston, Massachusetts October , 1979 The undersigned, Nortek, Inc., a Rhode Island corporation (herein called the "Company"), hereby promises to pay to the order of on or before October , 1982, the principal amount of Dollars ($ ) or so much thereof as may he outstanding under the Revolving Credit and Term Loan Agreement referred to below, together with interest on the principal amount outstanding from time to time at a rate per annum. (computed on the basis of the actual number of days elapsed over a 360-day year) equal to 1/2(7c above the Prime Rate, as hereinafter defined, which rate shall change when and as such Prime Rate changes, such interest being payable quarterly in arrears on March 31, June 30, September 30 and December 31 in each year hereafter, commencing December 31, 1979. "Prime Rate" shall mean the per annum rate of interest charged by the payee from time to time to its largest and most credit-worthy commercial borrowers on 90-day unsecured, commercial loans. All payments of principal and interest on this Revolving Loan Note shall be payable in lawful money o:r. the United States of America at the office of the payee, located at , or at such other place as the holder hereof may from time to time in writing appoint at least ten day before the date such payment i due. Whenever any payment of principal or interest to be made hereunder shall become due on a Saturday, Sunday or legal holiday under the laws of the jurisdiction in which the payee's aforementioned office is located, such payment shall be made on the next succeeding business day in such jurisdiction in the case of payments of principal, such extension of time shall be ine:uded in computing interest in connection with such payment. This Revolving Loan Note is one of the Revolvii.g Loan Notes referred to in that certain Revolving Credit and Term Loan Agreement dated as of Ociober , 1979 by and among the Company, the Banks referred to therein including the payee hereof and the Agent, reference to which is hereby made for a statement of the terms and conditions under which the principal hereof and accrued interect hereon may become or may be declared forthwith due and payable as provided in said greement. Presentment, demand, notice, protest and all other demands and notices in connection with any default under or the enforcement of this Revolving Loan Note are hereby expressly waived. NORTEK, INC. (SEAL) By  Its  011••••  ri  EXHIBIT B TERINI 1,0.4..N NOTE Boston, Massachusetts October , 1982 The undersigned, Nortek, Inc., a Rhode Island corporation (herein called the "Company"), hereby promises to pay to the order of the principal amount of Dollars ($ ), payable, until paid in full, in sixteen (16) consecutive quarterly installments of principal of $ each payable on December 31, 1982 and on each March 31, June 30, September 30, and December 31 thereafter, together with interest from the date hereof until paid in full on the remaining principal amount outstanding hereon from time to time at a rate per annum (computed on the basis of the actual number of days elapsed over a 360-day year) equal to 1/2% above the Prime Rate, as hereinafter defined, which rate shall change when and as such Prime Rate changes, such interest being payable quarterly in arrears on March 31, June 30, September 30 and Dkember 31 in each year hereafter, commencing December 31, 1982. "Prime Rate" shall mean the S.r annum rate of interest charged by the payee from time to time to its largest and most creditv,orthy commercial borrowers on 90-day unsecurul, commercial loans. All payments of principal and interest on this Term Loan Note shall be payable in lawful money of the 'United States of America at the office of the payee, located at or at such other place as the holder hereof may from time to time in wrng appoint at least ten days before the date such payment is due. NVIenever any payment of principal or interest to be made hereunder shall become due on a Saturday, Sunday or legal holiday under the laws of the jurisdiction in which the payee's aforementioned office is located, such payment shall be made on the next succeeding business day in such jurisdiction and, in the case of payments of principal, such extensiS n of time shall be included in computing interest in connection with such payment. This Term Loan Note is one of the Term Loan Notes referred to in that certain Revolving Credit and Term Loan Agreement dated as of October , 1979 by and among the Company, the Banks referred to therein including the payee hereof and the Agent, reference to which is hereby made for a statement of the terms and conditions under which the principal hereof and accrued interest hereon may become or may be declared forthwith due and payable as provided in said Agreement. Presentment, demand, notice, protest and all other demands and notices in connection with any default under or the enforcement of this Tenn Loan Note arc hereby expressly waived. NORTEK, INC. (SEAL)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  By Its  July, 21, 1,00  This nonorable William Premise Chairman Committee on Winking, Housing and Urban Affairs United States Senate waebington, D.C, 20510 Dear Chairman Proxmire Them* you for sending Llo the infeemation from Nra Stuart Tisdale easserning the Nortek/ Inc. leas agreement. The staff here and at the Reserve Banks have reviewed the materials and have been looking into the situation at the beaks involved* We have learned that the parties to the loan agreement felt committed to the loan rrior to my October 23 letter and that there are indications that aegotiatieme had been underua y since early in October. The October 23 iett4111, vas the first o'ommunication that specifically enrhamised take-overeaseee. Nevertheless, ciuestion remains in my mind ae to 'why the banks had not been sensitive to the relevance of this eolooltosot to earlier admonitions about fimencing purely fiassoial epeemlative activity that did not contribute to esenemie • In thAt connoctiong I have noted the provisiem tbe loan agreement that the proceeds of the loan will he eeed is aeguire an unidentified °target. If the 'itarget' was also unknown to the lenderc, it 19 difficult to see how they could ahow that the loan was a transaction that would centributo to the economy's performance. Tha gemeral requezt for restraint in this tyre of lendim and before October 23 it was admittedly lee* esplicit—does not, of course, have the force of regulation. Sewever, the loan raines a question as to whether the hamatz consciously misconstrued or disregarded the spirit of the Federal Reserve's efforts in this areas 2 have asked the Ueeerve Sank Presidents to discuss this loan with the top officials of the banks involved, emphasising the nature of mof Seneerna about the trannaction and =eking certain that the need for seoperation in such efforts is understood. rincerely, KStpjt (*V-202) bcct mrs. mallardi  MNO.YROt  WILLIAM PROXMIRE. WIS., CHAIRMAN HAnNi SON A. WILLIAMS, JR., N.J. ALAN CR>NSTON, CALIF. ADLAI F. STEVENSON, ILL. POSER I' MORGAN, N.C. DONNLD W. RIEGLE, JP.. MICH. PA'A. S. SARPANES, MD. Di,NALD W. ETEWAnT, ALA  CTION ASSIGNED MR. CORRir; info copies to Messrs. yan and Petersen  li  JAKE GARN, UTAH JOHN TOWER, TEX. JOHN HEINZ, PA. WILLIAM L. ARMSTRONG. COLO. NANCY LANDON KASSEBAUM, KANS. RICHARD G. LUGAR. IND.  '11Crrilvb Zfafez Zertate  GEORGE J. MITCHELL, MAINE KENNETH A. MC LEAN. STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR  COM M 11TEE ON BANKING, HOUSING, AND URBAN AFFAIRS  MARY FRANCES DIE LA PAVA, CHIEF CLERK  WASHINGTON, D.C.  20510  July 1, 1980  The Honorable Paul A. Volcker Chairman, The Federal Reserve System 20th Street and Constitution Avenue Washington, D.C. 20551 Dear Mr. Chairman: Enclosed is a copy of information sent to me by Mr. Stuart Tisdale, Chairman and President of Sta-Rite Industries. Mr. Tisdale has already written to five Federal Reserve Bank Presidents concerning the term loan agreement between Nortek, Inc. and five banks. The purpose of that loan agreement is to finance acquisitions by Nortek. This would appear to be contrary to the Federal Reserve's Special Credit Restraint Program. I bring this to your attention because at the Banking Committee hearing on March 18 you indicated a desire to be kept informed of take-over loans that became known to members of the Committee. I would appreciate if if your staff could review the enclosed information, discuss this particular loan with the Reserve Banks that are involved, and let me know what course of action the Federal Reserve intends to follow so that I may reply to Mr. Tisdale.  /William Proxmire /Chairman WP:srb cc: Robert P. Mayo Anthony M. Solomon Frank E. Morris Robert P. Black David P. Eastburn  S STALRITE INDUSTRIES, INC. 777 EAST WISCONSIN AVENUE ' MILWAUKEE. WISCONSIN 53202 / (414) 276-6888  'jTUART W TISDALE oairman and President  June 24, 1980  Honorable William Proxmire U.S. Senate Room 5241 Dirksen Senate Office Building Washington, D. C. 20510 Dear Senator Proxmire: Enclosed is a copy of a letter which we mailed last Friday to five of the Federal Reserve Banks regarding a Credit and Term Loan Agreement between five banks and Nortek, Inc., a Rhode Island company, which has acquired approximately 9% of the Common stock of our company. We trust that you will take whatever action you deem appropriate under the circumstances. Sincerely, STA-RITE INDUSTRIES, INC.  Chairman and President SWT:dmh Enclosures  •  4  STA=RITE INDUSTRIES, INC. 777 LAST WISCONSIN Avi NUE / mitwAuKEE. WISCONSIN 53202 / (414) 276 6888  STUART W TISDALE  Chairman and PlesIdenl  June 20, 1980  Mr. Robert P. Mayo, President Federal Reserve Bank of Chicago 230 S. LaSalle Street Chicago, IL 60690 Acting President Federal Reserve Bank of New York 33 Liberty Street Federal Reserve P.O. Station New York, NY 10045 Mr. Frank E. Morris, President Federal Reserve Bank of Boston 30 Pearl Street Boston, MA 02106 Mr. Robert P. Black, President Federal Reserve Bank of Richmond 100 N. 9t11 Street P.O. Box 27623 Richmond, VA 23261 Mr. David P. Eastburn, President Federal Reserve Bank of Philadelphia 100 N. 6th Street P.O. Box 66 Philadelphia, PA 19105 Gentlemen: The purpose of this letter is to bring to your attention the actions of five banks (one in each of your districts) which we believe to be inconsistent with the policy of credit restraint announced in October of 1979 and further expanded • in March of this year.  I dr  •  ••  Nortek, Inc., a Rhode Island company, has acquired approximately 9% of the common stock of our company, a Wisconsin manufacturing concern with five plants and approximately 2300 employees. • Based upon filings made by Nortek with the Securities and Exchange Commission, it appears that the funds employed by • Nortek to acquire our stock were obtained under. a Revolving Credit and Term Loan Agreement (copy attached) between Nortek and the following five banks: •  American Security Bank, N.A. Continental Illinois National Bank and Trust Company of Chicago First Pennsylvania Bank, N.A. State Street Bank and Trust Company United States Trust Company of New York As you will note, the Credit Agreement, which is dated October 25, 1979, is clearly intended to finance "Acquisition Loans", the proceeds of which are to be used by Nortek to acquire the stock or business of "Target" corporations. We understand that one of the objectives of the Federal Reserve Board's Special Credit Restraint Program is to discourage financing of corporate acquisitions, except in those limited . cases where there is clear justification in terms of productiob or economic efficiency. In the case of Nortek's acquisition of Sta-Rite stock, we believe that no such justification exists, and we see no evidence that the loans made under the Credit Agreement have been conditioned on any such basis. Although it appears that the banks could have declined to make Acquisition Loans resulting in Nortek's acquiring more than 5% of Sta-Rite's common stock (see paragraph 1.1(f) of the Credit Agreement), several such loans have been made within the past few months, . and -- based upon Nortek's filings with the Securities and Exchange Commission -- additional advances are expected to be made to finance any future purchases of Sta-Rite stock.  •••• •••  We have commenced litigation in federal court seeking to enjoin Nortek from making further purchases of our stock, based on alleged violations of federal securities laws. We maintain no business relationship with any of the banks which are parties to the Credit Agreement and do not mean to suggest any improper conduct on their part, except for their apparent willingness to finance a corporate acquisition in spite of the policy expressed in the Special Credit Restraint Program. We would suggest that, if the Special Credit Restraint Program is to mean anything, it should mean that a Credit Agreement such as the enclosed should be discouraged.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  a  •%.  • If your inquiry into this matter leads you to conclude, as we have, that the operation of the attached Credit Agreement is inconsistent with the objectives of the Special Credit Restraint Program, we trust that you will take such action as may be appropriate in the circumstances. Sincerely, STA-RITE INDUSTRIES, INC.  Chairman and President SWT/jm Enclosures  cc: Theodore Allison Secretary to Board of Governors of Federal Reserve Board 20th & Constitution Avenue N.W. Washington, D.C. 20551  4 LT)  REVOLVING CREDIT AND TERM LOAN AGREEMENT Revolving Credit and Term Loan Agreement, dated as of October 25, 1979, among NORTEK, INC., the BANKS and STATE STREET BANK AND TRUST COMPANY as Agent for the Banks under this Agreement.  1.  GENERAL TER M S  1.1. The Loans. Each of the Banks agrees, subject to the terms and conditions of this Agreement, to make Loans to the Company, and the Company agrees to borrow from the Banks, at the respective office of each Bank in accordance with the following provisions: (a) Beginning on the Closing Date, but prior to the Conversion Date, subject to the provisions of this Agreement, including without limitation, paragraphs (d)-(f) hereof, the Banks will make from time to time Revolving Loans of up to $40,000,000 to the Company by lending to the Company on the Closing Date and from time to time thereafter on at least three banking days' prior notice to each Bank (or five banking days' prior written notice in the case of a Loan described in paragraphs (e) or (1) hereof), such amounts in integral multiples of $500,000 as may from time to time be requested by the Company; provided, however, that the aggregate outstanding principal amounts of the Revolving Loans from each Bank shall not at any time exceed the following respective maximum commitments:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  American Security Bank, N.A. .. Continental Illinois National Bank and Trust Company of Chicago First Pennsylvania Bank N.A. State Street Bank and Trust Company United States Trust Company of New York  Percentage of Commitment  Maximum  25.0%  $10,000,000  95.0 25.0 12.5 19.5 100.0%  10,000,000 10,000,000 5,000,000 5,000.000 $40,000,000  (b) On the Conversion Date the Revolving Loans then outstanding shall convert into Term Loans and on such date the Banks shall make such additional Term Loans as the Company may request upon three days prior written notice to each Bank, provided, however, that the amounts of such Term Loans shall not exceed the amounts of the respective maximum commitments of the Banks set forth in paragraph (a) hereof, as reduced from time to time pursuant to paragraph (d) hereof. (c) The proceeds of the Loans shall be applied as provided in Section 1.5 hereof. The obligation of each Bank to make a Term Loan is conditioned upon repayment on the Conversion Date of the entire principal amount of the Revolving Loans then outstanding to each Bank; provided, that such repayments and the making of such Term Loans may occur simultneously and the proceeds of such Term Loans may be used to make such repayments. (d) Prior to the Conversion Date, the Company may from time to time upon at least three banking days' prior written notice permanently reduce the aggregate maximum commitments of the Banks to make Revolving Loans, such reductions to be applicable to each Bank pro rata in accordance with its respective maximum commitment to make such Revolving Loans set forth in paragraph (a) hereof. (e) No Bank shall be obligated to make its share of any Loans hereunder if after giving effect to the making of such Loans the aggregate amount of Loans outstanding hereunder would exceed $15,000,000, unless such Bank shall have determined in its sole discretion that such Loans satisfy the credit standards of such Bank. (f) No Bank shall be obligated to make its share of any Acquisition Loans (as hereinafter defined) hereunder unless such Bank sh.all have consented thereto if after giving effect to the proposed application of the proceeds of such Loans the Company and its Subsidiaries would. own  • in the aggregate (i) 5% or more of any class of equity securities of the Target, (A) if such class of securities is registered pursuant to Section 12 of the Securities Exchan ge Act of 1934, or (B) if the Target is an insurance company and such class of securities would have been required to be so registered except for the exemption contained in Section 12(g)(2)(0 ) of said Act, or (C) if the Target is a closod-end investment company registered under the Investment Company Act of 1940, or (ii) 10% or more of any class of equity securities of any other Target. (g) Th e iratiktyklaf,agr asteit-cmtif.57:1473WirMen F•( •bwattthatztditliAAttttzw-axed=h4-7 4 214:41-lifilii-rilii.7."fr:;4;"T"."717Pl. T.6 ) r*( WAYiliZild-tthrlalr20.LW itIVArhia7re 7 16f 7 SM altli-17 1W77 2: 37P VTI : tl. Each Bank shall be deemed to have objected to the making of its share of such Loans unless such Bank notifies the Company of its consent thereto within five business days after receipt of notice from the Company of the amount of such Loans requested and the purposes to which the proceeds of such Loans are to be applied. The Company shall furnish each Bank with such financial and other information with respect to such Loans as the Bank she have reasona bly requested. In the event that any Bank does not consent to make its share of ksuch Loans, each of the consenting Banks agrees to make the aggregate amount of the Loans requested in accordance with and up to the unused portion of its respective maximum commitment set forth in paragraph (a) hereof. The consent of each Bank to the making of its share of such Loans shall be in writing and may be conditioned upon such further matters as such Bank may determine in its sole discretion. (h) The obligations of the Banks to make Loans hereunder are several and not joint. If any Bank defaults in the performance of its obligations hereunder, such default shall not relieve the other Banks from their obligations hereunder, but no such default shall obligat e any Bank to make Loans in excess of its respective maximum commitment set forth in paragraph (a) hereof. 1.2. The Notes. The Revolving Loans made by each Bank shall be evidenced by a Revolving Loan Note in substantially the form of Exhibit A hereto with appropriate insertions; the Term Loan made by each Bank shall he evidenced by a Term Loan Note in substantially the form of Exhibit B hereto with appropriate insertions. The Revolving Loan Notes shall be dated the Closing Date; the Term Loan Notes shall be dated the Conversion Date. Each Note shall be executed and delivered by duly authorized officers of the Company and shall be payable to the order of the appropriate Bank. shall be (i) in the original principal amount specified opposite such Bank's name in Section 1.1 hereof in the case of the Revolving Loan Notes and (ii) in the original principal amount of the Term 'Loan being made by such Bank in the case of the Term Loan Notes, and shall mature (i) in the case of the Revolving Loan Notes, on the Conversion Date, and (ii) in the case of the Term Loan Notes, in 16 consecutive quarterly installments each equal to 1/16 of the original principal amount of the Term Loans payable aor1TiT44-tliriehz-tDeeWCIV.7.57-ri, cFSWITTi4E-1-SiFFATW FIZSZItterzamtilli ab=u/ulrr.7i31..:im,..-rrdrrrgPrZWJO7fTE;FTrtt-ir-a:pta 1.3. Interest. The Notes payable to each of the Banks shall bear interest on the unpaid principal balance thereof from the date thereof until paid at a rate per annum equal to 1/2% above the Prime Rate of the respective Bank which rate shall change when and as the Prime Rate of such Bank changes. .P.It.r.44isilaer a,c4.1„.Noke,-,isitai-i-bexcunDute_Ogrthlirb/ Eir.Aitareter viapsiliarcer:a4rf,PliainTaTTaird-thI11745"4-f)WiEreWrteliTirrarrtra• , are trit -7 r15 P77471-4F4TehtlitcliiirtraffiTealWrgiii nilig-111);e— emb7i71,-1979-Iffitil-pald. 1.4. Voluntary Prepayment. The Company, upon three days notice to each of the Banks, shall have the right at any time, or from time to time, to prepay the Notes, in whole or in part, in integral multiples of $500,000, without premium or penalty; provided, however, that interest accrued to the prepayment date on the amount of the Term Notes so prepaid shall be payable on the date such prepayment is made. Amounts of Revolving Loan Notes prepaid pursuant to this Section 1.4 may, subject to the terms and conditions hereof, be reborrowed to the extent of availability pursuant to Section 1.1 hereof. Any prepayment of the Term Loan Notes shall be applied to the install ments of principal due thereon in the inverse order of their normal maturities, except that at the option of the Company any 2   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • prepayment may be applied first to the one installment of principal due next succeeding the date of such prepayment. 1.5. Application of Proceeds. (a) The Company will use the proceeds of the Term Loans first to retire then existing debt due the Banks under the Revolving Loans and will use the balance of the proceeds of the Term Loans and will use the proceeds of the Revolving Loans for general corporate purposes including but not limited to any one or more of the following purposes: • (i) to purchase outstanding equity securities and securities convertible into or rights to acquire equity securities of a corporation (a "Target") pursuant to a solicitation by the Company or a subsidiary of the Company of tenders of such securities, or in one or more negotiated, block, market or other transactions not involving a tender offer, or a combination of any of the foregoing; (ii) to make a Target a Subsidiary pursuant to a merger, purchase of assets or other reorganization providing for the issuance to the holders of the Target's then outstanding equity and convertible securities, in exchange for such securities, of cash or securities of the Company or a Subsidiary, or a combination thereof; (iii) to purchase the business or integral part of the business of a Target; and (iv) to pay fees and expenses related to any of the foregoing. Any Loan obtained directly or indirectly for the purposes specified in parts (i) through (iv), inclusive, of this Section 1.5 (a) is sometimes herein referred to as an "Acquisition Loan". As used herein the term "Target" shall mean any corporation, trust or other organization, of which the Company proposes to acquire, the securities or assets, irrespective of the proposed method of acquisition. (b) The' Company will not directly or indirectly apply any part of the proceeds of any Loan, other than any Acquisition Loan, to the purchasing or carrying of any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or any regulations, interpretations or rulings thereunder as from time to time in effect, or to refund any indebtedness incurred for such purpose, or to the making of any foreign direct investment prohibited by Executive Order No. 11387 of the President of the United States of America, as from time to time in effect, or any regulations, interpretations or rulings thereunder or any substantially similar orders or regulations substituted therefor or promulgated in addition thereto. (c) The Company will not apply any part of the proceeds of any Acquisition Loan in violation of Regulations U or X of the Board of Governors of the Federal Reserve System, or any regulations, interpretations or rulings thereunder as in effect on the closing date with respect to such Acquisition Loan or to the making of any foreign direct investment of the type referred to in paragraph (b) of this Section 1.5. 1.6. Manner of Paying and Prepaying. All payments and prepayments of principal and payment of interest on the Notes shall be made, not later than Noon, local time, on the date called for hereunder to the respective Bank at its office, in immediately available funds at said office. 1.7. Pro Rata Treatment. Except as provided in Sections 1.1 and 6.2 hereof, each borrowing from, and each payment and prepayment to, the Banks hereunder shall be made pro rata according, in the case of borrowings, to the unused portions of the maximum commitments stated in Section 1.1 hereof, and, in the case of payments or prepayments, to the principal amount of the Notes outstanding which are being paid or prepaid.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1.8. Commitment Fee. In consideration of the commitment by the Banks to make the Revolving Loans provided for in Section 1.1 hereof, while each such commitment is outstanding, the Company will pay quarterly in arrears on March 31, June 30, September 30 and December 31 in each year beginning December 31, 1979 to each of the Banks for its account an amount equal to interest on a daily basis at the rate of 1/2% per annum (computed on the basis of the actual number of days elapsed 3  S  over a 360-day year) on the difference between the maximum commitment of such Bank set forth in Section 1.1(a) hereof, as reduced from time to time pursuant to the provisions of this Agreement, and the actual principal amount of the Revolving Loans outstanding from such Bank from time to time during such quarter. 1.9. Confidentiality of Inform.ation. The Banks each understand that some of the information furnished to them pursuant to this Agreement or otherwise in their dealings with the Company may be received by them prior to the time such information shall have been made public, and each Bank agrees that it will keep confidential all information so furnished, including without limitation any information furnished with respect to a proposed Target, and will make no use of such information until it shall have become public except in connection with this Agreement and in making credit analyses of the Company or lending transactions proposed by the Company, subject, however, to such Bank's obligations under Taw or pursuant to subpoenas or other process to make information available to government agencies and examiners or to others. 2.  REPRESENTATIONS AND WARRANTEES. The Company represents and warrants to each of the Banks as follows:  2.1. Corporate Existence and Power. The Company is, and will continue to be, a duly organized and existing corporation under the laws of the State of Rhode Island and Providence Plantations in good standing and is duly authorized to enter into and perform its obligations under this Agreement and the Notes. Each Subsidiary is and so long as it remains a Subsidiary, will continue to be. a duly organized and existing corporation in good standing under the laws of the jurisdiction of its incorporation. The Company and each Subsidiary have all requisite corporate power and authority to own and operate their properties and to carry on their businesses as now conducted and now proposed to be conducted. 2.2. Qualification. The Company and each Subsidiary are, and will continue to be, duly licensed or qualified as foreign corporations and are, and will continue to be, in good standing in all jurisdictions where the nature of the business transacted by each, or the ownership or leasing of their properties, makes such licensing or qualification necessary. 2.3. Corporate and Other Authority. The execution, delivery and performance by the Company of this Agreement and the Notes have been duly authorized by all necessary corporate action. This Agreement is, and each Note upon its execution and delivery will be, the valid and binding obligation of the Company, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy or similar laws relating generally to the enforcement of creditors' rights. The performance by the Company of its obligations under this Agreement and the Notes will not violate any provision of law or of its certificate of incorporation or by-laws or any agreement, indenture, judgment or order which is binding upon it or its property. The Company is not required to obtain any consent, approval or authorization of, or currently required to make any filing (except filings the Company may be required to make with the Securities and Exchange Commission) with, its shareholders or any governmental authority in connection with the execution, delivery and performance of this Agreement and the negotiation, offer, issue, sale and delivery of the Notes pursuant hereto. 2.4. Pension Plan. No fact, including, but not limited to, any "Reportable Event" as that term is defined in Section 4043 of the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time (herein, including any and all such amendments, called the "Pension Reform Act"), exists in connection with any defined benefit pension plan (herein called a "Plan") of the Company or any of its Subsidiaries which might constitute grounds for the termination of any such Plan by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court of a trustee to administer any such Plan. The Company and each of its Subsidiaries either is in compliance in all material respects with the provisions of the Pension Reform Act, or the time specified for compliance with such provisions has not expired.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4  2.5. Subsidiaries. At the date of this Agreement the Company has no Subsidiaries except those listed in Schedule A hereto and owns the outstanding shares of each such Subsidiary as indicated in Schedule A. 2.6. Financial Condition. The consolidated balance sheet of the Company as at December 31, 1978 and the related statements of income and surplus for the Fiscal Year ended on said date, all certified by Arthur Andersen & Co., and the consolidated and consolidating balance sheet of the Company as at June 30, 1979 and the related statements of income and surplus for the six months ended on said date certified by the Company's principal financial officer, true and correct copies of which have heretofore been furnished to each Bank, are complete and correct and fairly present the consolidated financial condition of the Company as at said dates and the results of its operations for the periods then ended. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods covered thereby. There has been no material adverse change in the consolidated financial condition of the Company from that set forth in the balance sheet as at June 30, 1979. 2.7. Title to Properties, Liens and Leases. The Company and its Subsidiaries have good and marketable title to all of their respective properties and assets, including the properties and assets reflected in the consolidated balance sheet as at June 30, 1979 referred to in Section 2.6 hereof except properties and assets transferred in the ordinary course of business, and there are no liens, mortgages or other encumbrances thereon except as permitted by Section 4.1 hereof. 2.8. Indebtedness and Contingent Liabilities. Neither the Company nor any Subsidiary has any Indebtedness or any contingent liabilities except as permitted by Sections 4.2 and 4.4 hereof and as disclosed pursuant to the provisions of Section 2.11 hereof. 2.9. Irvestmcnts, Loans and Advances. Neither the Company nor any Subsidiary has any investment in, or any loans or advances to, any person, firm, corporation or other entity, directly or indirectly, except as permitted by Section 4.7 hereof. 2.10. Tar Returns and Payments. The Company and each Subsidiary have filed all tax returns and reports required by law to be filed, and all taxeF, fees, assessments and other governmental charges (other than those currently payable without penalty or interest and those which the Company or any Subsidiary is contesting in good faith by appropriate proceedings being diligently conducted) upon the Company or any Subsidiary or upon any of its properties, assets, income or franchises which are due and payable have been paid. To the best knowledge and information of the Company, all federal income tax returns of the Company have been audited by the Internal Revenue Service and settled for all fiscal years through its Fiscal Year ended December 31, 1973, and for its Fiscal Year ended December 31, 1975, and the results of such audits are fully reflected in the financial statements referred to in Section 2.6 hereof. There have been no claims or adjustments proposed for the Company's Fiscal Years ended December 31, 1974, 1976, 1977 or 1978 which would result in additional taxes due and payable. 2.11. Litigation. Except as disclosed in writing of even date herewith by the Company to the Banks, there is no suit, action, proceeding or investigation pending or, to the "mowledge of the officers of the Company and its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries in any court or before any regulatory commission, board or other administrative governmental agency (or any basis therefor known to the Company), which, if adversely determined, would have a material effect on the financial condition, business or operations of the Company and its Subsidiaries, taken as a whole. 2.12. Patents, Trademarks, etc. The Company and its Subsidiaries own or possess all the patents, trademarks, service marks, trade names, copyrights and licenses, and rights with respect to the foregoing necessary for the conduct of their respective businesses as now conducted, without any known conflict with the rights of others.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  5  • 2.13. Schedules. The information and data nontained in all of the Schedules hereto is true, accurate and complete in all material respects as of the dates thereof and there has been no material change in the information and data contained in the Schedules since the date thereof. 2.14. Compliance with Agreements, etc. Neither the Company nor any Subsidiary is in default under any material agreement or instrument to which it is a party or which is binding upon it. There are no terms of any such agreement or instrument which materially adversely affect or in the future may (so far as the Company can now foresee) materially adversely affect the business, operations. affairs or condition of the Company and its Subsidiaries (taken as a whole). The Company and its Subsidiaries are in compliance in all material respects with the provisions of all laws and governmental regulations applicable to it or them, including without limitation the requirements to file statements and reports with the Securities and Exchange Commission and the American Stock Exchange. 3.  .AFFIRMATIVE COVENANTS.  So long as any of the Loans shall remain available to the Company, and until the payment in full of all Notes and interest thereon and the satisfaction of all other obligations of the Company hereunder, unless all of the Banks shall otherwise 'consent, the Company agrees that: 3.1. Financial Statements and Reports. The Company will, and will cause each Subsidiary to, maintain books and records in accordance with generally accepted accounting principles applied on a consistent basis, and the Company will furnish to each Bank: (a) As soon as practicable and in any event within 90 days after the end of each Fiscal Year, consolidated and consolidating balance sheets, consolidated and consolidating statements of income, and a consolidated statement of changes in financial position of the Company and its Subsidiaries as at the end of and for such Fiscal Year, all in reasonable detail and accompanied by a certificate of Arthur Andersen & Co. (or such other nationally recognized independent public accountants as may be selected by the Company) to the effect that such financial statements, in their opinion, fairly present the financial position of the Company and its Subsidiaries as at the end of such Fiscal Year and the results of their operations for such Fiscal Year in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding Fiscal Year. provided that the certificate of such accountants may be limited to the consolidated balance sheet, consolidated statement of income, and consolidated statement of changes in financial position of the Company and its Subsidiaries, in which case the consolidating balance sheet and consolidating statement of income of the Company and its Subsidiaries shall be certified by a principal financial or accounting officer of the Company; (b) As soon as practicable and in any event within 45 days after the end of each month (other than the months of March, June, September and December), consolidated balance sheets and consolidated statements of income of the Company and its Subsidiaries as at the end of and for such month and for the period beginning with the first day of the Fiscal Year and ending on the last day of such month, accompanied by a statement signed by a principal financial or accounting officer of the Company to the effect that such financial statements, in such officer's opinion, subject to year-end adjustments, fairly present the financial position of the Company and its Subsidiaries as at the end of such month and the results of their operations for the periods covered thereby, in conformity with generally accepted accounting principles applied on a basis consistent with that of the corresponding period for the preceding Fiscal Year; (c) As soon as practicable and in any event within 45 days after the end of each of the first three quarters of the Fiscal Year, consolidated and consolidating balance sheets and consolidated and consolidating statements of income of the Company and its Subsidiaries as at the end of and for such quarter and for the period beginning with the first day of the Fiscal Year and ending on the last day of such quarter, all in reasonable detail and accompanied by a statement signed by a principal financial or accounting officer of the Company to the effect that such financial statements, in such officer's opinion, subject to year-end adjustments, fairly present the financial   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  6   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • r and the results of position of the Company and its Subsidiaritl, as at the end of such quarte accepted accounttheir operations for the periods covered thereby, in conformity with generally g period for the preing principles applied on a basis consistent with that of the correspondin ceding Fiscal Year; ragraphs (a) and (d) Together with the financial statements delivered pursuant to subpa accounting officer of the (c) of this Section 3.1, a statement signed by a principal financial or and has no knowledge Company (i) to the effect that he has reviewed the terms of this Agreement or which, after notice of any event or condition which constitutes an Event of Default hereunder he has such knowledge, or lapse of time or both, would constitute such an Event of Default or, if demonstrating in reasonspecifying the nature and period of existence of such default; and (ii) accounting period with able detail compliance at the end of and, where appropriate, during such 4.5, 4.6, 4.7(b) and the covenants contained in Sections 3.5, 3.6, 3.7, 4.4(b), (d) (e) and (f), (g), 4.8 and 4.9 hereof; ragraph (a) of this (e) Together with the financial statements delivered pursuant to subpa the same to the effect Section 3.1, a statement signed by the accountants who have reported on have reviewed the that in connection with their examination of such financial statements they ion which insofar as provisions of this Agreement and have no knowledge of any event or condit of Default or which, the same pertains to accounting and financial matters constitutes an Event Default or, if they have after notice or lapse of time or both, would constitute such an Event of default; such knowledge, specifying the nature and period of existence of such statements, reports, (f) Promptly upon their becoming available, copies of all financial ny to its shareholders notices, proxy statements and other communications sent by the Compa filed by the Company generally, all annual, periodic or special reports or registration statements with any tender (including without limitation any filings made by the Company in connection nge or with the Securities offer or acquisition of securities of a Target) with any securities excha to any of its functions, and Exchange Commission or any governmental authority succeeding ition or proposed any filings with state securities authorities made in connection with the acquis any Subsidiary's inacquisition of securities of a Target, and any analyses of the Company's or ed by the Company's ternal control, accounting or management methods or procedures prepar auditors in the course of their annual fiscal audit; ting officer (g) Forthwith upon the chief executive officer or any principal financial or accoun terms of this Agreement or any other officer of the Company having direct knowledge of the notice or lapse obtaining knowledge of any condition or event which constitutes, or which after ent of such officer specifying the of time or both would constitute, an Event of Default, a statem has taken or its taking or nature and period of existence thereof and what action the Company proposes to take with respect thereto: and ion of the Company (h) Such other information regarding the business, affairs and condit ably request. and its Subsidiaries as such Bank may from time to time reason each Subsidiary to. at all 3.2. Maintenance of Properties. The Company will, and will cause ary in the conduct of its business, in good times keep all of its respective properties, useful or necess working order and condition. to, at all times maintain 3.3. Insurance. The Company will, and will cause each Subsidiary t to its properties and business with financially sound and reputable insurers insurance with respec such amounts as is customary in the against such casualties and contingencies of such types and in same or similar business, and as shAll case of corporations of established reputations engaged in the be satisfactory to the Banks. • iary to, pay and disSubsid each cause will and will, 3.4. Payment of Taxes. The Company levies imposed upon it or upon its charge all taxes, fees, assessments and governmental charges or it, prior to the date on which penalties attach income or Profits, or upon any properly belonging to 7   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • y, thereto, and all lawful claims which, if unpaid, might become a lien or charge upon its propert provided that it shall not be required to pay any such tax, fee, assessment, charge, levy or claim the respect payment of which is being contested in good faith and by appropriate proceedings and with to which, in the opinion of the Company, adequate reserves have been established and are being maintained. 3.5. Working Capital. The Company will at all times maintain Working Capital of not less than $25,000,000. t 3.6. Current Ratio. The Company will at all times maintain a ratio of Consolidated Curren Assets to Consolidated Current Liabilities of not less than 1.75 to 1. le Effective 3.7. Tangible Effective Net Worth. The Company will at all times maintain Tangib Net Worth of not less than $50,000,000. Banks of all 3.8. Notice of Litigation. The Company will promptly give notice in writing to the determined, would litigation affecting the Company or any of its Subsidiaries, which, if adversely ny and its Subhave a material effect on the financial condition, business or operations of the Compa nt for monetary sidiaries, taken as a whole, or which, if adversely determined, would result in a judgme days after the damages in excess of $1,000,000, and in addition will furnish to each Bank within 90 end of each of the Company's Fiscal Years, a summary of all such litigation. ary to, 3.9. Access to Books and Inspection. The Company will, and will cause each Subsidi s hours give any representative or representatives of any of the Banks access during normal busines ies, books, recto, and permit them to examine, copy or make extracts from, any and all of its propert aries to, make ords and documents relating to its affairs. The Company will, and will cause its Subsidi Company and its officers available to discuss with the Banks the affairs, finances and accounts of the its Subsidiaries, all at such reasonable times and as often as may be reasonably requested. (a) at all 3.10. Pens-ion Plan. The Company will, and will cause each of its Subsidiaries to, g standard set times make timely payments of contributions required to meet the minimum fundin of its Plans. (b) forth in Sections 302 through 305 of the Pension Reform Act with respect to each "Reportable Event" as notify each Bank immediately of any fact, including, but not limited to, any connection with any Plan that term is defined in Section 4043 of the Pension Reform Act, arising in Guaranty Corporawhich might constitute grounds for the termination thereof by the Pension Benefit a trustee to administer tion or for the appointment by the appropriate United States District Court of such additional informathe Plan and (c) furnish to each Bank, promptly upon its request therefor, tion concerning any Plan as may be reasonably requested. 4.  NEGATIVE COVENANTS.  payment in full So long as any of the Loans shall remain available to the Company, and until the ions of the Company hereof all Notes and interest thereon and the satisfaction of all other obligat that: under, unless all of the Banks shall otherwise consent, the Company agrees incur, assume or 4.1. Liens. The Company will not, nor will it permit any Subsidiary to, create, rance upon or of any of suffer to exist any security interest, mortgage, pledge, lien, charge or encumb arrangement for the acquisiits property or assets, now owned or hereafter acquired, or enter into any retention agreements, tion of any property through conditional sales, lease-purchase or other title except (a) Deposits or pledges to secure payment of workmen's compensation, unemployment insurance, old age pensions, or other social security; (b) Those liens listed in Schedule B hereto;  8  • to be (c) Mortgage liens on certain real property and improvements employed or proposed described in employed in the business of Tooltech, Inc. and Pioneer Finishing Corporation and Schedule C hereto; arising (d) Tax liens and mechanics', workmen's, landlords', materialmen's or other like liens which are in the ordinary course of business in respect of obligations which are not yet due or reserves have being contested in good faith by appropriate proceedings and for which adequate been established and are being maintained; edness owing (e) Security interests in and liens on the assets of Subsidiaries securing Indebt to the Company; restrictions (f) Encumbrances in the nature of zoning restrictions, easements and rights or on the premises of record on the use of real property. and landlord's and lessor's liens under leases use thereof rented. which do not materially detract from the value of such property or impair the in the business of the Company or any Subsidiary; conditional sale (g) Purchase money security interests (which term shall include mortgages, devices) in addicontracts, capitalized leases and any other title retention or deferred purchase date hereof by tion to those otherwise permitted by this Section 4.1 in property acquired after the thereof; provided, the Company or a Subsidiary existing or created at the time of acquisition cover any property however, that no such purchase money security interest shall extend to or that the principal other than the property the purchase price of which is secured by it, and of property subject amount of Indebtedness (whether or not assumed) with respect to each item to such a security interest shall not exceed the fair value of such item; ny or its Subsidiaries (h) Security interests in and liens on Canadian assets of the Compa or its Provinces of the incurred in connection with industrial development financings by Canada acquisition of or improvements to such assets; and Subsidiary existing (i) Security interests in or other encumbrances upon the assets of any at the time of acquisition of such Subsidiary. iary to, create, incur or 4.2. Indebtedness. The Company will not, nor will it permit any Subsid ent, if immediately after giving assume any Indebtedness, including Indebtedness under this Agreem edness which is concurrently being effect to the incurrenee thereof and to the retirement of any Indebt d Indebtedness would exceed retired therewith, Funded Indebtedness other than Subordinated Funde 1507( of Tangible Effective Net Worth.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  permit any Subsidiary to: 4.3. Consolidotio-n,31erger or Sale. The Company will not, and will not (a) Consolidate or merge into or with any other corporation except that (i) Vitta Corporation may merge or consolidate with any other corporation, other Sub(ii) any Subsidiary may merge or consolidate with the Company or any sidary, and ation, provided (iii) any Subsidiary may merge or consolidate with any other corpor or indirectly, by the that the surviving or resulting corporation is wholly-owned, directly consolidation no Company and provided, furthcr that immediately following such merger or of time, or both, would Event of Default, or any other event which, with notice or lapse constitute an Event of Default, shall exist under this Agreement; other than a sale or (b) Sell or transfer (other than in the ordinary course of business and and (e) of Section transfer of investments permitted under paragraphs (b) (ii-iv), (c), (d) r of book value or selling price of such 4.7) assets having an aggregate value (taken at the greate Company's Fiscal assets) -pf more than 5%, of their consolidated total assets during any one of the er its assets to Years on a non-cumulative basis, except that any Subsidiary may sell or transf 9   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  S another Subsidiary or to the Company and that the Company may sell or transfer its assets to any Subsidiary; (c) Sell, transfer or otherwise dispose of any shares of capital stock of any Subsidiary, except to another Subsidiary or to the Company; or (d) In the case of a Subsidiary, issue any additional shares of capital stock except pro rata to its existing shareholders, except that any Subsidiary may, to the extent required by applicable law, issue or sell directors' qualifying shares. Notwithstanding the foregoing, or any other covenant or representation of the Company contained herein, the Banks consent to the sale of substantially all the assets and business of the Whitney Blake Company division of the Company and to the sale of the capital stock or substantially all the assets and business of Vitta Corporation. 4.4. Contingent Liabilities. The Company will not, nor will it permit. any Subsidiary to, assume, guarantee, endorse, or contingently agree to purchase or to provide funds for the payment of, agree to maintain the net worth or working capital or any other financial test of, or otherwise become liable upon, any obligation of, any person, firm or corporation except: (a) In the case of the Company or any Subsidiary, by the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (b) The Company or its Subsidiaries may become contingently liable with respect to letters of credit issued on behalf of the Company or its Subsidiaries in an aggregate principal amount not to exceed $1,000,000 in the aggregate at any one time outstanding in the case of foreign letters of credit and $2,000,000 in the aggregate at any one time outstanding in the case of domestic letters of credit; (c) The Company's guaranty of lease rental payments on that certain lease of computer equipment by Capeom Systems, Inc. not to exceed an aggregate contingent liability for the Company of $250,000. (d) Gurantees by the Company of contingent liabilities of its Subsidiaries with respect to letters of credit permitted by Section 4.4(b); (e) Guarantees by the Company of obligations of its Subsidiaries (in addition to guarantees permitted under Section 4.4(d) hereof) not to exceed an aggregate contingent liability for the Company of $1,500,000 at any one time outstanding; (1) Guarantees of collateralized personal loans to key employees not to exceed $350,000 in the aggregate outstanding in connection with executive incentive and employee benefit plans; and (g) Guarantees and contingent liabilities incurred by the Company in connection with the sale of substantially all the assets and business of the Whitney Blake Company division of the Company not to exceed an amount. equal to the aggregate liabilities of the Company, contingent and otherwise, in respect of such division existing as of the date of such sale. 4.5. Leases. The Company will not, nor will it permit any Subsidiary to, lease as lessee, or enter into as lessee any lease agreement (including any agreement which is analogous in either purpose or effect to a lea_se agreement) for the lease of any property, if after giving effect thereto, the aggregate amount of all lease rental payments required to be made by the Company and all Subsidiaries pursuant to all such lease agreements (exclusive of all capitalized leases, leases between a Subsidiary and the Company or any other Subsidiary and leases of vehicles, data processing equipment, office machinery and vending machines) permitted pursuant to this Section 4.5 would exceed $4,000,000 during any one of the Company's Fiscal Years. 4.6. Stock Payments. The Company will not: •(a) Except as provided below in this Section 4.6, make any dividend on any of its shares of any class of its capital stock (other than a dividend payable solely in shares of the Company) or 10  Ile make or commit to make any other Stock Payment in respect thereof, unless any such dividend is declared to be payable not more than 60 days after the date of declaration, and unless after giving effect to the proposed Stock Payment, at the date of declaration in the case of a dividend or at the date of payment or distribution or commitment therefor (whichever is earlier) in the case of any other Stock Payment, no default exists under Sections 3.5, 3.6 and 3.7 hereof of which the Company is aware and no Event of Default exists under any covenant contained in Section 4 hereof, and the aggregate amount of all dividends (other than dividends in shares of the Company) declared during the period commencing January 1, 1979 and ending on such date and the aggregate amount of all other Stock Payments made since January 1, 1979 (and any commitments for such Stock Payments made since January 1, 1979 and outstanding on such date) shall not exceed $4,000,000, plus 505-c of Consolidated Net Income for the period, plus the aggregate net proceeds (in cash or, if for a consideration other than cash, the fair value thereof as determined by the board of directors of the Company) received by the Company from the issue or sale after June 1, 1979 of shares of stock of the Company or warrants to purchase shares of its stock, and the aggregate net proceeds (in cash or, if for a consideration other than cash, the fair value thereof as determined by the board of directors of the Company) received by the Company from the issue or sale after June 1, 1979 of Indebtedness of the Company to the extent such Indebtedness shall have been converted into shares of stock of the Company prior to such date. Notwithstanding the foregoing, the Company may retire any of its shares of any class in exchange for, or out of the proceeds of the sale of, other of its shares of any class, or out of the proceeds of the sale of any Indebtedness which shall have been converted into its shares of any class, and no such retirement shall be included in any computation provided for in this Section 4.6(a), provided that any such retirement of shares shall occur not more than 180 days following the receipt of such proceeds. For the purposes of this Section 4.6, the purchase or redemption by the Company of any Indebtedness convertible into any class of its Common Stock shall not be deemed to be a Stock Payment. (b) Permit any Subsidiary to purchase or otherwise acquire, or at any time hold, any shares of any class of the Company if under the provisions of this Section 4.6 the Company would be prohibited from making such purchase; provided, however, any such purchase by a Subsidiary shall for the purposes of this Agreement be deemed a purchase by the Company. 4.7. Loans, Advances, Investments. The Company will not, nor will it permit any Subsidiary to, make any loan, advance, investment or extension of credit to, or purchase or make any commitment to purchase any stock, bonds, notes, debentures or other securities of, any person, firm, corporation or enterprise whatsoever, except: (a) Unsecured or secured loans and advances by the Company to any Subsidiary or any unsecured loans and advances between Subsidiaries or by any Subsidiary to the Company or loans evidenced by notes receivable set forth in Schedule D hereto; (b) Investments in (i) Subsidiaries, (ii) securities of any corporation whose securities are listed on a national securities exchange or quoted on the automated quotation system of the National Association of Securities Dealers at an aggregate cost not exceeding $15,000,000, (iii) in Targets as contemplated by Section 1.5 hereof, and (iv) in any other corporation not to exceed $5,000,000 in the aggregate in any one Fiscal Year on a non-cumulative basis;   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (c) Investments in direct obligations of or obligations guaranteed by the United States of America, or any agency or instrumentality thereof; (d) Investments in certificates of deposit, time deposits and bankers' acceptances issued by any United States commercial bank or branch or subsidiary thereof, or issued by any United States branch or subsidiary of a foreign bank, having at the time of investment capital and surplus of at least $25,000,000; (e), Investments in commercial paper issued by any corporation and rated at the time of investment A-2 or better by Standard & Poor's Corporation or Prime-1 or better by Moody's 11   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  of Investors Service, Inc. and, in either case, maturing within 270 days or less after the date the acquisition thereof; (f) Travel advances made to officers, employees and directors of the Company and its Subsidiaries in an aggregate amount not exceeding $100,000 at any one time outstanding; (g) Advances in respect of collection of existing notes owed to the Company as a result of ses the operations, financing and disposition of its former land development and land sale busines e basis; in an aggregate amount not exceeding $150,000 in any one Fiscal Year on a non-cumulativ (h) Subject to the provisions of Section 4.10 hereof, purchases, redemptions, or other retirey ments of any of the Company's securities through the issuance of stock or the sale of treasur stock y in exchange for such securities, or with the proceeds of any issuance of stock or sale of treasur stock within 180 days after the receipt of such proceeds; rental (i) Advances necessary to protect the Company's position under its guaranty of lease te payments on that certain lease of computer equipment by Capcom Systems, Inc. in an aggrega amount not exceeding $200,000 at any one time outstanding; and (j) Trade and customer accounts receivable and any extensions thereof. under this Section 4.7, In determining the amount of such loans, advances and investments permitted uent appreciainvestments shall always be taken at the original cost thereof, regardless of any subseq principal amount thereof tion or depreciation therein, and loans and advances shall be taken at the then remaining unpaid from time to time. will it permit 4.8. Dispositio-n of Notes and Accounts Receivable. The Company will not, nor or accounts receivable any Subsidiary to, sell or otherwise dispose of with recourse any of its notes the Company's guaranty (other than notes set forth in Schedule D hereto and any note arising from in the aggregate in any of lease rental payments of Capcom Systems. Inc.) in excess of $1,000,000 the aggregate at any time one Fiscal Year on a non-cumulative basis or in excess of $3,000,000 in out standing. ary to, enter into 4.9. Sale and Leaseback. The Company will not, nor will it permit any Subsidi property now owned, or any agreement, directly or indirectly, for the sale or transfer of any of its such property hereafter acquired, with a concurrent or subsequent acquisition by lease or rental of te book value of all such or like property if, after giving effect to such sale or transfer, the aggrega 000 in the aggregate property sold or transferred exceeds $500,000 in any one Fiscal Year or $1,500, in respect of all such arrangements at any time outstanding. redeem or prepay 4.10. Prepayment of Indebtedness. The Company will not retire, purchase, or right of payment to the before the stated maturity thereof any Indebtedness subordinate as to time Debentures Due June payment of the Notes other than the Company's 6% Convertible Subordinated 1, 1989; provided that this 15, 1988 and 7% Convertible Subordinated Debentures Due December edness convertible into Section 4.10 shall not prohibit the conversion of any of the Company's Indebt or the retirement, purchase, Common Stock of the Company in accordance with the terms thereof of the Company as required redemption or prepayment of any Subordinated Funded Indebtedness se, redemption or prepayment by the terms thereof, and provided further, that such retirement, purcha thereto. is not in contravention of any subordination provisions applicable 5.  SET-OFF.  of Default occurs, any If the Company becomes insolvent, howsoever evidenced, or any Event the payment of any indebtedness from the Banks to the Company may be offset and applied toward dness, or any part thereof, indebtedness from the Company to the Banks, whether or not such indebte so long as any principal of any shall then bedue. The Banks hereby agree as among themselves that, nt to this is Note is outstanding, any indebtedness from any Bank to the Company which offset pursua 12  Section 5 shall be applied toward the payment of the Company's indebtedness under the Notes and shall be applied to each Bank in the proportion that the Company's indebtedness due each Bank under the Notes bears to the Company's aggregate indebtedness due the Banks under the Notes; provided, however, it is expressly agreed and understood that the order in which such application is to be made by any Bank to the indebtedness due to it under the Notes shall be in the sole discretion of such Bank. The Banks hereby further agree as among themselves that, so long as any principal of any Note is outstanding, if any Bank shall receive from the Company or any other party, whether by distributions hereunder, exercise of the right of set-off, voluntary payment, counterclaims, cross actions, suits at law or in equity or by proof of claim in bankruptcy, liquidation or similar proceedings, or by payments made under any policy of insurance or otherwise, any amount in respect of the Notes in excess of the aforesaid proportion applicable to it (after the deduction of any expenses or costs incurred in connection therewith), such Bank shall make such disposition and arrangements as soon as reasonably practicable with the other Banks (except for any Bank which has elected not to accelerate its Notes) with respect to such excess, either by way of distribution, participation, assignment of claims, subrogation or otherwise, as shall result in each such Bank receiving in respect of Notes held by it, a proportionate payment as contemplated by this Section 5. If any such disposition or arrangements in respect of any such excess are made by any Bank pursuant to this Section 5 and if such excess payment or any part thereof is thereafter recovered from such Bank, the related disposition and arrangements with the other Banks shall be rescinded and any distribution or payment restored as to the portion of such excess payment so recovered, but without interest. The Banks hereby agree among themselves that each Bank will promptly notify the other Banks or the Agent upon obtaining knowledge of any material Event of Default under this Agreement. 6.  EVENTS OF DEFAULT AND REMEDIES.  6.1. Events of Default. The occurrence of any one or more of the following events shall constitute an Event of Default by the Company under this Agreement: (a) The Company shall fail to make any payment of principal on any Note when due, whether by acceleration or otherwise; or the Company shall fail to pay interest on any Note or any other amount required to be paid to the Banks or the Agent pursuant to this Agreement when due and failure to pay such interest or other amount shall continue for five days; (b) Any representation or warranty made by the Company herein or in any certificate, statement or report furnished by or on behalf of the Company hereunder shall prove to have been false or breached in any material respect when made;   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (c) Any default by the Company in the performance of any covenants contained in Sections 3.5, 3.6 or 3.7 hereof which shall not be remedied by the end of the second fiscal month following the end of the fiscal month as of which such default shall have occurred, or any default by the Company in the performance of any covenant contained in Section 4 hereof; (d) Any default by the Company in the performance of any other covenant contained in this Agreement and such default is not remedied within ten days after notice to the Company by any Bank; (e) The Company or any Subsidiary shall default in any payment of principal of or interest on any obligation for borrowed money (other than principal or interest due on any Note, but including without limitation: any obligations under conditional sales or other title retention agreements; any obligation issued or assumed as full or partial payment for property whether or not secured by purchase money mortgage; or any obligations under notes payable or drafts accepted representing extensions of credit) beyond any period of grace provided with respect thereto, or, after any notice required to be given with respect thereto and beyond any period of grace provided with respect thereto, shall be in default in the performance of any other agreement, term or condition contained in any agreement under which any such obligation is created (or if any other default Under any such agreement shall occur and be continuing) if the effect of any such default 13  rs of such obligation (or a trustee on or other default is to cause, or to permit the holder or holde to become due prior to its stated behalf of such holder or holders) to cause, such obligation maturity; nt for the benefit of creditors, (f) If the Company or any Subsidiary shall. make an assignme as such debts become due, or shall or shall admit in writing its inability generally to pay its debts by a trustee, receiver or liquidator apply for or consent to the'appointment of or taking possession or any substantial part of its prop(or other similar official) of the Company or any Subsidiary entered against it under the federal erty, or shall commence a case or have an order for relief applicable federal or state bankbankruptcy laws, as now or hereafter constituted, or any other its directors or majority shareruptcy, insolvency or other similar law, or if the Company or dation of the Company; holders shall take any action looking to the dissolution or liqui any or any Subsidiary of a (g) If, within 15 days after the commencement against the Comp constituted, or any other applicable case under the federal bankruptcy laws, as now or hereafter case shall have been consented federal or state bankruptcy, insolvency or other similar law, such ssed or all orders or proceedings to by the Company or any Subsidiary or shall not have been dismi any or any Subsidiary stayed, or if thereunder affecting the operations or the business of the Comp aside, or if within 15 days after the stay of any such order or proceeding shall thereafter be set dator (or other similar official) of the the entry of a decree appointing a trustee, receiver or liqui property, such decree shall not have Company or any Subsidiary or any substantial part of its been vacated or stayed; diary one or more judgments (h) There shall be entered against the Company or any Subsi ving in the aggregate for the Company or decrees not paid by or fully covered by insurance invol all such judgments or decrees shall and all Subsidiaries a liability of $250,000 or more and ing appeal within 60 days from the not have been vacated, discharged, stayed or bonded pend entry thereof; or t or instrument delivered (i) The Company shall default in the performance of any agreemen pursuant to this Agreement. declare the obligations of such 6.2. Remedies. If any Event of Default occurs, any Bank may n such obligation shall be terminated, Bank to make the Loans hereunder to be terminated, whereupo the accrued interest thereon and all and declare the principal of the Notes held by such Bank and due and payable, whereupon such Notes other amounts due to such Bank hereunder to be forthwith nts shall forthwith become due and payable, and the accrued interest thereon and such other amou kind, all of which are hereby expressly without presentment, demand, protest or other notice of any waived.  7.  CONDITIONS OF LENDLNG.  shall have been satisfied or waived The Loans are to be made only if the following conditions pursuant to Section 10.2 hereof: rs of the Company has executed 7.1. Execution of Notes. A duly authorized officer or office s to the respective Banks. and delivered the appropriate Notes evidencing such Loan received copies, certified as of the 7.2. Corporate Action and Documents. Each Bank shall have the Company of the resolutions of the board Closing Date by the Secretary or Assistant Secretary of delivery and performance of this Agreement of directors of the Company authorizing the execution, by the Company to authorize the execution, and the Notes and of all other corporate action taken execution and delivery of the Notes; and such delivery and performance of this Agreement and the 11-1 of the Board of Governors of the Federal other papers, including, without limitation, Form reasonably request. Reserve System, as the Banks or their counsel shall , 14   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  7.3. No Default. At the time of and after gi-ing effect to any Loan, no Event of Default or any other event which, with notice or lapse of time, or both, would constitute an Event of Default shall have occurred or be continuing, and the Company shall be in compliance with all of its covenants and agreements contained in this Agreement and the Notes. 7.4. Representations and Warranties Correct. Except as affected by the transactions or events herein contemplated or permitted, the representations and warranties contained in Section 2 hereof shall be true and correct on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of such Closing Date, and the representations and warranties contained in Sections 21 and 2.3 hereof shall be true and correct on and as of the date of each Loan with the same force and effect as though such representations and warranties had been made on and as of such date. 7.5. Opinions of Counsel. Each Bank shall have received from Ropes & Gray, counsel for the Company:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (a) At the Closing Date a written opinion satisfactory to the Banks and their counsel, dated as of the Closing Date, to the effect that: (i) The Company is duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, is duly qualified as a foreign corporation and in good standing in the jurisdictions listed on a schedule attached to said opinion, and has all requisite corporate power and authority to own and operate its properties and to carry on its business as now conducted; (ii) This Agreement has been duly authorized, executed and delivered by the Company and is a legally valid and binding obligation of the Company, enforceable in accordance with its terms against the Company, except to the extent that such enforcement may be limited by bankruptcy, insolvency, reorganization or similar laws of general application affecting the rights and remedies of creditors and except to the extent that the availability of the remedy of specific enforcement or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought; (iii) The issuance of the Notes has been duly authorized and the Revolving Loan Notes have been duly executed and delivered; (iv) The execution and delivery of, and performance by, the Company of this Agreement and the execution and delivery of the Revolving Loan Notes will not violate any provision of law or its charter or by-laws or to the knowledge of such counsel any agreement, indenture, judgment or order binding upon the Company and will not result in the creation of any lien, charge or encumbrance upon any property or assets of the Company pursuant to any other agreement or instrument of which such counsel is aware to which the Company is a • party or by which the Company or the property of the Company may be bound or affected, it being understood that such counsel may rely upon a certification of an appropriate officer of the Company as to the existence of any such agreement, judgment, order or instrument; (v) The Notes are entitled to the benefits of the subordination provisions of the indentures under which the Company's outstanding Subordinated Funded Indebtedness was issued; (vi) No authorization, app'roval, consent or other order of any governmental authority is legally required to be obtained by the Company for the execution and delivery of this Agreement or the Notes, or to the extent that the same may be required it has been validly procured; and (vii) To the knowledge of such counsel there is no suit, action, proceeding or investigation pending or to the knowledge of such counsel threatened against or affecting the Company Or any of its Subsidiaries in any court or before any regulatory commission, board or 15   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ile have a material if adversely determined, would ch, whi ncy age tal men ern gov ve ati str ini adm Subsidiaries, rations of the Company and its ope or ss ine bus , ion dit con l ncia fina the on effect d in writing to the Banks. taken as a whole, except as previously disclose of America and The ion other than the United States ict isd jur any of s law the to t pec res h Wit they are not licensed to practice t tha e stat may l nse cou h suc s, ett Commonwealth of Massachus s are relying upon the opinion or ion ict isd jur h suc of s law the to as law in such jurisdictions and nsel who are satisfactory to such cou er oth of ks) Ban the to sed res opinions (which shall be add public officials or may also rely upon certificates of l nse cou h suc and nt, Age the and l counse n. corporate officers as to matters stated therei to the Loan, a written opinion satisfactory ing olv Rev h eac of ing mak the of e tim (b) At the thereent of borrowings then outstandinfr ext the to t, tha ct effe the to l, nse ir Banks and the cou es are olving Loans. the Revolving Loan Not Rev h suc of ing mak the to ct effe ing ms. under, after giv orceable in accordance with their ter enf y pan Com the of ns tio iga obl g the valid and bindin remedies (i) enforcement of the rights and t tha ent ext the to d ifie qual be l Such opinion may nization and similar laws of genera rga reo y, enc olv ins y, ptc kru ban to t created thereby is subjec (ii) the availability of the remedy and s, itor cred of es edi rem and hts rig application affecting the retion of the court before which disc the to t jec is sub ef reli e tiv unc inj or of specific performance t. any proceeding therefor may be brough their counsel, nion satisfactory to the Banks and opi n tte a wri e, Dat n sio ver Con the (c) On are the valid n duly executed and delivered and bee e hav es Not n Loa m Ter the t tha ct nion to the effe in accordance with their terms. Such opi le eab orc enf y pan Com the of ns tio iga and binding obl in paragraph (b) hereof. may be qualified to the extent provided ns hereunder, such opinions as the Loa on iti uis Acq any of ing mak the of (d) At the time the transactions contemplated by this to t pec res h wit ted ues req y abl son Banks shall have rea Agreement. k shall have received: 7.6. Compliance Certificate. Each Ban on behalf of the dated the Closing Date executed ate ific cert a e, Dat g sin Clo the On (i) ks and their and substance satisfactory to the Ban m for in cer, offi ive cut exe ef chi its Company by g Date; 7.4 hereof on and as of the Closin and 7.3 ns tio Sec h wit e anc pli com g yin counsel, certif Conversion Date executed on behalf of the ed dat ate ific a cert e, Dat n sio ver (ii) On the Con stance satisfactory to the Banks and sub and m for in cer, offi ive cut exe the Company by its chief hereof, (b) that, except as affected by 7.3 n tio Sec h wit e anc pli com (a) their counsel, certifying Agreement, the representations and this by ted mit per or ted pla tem con the transactions or events correct on and as of the Conand e tru are eof her 2.3 and 2.1 ns tio warranties contained in Sec Company exeand due authorization of officers of the y enc umb inc the to as (c) and e, Dat version cuting the Term Loan Notes; and a cerClosing Date or the Conversion Date, the on e mad not n Loa h eac of e dat (iii) On the cutive alf of the Company by its chief exe beh on ed cut exe n Loa h suc of e dat ance tificate dated the ks and their counsel, certifying compli Ban the to ory act isf sat nce sta sub and officer, in form of such date. with Section 7.3 hereof on and as  8.  DEFINITIONS.  eement, the exhibits and schedules Agr this in d use as es, uir req ise Unless the context otherw or supplements to this Agreement, such s ion cat ifi mod s, ent ndm ame any attached hereto, the Notes and ch meanings shall be l have the following meanings, whi shal ms ter ing low fol the es, Not exhibits or the e may be: ral forms of such terms, as the cas plu and ar gul sin the h bot to ble ica equally'appl meaning given in Section 1.5 hereof. "Acquisition Loan" shall have the 16  "Agent" shall mean State Street Bank and Trust Company, or such other Bank as may become Agent pursuant to Section 10.1 hereof, in its capacity as Agent for the Banks under this Agreement and not in its individual capacity. "Agreement" shall mean this agreement between the Company, the Banks and the Agent and any and all amendments hereto and extensions or renewals hereof. "Banks" shall mean, collectively, American Security Bank, N.A., Continental Illinois National Bank and Trust Company of Chicago, First Pennsylvania Bank N.A., State Street Bank and Trust Company,'United States Trust Company of New York, and their respective successors and assigns. "Closing Date" shall mean the date as of which this Agreement is executed and delivered. "Company" shall mean Nortek, Inc., a corporation organized under the laws of the State of Rhode Island and Providence Plantations. "Consolidated Current Assets" shall mean all assets of the Company and its Subsidiaries, including the portion thereof, if any, allocable to minority interests in Subsidiaries which would, in accordance with generally accepted accounting principles, be classified upon a consolidated balance sheet of such corporations as current assets. "Consolidated Current Liabilities" shall mean all liabilities of the Company and its Subsidiaries which would, in accordance with generally accepted accounting principles, be classified upon a consolidated balance sheet of such corporations as current liabilities, provided, however, such terms shall not in any event, be deemed to include any Indebtedness from time to time outstanding under this Agreement. "Consolidated Net Income" for any period shall mean the amount of consolidated net income (or net loss) of the Company and its Subsidiaries for such period, excluding the portion thereof, if any, allocable to minority interests in Subsidiaries, all determined in accordance with generally accepted accounting principles; provided, that, in no event shall there be included in any such computation (i) the net income (or net loss) of any business acquired by the Company or any Subsidiary for any period prior to the end of the Company's Fiscal Year next preceding the date of such acquisition (whether accounted for as a pooling of interests or a purchase), (ii) any amortization or write-off of goodwill arising in connection with a merger, consolidation or acquisition of stock or assets to which the Company or any Subsidiary is a party, or (iii) the Company's or any Subsidiary's equity in the undistributed net income (or net loss) of investments (other than investments in a Subsidiary), whether or not at the time the equity in such undistributed net income (or net loss) would be includible in accordance with generally accepted accounting principles. "Conversion Date" shall mean the day following the third anniversary of the Closing Date or, if such date is a Saturday, Sunday or legal holiday, the next succeeding business day. "Event of Default" shall mean the occurrence of any one or more of the events described in Section 6.1 hereof which shall not be remedied within the period of grace, if any, provided therein. "Fiscal Year" shall mean a calendar year. "Funded Indebtedness" shall mean, at any date, all Indebtedness of the Company and its Subsidiaries which would, in accordance with generally accepted accounting principles, be classified as funded indebtedness. Whether or not required by generally accepted accounting principles, Funded Indebtedness shall also include all Indebtedness, whether secured or unsecured having a final maturity (or which, pursuant to the terms of a revolving credit agreement or otherwise, is renewable or extendible at the option of the borrower for a period ending) more than one year after the date of the creation thereof, and shall include payments in respect thereof (whether installment, serial maturity or sinking fund payments or otherwise) required to be made by the borrower less than one year after the date of any computation of Funded Indebtedness. Any Indebtedness which is extended or renewed (other than pursuant to an option of the borrower) shall be deemed to have been created at the date of such extension or renewal.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  17  s of such person for money borrowed "Indebtedness" of any person shall include all obligation accordance with generally accepted acor the deferred purchase price of property which would in person as liabilities of such person and counting principles be classified upon a balance sheet of such in any event shall include: any manner by such person (i) all Indebtedness guaranteed, directly or indirectly, in ordinary course of business) or or endorsed (otherwise than for collection or deposit in the discounted with recourse; ectly, by such person through (ii) all Indebtedness in effect guaranteed, directly or indir Indebtedness or to advance or supply such hase purc to (1) e, rwis othe or nt inge t, cont emen an agre to purchase. sell or lease (as lessee , funds for the payment or purchase of such Indebtedness (2) to purchase or sell transportation or or lessor) property, products, materials or supplies, or to make payment of such Indebtedness services, primarily for the purpose of enabling the debtor loss, regardless of the delivery or nonor to assure the owner of such Indebtedness against or the furnishing or non -furnishing of delivery of the property, products, materials or supplies loan, advance, capital contribution or other the transportation or services, or (3) to make any a minimum equity, asset base, working investment in the debtor for the purpose of assuring or to provide funds for the payment of any capital or other balance sheet condition for any date, otherwise to supply funds to or in any liability, dividend or stock liquidation payment, or manner invest in the debtor; and ng under any conditional sale agree(iii) all Indebtedness of such person created or arisi nt of liability in respect of a lease of ment or other title retention agreement or the amou with generally accepted accounting principles, property, real or personal, which, in accordance a balance sheet of the lessee. would at such time be required to be capitalized on Loans, collectively or separately. "Loans" shall mean the Revolving Loans and the Term Term Loan Notes, collectively or separately. "Notes"shall mean the Revolving Loan Notes and the est charged by each Bank from time to time "Prime Rate" shall mean the per annum rate of inter borrowers on 90-day unsecured, commercial loans. to its largest and most credit-worthy commercial made pursuant to Section 1.1(a) hereof "Revolving Loans" shall mean, collectively, the Loans evidenced by the Revolving Loan Notes. Revolving Loan Notes referred to in Section "Revolving Loan Notes" shall mean, collectively, the of Exhibit A hereto evidencing the Revolving 1.2 hereof executed, issued and delivered in the form Loans. es of capital stock of the Company or any "Stock Payment" shall mean any dividend on shar other retirement of any of its shares of capital or on mpti rede , hase purc the of unt acco on ent paym eof, either directly or indirectly, and whether in ther ect resp in made on ibuti r distr othe any or stock pt that a dividend payable solely in shares exce any, Comp the of s ation oblig in or erty prop cash or ed a Stock Payment. The amount of any deem be not shall y pan Com the of k stoc of of any class ed to be the greater of the fair value of deem be shall y pan Com the of erty prop in ent Stock Paym board of directors) or the net book value of such such property (as determined in good faith by the with generally accepted accounting principles) on property on the Company's books (in accordance or at the date of payment or distribution in the the date of declaration in the case of a dividend case of any other Stock Payment. pany shall mean, at any date, Funded Indebted"Subordinated Funded Indebtedness" of the Com Subordinated Debentures Due June 15, 1988, 7(7r ness represented by the Company's 6% Convertible 27c Subordinated Sinking 1 mber 1, 1989, and 12/ Convertible Subordinated Debentures Due Dece ness of the Company which is issued subsequent Fund Debentures Due 1999 and Funded Indebted e or other instrument containing provisions for the ntur inde an r unde t emen Agre this of date the to (to which appropriate reference shall be made in the ness bted Inde such of n atio rdin subo fic speci . 18   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  instruments evidencing such Indebtedness) to the Notes identi cal to the provisions relating to subordination stated in the Indenture dated as of June 1, 1979 of the Company providing for the Company's 121/2% Subordinated Sinking Fun d Debentures Due 1999 (or in such other form as is satisfactory to each of the Banks and their counsel) and which is amortizab le not faster than ratably over a period ending after September 30, 198 6. "Subsidiary" shall mean any corporation, association, partnership, trust or other organization of which the Company shall at the time, directly or indirectly thr oug h a Subsidiary, have sufficient voting power to entitle it to elect immediately or to have had ele cte d (giving consideration to any provisions in the charter or byl aws of such organization limiting the powers of stockholders to remove directors in office, or the like) a majority of the board of directors or similar governing body; provided, however, that such term shall not include (i) any organization until the Company has possessed such sufficient voting power for 90 days or until the Company shall hav e actually elected a majority of the board of directors or similar governing body of such organization , whichever is sooner, or (ii) any organization of which the Com pany has acquired such sufficient voting power, so long as the chief executive officer of the Compan y certifies in writing to the Banks that the Company has not completed its acquisition of all of the outstanding securities of such org anization, that the Company has the present intention of comple ting such acquisition within the ens uing year, and that it would not he in the best interests of the Com pany to elect a majority of the board of directors or similar governing body prior to the comple tion of such acquisition. "Tangible Effective Net Worth" shall mean the sum of (a) stockholders' equity in all classes of stock of the Company (except treasury stock) plus (b) additional paid-i n capital plus (c) retained earnings plus (d) Subordinated Fun ded Indebtedness less (e) all amount s attributable to goodwill, patents, trademarks, trade names, licens es, franchises and other intangibl es, all determined on a consolidated basis for the Company and its Subsidiaries. "Target" shall have the meaning giv en in Section 1.5 hereof. "Term Loans" shall mean, collectively , the loans made pursuant to Sectio n 1.1(b) hereof evidenced by the Term Loan Notes. "Term Loan Notes" shall mean, col lectively, the Term Loan Notes ref erred to in Section 1.2 hereof executed, issued and delivered in the form of Exhibit B hereto evi dencing the Term Loans. "Working Capital" shall mean the excess of Consolidated Current Ass ets of the Company and its Subsidiaries over their Consolidated Cur rent Liabilities. 9.  NOTICES.  All notices, requests and demands required or permitted to be given pursuant to this Agreement shall be given to or made upon the res pective parties hereto as follows: The Company: Nortek, Inc. 815 Reservoir Avenue Cranston, Rhode Island 02910 Attention: Richard L. Bready, Tre asurer with a copy to:  The Banks and the Agent:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Roger Moore, Esq. Ropes & Gray 225 Franklin Street Boston, Massachusetts 02110 Their respective addresses set forth below their names in the signature page of this Agreement 19   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  with a copy to:  Allen M. Bornheimer, Esq. Choate, Hall & Stewart 60 State Street Boston, Massachusetts 02109  by notice to each or, as to each party, at such other address as shall be designated by such party other party. ions of this All notices, requests and demands given or made in accordance with the provis e prepaid, Agreement shall be deemed to have been given or made when deposited in the mails, postag s prepaid, or in or in the case of telegraphic notice, when delivered to the telegraph company, charge all addressed as the case of telex, TWX or telecopier notice, when received by the other party, specified herein. 10. MISCELLANEOUS. and not joint and 10.1. Agent. The respective obligations of the Banks hereunder are several to the extent that none shall be, nor be construed to he, the partner or agent of any other, except in accordance with State Street Bank and Trust Company is expressly made the Agent of the Banks or through its agents, the terms hereof. The Agent may execute any of its duties hereunder by to its duties and shall officers or employees, shall be entitled to rely upon the advice of counsel as taken by it in good not be liable to any of the other Banks for any action taken or omitted to be of any oversight or faith, shall not be responsible to any of the other Banks for the consequences loss unless the same error of judgment and shall not be answerable to any of the other Banks for any Company agrees to furnish shall happen through its gross negligence or wilful misconduct. The and other instruments to the Agent sufficient executed copies of all statements, notices, certificates copy thereof to each deliverable to the Agent hereunder so that the Agent may furnish an executed and each Bank shall he Bank. The Agent shall receive no compensation hereunder but the Agent tion with the printing, promptly reimbursed by the Company for its out-of-pocket expenses in connec the Agent may resign administration and enforcement of this Agreement and the Notes. At any time as Agent by such other upon 10 days' written notice to the Banks and the Company and be replaced entitled to rely on any Bank as shall he consented to by all of the Banks. The Company shall be it by telex, TWX written communication to it signed by the Agent or on any communication sent to or telecopier notice by the Agent. Agent and the 10.2. Amendments and Waivers. With the consent of all of the Banks, the time enter into agreeCompany may, subject to the provisions of this Section 10.2, from time to g, waiving or modiments supplemental hereto for the purpose of adding any provisions to, or deletin of the Banks or of the fying any provisions of, this Agreement or changing in any manner the rights subsequently be confirmed Company hereunder. Any oral consent to such amendment or waiver shall in writing to the Agent by the Bank giving such oral consent. delay in exercising, 10.3. Waivers. No failure on the part of the Banks to exercise, and no thereof; nor shall any any right, remedy, power or privilege hereunder shall operate as a waiver preclude any other or single or partial exercise of any right, remedy, power or privilege hereunder privilege, and no waiver further exercise thereof or the exercise of any other right, remedy, power or Banks and then only to whatever shall be valid unless in writing signed by the Company and the the extent specifically set forth in such writing. Agreement or 10.4. Remedies. All remedies, rights, powers and privileges, either under this exclusive of any remedies, by law or otherwise afforded the Banks shall be cumulative and not be the Notes and all interest rights, powers and privileges provided by law and shall be available until America. The Banks may thereon have been paid in full in lawful money of the United States of exercise all such remedies in any order or priority. 20  Se  GO  10.5. Costs, Expenses and Taxes; Indemnificalian. The Company, whether or not Loans are made, agrees to pay all costs and expenses incurred by the Banks (including the reasonable fees and expenses of each Bank's counsel and of special counsel for the Banks) in connection with the preparation of this Agreement and the transactions contemplated hereby and in connection with the enforcement of this Agreement and the Notes, as well as any and all costs of collection if default is made in the payment of any principal or interest owing on the Notes and all stamp taxes (including interest and penalty) and will save the Banks harmless from any and all liabilities with respect to, or resulting from, any delay or omission to pay such taxes. The Company agrees to indemnify each Bank and each of its directors, officers and employees and hold each of them harmless from and against any and all damages, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by such Bank or such other person in connection with any litigation or threatened litigation involving such Bank or such other person arising out of any Acquisition Loans (whether or not such Loans are actually made), except (i) damages, liabilities and expenses resulting solely from any matter as to which such Bank or such other person shall have been finally adjudicated to have acted in had faith or to have wilfully violated any provision of law as a result of the improper use of any confidential information furnished to such Bank or such other person by the Company or by any other customer of such Bank or to have wilfully violated any fiduciary responsibility to any such customer, or (ii) as to any such litigation which shall have been settled by such Bank or such other person without the prior written approval of the Company, which approval shall not be unreasonably withheld. The Company shall promptly reimburse each Bank and each such other person for all such damages, liabilities and expenses on a current basis as and when they are paid by such Bank or such other person. Promptly upon receipt by any of the Banks or any of such other persons of notice of the commencement of any action, such Bank or such other person shall, if a claim in respect thereof is to be made against the Company hereunder, notify the Company in writing of the commencement thereof and permit the Company to participate in the defense of any such action. 10.6. Survival of Representations and Covenants. All representations, warranties and covenants made by the Company and the Banks in this Agreement shall survive the execution and delivery of the Notes. 10.7. Payment on Non-Banking Days. Whenever any payment to be made hereunder or under the Notes shall become due on a Saturday, Sunday or legal holiday under the laws of the jurisdiction in which any Bank is located, such payment shall be made on the next succeeding banking day in such jurisdiction and such extension of time of the payment of principal shall in such case be included in computing interest in connection with such payment. 10.8. Benefit of Agreement. This Agreement shall be binding upon and inure to the benefit of the Company and the Banks and their respective successors and assigns, except that the Company may not assign or transfer any of its rights under this Agreement without the prior written consent of the Banks. 10.9. Accounting Computations. Unless otherwise expressly provided herein or unless the Banks otherwise consent in writing, all financial statements and reports furnished to the Banks hereunder shall be prepared, and all computations and determinations pursuant hereto shall be made in accordance with generally accepted accounting principles, practices and procedures applied on a basis not materially inconsistent with those applied in the preparation of the financial statements referred to in Section 2.6 hereof. 10.10. Governing Late and Construction. This Agreement has been executed and delivered at Boston, Massachusetts, and shall be construed in accordance with and governed by the internal law, and not the law of conflicts, of The Commonwealth of Massachusetts. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under such applicable law. 21   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  110  SO  its Notes for its own 10.11. Transfer of the Notes. Each Bank represents that it shall acquire tion of its Notes account and, not with a view to the distribution thereof, provided that the disposi that it will not transfer shall at all times be within the control of such Bank. Each Bank agrees such transfer the any of the Notes unless it records thereon or on a paper annexed thereto prior to date and amount of all date and principal amount of all Loans evidenced by each Note and the ny represents that the payments of principal and interest made in respect of each Note. The Compa issuance of the Notes Notes have not been offered to such other persons as would require that the be registered under the Securities Act of 1933. ents among the Banks 10.12. Prior Agreements. This Agreement supersedes all prior agreem and the Company relating to the subject matter hereof. hereto individually, or 10.13. Counterparts. This Agreement may be executed by the parties of which taken together in any combinations of the parties hereto in several separate counterparts, all ment it shall be sufficient shall constitute one and the same agreement, and in proving this Agree to produce a counterpart of this Agreement signed by each party hereto. of reference only 10.14. Headings. Section headings in this Agreement are for convenience Agreement. and shall not govern the interpretation of any of the provisions of this  22  •  IN WITNESS WHEREOF, the parties beret(' have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. NORTEK, INC. [SEAL] By /S/ RICHARD L. BREADY Executive Vice President STATE STREET BANK AND TRUST COMPANY Individually and as Agent By /S/ GEORGE R. MiNur Vice President 225 Franklin Street Boston, Massachusetts 02110 AMERICAN SECURITY BANK, N.A. By /S/ JAMES R. ANDERSON Vice President 15th Street and Pennsylvania Avenue, N.W. Washington, D.C. 20013 CONTINENTAL ILLINOIS NATIONAL BANK AND TIIUST COMPANY OF CHICAGO By  A/ JOHN R. RUCKER Vice President 231 South LaSalle Street Chicago, Illinois 60693 FIRST PENNSYLVANIA BANK N.A. OaERICK SCHILLING Vice President First Pennsylvania Tower Centre Square Philadelphia, Pennsylvania 19101 By  UNITED STATES TRUST COMPANY OF NEW YORK By /8/ C. WILLIAM SI LELMAN Vice President 45 Wall Street New York, New York 10005  23  . S  EXHIBIT A REVOLVING WAN NOTE Boston, Massachusetts October , 1979 The undersigned, Nortek, Inc., a Rhode Island corporation (herein called the "Company"), on or before October , 1982, the hereby promises to pay to the order of ) or so much thereof as may Dollars ($ principal amount of be outstanding under the Revolving Credit and Term Loan Agreement referred to below, together with interest on the principal amount outstanding from time to time at a rate per annum (computed on the ba.sis of the actual number of days elapsed over a 360-day year) equal to 1/2% above the Prime Rate, as hereinafter defined, which rate shall change when and as such Prime Rate changes, such interest being payable quarterly in arrears on March 31, June 30, September 30 and December 31 in each year hereafter, commencing December 31, 1979. "Prime Rate" shall mean the per annum rate of interest charged by the payee from time to time to its largest and most credit-worthy commercial borrowers on 90-day unsecured, commercial loans. All payments of principal and interest on this Revolving Loan Note shall be payable in lawful money of the United States of America at the office of the payee, located at , or at such other place as the holder hereof may from time to time in writing appoint at least ten days before the date such payment is due. Whenever any payment of principal or interest to be made hereunder shall become due on a Saturday, Sunday or legal holiday under the laws of the jurisdiction in which the payee's aforementioned office is located, such payment shall be made on the next succeeding business day in such jurisdiction and, in the case of payments of principal, such extension of time shall be included in computing interest in connection with such payment. This Revolving Loan Note is one of the Revolving Loan Notes referred to in that certain Revolving Credit and Term Loan Agreement dated as of October , 1979 by and among the Company, the Banks referred to therein including the payee hereof and the Agent, reference to which is hereby made for a statement of the terms and conditions under which the principal hereof and accrued interest hereon may become or may be declared forthwith due and payable as provided in said Agreement. Presentment, demand, notice, protest and all other demands and notices in connection with any default under or the enforcement of this Revolving Loan Note are hereby expressly waived. NORTEK, INC. (SEAL)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  By Its  SO EXHIBIT B TERM LOAN NOTE Boston, Massachusetts October , 1982 The undersigned, Nortek, Inc., a Rhode Island corporation (herein called the "Company"), hereby promises to pay to the order of the principal amount of Dollars ($ ), payable, until paid in full, in sixteen (16) consecutive quarterly installments of principal of $ each payable on December 31, 1982 and on each March 31, June 30, September 30, and December 31 thereafter, together with interest from the date hereof until paid in full on the remaining principal amount outstanding hereon from time to time at a rate per annum (computed on the basis of the actual number of days elapsed over a 360-day year) equal to 1/Wo above the Prime Rate, as hereinafter defined, which rate shall change when and as such Prime Rate changes, such interest being payable quarterly in arrears on March 31, June 30, September 30 and December 31 in each year hereafter, commencing December 31, 1982. "Prime Rate" shall mean the per annum rate of interest charged by the payee from time to time to its largest and most creditworthy commercial borrowers on 90-day unsecured, commercial loans. All payments of principal and interest on this Term Loan Note shall be payable in lawful money of the United States of America at the office of the payee, located at or at such other place as the holder hereof may from time to time in writing appoint at least ten days before the date such payment is due. Whenever any payment of principal or interest to be made hereunder shall become due on a Saturday, Sunday or legal holiday under the laws of the jurisdiction in which the payee's aforementioned office is located, such payment shall be made on the next succeeding business day in such jurisdiction and, in the case of payments of principal, such extension of time shall be included in computing interest in connection with such payment. This Term Loan Note is one of the Term Loan Notes referred to in that certain Revolving Credit and Term Loan Agreement dated as of October , 1979 by and among the Company, the Banks referred to therein including the payee hereof and the Agent, reference to which is hereby made for a statement of the terms and conditions under which the principal hereof and accrued interest hereon may become or may be declared forthwith due and payable as provided in said Agreement. Presentment, demand, notice, protest and all other demands and notices in connection with any default under or the enforcement of this Term Loan Note are hereby expressly waived. NORTEK, INC. (SEAL)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  By Its   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551 .• 4..RAL RES  PAUL A. VOLCKER  • • • .. • • •  CHAIRMAN  July 21, 1980  The Honorable William Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. 20510 Dear Chairman Proxmire: I am responding further to your joi nt letter of March 24 with Senator Sarbanes con cerning your interest in keeping informed of developments under the Special Credit Restraint Program. In this connec tion, I am pleased to enclose a staff interim report on that program. The report describes the program and summarize s the statistical and other information, especially tha t pertaining to bank lending to small businesses and loans for purely financial or speculative purposes, provided in the reports for March and April which certain large financial ins titutions were required to file. Reports for the month of Jun e, including the first reports from intermediate-size banks, are now being reviewed and processed at each Federal Res erve Bank. There are also enclosed reports by the staff on the other parts of the Federal Reserv e Credit Restraint Program. I hope you find these reports useful. Sincerely,  S/Paul A. Valdez  Enclosures IDENTICAL LETTER TO SENATOR PAUL S. SARBANES EJS:JPB:vcd (#V-105) bcc: Ms. Stockwell Mrs. Mallardi (2h..-  •  of GOvtW  •  BOARD OF DOVERNOFRcJ  • c  OF THE  FEDERAL RESERVE SYSTEM  # V- 2r?  WASHINGTON, D. C. 20551  PAUL A.VOLCKER CHAIRMAN  July 21, 1980  The Honorable Henry S. Reuss Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Chairman Reuss: I have read your letter about the silver situation and related transactions very carefully and share many of the concerns that are reflected in it. Even sev eral months after the event, I am not certain that all of the fac ts of the situation are known. It is clear that the Hunts and relate d interests had accumulated massive positions in silver and tha t as a result of this and other circumstances, a series of difficult ies and problems emerged, as broadly reviewed in your letter. But while the general outline of the train of events can be ide ntified, the complexity of the relationships among the many partic ipants, and those who financed them--whether brokers, banks or oth er interests--makes it extremely difficult, if not impossible, to ide ntify all of the elements, contributing forces, and motivation of the participants. • Before commenting on the specific que stions that you have raised, there are several asp ects of the silver situation that I would like to clarify.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  In your letter you referred to rep orts that an earlier loan to the Placid Oil Com pany may have been related to the silver situation . It is true that Placid did negotiate a bank cre dit line for $450 million in the fall, but we hav e looked into this and I am satisfied that the pro ceeds were used for normal business operations. Our best estimate of the extent of Placid financing of the silver activity of the Hunts prior to the initial restructuring of the Hunt indebtedness is still $115 million. One area of concern has been the ext ent to which bank financing was used on the upside of the silver market in the fall of 1979 and early 1980.  The Honorable Henry S. Reuss Page Two  In our "Interim Report" we indica ted that "bank credit was not a major factor in con nection with the acquisition or maintenance of silver positions by Hunt and Hunt-related intere sts during this period." Considering the size of the Hunt positions, that remains a fair ass essment. However, on the basis of our continuing invest igations, we now know that the timing of cre dits in the amount of $150 million to Hunt interests occurred in the fall of 1979 rather than in early 1980 as we had previously thought. The loans in question were committed prior to October 6. We are also now aware of approximately $50 million in cre dits to the Hunts from brokers on the upside of the market that were financed by bank borrowings. Fur thermore, it also appears that others on the short sid e during this interval may have been forced to rel y on bank lines to meet variation margin calls. We are still looking into this. There is a reference in your letter to the Commodity Futures Trading Commissio n report that we were alerted to the presence of pot entially troublesome speculative concentrations in September 1979. Because of press reports and market rumors of irregularities in the silver market , and because of the potential damaging impact on inf lationary expectations and on inflation of a renewed outburst of speculatively driven price increa ses in precious metals, I initiated inquiries wit h the CFTC about developments in the precious metals markets in September and again in December, in the latter instance with emphasis on the silver situation. In the course of those discussions no information other than that generally available was provided. I later learned that other inquir ies of a very general nature were made by the CFT C staff about our interest in silver market develo pments but these were not brought to my attention. At no time prior to March 26 did the CFTC inform the Federal Reserve as to the extent of the emerging problem. As to the first of your specific questions, none of the banks involved in lending to the Hun ts or their brokers consulted with us during the fall of 1979 or early 1980 about the loans that they made. The vast majority of the loans were, of course, made   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Henry S. Reuss Page Three  prior to March 14. Thus, the ope rative Federal Reserve guidel ine was my October 6, 1979, request that banks avoid making "specu lative" loans. That request was in the form of "moral suasion" and did not have the force of regulatio n, law or even formal reporting requirements. Basically, the sub sequent explanations given by the banks operating in the United States fell into three (sometime s overlapping) categories. Fir st, in some instances the ban ks pointed out that the loans wer e made under lines of credit tha t were committed prior to Oct ober 6, 1979. Second, in other instances the lending banks have indica ted that they were unaware of the fact that the loan proceeds wer e being used to finance unhedged positions in silver by the Hun t interests. Finally, other lender s clearly viewed the credits as "damage control" loans which wer e not of a speculative nature, in part because the proceeds were not being used to acquire additiona l silver. Your second question concerned bank reporting under the Special Credit Restraint Progra m of extensions of credit to Hun t interests. In the March report s received in mid-April, three of the largest lenders did acknow ledge the loans in question, describing them in detail (wi thout, of course, identifying the loans by customer name) citing earlier commitments or refinanci ng. None of the other banks acknow ledged their lending activity in this area. In retrospect and after further discussion with the banks, their failure to report may, at least in part, be relate d to the inherent ambiguities in defining speculative activity. In addition, I should mention tha t the detailed reporting under the Special Credit Restraint Progra m focused on commercial and ind ustrial lending. Consequently, some banks, rightly classifyj_ng loans to the Hunts in other categorie s, may knowingly or unknowingly have omitted reporting on the techni cal grounds they were not "comme rcial" loans. In that sense, the nat ure of the detailed reporting forms contributed to the error. Giv en all of the publicity about the silver situation and the Specia l Credit Restraint Program, one might nonetheless have expect ed the institutions to err on the side of reporting rather than non-reporting. In this connection, your third question related to the steps we were taking to insure that we have better and more tim ely information at our disposal in regard to the behavior of banks in financing speculative activity. The question is both relevant and difficult--difficult because spe culative lending permits no eas y definition. We are working alo ng a number of lines. We are exploring modifications in our regular reports on bank lending with a view toward singling out categories of loans more apt to be associated with "speculat ive" activity--i.e., those on commodities. I must emphasize that this is not an easy task since there is no simple catego ry that can be described to blanket "speculative" lending, much less identifying the kind of speculation that is of spe cific concern. I have also asked   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Henry S. Reuss Page Four  the bank examinations staff to look into what further changes in bank examination procedures could be made to assist in identifying and discouraging damaging speculative activity. I expec t that effort will, in the near future, result in the submi ssion to the Federal Financial Institutions Examination Council of new guidelines, procedures and instructions that will focus more attention on this area in the examination process. Potentially much more important, we are looking into the larger issues involved by way of various studies--in coope ration with the Treasury, the SEC and the CFTC--on "financial futures" and related markets. In our work so far, it is clear that in attempting to guard against a repetition of the recent silver situation, bank surveillance and restraint alone, however diligent, are not sufficient. Apart from the definitional problems, it appears that the amount of bank credit supporting the Hunts on the upside of the market was relatively small. The procedures and rules of the organized exchanges may well have to be modified to reduce the risks of individuals or groups obtaining significant specu lative positions capable of disrupting the orderly functionin g of those markets. In your fourth and fifth questions, you asked about the relationships between the banks and the Hunts. In the case of the largest lenders, there were long standing relationships with the Hunts and/or Hunt-related companies for financing in a wide varie ty of business areas. Past lending typically was well secured. There is no evidence that the banks involved had assum ed, from their point of view, more than normal banking risks. We have also noted that at the time most of the silver loans were made, there were sizeable margins of excess collateral, and as is illustrated by the ability of the Hunts to restructure their loans, they had and have assets of their own, and of related companies and family-owned trusts, of considerable size. It is not at all clear that the banks individually knew the extent to which the Hunts' wealth was tied up with silver and it is possible that this might have influenced their lending judgment. In your last two questions you expressed concern about the relationship of the banks with the brokers. Our study of broker financing arrangements is still incomplete; however, we do know that the vast majority of the bank loans to brokers, the proceeds of which were in turn made available to the Hunts, were made under long-standing credit lines and banking relationsh ips. Indeed, under usual conditions, brokers utilize standing bank credit lines and the distribution of broker extended credit to customers would not be of concern to the bank on a day-b y-day basis. However, in retrospect it does appear that some of the banks were not as diligent as they might have been conce rning the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Henry S. Reuss Page Five  precise utilization of the funds. I would emphasize, however, that the matter of broker financing in the silver market is one of the more complex areas of this whole episode and is still under study. While I share your concern in genera l about the role that bank credit may have played in the silver episode, that credit appears to have been a minor part of the financing that allowed the Hunts to increase their positions on the upside of the market. Moreover, no one would, of course, arg ue that speculation does not have a legitimate and important economic role in the proper functioning of the commodity market s. But clearly there are potentials for market manipulation and the development of speculative fervor that can be exacerbated by excessive extensions of credit. While only a portion of that credit--and perhaps typically a small proportion--is provided by the banks, as I indicated earlier, steps are being taken to improve our surveillance capabilities. More importantly, our study of the broader relationships and functioning of the "financial futures" and related markets will provide the basis for det ermining the nature and extent of regulatory or legislative actions that are necessary to discourage these speculative epi sodes. I look forward to working with you as we move toward the most effective solution to thi s problem.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  'lowd„  • CHAIRMAN HENRYS. vuss. "III.“=)MAS L. Asku, EY, OHIO WILL/AM S. moc: 4 i-Ao. PA. PERNAND .1. ST GERMAIN. R.I. HENRY B. O0'.ZAt.E.Z. 7:: X. JOS-,H G. Mr...SH, rPANK ANN -N7.10. JAP.•ES Po. HAN I. N.Y. i'AF•ursi J. m;TC.“ I. MD. WALTZ E r. Y. DC. , 71;CAL IF. .'• • k.4  •  Action assigned Mr. Corijan  U.S. HOUSE OF REPRESENTATIVES COM%1ITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  M:CH. P. AN. JA.A• CARRoLL HUM'Ar.D. JR.. KY. JOHN .1 LAFALCE. N.Y. GLADYS NOON SPELLMAN, MD. LES AL,COIN. OREG. DAVID W. EVANS. IND. NORMAN E. D'AMOURS, N.H. STANLEY N. LUNDINE, N.Y. JOHN J. CAVANAUGH. NEBR. MARY ROSE (DAKAR. OHIO JIM MATTOX. TEX. BRUCE F. VENT°. M:NN. DOUG BARNARD. GA. WES WATKINS. OKLA.  NINETY-SIXTH CONGRESS 2129 RAYBURN HOUSE OFFICE BUILDING  WASHINGTON, D.C. 20515  J. WILLIAM STANTON. OHIO CHALMERS P. WYLIE, OHIO STEWART B. McKINNEY. CONN, GEORGE HANSEN, IDAHO HENRY J. HYDE. ILL. RICHARD KELLY, FLA. JIM LEACH, IOWA THOMAS B. EVANS. JR.. CEL. S. WILLIAM GREEN. N.Y. RON PAUL. TEX. ED BETHUNE. ARK. NORMAN D. SHuMWAY, CALIF. CARROLL A. CAMPBELL. JR., S.C. DON RITTER. PA JON HINSON, MISS. 2.73-47.0  oune 12, 1930  ROBERT GARCIA. N.Y. MIKE LOWRY. WASH.  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. Dear Chairman Volcker: The silver bubble that burst on March 26-27 put the Federal Reserve's Special Credit Restraint Program to an earl,/- and severe test. Now that the initial excitement has abated it is time, I believe, -_or a thoroc,Jh appraisal of the actions that the Federal Reserve took during the crisis, and of the effectiveness of current procedures and T- olicies in meeting and thwarting speculative outrages in the future. The Federal Reserve has made a significant contribution to such an apraisal already, both in your testimony of April 30 to the Subcommittee on Comerce, Consumer and Monetary Affairs of the House Government Op'rations Committee, and in the "Interim Report" on silver that was leased on May 23. Nevertheless important questions remain. I am taking this opportunity to set out my initial questions; after receiving your written response I will look forward to taking up the matter with you at the Banking Committee's hearings on the conduct of monetary policy next July. As you know, silver prices rose sharply over the last six months of 1979, peaking near $50 per ounce in the third week of January, 1980. In the nature of futures trading, the position of the Hunts during this initial period of increasing prices was financed without bank credit. After the week of January 18, prices subsided to about $33 per ounce, and remained at about that level until the end of the first week in March. Thirty-three dollars represented the highest price at which the Hunts had purchased silver futures. However, in early February higher margin requirements forced the Hunts to borrow $350 million from U.S. banks to maintain their positions at that price. Then prices fell, from about $33 on March 7 to about $17 on March 17, with the biggest drops on March 10 and March 13-17. The Hunts were hit with large maruin calls, and were forced again to borrow from their banks and their brokers in order to meet them -- about $250 million according to the "Interim Report". According to your testimony of April  Honorable Paul Volcker June 12, 1980 Page Two  30, 1980, and according to the "Interim Report", the Hunts borrowed at least $800 million from domestic banks in February and March. This included $233 million from Bache Halsey Stuart Metals Co., which was financed by ton large banks: First National of Oklahoma City, U.S. Trust, Northern Trust, Irving Trust, Bankers Trust, First National of Chicago, Marine Midland, Harris Trust, Barclay's, and Citizen and Southern. In addition, there were direct loans to the Hunts from foreign and domestic banks, loans through Placid Oil Company, placed at $115 million by the Federal Reserve and at $400 million by the Economist magazine, direct broker loans, indirect loans by foreign and domestic banks through other brokers, and indirect loans through the International Metals Investment Co., Ltd., as detailed in the "Interim Report". These loans temporarily rescued the Hunts' silver speculation. They helped forestall the liquidation of the Hunts' silver futures positions, and hence helped sustain the silver price. The loans through Bache, plus some of the direct U.S. and foreign bank loans, and most of the indirect foreign bank loans, the direct broker loans and the IMIC loans were collateralized with silver bullion, and hence clearly depended for their continued viability on the success of the rescue operation. These silver bars constitute a "smoking revolver" pointing to guilty participation in silver speculation. The temporary effect of these loans can perhaps be seen in the rise of the silver price from $17 to $20 on March 19. On March 26-27 this round of speculation collapsed. Silver spot futures prices on the COMEX fell from $20.20 on the 25th to $10.80 on the 27th. The Hunts were hit with further margin calls which they could not meet, forcing liquidation of their silver futures positions, and the value of the silver bullion posted as collateral for the firstround speculative bail-out declined sharply, forcing the Hunts to seek a restructuring of their debts. The eventual result was the negotiation of a $1.1 billion loan to a partnership consisting of Placid Oil Company and the three Hunt brothers, about which you were questioned intensively on April 30, and which the "Interim Report" describes and defends in detail. The April restructuring through Placid Oil was, as you have testified, a recuperative effort rather than a new speculation -- a bail-out of the banks rather than of the Hunts. It is extremely important, of course, that it be done in a way that ensures the orderly liquidation of the Hunts' silver holdings and that precludes further speculation of any kind by the Hunts. Recent press reports have cast some doubt on whether this has been achieved. I hope that you will be able to assure me that it has. But beyond this necessary rearguard action, few significant issues of public policy have so far been posed by the efforts since March 30 to dig out from under the silver collapse.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Honorable Paul Volckeill .June 12, 198') Page Three  •  Far more serious, it would appear, was the readiness with which the Lnks and brokers rushed in to validate and sustain the Hunts' Mtures positions in the first, and undeniably speculative, round of lending. Placid Oil began to build up liquidity for an eventual rescue in November; the syndicate which lent to Bache made its commitments in March. As noted above, nearly $800 million, or 8.6 percent of lending by the nation's 14,000 banks and 12.9 percent of all bank business lending, flowed to the Hunts against silver in February and March. This, at a time when general credit conditions were very tight and when lending for small business, housing, consumers, farmers, and productive capital investment was being severely squeezed. These loans were made despite the Federal Reserve's vigorous campaign against bank lending for speculative purposes, which have been in full swing since October. On October 6th, the Federal Reserve had imposed marginal reserve requirements on managed liabilities of member banks, stating, The purpose of this action is to better control the expansion of bank credit, help curb speculative excesses in financial, foreign exchange and commodity markets and thereby serve to dampen inflationary forces. On October letters to requesting poses. On  10th and October 23rd, the Federal Reserve Board circulated the chief executive officers of member banks, specifically that they refrain from extending loans for speculative purOctober 10th, for instance, you wrote,  ...the Board of Governors has stressed its particular concern that banks should take care to avoid financing essentially speculative transactions in commodity, gold, and foreign exchange markets. I have no doubt that your bank knows what loans best serve the continuing needs of your business and personal customers and of the nation. On October 17th, in addition, you testified as follows to the Joint Economic Committee: ...our immediate objective is to forestall speculative excesses and anticipations of a new inflationary outburst that could only complicate, and ultimately make more severe, the process of economic adjustment that is underway. ...In that connection, we have asked the banks to take special care to avoid lending to support speculative activity, while giving particular attention to the continuing needs of their established customers for funds to maintain normal business operations. ... These warnings were repeated with increasing vigor throughout the fall and winter, culminating in the Special Credit Restraint Program which was announced on March 14th and which required large banks to report all new loans for speculative purposes to the Federal Reserve.  'JHonorable Paul Volckello June 12, 1980 Page Four  •  The Federal Reserve's attitude toward speculative lending was clear and unambiguous. Nevertheless, untold number of large banks went ahead with loans in huge amounts to rescue two of the largest speculators of all time. Why? The procedures employed by the Federal Reserve to monitor commodity speculation were, and are, plainly inadequate. A major upgrading of your oversight function in this area is urgently required. According to the records of the Commodity Futures Trading Commission, the Federal Reserve was first alerted to the presence of potentially troublesome speculative concentrations on the long side of the silver market in September 1979. As you testified on April 30, 1980 the Federal Reserve monitored the silver market "as part of our normal economic intelligence throughout the fall and winter." The "Interim Report" states that the Federal Reserve did consult with the Commodity Futures Trading Commission over the fall and winter. Yet, it seems that the entire first round of bank loans to rescue the Hunts occurred without the Federal Reserve's knowledge. The "Interim Report" states that in February and March "the Federal Reserve had no direct knowledge of the size of the Hunt positions or of the fact that they were financing margin calls by borrowings of any kind." In your testimony of April 30 you stated that "the first indication of ... any potentially serious financial consequences arising from the sharp fall of the silver price" occurred at midday on March 26, and that prior to that time you had "no knowledge .. of any bank lending against silver." By March 26, the banks had already lent the Hunts over $800 million -- nearly 13 percent of all bank business lending -- to shore up their positions, collateralized in large part by silver bullion. The fact that the Federal Reserve did not know this, either from its examiners, from its regular monitoring of events in the financial and commodity markets, or from the banks themselves, suggests something is seriously wrong with your market intelligence. Moreover, it would appear that the Federal Reserve does not have the independent early-warning capability that would enable it to predict such crises, and has not secured the kind of voluntary cooperation from bankers that would make up for this deficiency. Finally, it would appear very doubtful that the reporting requirements of the Special Credit Restraint Program effectively enable the Federal Reserve to monitor and discourage such speculative episodes. My specific questions follow. First, with respect to the Federal Reserve's market surveillance capability: 1) Did any of the banks involved at any time before March 26 attempt to consult with the Federal Reserve at the time of the initial loans to ensure. that such loans would not put them out of   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Honorable Paul Volcker June 12 1980 Five  compliance with the Federal Reserve's directives of October or with the Special Credit Restraint Program? If so, what responses were they given? If not, what explanation do they now give for their behavior? 2) Did all of the banks involved directly or indirectly in the speculative extension of credit to the Hunts in March so report under the Special Credit Restraint Program? If not, was their failure to do so a dereliction on their part, or could the Program have been construed as not requiring such reports? At what time did information from the Special Credit Restraint Program become available to permit assessment of the degree of speculative lending? 3) What steps have been taken to assure that any new speculative loans will be brought rapidly to the Federal Reserve's attention? Specifically, a) What steps have been taken to provide the Federal Reserve with early warning of a massive raid on the nation's credit markets such as that mounted in February and March by the Hunts? b) What steps have been taken to assure that the reports required under the Special Credit Restraint Program are sufficient to require a full accounting of speculative activity by banks, and hence to deter banks from such activity? Vigorous and effective surveillance is necessary but not sufficient. So long as high rollers like the Hunts and their brokers can write themselves their own loans at the bank, we will continue to face the danger of a new outbreak of speculative fever. Therefore I request that you address yourself to the following questions. 4) Were the direct loans from the banks to the Hunts part of an established relationship between the banks and the Hunts? Did the banks ask for and get from the Hunts a full and accurate account of the use to which the funds were to be put? Were the Hunts treated any differently by the banks in this respect than ordinary personal borrowers? In light of the Federal Reserve's October directives, did the banks make any special effort to ascertain whether the funds sought were part of a speculative venture? If not, why not? 5) If there was a special relationship between the Hunts and their banks, what steps has the Federal Reserve taken to discourage banks from permitting large customers to abuse such relationships as the Hunts did? If there was no special relationship, why were the loans made?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  Honorable Paul Volcker June 12, 1980 Page Six  6) Were the loans that went through the brokers part of an established relationship between the banks and the brokers? Did the banks ask for and get a full and accurate account of the use to which the money was to be put, including the fact that the ultimate exposure was to the Hunts? Were the brokers treated any differently from ordinary business borrowers in this respect? 7) If the banks and the brokers did have a cozy no-questionsasked relationship, what steps is the Federal Reserve taking to curb such potentially explosive speculative ties? Again, if there was no such relationship, why were the loans made? I look forward to your response, and to the July 23 hearing. Sincerely, r Henry S. Reuss Chairman  • 00ARD OF GOVERNOR  •  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  PAUL A. VOLCKER  r. HAI RMAN  July 21, 1980  The Honorable Adlai E. Stevenson United States Senate Washington, D. C. 20510 Dear Senator Stevenson: On May 29, you wrote to me concerning speculative lending by banks in the light of the Board's Special Credit Restraint Program. As promised in my June 26 reply, I am pleased to enclose a staff interim report on that program. The report describes the program and summarizes the statistical and other information, especially that pertaining to bank lending to small businesses and loans for purely financial or speculative purposes, provided in the reports for March and April which certain large financial institutions were required to file. Reports for the month of June , including the first reports from intermediate-size bank s, are now being reviewed and processed at each Federal Reser ve Bank. There are also enclosed reports by the staff on the other parts of the Federal Reserve Credit Restrain t Program. I hope you find these reports useful. Sincerely,  Wail( A. Volcket  Enclosures EJS:JPB:vcd (#V-241 & V-83) bcc: Ms. Stockwell Mrs. Mallardi  July 21, 196  The lionoraLle Walter F. Nondale President of the United States Semite washinton, D. C. 20510 Doss 4,1r. Vice President. The -Aosta is pleased to submit its miayear Aonetaxy Policy 1tert to the Congress purruant to 4ao Full F.miloinent and Ta1Ancc;1 :rowth Act of 1978. Sineerely SiPaylA. Vgicitat  ..;:nciOUrC!  President of the U. S. Senate receivc rresident of the U. S. Senate by  DJW:vcd bcc;  Mrs. Hallardi (2).0/  July 21. 1(180  Thv nonorable Thomae V. O'Neill. Jr. f)peaker of the House of Relrementatives 'oashimoton, C. C. 20515 10.6X Mr.  eaker The Eoard it: pleased to subvit its Midyear  .4onetary Polic:i Report to the Contoess pursuant to the Full Emil.oyment and Balanced Growth Act of 1978. Sincerely. Sgaul A. liOcker  Enclo.wre aker of the louse of r.epresentativos receivtcl 4eaker of the Louse of qepresentatives by  D.Te..ved bce. Mrs. Mallardi  July 21, 1990  able Jim Wricht The So Majority Leader House of itepresentatives gashin.4ton, D. C. 20515 Dear Nr. Wrigght. The board of Sovernor.i; of 'as rederal neherve System is klaased to ford to Policy Wort to the Com.,r  c)11 itm Midyear Vonetor;  urvuant to Section IMO of  the Tull Lmi,lo:/11;ant and Lalancod :Irociith Act of 1976. iAncerol;. Saa41  Votchal  Enclosure  =WTI= L TTLRS SENT TC THOSE OV ATTACITEM LIST. DJW.vcd lIcc; mra.  (2) v/(  Senate William Proxmire, Chairman Committee on Banking, Housing and Urban Affairs Jake Garn Russell B. Long, Chairman Committee on Finance Robert Dole Robert C. Byrd Majority Leader Ernest F. Hollings, Chairman Committee on the Budget Henry Bellmon Lloyd Bentsen, Chairman Joint Economic Committee Jacob K. Javits Warren G. Magnuson President Pro Tempore Alan Cranston Majority Whip Howard H. Baker Minority Leader Ted Stevens Minority Whip  House of Representallkes Henry S. Reuss, Chairman Committee on Banking, Finance and Urban Affairs J. William Stanton Jim Wright Majority Leader John Brademas Majority Whip John Rhodes Minority Leader Robert H. Michel Minority Whip Robert N. Giaimo, Chairman Committee on the Budget Delbert L. Latta Richard Bolling, Vice Chairman Joint Economic Committee Parren J, Mitchell, Chairman Subcommittee on Domestic Monetary Policy Committee on Banking, Finance and Urban Affairs Paul M. Simon, Chairman Task Force on Inflation Committee on the Budget Thomas L. Ashley, Chairman Task Force on Economic Policy, Projections and Productivity Committee on the Budget Barber B. Ccnable, Jr. Al Ullman, Chairman Committee on Ways and Means Clarence J. Brown Benjamin S. Rosenthal, Chairman Subcommittee on Commerce, Consumer and Monetary Affairs Committee on Government Operations  •  • Of GO.  411  BOARD OF GOVERNORS OF THE  111  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  PAUL A. VOLCKER  r HAI RMAN  July 21, 1980  The Honorable Henry S. Reuss Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman Reuss: In reference to your earlier cor respondence in which you expressed interest in the Boa rd's monitoring of the Special Credit Restraint Program, I am pleased to enclose a staff interim report on that program. The report describes the program and summarizes the statistical and other information, especially that pertaining to bank lending to small businesses and loans for purely financial or speculative purposes, provided in the reports for March and April which certain large financial institutions were required to file. Rep orts for the month of June, including the first reports from intermediate-size banks, are now being reviewed and processed at each Federal Reserve Bank. There are also enclosed reports by the staff on the other parts of the Federal Reserv e Credit Restraint Program. I hope you find these reports use ful, Sincerely,  SIPaul A. Volckft  Enclosures EJS:JPB:vcd (#V-155) bcc: Ms. Stockwell Mrs. Mallardi (2)6/  a HENRY S REUSS. WIS.. CHAIRMAN THCfMAS L. ASHLEY. OHIO WILLIAM S. moorDirAo. rA FERNAND J. ST GERMAIN. R.I.  Action assigned Mr. Corrigaio  •  GONZALEZ, TEX.  HENRY  ionrri-4 G. MINISH. N.J. II ANNuNZIO. FR ANK ILL. inmrs M. HANLEY, N.Y. PARRFN  MITCHELL. MD.  wALTrR r.  rAuNTROY. D.C.  U.S. HOUSE OF REPRESENTATIVES CO'AMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  STEPHEN  NINETY-SI XT H  JERRY M. PATTERSON. CALIF. JAMES J. BLANCHARD, MICH.  CONGRESS  2129 RAYEIURN HOUSE OFFICE BUILDING  CARROLL HUBBARD, JR.. KY. JOHN J.  LArALcr, N.Y.  WASH I NGTON, D.C. 20515  J. WILLIAM STANTON. OHIO CHALMERS P. WYLIE, OHlo STEWART B. McKINNEY. CONN. GEORGE HANSEN. IDAHO HENRY J. HYDE, ILL. RICHARD KELLY, FLA. JIM LEACH, IOWA THOMAS B. EVANS. JR . CEL. 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 SPILLMAN. MD. LES AuCOIN. OREG.  US-4247  DAVID W. EVANS. IND. NoRMAN E. D•AMOURS. N.H. STANLEY N. LUNDINE, N.Y. JOHN J. CAVANAUGH, NEBR. MARY ROSE OAKAR, OHIO JIM MATTOX. TEX. BRUCE F. VENTO. MINN. DOUG BARNARD. GA. WES WATKINS. OKLA.  April 17, 1980  ROBERT GARCIA, N.Y. MIKE LOWRY, WAsi-i.  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, Dear Chairman Volcker: Thank you for your reply of April 11 to my letter of April 3, 1980, concerning the Special Credit Restraint Program. I especially appreciate your expressed willingness to work with the Congress to assure that the information collected and reported under the Program is adequate. However, I continue to be skeptical that the goal we both seek can be accomplished with the information currently being collected. I am puzzled, in fact, by tho Federal Reserve's position. You state, on the S ne hand, that it is "simply not possible to slot each loan into a neat category". And yet the Program implicitly requires banks to do precisely that if they arc to have any objective basis for responding to the Federal Reserve's questionnaire. How is it possible for a bank to know whether, for example, "commercial and industrial loans to U.S. addressees to meet basic credit demands for normal operations" have increased or decreased, unless it classifies its loans? How can a bank know whether there have been requests for "loans to U.S. addressees for purely financial activities" unless it examines each loan to see whether the shoe fits? And if the bank must make such an evaluation in any case, why not have them report actual quantities rather than qualitative impressions to the Federal Reserve? As matters now stand, the Federal Reserve seems to want the worst of both worlds: to require banks to undertake the self-torture of detailed loan classification, and then not to make use of the product. I do not see thc sense in such a procedure. Furthermore, as you explain, under presently contemplated procedures thc Federal Reserve will collect detailed quantitative information only from banks and other institutions that appear to be "exceeding tho limits set forth in the Program or generally not complying with the qualitative guidelines". In other words, adequate data will be collected only from non-cS mplying institutions, with no offsetting information IS tho (possibly superlative) performance of complying institutions. Yet without information on both, how can thc Federal Reserve judge whether the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  The Honorable Paul A. Volcker April 17, 1980 Page  Two  Program as a whole is succeeding in its overall objectives? It is a little like trying to compute an urban crime rate without knowing the population of the city. The only way, I submit, to be sure that credit availability is maintained in the aggregate for "small business, farmers homebuyers or others without access to other forms of financing," as well as to capital investment, and to slow the funneling of credit for speculative and purely financial purposes, is to collect data and observe performance on a comprehensive basis. The Banking Committees of the Congress cannot rely on vague reassurances as to the success of the Special Credit Restraint Program. We must have thc facts, and if thc facts show that the Program is not working, wo should abandon it. Thus I remain doubtful that the Federal Reserve has designed "a sufficient basis for monitoring compliance with the Program." Moreover, I strongly doubt that any report on the Program that is not provided on a bank -by-bank basis can be satisfactory. Despite my doubts I sug• gest that your staff prepare and send up a sample monthly summary report form, to be completed on N statc-by-state and size -of-bank basis at the least. I appreciate, as always, your cooperation.  Sincerely,  Henry Reuss Chairman  I July 22, 1990  Somerible amosela B. Lang Chadamsa COmmdittee esinsioss Maio* Stabs. ismalos Mosidallms4 DC. 20510 Dow Chaimmas Loft; Mak roe iew :rour latter of July 14 re5ardiaq your Comodttosses lovasiting on tax re-42uct14?)nx. undoratand that w teatinorly has beetri rette.erhiled twc July 26 at 18;30 ilt.a•• and I look forward to appoarim3 at that tine. Sint:MX.4p sl yaw 6-  COIJMAt (4V-293)  boo.  Malmut wendell NES* Mallardi (2)  4  PP tit4rt.L.  r. 9  S. LONG, LA  •po..0  Or r  wiAnn Co AY,-  A.  Al.  .4 C. • ‘1.,0 V1- 1 ,  .•  44.1  1.-LOVD .K•V.• C  •  A "•‘  V  V. • 1  MIV  VIA r, RAN  "'r r:' '  .  •  CHAIRMAN  GA.  14  r 11Arrr , 'IP  r.  '47  HAWA.1  • P.RCC 4.41•4I1-4A1.4. N.Y.  1  -?./Cnifeb „Ii'.)fafez Zeitafe  PA. r  WALL  MINN.  .  "UCUS. I P  "•  r-GRI .4.  tA  WASHINGTON. D.C.  f,  Sit nt4. STAIP DIRY1.:1-on RORER T  COMMITTEE ON FINANCE  cos, CHIC, MINORITY  COARYSIL  20510  July 14, 1980  The Honorable Paul A. Volcker Chairman The Federal Reserve Board Constitution Avenue between 20th & 21st Streets, N. W. Washington, D. C. 20551 Dear Chairman Volcker: This is to confirm our understanding that you have agreed to testify before the Committee on Finance on Friday, July 25, 1980. The hearing will begin at 10:00 a.m., Room 2221, Dirksen Senate Office Building. We look forward to hearing your testimony concernin the appropriateness of a major tax cut at this time and your views concerning the shape of such a tax cut, if you believe such a cut should be approved. Thank you for your willingness to assist the Finance Committee in its deliberations. With every good , wish, I am 0' Sincerely,  Chairman  July 22, 1440  The Sonerable Jerry Levis Maws ot Representatives Maabiagton, D.C. 20515 Dear Kr. Lewis; Thank you for your letter of Juno 24 La which you express your interest in the request by valley Smith, eunnyaead, California, for a determination that, for purpose' of reserve maintenanoe, it effectively withdrew from federal assert* memberShip before Ouly 14 1979. 7  The Irederal Deserve in rectiee 19(k)(13)(D) (12 D.S.C. 461), as amemded by seetion 103 of the mometery Control xct of 1900, provides that spy balk that withdraws free membership in the Federal Swerve System ca or after Horeb 31, 19$0, shall maintain reserves in the same ameemt as member banks are required to maimtein. The Seard'a interpretation (12 ca.*. S 204.120) xel*tiag to the berlementation ed'bat section of the At states, La porttasnt xt that ". . soy member bank that withdraws tree the System ik on or after - Arab 31, 19110, is required te maintat* Pelona reserves Against its deposits in the same meow as a aambew ban).° The Board.* reeler& indicate that Valley $alk witharew fxc tc System on April 19, 19$0, nemeogmently, ender the monetary Control let, Valley Samk is received to oonforn to the previsions of Regulation 13 sod to salatala seeereee as if it sere a member hank. The Issielatims history of the Monetary Castro' Act indleates that the lees is to have earns flexil-Ality In imposimg reserve regebreseale on termer ember banke that left the System before Maria 31, 19.0S, the Act's, effective date, is order to preweet forced sales of assts or to otNorwise prevent empital losses. Itowever, stid1&rcomaiderstiems do not appl,;. to banks that witadrav from the System after Marsh 31, 15190, those banks alreek were maintaiming reserves and therefore would not imam: an additional morn, bowlegs as a result of the Act's passage. Granting the requested relief to Valley link would be imeemaiatent with the statutory leagaegs sad the intent of Congress that bean mitheeemins from the em or after xeroh 33, 1980, be roc-Nivea to vaintain fallreseivilw frou tLat date.  The Meserable 1err4- Lewis Polio %so  I understand and appreciate kr. Barboe's 1:04404114 few asking for reserve relief, especially in 11.9ht ef the delays he encountered in eceploting the conversion tn 4 state elarters Unfortunately, whenever specific implementation dates are rwiutre4, it is difficult to avoid situations ectill as this I !lope tIlat ur. Barbee will understand. Sineerely, SZPaml llsgovL  (TS:hEAS.. 44t (#V-272)  bccs  Gil Schwartz Meg E7ginton Kr*. rallardi (2)%./  • Action assigned Mr. Petersen  JERRY LEWIS  DISTRICT OFFICES:  37•rti DISTRICT, CALIFORNIA  101 SOUTH SIXTH STREET R EDLANDS, CALIFORNIA 92.373 714-862-6030 714-792-501  COMMITTEES: HOUSE ADMINISTRATION PUBLIC WORKS AND TRANSPORTATION WASHINGTON OFFICE: Room 327 Cisimota HOUSE OFFICE BUILDING 202-225-5861  Congre55 of tic tittiteb  tate5  3r)oti5e of AtPrtItntatiing tillafsbington,73.e. 20515  477 SOUTH PALM CANYON DRIVE SUITE 9 PALM SPRINGS, CALIFORNIA 92262 714-325-7447 714-346-0633 BARSTOW. CALIFORNIA 714-256-152.3  92.311  June 24, 1980 • . 4  Honorable Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System Twentieth Street and Constitution Avenue N.W. Washington, D.C. 20551 Dear Mr. Chairman: As you move ahead with implementation of the Monetary Control Act of 1980, there will, undoubtedly, be instances where because of specialized circumstances, a particular financial institution may not be able to gain the maximum benefits which were intended. It is my understanding that the regulations permit the Board considerable leeway in adjudicating these individual cases. I am writing to express my personal interest and concern in one which has been appealed to you. On May 22, 1980, Thomas G. Leo of the law firm of Hill, Wynne, Troop and Meisinger wrote Theodore Allison regarding the Valley Bank (formerly the Valley National Bank) of Sunnymead, California. On behalf of the Bank, Mr. Leo appealed a decision requiring the institution to remain within the Federal Reserve System, even though it has now acquired a bank charter from the State of California. Mr. Leo's letter is an excellent synopsis of the issues involved and I will not repeat them here. I do, however, enclose a chronology of the events which led to this appeal. I particularly note a couple of relevant points. First, clearly an irrevocable decision was made by the Board of Directors well before the July 1, 1979, deadline. The delays which occurred following that decision were a result of bureaucratic red tape, not inactivity on the Bank's part. Second, the current situation, wherein the Bank is required to meet the reserve and other requirements imposed by both its federal and state charters, places it at a competitive disadvantage in the financial community. I am personally acquainted with Valley Bank, and he has been working ing this problem for some time. Now mally appealed to the Board, I would 1 1 .   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  John Barbee, the President of with a member of my staff regardthat the question has been forappreciate you and the other  A  Honorable Paul Volker  June 24, 1980  Page Two  TI members giving this matter your careful and sympathetic attention. I am convinced neither you nor I would wish to see a law designed to improve and stabilize the nation's financial system, implemented in a manner which detrimentally affects some of the very institutions it was intended to aid. With thanks for your assistance, Sincerely,  rry Lfftis Member f Congress JL:ss cc:  1  John Barbee Thomas G. Leo  CHRONOLOGY OF APPLICATION TO CONVERT TO STATE aANK  1.  January 12, 1979, Edward G. Petterson, Deputy Superintendent of 3anks sent me instructions relating to conversion to a state charter.  Aril 30, 1979, 3oard of Directors passed resolution authorizing and  instruction officers of the bank to file an application to convert to a State 3ank,  3.  First application filed on .!.ay 2, 1979 with 32,000. Cashiers Check. Copy of Eoard Resolution stamped as received on ':1..ay 3, 11:51 A.M. 1979.  4.  Application returned because regulations were changed in  5  Second application filed on August 3, 1979.  6.  Acknowledgement of application to convert to State-Chartered 3ank August  arch.  13, 1979.  7.  Augusc 17, 1979 State 3anking Department announced in weekly 3ulletin  that cur application had been filed  3.  (V0L70, NO. 33).  August 21, 1979 Comptroller of the Currency letter stating what is needed if State approves our application.  9.  August 27, 1979, Comptrollers '..'eekly 3u11etin No. 79-35 announced fileing  of conversion to State Charter.  • 10.  •  November 30, 1979, letter from Superintendent of 3anks stating our application under name of Valley Bank was approved on November 23, 1979.  11.  November 30, 1979, State .Banking Departments Weekly 3u11etin announced that our application was approved on November 23, 1979 7olume 70 No. 43.  12.  December 10, 1979, Comptrollers Weekly Bulletin announced that our conversion to State Charter had been approved on November 28, 1979 (No. 79-50).  13.  December 13, 1979, Federal Reserve Bank San Francisco Letter stating that Fed had been informed of approval of our application.  14.  January 25, 1980, copies of Notice of Shareholders Meeting, Proxy, and Proxy Statement was sent to State Banking Department for approval.  15.  February 13, 1980, revised information sent to State.  16.  February 25, 1980, more corrections sent to State.  17.  February 27, 1980 State approves proxy statement.  13.  March 13, 1980, Articles of :ncorporation sent to State.  19.  March 13, 1980, correspondence with Mr. Edward Peterson.  20.  March 14, 1980, Mr. Peterson acknowledges reciepc of information that they requested.  a.  •  4111  21.  March 19, 1980, 3y-Laws sent to State for approval.  March 24, 1980, Articles of Incorporation endorsed and filed with Secretary of State showing that they were approved by Superintendent of Banks on March 13, 1980 (978495).  23.  April 9, 1980, letter from Federal Reserve Bank.  24.  April 11, 1980 letter from Etat:a Banking Depar:ment.  •  July 22, 1980  The Unnorable Ernest F. Hollings United States Senate Washington, D. C. 20510 Dear Senator Hollings: Thank you for your recent letter inviting me to keynote the dinner meeting of the South Carolina Chamber of Commerce "Business Convention" on November 13 at Ayrtle Beach. As much as I would like to accommodate your request, I am forced by my calendar to send regrets. I already have a long-standing commitment to attend the Joint Board of Directors meeting at the Federal Reserve Bank of Dallas at that time and will be unable to accept your kind invitation. Please extend my best wishes to the Chamber for a successful conference. With best personal regards. incere ly,  cc:  Mrs. Mallard' #255  JRC:tjf  •  ERNEST F. HOLLINGS SOUTH CAROLINA  COMMITTEES: PPROPR IATIONS STATE, JUSTICE, COMMERCE, AND THE JUDICIARY: CHAIRMAN  OFFICESt 306 FEDERAL BUILDING COLUMBIA, SOUTH CAROUNA  29201  '11Cnifeb Zfatizz Zerrafe  803-765-5731 115 SENATE OFFICE BUILDING 103 FEDERAL BUILDING  WASHINGTON, D.C. 20510  SPARTANBURG, SOUTH CAROLINA  DEFENSE: CHAIRMAN  202-224-6121  June 12, 1980  242 FEDERAL BUILDING GREENVILLE, SOUTH CAROUNA  LABOR, HEALTH, EDUCATION AND WELFARE ENERGY AND WATER DEVELOPMENT INTERIOR BUDGET  29301  803-585-3702  DEFENSE  29603  COMMERCE, SCIENCE, AND TRANSPORTATION COMMUNICATIONS: CHAIRMAN  803-233-5366  SURFACE TRANSPORTATION 112 CUSTOM HOUSE  (2  200 EAST BAY STREET CHARLESTON, SOUTH CAROLINA  29401  803-724-4525 233 FEDERAL BUILDING FLORENCE, SOUTH CAROLINA  SCIENCE, TECHNOLOGY, AND SPACE DEMOCRATIC POLICY COMMITTEE OFFICE OF TECHNOLOGY ASSESSMENT NATIONAL OCEAN POLICY STUDY  29503  803-662-8135  Honorable Paul Volcker Chairman, Board of Governors of the Federal Reserve System Federal Reserve Building Washington, DC 20551 Dear Mr. Chairman: I have been asked to extend an invitation to you to keynote the dinner meeting of the South Carolina Chamber 77Commerce "Business 9nunIjr..9 .D" at Myrtle Beach on  7777777n, This convention is far and away the most important of the Chamber's activities, and the membership is very anxious to hear from you on the state of the nation's economy. The meeting will be very well attended and I know you would be received with the finest hospitality our State can offer. So I can recommend the occasion to you with enthusiasm and I hope you can work it into your busy schedule. Should November 13 prove impossible, the convention will extend into November 14 and I am certain the Chamber members would be just as anxious to hear you then. Also, if you need special transportation, this can be arranged. I would appreciate your let be possible for you to be in  me know whether it might ach.  4  rnest EFH/kk   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  J Hollings  July 23, 19,10  The Honorable Adlal E. SteeeMeel United Ltatea Senate Washington, D.C. 20510 Dew Senator Steveneont I iss respomdkop to your letter of June IS requestinviews on the Obvert Tftaimp Cempemv Let of 1910 ($. 2718) reported Lit the Senate Desihipp COmmittee. Your comments and analysis are woeful in ieolatinfi the remaining issues, and I welcome the improvements that have teen made. As yes note, the Lrinolpal differeeee hetween the bill and roccomemdations contaired in my letter of !'Aiy 12 iv that the bill ;,ormits U.S. banks to acquire controlling interests in export trading coapanies, subject to rrior approval by bank supervisors. The issue of control is of course an i tent see. The resommendatises in my letter of ray 12 help keel: risks to beaks at aanageoble levels provided that the banYs had mea-controlling investments, The effectiveness of those recommomeations would depend on the &homes of ban* control. TLe June of permitting banks to extend their area Of Operations arises, as you know, In many contexts other than empert trading companies. Control often carries an implicit OONMitmelt by a batik to place the full resources of the institution behAmd its suLsidiary. In many institutions this is a matter of corporate policy, and it is recognized in the market place. AG jeer Committee report notes, a bankiv; organization is more likely to booms involved in the sanagemont and operation of en exl-„ort trading eemyame if it has a controlling interest in tLat coowany. Aitheugh a bank may judge that it can operate an intonational eemmarcial banking business more efficiently and safely through controlling investments in affiliates, control and the involvement in nommomost in a non banking business would increase the potential financial risk to the owning banks, and might also increase the likelihood of conflicts of intereot. This consideration lies behind the reeommendation that as a norr bank ownership interest be limited to less than 20 rcent.  The Honorable Adlai E. Stevenson kayo Two  The aspect Tradite.: Coul?any Act seeks to limit triese risks by providing that controllintj investments by Winks be suLject to kriex approval and to certain statutory saleyuards. In this connection you have asked for my views on a Ivesitle rroviaion that night give bank sulervisors autority to set apr.roriate leveraging ratios for exkort tradin, , comisnies. z1/ concern *Lout this prevision—and A0V* seenerally al.out tile provisions of S. 2718 that axe desiyned to give sueervisorts yowern to step in and irevent unsafe practices--is that it wo*ld involve the supervisora to a substantial degree in decisions regarding operations of exi ta:t tradinii colakenies. Bank supervisorr; are not able to anticii.ete all future eventualities in actinc on eiTlications and are uelaely to be *Lie to 3wt- ervise the operations of export tradint4 co4yanies sufficiettl:: elolely to engoare that risks to iJanks could Le avoided, gl-tat thoue risks are magnified by bank control and involvee4ent in ianacone. rinally, I eltould note that the sort of detailed superviaion of export tradiuy comiany oierations that might be necessary under S. 2711 would be contrary to la/e khilosophy adopted by the iioard in its riseent euendeents of li.eyulation X, which sought to reduce the need for detailed ouperviaoey review and regulation of international bank operations. I yreatly appreciate the effort you ?.ave eade to acoomeodate the concerns we have had. I regret that the control iasue is so "eticky," but I think you understand it goes to te heart of concerns that have been low; etanding in lelislation and polic. Al art from its significance in this case( it alto would he an isqortant precedent in other areas. Consequently( / continue to feel that legislation in this area should be consistent with the basic presueletiou that a line No maintained between ban'Anti and coeaierce. In tai verso-n*1 oilation, that concept could perhaps reasonably be bent to recolnige some special circumstances that Qiyht arise in which limiteJ k.urpose (and presumauay lieited in 'ire) exort tradiny coai:anies migrt be permitted, tv,on tien to bank regulators, to be controlled by a tea. That seems to Noet, at least in suLstantial part, the point in your letter that au 1.TC desiyned fox certain specialized purposes (i.e., for larticular irojects or ratar specialized trade and finencin;: irokilems) miyht not be established without the possibility of stronc, hawk sponsorship. I do not conceive of such an 'exemption from the basic prestuuktion against control Loins extended to Larg, general or multiple purpose( expozt trading companies that -4.oeld be ca:to'..le  Thø actoorable Adlai E. Stevenson vaim Tim.**  of star.din‘ on e,oir awn feet without bank spemaorship—ahle ttz attract and rotair necesuary van450meat and expertise andA indeed, read.i to do bueinesm wit coeting banks. would be hapioy to discuss this with you further to se4if this approach offers promise, and hove asked my staff to thint oi legislative languaqo and criteria for the exemption. Thank you for this further opportunity to comment on this legislation. Sincerely, S4Pau1 A.%Off  RFG:r.CC1PAN:vcd (01-259) Lycc:  nr. Gommill nrs. Mallardi (2)  3u41y 244 1D0r,  Who Memerablo Manny S. Meese Cl.airean cet,..i4tiM110 Jcir4, Finance and O*ban Affairs Rouse of lopronontatives Washington, D.C. 20515 Dear Chairuan siceutm; Thank you for your letter of July 17 about the soquisition of a mujority of the shares of Crm44r Corporation la4 A.dland Sank Ltd. The propoeed acquisition has boon ftneonseed Ey trai parties, but the Federal Reserve hem ntyt yet reneived a icrigal application by Midland Dank to 1-,acono a bank holding corq-any mod to acquit* the Shares of Crocl,_rx rational Corporation. 1 can assure you that, one° this is dozo, the Board will olore the questions rained in your letter in the same vitv at.4 it has dens in other recent acquisitions of V.P. banks ;xi foroifsin bankins orgeoisations. I can assure you further that the Soard will examine this proposal es strictly its merits sad 1411 le Fre;-arod at that tine te mover your waistless, Sinooroly,  TD3COspjt (IV-294) 'oat Fred Dahl Jack Pyan mrso tallardi (2)  Fred Dahl is handling.  HENr,Y S. PELJSS. WIS.. CHAIRM I .4 ASHLEY. OHIO  •  • ' LAM S. MOORHEAD. PA F wh•JA•.1:3 J. ST C RI. jocf r  Y B. GONZA .I.Z. TEX. G. MNIf. N.J.  FRANK ANNUNZI,, ILL. JA••E; M. HANLE, , N.Y. PALRF •4 P.  MD. WAI.TI Le E. FAUN; ROY. D.C. STEPHEN L. NEAL N.C. JERr+Y M PATTETION. CAtip. JAMES J. EV_ANCI'  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  MI'.  CAPROL L HuenA JOHN J. LAFALCE GLADYS NOON SI  U.S. HOUSE OF F EPRESENTATIVES NINE Tv-SIXTH 2121 RAYMJRN  Hot isE  C()NGRESS  OFFICE  EluILDING  •  WASHINGTON, D.C. 20515  J. WILLIAM STANTON. OHIO CHALMERS P. wYLIF. OHIO STEWART B. McKINNEY. CONN. GEORGE HANSEN. IDAHO HENRY J. HYDE, ILL. RICHARD KELLY, FLA. JIM LEACH, IOWA THOMAS B. EVANS. JR.. DEL. S. WILLIAM GREEN. N.Y. RON PAUL, TEX. To BETI-IUNF. ARK. NORMAN D. SHUMWAY, CALIF. CARROL L A. CAMPBELL. JR., S.C. DON RITTER, PA. JON HINSON. MISS.  LMAN. MD.  LES AuCOIN. ORE .. DAVID W. EVANS.  :25-S247  NORMAN E. D'AM,TURS, N.H. STANLEY N. LUND:NE, N.Y. JOHN J. CAVANAU1H, NE OR. MARY ROSE OAKAB. OHIO JIM MATTOX, TEX. BRUCE: F. VENTO, MINN. DOUG BARNARD. GA. WES WATKINS. OKLA.  July 17, 1980  ROBERT GARCIA. MIKE LOWRY, WASH.  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. Dear Chairman Volcker: The proposed acquisition of Crocker National Corporation in California by Midland Bank of London would create the thirteenth largest bank in the world (in terms of deposits) and a major foreign banking presence in the United States. Consequently, the Federal Reserve should undertake the most thorough analysis of the impact of this acquisition on domestic banking and on the communities and customers to be served by the bank. The American public is entitled to a full and accurate picture of the banking corporation that would be moving into such a prominent position. Several questions especially need to be answered: 1) What commitments is Midland prepared to make regarding investment in the commwlity in which deposits are taken, employment of minorities and women, and lending for mortgages, small business and consumers? 2) Will Midland be lending in the United States or using the deposits of Crocker for investment abroad? 3) Where will Midland obtain funds for the Crocker acquisition? Is there any danger that Midland would be borrowing from the U.S. banking system, thereby diverting funds from more productive investment in the United States? 4) Will any. of the assets now held by Crocker be used to pay off the takeover loan? 5) Will the Federal Reserve be able to monitor Midland's compliance with directives such as those of October 10 and 23, 1979 and March 14, 1980 to U.S. banks, which stipulated that they should avoid loans for commodity speculation, and use their scarce credit for productive capital investment, small business, housing, farmers and consumers? Will the Federal Reserve be able to determine that Midland Bank was not indulging in speculative lending such as the recent silver speculation?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Paul. A. Volcker July, 17, 1980 Pa.9,  Two  6) Will the Federal Reserve be able to obtain full disclosure of all businesses owned directly or indirectly by Midland Bank, and other businesses on which the directors of Midland serve as directors or officers? And will the rederal Reserve be able to obtain continuing information on all operations of Midland Bank which bear on the operations of Crocker National Corporation? Foreign acquisition of U.S. banks are often of great benefit to the U.S., bringing in new capital, which supports additional lending for useful purposes. As you know, I have opposed any blanket moratorium on foreign investment in U.S. banks. But each case needs to be examined on its merits to determine whether the proposed acquisition not only complies with U.S. laws but is a net benefit to the United States.  Sincerely,  Henry S. Reuss Chairman  7  1420  Tbo iiororeole 6il1iam Poomaaro, ChairL4n zaakingi nousirisi Lz;_an Affairs' Con4t4 i 201, "tf,›In4tor.t. LL.0 Zr Ciz  EroxtAra.  Tliis Jo in tut;er res.-sola to y:;lur 1ottor of ;TIALIP: e".arroll A;ainst tt,o 1960 involvivw a cor.Oattnt aa) in of litelkis Iork coacrnini; t Pf tzon Oorooratio IAGOW4 rund' certificatas anC in tYR, ;4i14.cnt ,vdcfral -.4;soorvis, ,unk ci Tha ) interogit it inquiry into this i>4atter and 1,42z iaZorwation. •  The LAW: of loeu 14:rk islOicateel tt4t, 4mit to a TAistlt.;.; of Jut ‘!ccounts, it wax lat in roAttin'j iund*T ror ot t.iA..Ti of tha vrinclp41 aczourlt awl tefAtilt4nt oi ! :21, (du t!le c.x.:rtificates in 4uostion. Accoreikily, on 440rf.swrcsaztinil to tLet Laak raietLia4,od er. Carroll for crincival at 13.47% ,Ine. 9 days intorest irAteraldt on , ttw . Ths hank aiso oxtet16.1e! 13.0% 0:31 iritorceat due of Carroll for it tgarCOg an k ae4100‘05 te Au oifioial of this= bank tlx1airs410 V4ikt tle time owir ic acktitittnal intomot reaeatc the tho latnk ov4r In mai3..in9 thu waymernts. Mat ;ariod it eat Carroll, 7Axt it reflectz the ;Am) citc4 Ly t1'4an tr; g underataudiw„; ot its 1,ftyftellt obligationa unaex the tund' ipectixa. 1.cnie ti* reao1vc4 tale t.atter to ::xs, Carroll'r. &a:Distant:, tatisiaction. T4716a3-o lot ;IA know it 1 cart cf further  SeaulAcIfOckeL redi CO:jmr L:raituu 1)y V-273 Lcc: Jack Ryan nrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  41  Acton assigned Jack Ryan  •  WILLIAM PROXMIRE, WIS., CHAIRMAN HARRISON A. WILLIAMS. JR., NJ. ALAN CRAISTON. C -AU F. ADLAI E. STEVENSON, ILL. ROBERT MORGAN. N.C. DONALD W. RIEGLE, JR., MICH. PAUL 5. SARBANES, MD.  JAKE GARN. UTAH JOHN TOWER. TEX. JOHN HEINZ, PA. WILLIAM L. ARMSTRONG. COLO. NANCY LANDON KASSEBAUM. KANS. RICHARD G. LUGAR,  DONALD W. STEWART. ALA. GEORGE J. MITCHELL, MAINE KENNEJH A. MC LEAN. STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR  ?Jenifeb Zfafez eSertale COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS  MARY FRANCES DE LA PAVA, CHIEF CLERK  WASHINGTON, D.C.  20510  June 19, 1980  Honorable Paul A. Volcker Chairman Federal Reserve Board Constitution Avenue Between 20th and 21st Washington, D.C. 20551 Dear Mr. Volcker: I have enclosed a copy of a letter from Ms. Edna Carroll describing a very frustrating experience with the Bank of New York. Will you have your staff initiate an investigation and get back to me as soon as possible. Si.isprely, •  /Wil jam roxmire Chairman WP:jqj Enclosure  •  of.  Hay 12,. 1980 , .'  .  ;  Hon. Senator William Proxmire Chairman, Senate Banking Comnittee 5241 DirksenSenate Office Bldg. :ton, D. C. 20510 Washint, Dear Sen. Proxmire: tvi  Banking Device to Use Customer Funds Interest-Free  The banking matter I bring to your attention involves but a small amount ofmoney. But it does involve a principle. And, more importantly, I believe it involves many who because they are small investors are being taken advantage of because banks S.lieve they lack the energy to pursue the matter or lack the know-how, In brief, ny recent tramation smalls uniragrantly of devices by the bank to operate on m:y funds - interest-free, and raises the euestion oC why it is almost impossible to discover regulations regarding a i;iven bankinzL transaction, and what the reolatory agency is, and  if it  is the FDIC, why it does not resoond to phone calls - three to be exact.  The followin6 are the facts: 1. From Newhlrd, C ok and Co., a broker in St. Louis, I purchased 5 units in the Corporate Income Fund, 3)th Short Term Series. This is 3 pool of money market Lynch cz instruments put together by The units ware evidenced by a p. Certificate of 'fieneficial interest. p?.?1  .)  2. On April 29, 1980, the Certificate stoted that the principal plus interest-Jet 15.75 par cent per annum waspayable by the Bank of New York on presentation of the certificate.  3.  The certificate was -)resented by the collection department of Commerce 3ank of University, Mo. Che 'dew York Bsnk adnits in 3 letter to reeeivint; the Cercate on April 25 - 5 days before due date and in plenty of time to wy ON date duo.  4,  When neither principal nor interest were credited to my account wn a reasonable time after dua date to ailed. for erratic mils, my (lank at my reque5t called New York, was told the man in charge was away and w•JUJ return the call. HQ did not, The next day ny bank called again and got the same story. The call aris not returned. r •.1-trri--cfL.yb3 -n-173--71r71 urd thP  5.  After more agonizinz, a check for was received and credited to my accountn/1 The check was dated Xay 2. Why wasnCt it 713-1.1 "),J the date due sinco they had hod the instrument in their hands about a woek.  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  S -2. Carroll 6. The check 41ow for principal only.  No interest.  No expl_ nation.  walls trying to find out 7. After considerable difficulty and running into stone what federal agency regulates thi3 kind of thing (the keeping of funds after due data without reason, and the withholding of interest), I called F.D.I.C. in liashinc;ton. I left three nessages for a Mr. Eridzell, To this day, he has not returned my call.  ONO  3. Meanwhile back at the bank, the assistant cashier, Carlo di Maria, phoned the Bank of New York to inquire about the interest due me. Can you believe that he was bounced by actual count to 11 persons (more 'cause I finally stopued ceunting) before sonebody who seemed to know something. And who promised to call next day, 9. He did, He sald my interest check had been sent to another customer nistake.  by  1:). Instead of sending the interest to me immediately, the New YorkArequired some bureaucratic paper work by my bank which my bank immediately performed. 11. Today, 13 days after the interest was due and payable, I receive a bank of New York cneck fo: . 12. By the bank's admission, the check covered interest only up to due date, April 29. It did not pay interest on the other 13 days the bank used my funds interest-free. I oullmit that the bank awes me interest on principal from April 29 to May 6 arA for the 13 de-js it was behind in paying me the interest. Were I a borrower and acted 33 the bank has toward me, the bank would have slapped an interest penalty char ...1 on me. It 5s potently unfair that they shoeld treat their custemers in such a :einner. In my belief, they do it because they think the small saver or investor will not raise a cry - as would the Hunt Brothers, for example. Is there anything that can be done to protect the saver from this kind of exeloitation? 'rillat agency does regulate such transations? Why is it so hard to get information on this kind of thing? And don't tell ma to call the Federal Reserve Bank in St. Louis for information. After being boinced to :Two or three persons, I was finally told to wait two or three more weeks. In that they said they were sure I would c;ct my principal and interest paid. That .- fluid mean the bank would simply be using my money free longer than they did. 'f more inforenton is needed, It will be hapeily providei. Anythin, you can o to improve t'ris situation for all of us will be appreciated.  Yours truly,  Edna Carroll cc - Securities and Exchange Comnission Orlicago. -)La ar,11,1 -1,-1 fit7‘o  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -c-C-1•A-•0-L(/  •  • Hay, 12,1980  2nk et new York Box 114,002 Church Street Station aew York, 14r. 1020 ' Attentions He. Alicia L. Oanta Shareholdar Relations Gentlemen, .•  ResToux, Errxr in Distributing Interest - Corporate Income Fund 39th Short Term 3ories  ny  Your checkd in amount af  , received in today's mail, in insuifioisat  The interest wan due and payable a5 15.75 per cent on April 2941 13r your own admission you had the Certificate of Bene/icial Intereet in your hand on April 25, five days before due - date. qy your own adnission on the phones you erred in sending my interest to another custowr. You have, therefore, deprivod me of the use of wir money from April 29 to May 12. 'ere I the ane that was late in remittlng to you. an interest penalty would ha charged rads You havo been oarating intereet-free on my mousy and I hereby request the interest dud me on the overdue interest owed 114. Further mores you awe me interest on your delay in paying oven the principal. 25, Though the Certificate was in your hands, by your own adniasion, five days before due date, the principal did not get into my account at Commerce Bank of University until May 6, 'A:hy/ Why wasn't the ddbt paid on the day it was due7 1,1hy did you delay until May 2 Lc) make out the chock? I hereby request -)ayment of interest on the prin .ipal far the tine beyond due date you held the money: This trensactionbeers the earmarks of devites to enable a bank to ooerete on customer fmt.is interdot free. Perhaps you can correct that impression with a lomical explanation - and a check sent- promptly. This trnnsaction has a number or unusual aspecta'to it, including your bang's rtlfusal to return phone calls from my benk early in tho transactiou4 I feel certain, therefore, that .the .',enato aanking U, Ymmittoe, tho Securities and 1.xchange Commision and RT.. :xidaell of the 7ederal Deposit insursnce Corporation will bo interested and 30 am ("dvising them.  Yours 'truly,  nn - Mr. Carlo di Ana Garroll Conmerce Bank of University ;.1.ty, A.111am )1.40xmirs, Oenate 13anking Committee ;;aahlaton, J. t;. 50)clirities %xchange Commission Federal i=opoeit insurnnce Chicago, Ill Vaahinv,ton, J. C.  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July 25, 1SSO  Semosahls ZUiott U. Li/mita* Some* vf vepreeentativea wa.uiLirt5ton, D.C.  20523  .r. Levite14 Thank yoga for to toy attaation your 2roposed mØ establishmant of a progennsf seerds to semagnize indi;siduals sad 2reepo that krovide ememplamy sad scroatemos navvies to th4p  petals. I agree that besesse the mooloor la fattish government personnal deal with Use peiblic and modal to theiriaqUriea and intareate leaveo lestlerj impressiemeo Federal pa4d must be aosooraged to mak* skeletal efforts to pxoidsememplary sad court4000 OSSWISS to the utalc. sem easier* you that we will aloha a pertiaelar effort La the federal isoorve to sae that out refloating emaeptLemally seesteeme ~vim to the plis see duly seeognisted, Simearell* SJPau k Volcker  BMW:At (#V-295) 1›cel Mr. Huirenin Mx. Shannon Mrs, Nallardi (2) Idontical Lotter al4;o aant to Congressman Cilman.  • Action assignei Mr. Denkler  QtAkre55 of the tiniteb  tate  3/jouie of 1epregentatibe5 5iiingt011t OZ. 20515 July 3, 1980  Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551  /4t9'  Dear Mr. Chairman: The manner in which Government personnel deal with the public and respond to their inquiries and interests leaves lasting impressions, either positive or negative. Because this is a matter of great concern to the President, the Congress, and to all our citizens, we believe that Federal personnel must be encouraged to make special efforts to provide exemplary and courteous service to the public. Our desire to bring about improvement in Government employees' responsiveness prompted the provision in the Civil Service Reform Act of 1978 that permits performance standards to include the extent of courtesy employees demonstrate to the public. To reinforce this provision and to underscore the importance that the President and the Congress attach to this issue, we propose to establish a program of awards to recognize individuals and groups that provide exemplary and courteous service to the public. The Office of Personnel Management, which provides leadership to the effort to improve courtesy to the public throughout Government, is cooperating in this recognition program and will provide criteria and nominating procedures. We ask that you bring to their attention instances of courtesy and service to the public that substantially exceed normal standards and reflect favorably upon your organization and the Government generally. Annually, the best contribution will receive recognition at the Office of Personnel Management's honor awards ceremony. We can contribute substantially to improving the image of the Federal worker, as well as Government services to the public, if we encourage courtesy by recognizing and publicizing the contributions of those who provide exemplary services. We look forward to learning of contributions from members of your organization. 1  Benjamin A. Gilman Member of Congress  iterelj yours,  Elliott H. Levitas Member of Congress  July 25, 1580  The Ronorable William Proxmire Chairman Committee on BanLing, Housing and Urban Affairs United States Senate Washington, L.C. 20510 Dear Chairman Proxmire: Thank you for your letter of June 10, exlres3ing your concerns arising from press reports that the National Sara of Detroit ("Mr) is considering alternate methods of ;4ftocessincl drafts for the Chrysler Corporation ("Chrysler") that traditionally have been processed by nnr, The reports to which you refer apparently arise fros remarks made by Yr. PLilip Lowman, an officur of EaD, at an international banking conference held recently in Tiew Orleans. The items at issue are not cheets written to ard Chrysler. Rather, the items are drafts drawn by Chrlislor uneer agroemente it Lau with its car dea1l4rs and their banks pemittin5 chrysler to draw on the dealers' deposit accounts. Usder the terms of the agreements, Chrysler preares a draft each timeett ships a car to a dealer for the mount that the dealer owes Chrysler for the car. Each draft represents payment for a particmlar car sent to a particular dealer. Since each draft representr a car, the nurer of drafts deposited at NIP by Chrysler will vary according to t`‘e number of cars being shipped to dealers. During a peak *hipping period, more than 1,000 items daily may be deposited with !art. Should bankruptcy occur, it can be expected that some payor banks may return iteins, wrongfully or otherwise; to NM, apparently assuming tat neither NW) nor the Chrysler trustee in bankruptcy would attempt to collect on all such items since as many as 1,300 suitsmight have to be filed to ultimately collect. While the expectation of ultimate recovery would be high, the burden of pursuinci so many simultaneous lawsuits would be great. Contacts have been made by NSD and its parent holding company, National Detroit Corporation, Detroit, !Achigan ("MC"), with both the Doard and the Yederal Reserve Bank of Chicago,  The Monexable WiUta Page Two  Prommire  NW* concerns were also recently addressed by the Chrysler Loan Guarantee Board by resolution (enclosed). However, other than the action taken by the Guarantee Board, tho contacts with the Federal nenerve have been on an informal level and concern alternative wethods of spreading and even reducing the potential burden of ultimately co11ectili4 on returned drafts. since the adoption of the resolution, this particular alternative has not been actively pursued by 1124), The Board is also aware of the requirements and restrictions of the Dank Holding Company Act and of System membersh.4 4 .. found in the Federal Reserve Act and the requirememts for access to System services in that Act as modified by the recently passed Monetary Control Act of 1990 if discussions should repume in the future and become nore serious. while 1 would not presume to say that XBD (with assets,. of over F.:9 billion) pessesees these drafts without risk: I believe that the riuk is messurahle, seatainable, and, in the event of *Chrysler bankruptcy, would met likely threaten Nilr's safety and soundness. The Guarantee beard, the Federal Meserve Board, and the Chicago Seserve liark are monitoring the nitmetion closely and fully appreciate Cie position in which NBr finds itself. I would also like to assure you that the Federal reserve System is acutely mare of this situation, and we feel confident that the current situation is quite manageable. This would also appear to bo the ease for the foreseeable future. Sincerely, Sgagl A. VO,C  Lncloaure NLP:JHJ:CO:pjt (#11-245) bcc: Petersen Mr. Jorgenson nr. Adams nra. i:ailardi (2)  WILLIAM PROXMIRE. WIS.. CHAIRMAN HARRISON A. WILLIA.A;. JR.. N.J. ALAN CRANSTON. CALIF. ADLAI E. STEVENSON. ILL.  nny,:r MORGAN. N.C. DONALD W. RIEGLE, JR., MICH. PAUL S. F AI/LANES. MO. Da.ONALD W. STEWART, ALA.  JAKE GARN. UTAH JC IN TOWER, TEX. JOHN HEINZ, PA. WILLIAM L. ARMSTRONG. 0 NANCY LANDON IK Assr nAum. KANS. RICHARD G. LUGAR, IND.  GEORGE .1. MITCHELL, MAINE KENNETH A. MC LEAN. STAFF DIRECTOR M. DANNY WALL. MINORITY STAFF DIRECTOR MARY FRANCES DE LA PAVA, CHIEF CLERK   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action assigned to Mr. Pe  sen; info copy given Mr. Corrigan  PZICnifeb ,.fafez ,S3cliale COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS WASHINGTON. D.C. 20510  June 10, 19S0  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Paul: I understand from press reports that the National Bank of Detroit (NBD) is considering the establishment of a separate bank to handle the checking transactions of the Chrysler Corporation which have traditionally been handled by NBD. Apparently the purpose of this would be insulate NBD from losses due to a potential Chrysler bankruptcy and to shift the risk largely to those making payments to or receiving payments from Chrysler. I have a number of concerns about this proposal: about the precedent it would set and the implications for bank regulation. Accordingly, I would appreciate your providing me with your views of the situation to date and responding to the following questions: 1. Have there been any contacts between the National Bank of Detroit and the Federal Reserve on this matter? If so, what has been the nature of these contacts? Are there discussions of this on an ongoing basis? 2. Is there a major problem involved hero, one which could affect NBD's safety and soundness? 3. Under what statutory authority or other circumstances might the Federal Reserve be involved with approving the establishment of the separate Chrysler bank? What are the implications for the Federal Reserve's responsibility to administer the Bank Holding Company Act and to insure the safety and soundness of banks? 4. Does the potential financial risk involved arise in any way due to failure by NBD and/or by any of the banks originating checks to Chrysler to follow all check clearance rules and regulations? Are there steps that can be taken to deal with the problem through better check clearance procedures or other internal measures, in lieu of establishing a separate bank for Chrysler?  •  Tho Honorable Paul A. Volcker June 9, 1980 Page Two  S. hhat are the implicatiS ns of establishing a bank with minimal capital for tho special purpose of quarantining the checking transactions of a potentially bankrupt firm and shifting the bulk of the financial risk to other parties? Should institutions be chartered for this purpose? If so, how do you reconcile such a limited charter with a bank's statutS ry obligation to serve the convenience and needs Sf its community? I look forward to your providing mc with responses to these questions and any other information that might be helpful to Comrnittee members in considering this mattor. Sincerely,  Wi liam Proxmir0 Chairman  WP:ebl  .44  uouaraLle 11.111%,  #4rlenee V.1515  Mask :vou tor your :oncoxix on tilaverel tcware -oomuuit  2 letter Ir.  ,:zicc.!tt  042 741er7tralli Tyi.ft%07Vv2  1:ir!4t ask thc tatiwiala for a molest by the Nontanao tLat tte ;11).124irve !tank to a tank ir e tltrait map of ti tOwn. You i!-,ciAt exarArAu aut tlat tte thrt1:4-z;,; a ;c2ulatiort of fewer than 1,000 rersor4,5, re,031a*t untacasaary. rttZer tIit au4; texatore yulu cout.4.da2 CvcImuoity V;,4invettment r.ct ttke redo:al ktaerve Srltem is rot'rocord cf aceting the cr(e6it :4Lire.e; to US5*.341 A iuii 3.cci 4w04 moderate-invta it crktire c000unit AlthougU the reairevAent is written In ter= thint ure .;;oz. e.; api1i.04LIe to aa utLe;r.cit than a *mall .lontarta xamiAtir& nevertheless muslt take sue', au elevesenmt. tuw110t does pot naces-sar!ly r.tm tbe cur4c1r4etitvn taft of tha .Astaervt. tt cotpswaait in whteL. mch gnou the cttici tt tvkai: of tt intsiued LEloctitctd th* etaa routinely re.iesto cumurity An exagailation., ir orticr to 1:Acome more familiar arc.% te bulk overatov. 4our irJyolvas the r-rovt.aee revttion of alatiou t, tbo Ioard.2 r4e.;;u14t,14-n kuplottentirt: t!lt Truth it! froa u.wsclor4 a coi, ef co=lett t-ro tle ;k4,:ft &u3 ct ravrt C. CaNmni Viec i'rt;sident ol Pizzt ; ;ivon coraidaratioL. Your cowoants and tl=c4ut ana aak th,at thcy L'art of the put4ic too-ore; and viii r.lit'sri will 1,7a .1,:ado Iszte. 4i1DEL carclul o.41miii2zation 41,t,vn ttto Y.oard tete* Iv c:avtir* i$ i.orticulzkrly *once:nod tLat t,te alternate shol•.7,4rA., ,:iA geloAaroz the i-rooessl 141.11 hoccma z.an4ator4• tt 5reater :Aardvr. on tre induotry. Iwtat voitt in t;f4i: i. .uuuret ereatisil Let re alsidure Lyou that if tLe alterpatt sLo;“ftl disclo.4urts arp ,t crIk4ditoz" oL:tion, Ard ti:ore  The Honors/1ft Ron Marlesee Plivo 2  Finally, iou oelieve that the Minneapolis Reserve iAank uas4 he inter/mini in state matters by L0ProPorlY lebbYin4 for bratsch baakinq is Illeataaa. Your comers arises free a xelort krekared by the bosom' beak staff that was submitted to the )4ontania state Legislature in April and later published in tlie Uassrve Danklit Quarterli kevisw. we regret *my nisundermuindinv that pay have occurred. The staff was asked to pretare the rsport by t4e Uniisiature's Interim Committee on f4Anettinri of Yinameial inittitutions: the opiniose narressee in the report are those of its writers and are met moorages/1y tllose of the Reserve Sank or the Riser& As You witY knave one iftportant function of t141$ Maw,. leaks is to conduct researe, on it wide ramie of economic issues inoludift, in repent jeans; issues concernint, competition in banking and the structure and iarformance of the bankins indulatry. The board believes the results of this research should be made available te the cuLlic, and all Ritt4OCIPO Woks have publications for that cur,Josa. showever, eine* the °pintoes iTeseuted axe these of th:lw staff ‘tritiin the articles, 1 have asked the adketorim ranks to ensure tat the al;propriatos disclaimers are made in the future. I aipprisoiate you takin4 the tiwe to share your views with to board. Please let Imo know if I can 1:e of further assistance. sincere14.  S/Pagl A. VolckeE  F.:CO:jmr V-287 Lee: Ellen Maland Paul ;.ice (for distribution re RagZ conments- docket fR-0298) Xra. :,allardi (2)  Action assigned Janet hart -  •  140N MARLENEE MONTANA  MONTANA OFFICES:  NORTH  20 3RD STREET.  GREAT FALLS. MoNTANA  59401  (406) 453-3264 WAnHINGTON orricc, 126 GANr.ON Hcusr Orricr BUILDING  20515  WASHING.TON. D C (202)  eongre55 of tbe Jiiitcbaqate  310 Nown-i 26TH STRErr SUITE  5429-33 59101  BILLINGS. MONITANA  225-1555  31)ott5e of ikeprettntatibe  (406) 657-6753 TOLL FRFE 800-332-5963  1lass1jinqton,13.C. 20315 rat July 2, 1980  Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System 20th Street and Constitution Washington, D. C. 20551  0'64  •••  Dear Mr. Chairman: I am writing to bring to your attention several concerns on the Federal Reserve System's attitude toward community banks. First, I would like your response to the enclosed request sent to a bank in Terry, Montana. A street map for a town of less than 1,000? I find these requests ridiculous. Also, second is a letter from John Caven, Vice President of the First Security Bank of Havre, Montana. I believe his points about the model forms proposed in the revision of Regulation Z deserve your serious consideration. The effort to simplify Truth in Lending Act disclosures will not be very successful if the model forms cannot be adopted by this country's thousands of small community banks. This brings me to a third concern and what I view as a direct threat to Montana's community banks. The Federal Reserve Bank in Minneapolis is campaigning for Montana to allow branch banking. I consider this to be a question to be decided by the Montana State Legislature and Montanans without federal pressure in the interest of out-of-state banks. I would appreciate your attention to these concerns, and look forward to your response. Sincerely,„  A  c) (- ) A  COUNTIES 1310 HORN MI. CONE  BLAINr.  CARBON  MUSSELSHELL   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CARTER  PETROLEUM  CASCADE PHILLIPS  CHOIJTEAU  CUSTER  POWDER RIVER TREASURE  DANIFLS  PRAIRIE VALLEY  DAWSON  RICHLAND  WHEAT LAND  FALLON  ROOSEVELT WIBAUX  FERGUS Rc,-,rnuu  GARFIELD SHERIDAN  GOLDEN VALLEY STILLWATER  HILL  JUDITH BASIN  SWEET GRASS  TETON  YELLOWSTONE  :11. •  3 1 .  Federalikserve Bank of Minneapolis', 250 Marquette Avenue Minneapolis, Minnesota 55480 Area Code 612 340-2345  March 14, 1980  Mr. Albert S. Brubaker President and Chairman of the Board State Bank of Terry Terry, MT 59349 Dear Mr. Brubaker: This is to advise you that a Consumer Affairs compliance examination of your bank has been scheduled for the week of March 24, 1980. We would very much appreciate a member of your staff assembling the information contained on Attachment A in advance of our visit. In addition, the attached Officer's Questionnaire and Community Reinvestment Act questionnaire should be completed prior to the examination. Finally, we would appreciate it if you could obtain a street map of your local community (we will be happy to reimburse you for any costs incurred in obtaining the map). Thank you for your cooperation in this matter. Sincerely,  Sheldon L. Azine Assistant Vice President and Assistant Counsel SLA:rk  •  4.  Attachments  A   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ATTACIIMNT A  Please provide copies of the following documents, blank forms, and other information as available to our examiner: 1. 2. 3. 4. 5. 6. 7. 8.  9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34.  Written affirmative action program regarding compliance with consumer laws and regulations. Formal loan policy established by the Board of Directors or its appointed committee. Minutes of the Board of Directors' meetings. Audit reports by internal auditors and outside accountants. Training manuals for lending officers and staff. Appraisal manuals used by internal appraisers. Most recent call report. Copies of recent bank advertising, for both loans and deposits, including newspaper ads, leaflets, and radio or television transcripts. Loan guaranty form. All loan application forms. Borrower's financial statement forms. Note forms for all loans. Security agreement forms. Sample of dealer agreements. Truth in Lending disclosure forms (e.g., finance charge and annual percentage rate). Rate books used to calculate loan disclosures. Notice of Right of Rescission. Deferral or extension disclosure form. Fair Credit Billing notices - Borrower's notice of rights (long form and, if applicable, short form). Open end credit billing statement. Credit card merchant - lender agreements. Credit card, check-credit applications. Written debt collection procedures. Forms used in the process of debt collection. Copies of scripts used by collection personnel. Form HUD-1 (Uniform Settlement Statement). Good faith estimate form. RESPA booklet (Uniform Settlement Statement). Credit scoring and internal credit evaluation forms. Credit denial, adverse action notification forms, and ECOA notice. Home Mortgage Disclosure Statements (Regulation C). PHC (1) census tract maps or suitable alternatives. Official flood maps. Certificates of deposit, savings passbooks, deposit open account contracts, notice to customer of early withdrawal penalty.  Karen P. Adkins Examiner-in-charge  May 23, 1980  Congressman Ron Marlenee U.S. House of Representatives 1218 Cannon House Washington, D. C. 20515 Dear Congressman Marlonee: Enclosed is a copy of my letter to the Federal Reserve System concerning simplification of Regulation Z. This bank is totally in favor of any efforts to simplify the complex regulations governing banking. However, it appears that any time the Federal Government uses its staff members to design, imrilement, and interpret regulations the result is the 'consumer pays the bill for more complexity or less clarity. I have enclosed a copy of the items forwarded for comment from the Fed. The "Sample Form For Alternate Shopping Disclosures" is ridiculous in concept. Somebody in Washington must have forgotten that about 12,000 of the banks in the United States are small banks. I get the feeling the writers of regulations feel we are all CITY RANK or Bank of America. This form would require each financial institution to stock separate forms for each interest rate assessed. Even though this form is proposed as an optional form, I think we could rest assured the enforcement examiners would coerce compliance. The "Model Form For Transactional Disclosure. ' is severely lacking as pointed out in my letter to the Fed. - Finance Charge: Defined in the Regulation which is more than just interest. This form would then require the Leuder in have a more complex form than the model or separate documentation to protect against state or federal usury laws. - Amount Financed: Form requires separate disclosure - Payment Schedule: Severely lacking to provide for the numerous ways payment schedules are structured. - Insurance: It can be required by Lender. - Late Charge: Some states don't allow late charges or have different formulas. We  would appreciate your o f on not only our behalf, but the behalf of all small institutions, in making sure the Fed finally adopts forms which are useable.  Sincer  v - Yours/2 /  Vice President JCC/km  ic--/R5T SEL7//7/TY en/V/C  4—  • p. •.  lbj.  \\ .‘. ,  Hay 13, 19W  Secretary, Board of Governors Federal RPSOIVQ System Washington, D. C. 20551 Re:  Revision of Regulation 7  Po'Ar  Sir:  The restructuring of the Regulation to group together related provisions in separate subparts seems to be a most logical answer to a complex law. The elimination of disclosure for agricultural credit is proper. The early disclosure provision is going to substantially impact the cost ot supplying credit by the vast majority of small financial institutions in the country. The smaller financial institutions have neither the staff nor can they afford tt•e legal costs of tie larger financial institutions. Your model early disclosures, while not proposed to be mandatory, will if put into effect , become mandatory over time. It has not been, nor do l believe will it ever change, to have government employees not foster their "enforcement" beliefs on business. The examiners charged with enforcement of Reg Z will coerce the financial institutions into printing voluminous quantities of the early disclosures, and then if the early disclosures contain some minor error, or deference in structure (i.e. simple interest loans vs add-on or discount loons) then the small financial institutions will be faced with more compliance problems and additional costs. Your model form for Transactional Disclosure I find to be severely lacking in flexibility. There are 50 states with their own provisions for usury, late charges etc. Your model disclosure form requires 0- e consumer to acknctwledge in at least 3 places. In addition, the consumer will also have to sign the necessary legal documents to evidence any loans granted. Further, the model form requires additional disclosures separate from the disclosure if the customer wants a detail of the amount financed and that requires another separate statement. Further, due to the necessity of complying with state usury laws, the Finance Charge will have to be separately disclosed because some government employee decided that certain third party payments, i.e.: credit report fees, appraisal fees, credit life aid occident costs if required by Lender, etc, are part of the Finance Charge. The Finance Charge has nothing to due with interest as defined in state usury laws, therefore you are automatically forcing the financial institutions to redesign your model form to prove to star0 regulatory authoritie ,.. that they arc not usnrions.  17R5T SETZ/P/TY SANKCF 1-1AVPE COP' R  it-i  -,:) 1  I • )--4,v, PE M0'474044  c!"1'-,)1  • We have recently gone through a compliance examination and I was extremely concerned over the lack of knowledge of the examiners as to the difference between "Finaw:e Chargc" and "Interest". Further, their lack of knowledge led to comments and as!.umptions by them which are erroneous. Serious consideration needs to be undertaken when designing any model form that automatically creates new problems of compliance with state laws and also creates new costs wl-Ach someone (the consumer?) has to pay. This bank recently developed a disclosure format for sin pie interest loans and submitted it to the Fed for review. We were cited fcr failing to disclose the index we used on our floating rates which we specifically stated our prime lending rate or our base rate (we are us ing both). As far as I know, no bank in the country prints on their disclosures the ;irithmetic models wed to calculate their prime lending rates. I think the Fed overstepped their bounds in this interpretation And this is the type of staff interpretation that will be Employed to enforce the new proposals and model forms. Finally, your model format- requires extensive alterations to it in order to handle the myriad number of ways loans are written. Following is a list of those areas, which may or may not have been discussed earlier: 1.  2. 3. 4. 5.  FINANCE CHARGE: Does not show a breakdown of the components of the Finance Chargc, specifically "Interest" which is distinctly different from "Finance Charge". AmouNT FINANCED: Requires additional disclosures and additional S ignatures. PAYMENTS: Requires modification to allow for weekly, bi-weekly, quarterly, semi-annual, 'annual or single payment notes. INSURANCE: Requires modification if the loan term is different than years. LATE CHARGE: Requires modification to comply with the various state laws.  Very TrGly Yours,  John C. CLven Vice President JCC/km  • •  ( C 47 _  • fr/?  •11 /,'  A Case for Branch Banking in Montana* Stanley I.. Graham, Economisi Arthur J. Rolnick.. 1.% sistom rice Pre.sident Research Department Federal Reserve Bank of Minneapolis  Since Adam Smith published The Irca/th ,Vations in 1776. economists have argued for few ei government restrictions on economic acti\ ities. Smith theoriied that individuals pursuing their 0\‘n interests in the marketplace are led as if by an invisible hand-- to achieve the most good for all: their profit motivated helm\ ior results in consumers getting the goods and services they want, produced at the lowest possible costs and offered to them at the low est possible prices. Any go\ eminent interference with this private competition is therefore almost certain to lead to inefficiencies and higher prices and can only he justified to enforce contracts or to prevent otherwise inevitable monopolistic practices. Following Smith. many economists have argued for free trade among countries. for unrestricted entr). into all kinds of economic pursuits. and for a Very Ii mited role for government. Yet while Adam Smith and his fcillowerS have made a strong theoretical case for freedom in the marketplace. they ha \ en't often been able to find as convincing support for their case in the real world. Either data ha\ e simply not been available for the particular type of economic acti\ ity they're considering, or isolating the impact of a particular go\ eminent restriction from the impacts of the many other influences on economic activity has been very The case for alli)wing banks the freedom to branch is an exception. Restricting the type of offices banks can open. as Montana and other largely rural states do, is clearly a form of government intervention iii at Adam r,•;• 1,r1 ii.ititj1111!:  SIM('  8   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  t'i'10.1111rC..Ar711 I OSO  i /7 111.Intelai  Smith \\ ould have questioned. It prevents willing pro'iders of a service from selling to willing customers and thus. according to him, does not achieve the most good for all unless, of course, it truly is preventing some form of noncompetitive behavior. Whether or not that is so can, in this case, be evaluated by more than Smith's theory. A considerable amount of relevant empirical evidence is available: Many states have permitted some form of branch banking, and their experience has been analyzed extensively. The evidence clearly supports allowing banks more freedom. It strongly suggests that many common concerns over the impact of branching on competition in the banking industry arc unwarranted. Permitting branching does not drive small independent banks out of business or reduce the amount of credit rural communities can get or increase what they have to pay for it and other banking services. On the contrary, \\ here branch banking has been allowed, large and ,•inall banking s\ stems o.inpete quite igorouslv, and on a\ em age consumers in rural areas are offered more places to bank and a w ider ariety of banking services. While branching clearly changes some features of the banking market, it has not led to monopoly pricing. but rather to more banking services offered to more people at competitive prices. The evidence, in short, shows that branch banking has had a positive influence wherever permitted.just as Adam Smith would have predicted. But will it have similar effects in Montana? Considering the current St ructure of financial institutions and markets in this state, we believe that it will. red, ti Ke.t•r‘..i. BA IA  N1inneapoln. Quarterl  Et.% ivy% Spring 1480  •  FICARO Cy - f;FTWEPNIPT.) Y •1  ah w /1/--3/y  FEDERAL RESiERVE SYSTEM wAsHiNGT: N,0. C.20551  PAUL A. VOLCKER (. .4AIRMAN 1  July 29, 1980  The Honorable John Tower United States Senate Washington, D.C. 20510 Dear Senator Tower: This responds to your letter of July 29, 1980, requesting the Board's views on the effect of proposed substitute language to exception E of H.R. 2255 and whether the Board has any objection to this substitute language. With regard to the first part of your request, I am advised by my staff that the substitute language does achieve the three objectives in your letter. It is noted that the language of the amendment permits additional types of insurance activities subject to Board determination that an activity is closely related to banking. Limitations of time have made it impossible for me to seek the views of the Board of Governors as a whole on the proposed amendment. However, I have no objection to the amendment, and particularly in light of the fact that the substitute language reserves to the Board the right to determine the propriety of all activities proposed to be engaged in pursuant to exception E. I feel confident the Board as a whole would not wish to interpose an objection. Sincerely,  otioada,  •  WILLIAM PROXMIRE, WIS., CHAIRMAN • •  N A  WILLIAMS, JR., N.J. ALAN ( RANSTDN, CALIF. ALAI E. STEVENSON, ILL. , -.AN. N.C. ROBERT M01 EX)NALr, W R.! JR., MICH. PAUL S S , I3ANES, MO. DONM. t) STEWART. ALA. Groac.E J. MITCHELL, MAINE  JAYE GARN, UTAH JOHN TOWER. TEX. JOHN HEINZ, PA, WILLIAM L. ARMSTRONG, COLO. NANCY LANDON KASSEBAUM, KANS RICHARD G. LUGAR, IND.  'Z;Cniteb Zfafez Zenate COMMITTEE ON BANKING, HOUSING. AND URBAN AFFAIRS  KENNETH A. MC LEAN, 1TArF DIRECTOR M. DANNY WALL MINORITY STArF DIRECTOR MARY FRANCES DE LA PAVA, CHIEF CLERK  WASHINGTON. D.C. 20510  July 29, 1980  Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Washington, D. C. 20551 Dear Mr. Chairman: During a mark up session in the Senate Banking Committee on H. R. 2255, beginning tomorrow, July 30, 1980, the following amendment might be offered: Substitute Language for Exception E (E) any insurance activity where the activity is limited solely to (i) insurance concerning the personnel, assets or operations of bank holding companies or any of their banking and nonbanking subsidiaries, or (ii) group insurance that protects the employees of bank holding companies or any of their banking and nonbanking subsidiaries: Provided, however, that the Board determines the activity or activities to be closely related to banking, and provided that such activity or activities do not involve any sales of insurance to the public; It is my understanding that the purpose of this amendment is to accomplish the following: 1.  To permit a bank holding company to supervise on behalf of insurance underwriters the activities of retail insurance agents who sell fidelity and property and casualty insurance on the real and personal property used in the operations of the bank holding company or any of its subsidiaries, and group insurance that protects the employees of the bank holding company or any of its subsidiaries.  2.  To permit a bank holding company to provide, as principal, agent or broker, fidelity and surety insurance for the bank holding company and all of its banking and nonbanking subsidiaries.  3.  To limit the insurance provided to one or more participating bank holding companies and their banking and nonbanking subsidiaries and to preclude the sale of such insurance to the public.  I would appreciate receiving the views of the Federal Reserve Board, prior to the Committee mark up session, regarding the following:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Honorable Paul A. Volcker  2  July 29, 1930  1.  The effect of this amendment in light of the purposes set forth above (subject, of course, to appropriate Board approvals).  2.  Whether or not the Board has any objection to this amendment. Sincerely,  •  P.A  c: L•nvERNcl  •  FEDERAL RESERVE SYSTEM ,...NL;T:2'4, D. C. 20551 PAUL A. VOLCKE CHAIRMAN  July 29, 1980  The Honorable William Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Proxmire: It is apparent to me from the questions and discussions at the recent monetary policy oversight hearing before your Committee that confusion has unfortunately aris en over the intent of the Federal Open Market Committee in characte rizing monetary target ranges for 1981 only in general term s. I was, for instance, disturbed that some members of the Committe e apparently seriously considered that the FOMC was somehow signalin g a reluctance to provide specific numerical targets for 1981 at an appropriate time-a thought, I can confidently say, has neve r entered FOMC discussion. Our concern was quite different. We wanted to reiterate, as clearly as possible, the intent of the FOMC "to seek reduced rates of monetary expansion over coming year s, consistent with a return to price stability" and the "broad agreement in the Committee that it is appropriate to plan for some furt her progress in 1981 toward reduction of targeted ranges." We beli eved then, and believe now, that those general statements are the clearest and most useful indication of intentions that we can make (and are responsive to the requirements of P.L. 95-523 , the HumphreyHawkins Act) and we have been concerned that an attempt to set forth precise numerical ranges for each targ et could well prove to be ultimately a source of confusion rath er than clarity. A major part of the reason is that certain inst itutional changes are in train or in prospect--in particular the intr oduction of NOW accounts on a nationwide basis but also the possible continued development of money market funds--that will upset "normal" relationships among the various aggregates and thei r relationship to economic activity. While we know these institutiona l changes are under way, the magnitude of their impact is (and for a time inevitably will remain) in substantial doubt. Moreover, the FOMC wished to appraise for a period of time the lasting significance , if any, of the recent short-fall in M-1 relative to economic acti vity. Zs   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  40  The Honorable Willi m Proxmire Page Two  Unfortunately, our attempt to cut through the institutional t- tainty to escribe the broad substance ot our intent with respect 1.3 EtJ:,ettAt- y growth ranges seems to be subject to misinterpretation. To attempt to clear up any misunderstanding, let me indicate that, abstracting from the institutional influences and questions cited above, the general intent of the FOMC at this time can be summarized as looking toward a reduction in ranges for M-1A , M-1B, and M-2 for 1981 on the order of 1/2 percentage point. Converting that approach into specific numerical ranges for next year requires making a number of technical judgments that invo lve considerable uncertainty and necessarily, at this point, a degr ee of arbitrariness. Specific ranges for each aggregate, and assu mptions behind their derivation, arc shown in the attachment to this letter. In accordance with usual procedures, all of the ranges will have to be reassessed in or before next February . The extent of downward adjustments in the ranges not only will be influenced by the various technical factors described in the atta chment, but also will be conditioned by the speed with which infla tionary biases in labor and product markets can be reduced, and by the likelihood that the economy can make an orderly adaptation to curtailed money growth. The need for public policies, other than monetary policy, to move in a complementary way to speed those adjustments was, of course, the essence of my testimony before the Committee. The appropriate performance of money growth in 1981, within the ranges adopted, relative to actual results in 1980 will also depend to some extent on the outcome this year--on for instance, whether this year sees a very slow growth in narrow mone y because the public has, for one reason or another, economized shar ply on cash balances. The FONC approaches the targeting process with a great deal of care, and is frankly concerned that changes in numerical targets, particularly once specified in detail as in the attachment to this letter, will give rise to confusion even when (perhaps particularly when!) such changes are purely in response to a technical, institutional change that has no real sign ificance for monetary policy. But I trust this additional info rmation will, despite those concerns, help further the greater publi c understanding of monetary policy that we both wish to fost er. Sincerely,  Attachment IDENTICAL LETTER TO CHAIRMAN HENRY S. REUSS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  ATTACHMENT DERIVATION OF SPECIFIC MONETARY GROWTH RANGES FOR 1981 ON THE BASIS OF CERTAIN ASSUMPTIONS A number of technical judgments need to be made in deriving specific numerical monetary growth ranges for the aggregates in 1981 consistent with the intention to reduce ranges for M-1A, M-1B, and M-2 on the order of 1/2 percentage point. These include: (a) the extent to which the public will shift from demand deposits to NOW accounts next year; (b) the extent to which there will be shifts from savings accounts or other interestbearing assets to NOW accounts; (c) the degree to which money market funds will continue their phenomenal growth (in the process drawing funds that would otherwise have flowed both through institutions whose liabilities are in M-2 and the open market); and (d) the extent to which the public will or will not tend to return to longer-run relationships between cash holdings, interest rates, and the nominal GNP -- in other words, assessment of factors affecting shifts in the public's desire over the longer run to hold money balances in relation to income. The degree of shifting into NOW and ATS accounts will depend on the aggressiveness with which banks and other depository institutions promote the new accounts, as well as on public response. Partly on the basis of experience in various New England States it may be estimated that in 1981 shifts from demand deposits to NOW accounts could lower M-1A growth by amounts ranging from 1 to 5 percentage points. Similarly, such shifts from savings accounts could raise M-18 growth 1/2 to 2-1/2 percentage points. If the mid-points of those ranges are taken as the best (but obviously crude) estimate available at the present time, target ranges for M-1A and M-1B would be implied of 0 to 2-1/2 percent and 5 to 7-1/2 percent, respectively. In essence, those changes represent a 1/2 point reduction in the ranges adopted for 1980 -- which are 3-1/2 to 6 percent for M-1A and 4 to 6-1/2 percent for M-1B -- but with the downward adjustment noted above for M-1A to allow for the effect of shifts into newly introduced NOW accounts from demand deposits and the upward adjustment for M-1B to allow for shifts from other assets. The target growth range for M-1A would have to be raised if shifts out of demand deposits were less than assumed, and lowered if shifts were greater. Similar reasoning would apply to the range for M-1B with regard to shifts out of savings deposits and other interest-bearing assets. The ranges for M-1A and M-1B also imply continued efforts in general by the public to economize on transactions-type cash balances.  •••   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  2  Consistent with a reduction in ranges on the order of 1/2 percentage point, the growth range for M-2 for 1981 would be to 8-1/2 percent unless money market funds, included are judged to be drawing substantial new amounts of funds that in the past would have been lodged in open market instruments (which are not in M-2). Consistent with the indicated M-1 and M-2 targets, M-3 and bank credit ranges of growth for 1981 of 6-1/2 to 9-1/2 percent and 6 to 9 percent, respectively, could be the same as for 1980. Maintenance of these ranges relative to M-1 and M-2 is related to the growth in housing, business, and other credit that would be a normal accompaniment of the expected recovery in economic activity. It should be emphasized that the relationship among the sS ecific numerical ranges for the M-ls and M-2 are dependent at this state on necessarily rough, and somewhat arbitrary, judgments of the impact of institutional change and must be considered illustrative. These complications should not obscure eI intent of achieving a modest further reduction in monetary growth rates next year, as the FOMC indicated earlier. That the range for M-113 next year will, in all likelihood, be higher than this year needs to be understood as no more than a technical adjustment to accommodate one-time shifts out of savings accounts in response to the introduction of NOW accounts on a nationwide basis. The reduction in M-1A is exaggerated downward for comparable reasons. The basic point is that these ranges, abstracting from such shifts, are expected to be lower than in the preceding year, and thus reflect a further curtailment of money growth.  1  The Honorable John Tower United States Senate Washington, P.C. 20510 Dear Senator Tower: This responds to your letter of July 29, 1980, requesting the Board's views on the effect of proposed substitute language to exception r of H.R. 2255 and whether the Board has any objection to this substitute language. With regard to the first part of your reguest, I am advised by my staff that the substitute language does achieve the three objectives in your letter. It is noted that the language of the amendment permits additional types of insurance activities subject to Board determination that an activity is closely related to banking. Limitations of time have made it impossible for me to seek the views of the Board of Governors as a whole on the proposed amendment. However, I have no objection to the amendment, and particularly in light of the fact that the substitute language reserves to the Board the right to determine the propriety of all activities proposed to be engaged in pursuant to exception E. I feel confident the Board as a whole would not wish to interpose an objection. Sincerely,  PAV:ccm  V- 303  a  BOARD OF GOVERNORS  410  OF THE  FEDERAL RESERVE SYSTEM /—• •  • -A ••••4'<", ••  WASHINGTON, 0. C. 20 551  (4/. RE.S" • ••—•••  PAUL A. VOLCKER CHAIRMAN  July 29, 1980  The Honorable William Proxmire Chairman Committee on Banking, ilousing and Urban Affairs United States Senate Washington, D. C. 20510 Dear Chairman Proxmire: Thank you for your letter of July 22.  I am pleased  to enclose responses to the additional questions submitted in connection with your Committee's hearing on July 22. Please let me know if I can be of further assistance. Si  erely,  ageQapriteu Enclosures  a  Response to question on M-1B growth in second half I would not expect M-1B to grow at so rapid a rate in the second half of 1980 that growth for the whole year would be at the upper limit of its range.  Unless it was clear that such a rapid rate of growth  represented a shift in the public's demand to hold cash relative to income and interest rates, there would be too gre at a risk of exacerbating inflationary pressures.  That is why the FOMC is seeking to foster a  gradual return of M-1B to its longer-run growth ranges,for 1980 and would also expect, at this time, that growth for the year would most likely be around or below the mid -point of its range. Nonetheless, even though the chances that M-1 B growth will be at the upper limit of its range for 1980 are rather small, it seemed to be excessive fine-tuning of the ranges to reduce the upper limit of the 1980 range for M-1B.  First, it remains possible that banks--wi th  nationwide NOW accounts on the near-term hor izon and the legal basis of ATS accounts firm--will begin actively to promote ATS accounts in anticipation of expanded competition from thrift s in 1981; the associated shifts in deposits out of savings accounts would tend to raise M-1B growth.  And  second, mid -course corrections run the ris k of creating unnecessary confusion in attempting to judge the course of Federal Reserve intentions with respect to the aggregates over a spa n of years.  In that case it is  better, unless there are compelling reason s otherwise, to maintain each year's targets on as comparable a basis as possible.  It is more apt, for  example, to compare the range for M-1B for 1981 with its present range for 1980 than with a range for 1980 that mig ht have an upper limit reduced to reflect the exceptional develo pment of the second quarter.  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • Response to question on discount rate  We have for some time studied the question of tying the discount rate to market rates, with the discount rate set at a penalty to the market, and the issue has been reviewed several times in Board discussions.  While we do not consider the question  closed, we have felt the potential advantages of the approach you outline are outweighed by important problems.  In particular, in  a period of rising market interest rates, when reserves supplied through open-market operations may be insufficient to meet required reserves, a tied discount rate would tend, at least in the shortrun, to ratchet market rates upwards rather abruptly.  Banks are  ordinarily reluctant to borrow from the Federal Reserve banks, so the Federal funds rate will tend, in such periods, to move above the discount rate (in turn "forcing" still another discount rate increase.) In that way, the function of the discount window as a buffer that contributes to orderly market adjustments would be vitiated.  That problem does not exist where borrowings are low  and interest rates are tending to decline, but in those circumstances the discount rate does tend to become a penalty rate.  On grounds  of monetary control and efficient administration of the discount window, there are arguments for keeping the discount rates as close as is practical to market rates, and at a penalty to such rates. Moreover, such a practice would avoid some "announcement" effects; depending on circumstances, that is a gain or loss.  The surcharge  for frequent borrowing by large banks introduced last spring was an effort to reconcile some of the advantages and disadvantages of discretionary handling of the discount rate.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  We feel that  •  •  2-  •  approach has enough promise to keep it in our complement of policy instruments for use in appropriate circumstances. Moreover, the entire question will be reviewed as we gain experience under the Monetary Control Act.  Response to question on whether Fed has intervened to maintain interest rates to protect the dollar  Basically, the Federal Reserve has adhered to the procedures introduced last October to influence growth in the money suppl y by setting, and following, certain reserve paths.  This pro-  cedure was described in material provided the Committee earli er. In that context, the fluctuations of market interest rates over the past several months have been broadly caused by changes in the intensity of money and credit demands relative to the supply of money and bank reserves that the Federal Reser ve has been targeting. forces.  Thus, interest rates have been determined by market  This is also true of the last several weeks.  By way of background, the FOMC does set forth rather broad ranges for the Federal funds rate felt to be consistent at a point in time with its reserve targeting and policy inten tions. Occasionally, when market rates were rising or falling, these "limits" (which are not rigidly interpreted) have been reached. Experience shows that the "limits" have typically been consi dered by the Committee as a kind of "check point" for revie wing its policy decisions, but in no case has any substantia chang l e in reserve targets been made simply because the "Federal funds" check point has been reached; typically, if signi ficant inconsistency appears likely, it is the Federal funds limit that has given way. With regard to operations of the past few months, the aggressiveness with which the Fed sought to make up the short-fall   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2-  from targets in the spring was influenced by technical questions about the significance of the short-fall and by implications of a more or less rapid "make-up" on perceptions in domestic markets, and in particular on inflationary expectations.  The impact on  foreign exchange markets has also been a matter of discussion, related to the effects of exaggerated interest rate movements on exchange rates.  Similar considerations -- domestic and foreign --  no doubt entered into judgments on setting the appropriate Federal funds rate "check points." More technically, the precise timing of action day by day either of discount rate changes or through open market operations to achieve the planned reserve path -- has, on occasion, been influenced by the day-to-day condition of the exchange markets and by the desire to avoid "false signals" of our intentions. Similar considerations may occasionally arise with respect to domestic markets.  (In either case, I must emphasize that this  is not the norm; the tendency of some market observers to read significance for "policy" into the timing or nature of our almost daily operations related to the provision or reduction of reserv es is simply not warranted.) I believe we have learned from hard experience that the broad international consequences of our policy-making can be ignored only at our peril -- that acute weakness in the dollar externally can become for a time self-reinforcing and contribute to inflation and uncertainty at home.  In that sense, foreign  exchange market concerns are inevitably one of many ingredients in our decisions.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  But such concerns are virtually indistinguishable  -3-  in my mind from the much broader question of perceptions of our policies at home as well as abroad in keeping monetary growth under control and maintaining an appropriate anti-inflationary stanc e. I do not believe that concerns about foreign exchange markets have posed in recent months any dilemma with respect to reserve targe ting or interest rate constraints -- targets and constraint s that appeared fully appropriate on domestic grounds and in light of basic policy objectives.  '41  • Response to question on policies to reduce inflation when demand is picking up If the underlying rate of inflation remains at 9 or 10 percent, as your question suggests, it will indeed be difficult to have any more than a sluggish economic recovery .  As I have  indicated in my testimony, if the Federal Rese rve is pursuing anti-inflationary policies, working toward redu cing monetary growth, while other sectors are pursuing inflatio nary policies, a kind of "collision" sooner or later is virt ually inevitable. One outcome could be more sluggish growth than we would like to see for some time.  Another could be the increasing realization  that the Federal Reserve will indeed continue its anti-inflationary stance and that, therefore, policies of restrain t in other spheres -- particularly in the wage and price area, as well as in fiscal policy -- will be more conducive to recovery and real growth than policies that ratchet up the cost and price structure. Prospects for more vigorous economic growth will be enhanced to the extent that wage and price restraint is accompan ied by necessary improvements in our productivity performa nce. It is these issues to which the latter part of my statement before the Committee was directed, and why I believe it is so counterproductive to continue other policies that tend to push up costs or to undertake tax reductions befo re certain conditions are met.  • •  WILLIAM PROXMIRE  HAPR•SON A. WILLIAMS. JR., N.J. ALAN CRAN.' ,TON, r rLA , r STEVENSON. ILL. Mo, GAN. N.C. f,DNALD W Rirr,LE, JR.. MICH. PAUL S. SARRANF:S. M.  WIS., CHAIRMAN  JAKE GARN, UTAH JOHN TOWER. TEX. JOHN HEINE. RA. WILL,AM L. ARPASTRONO. COLO NANCY LANDoN KASsERAum. K' RICHARD Gt. LUGAR. IND.  Smuctle  DoNALn W STEWART, ALA. GEONGE J. MITCHELL, MAINE KENNETH A. MC LEAN. STAFF DIRECTOR M. DANNY WALL, MINORITY sTArr DIRECTOR MARY FRANCES DE LA PAVA, CHIEF CLERK  COM MITT LE ON BANKING. HOUSING. AND URBAN AFFAIRS WASHINGTON. D.C. 20510  July 22, 1980  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman, In addition to the questions that you answered at today's hearing on the conduct of monetary policy by the Federal Reserve System, I am enclosing several other questions that I would like you to answer for the hearing record. I would greatly appreciate your answers in a timely manner so that the record can be printed as soon as possible.  S 16erely,  William Prox Chairman WP:src  re  •  • corrcctly indicates that during the first half of year growth in the narrow money stock measures M -1A and "-1Y, wasbdow the ranges adopted by theFOMC last February.  That being the case you have very considerable  latitude during the last half of the year to hit your targets. For example, for M-111 the target range is 4.0 to 6.5 percent for the year, actual growth was 1.S for the first half of 1950 so in the second half you can allow growth between and 11.5 percent and still be consistent with your goal. That is a spread of 5 percentage points, which is so wide to be embarrassing.  Your report says that "the FOMC believed  it •appropriate to foster a more  gradual return of M-1  growth to the ranges established earlier."  Question:  What does that mean for the second half of the year? growt h  Do you think that 11.5 percent MA over the next six months would be non-  inflationary money growth?  If not, why did the FOMC  retain 0.S percent annual growth as the top end of the M-11' , target range for 1980?.  S.  F.4  •  move to a The committee has supported the Federal Reserve's reserve targeting procedure.  I think that the flexibility  ce during in interest rates has been of significant importan ply. the last two months as interest rates have declined shar is management An important corollary to targeting reserves rve growth of the discount window in a manner in which rese can be controlled.  Last winter and early this spring the  and banks discount rate was consistently below market rates had every incentive to borrow and they did.  Then after  ted falling ,Intch and April when interest rates peaked and star used the the discount rate became a penalty rate, and banks pay-off reserves being supplied by the Open Market Deal to their borrowing from the Fed.  The committee has recommended  and I underthat the discount rate be tied to market rates, stand that the Board has considered this.  Question:  Can you tell us where you stand on this?  How quickly  the cost will you move to a discount mechanism where of borrowing is set at a penalty rate tied to market rates of interest?  ,mnb.  Of  •  • b•  iL  •  of t4I1Federal Pc-erve have saiithat in the last  c al1,eeks the Federal ROSCIVC has purposely not permitted the Federal funds rate to fall as the market would have it bec:11:se of concerns about the value of the dollar  i  international  If we are going to have fluctuating interest rates and  markets.  fluctuating exchange rates as well, then the Federal Reserve should permit the market place to work.  We cannot have the value  of the dollar supported by domestic interest rate policies. Question:  I have some sympathy for that view. respond to those critics?  How do you  Has the Fed intervened  to maintain interest rates in order to protect the value of the dollar?  -7-  There is a good chance that at the end of this recession the underlying rate of inflation, which is influenced greatly by urlit labor costs, will be at 9 or 10 percent, compared to about 6 percent at the end of the recession in 1975.  Thus, we will  be starting a new expansion with an extremely high inflationary no Question: in up?  At that point ihat policies do we follow to reduce at the same time as demand in the economy is picking  And, if the answer is demand restraint, both fiscal and  monetary, does that mean that the economic growth will be sluggish for an extended period of time?  p. f  WILLIAM PROXMIRE. WIS., CHAIRMAN • AC HARRISON A. WILLIAMS, JR., N.J. JAKE GARN, UTAH ALAN CRANSTON, CALIF. JOHN TOWER, TEX. ADLAI F STEVENSON, ILL. JOHN HEINZ. RA. RORER T MORGAN. N.C. WILLIAM L. ARmSTRONG CO 0 DONALD W. RIEGLE, JR.. MICH. NANCY LANDON K A SSERALim, K ANS PAUL. S. SARRANES, Mu. RICHARD G. LUGAR, IND. DONALD W STEWART, ALA. GEORGE .1. MITCHELL, MAINE KENNETH A. MC LEAN. STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF' DIRECTOR MARY FRANCES DE LA PAVA, CHIEF CLERK  asdigned Mr. Axilrod  ?•1) Cllit 4.?  0  Zfafez, ,..`:0enctfc  COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS WASHINGTON. D.C. 20510  July 22, 1980  P)'4  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman, In addition to the questions that you answered at today's hearing on the conduct of monetary policy by the Federal Reserve System, I am enclosing several other questions that I would like you to answer for the hearing record. I would greatly appreciate your answers in a timely manner so that the record can be printed as soon as possible.  William Prox Chairman WP:src  re  • corit.ctly indicates that during the first half of tls year growth in the narrow money stock measures M -1A and !,!--1I; Fehruary.  is below the ranges adopted by theFOMC last That being the case you have very considerable  latitude during the last half of the year to hit your targets. For example, for M -1B the target range is 4.0 to 6.5 percent for the year, actual growth was 1.8 for the first half of 1980 so in the second half you can allow growth between O.. :T1(1 11.5 percent and still be consistent with your goal. 111:it is a spread of 5 percentage points, which is so wide to be embarrassing.  Your report says that "the FOMC believed  it appropriate to foster a more  gradual return of M-1  growth to the ranges established earlier."  Question:  What does that mean for the second half of the year? growth  Do you think that 11.5 percent M-1 over the next six months would be non -  inflationary money growth?  If not, why did the FOMC  retain 0.5 percent annual growth as the top end of the M -1B target range for 1980?  • to a The committee has supported the Federal Reserve's move 1-. ..s(.rvc targeting procedure.  I think that the flexibility  ng in interest rates has been of significant importance duri ply. the last two months as interest rates have declined shar nt An inTortant corollary to targeting reserves is manageme h of the discount window in a manner in which reserve growt can he controlled.  Last winter and early this spring the  s discount rate was consistently below market rates and bank had every incentive to borrow and they did.  Then after  falling March and April when interest rates peaked and started used the the discount rate became a penalty rate, and banks pay-off reserves being supplied by the Open Market Deal to their borrowing from the Fed.  The committee has recommended  and I underthat the discount rate be tied to market rates, stand that the Board has considered this.  Question:  Can you tell us where you stand on this?  How quickly  will you move to a discount mechanism where the cost of borrowing is set at a penalty rate tied to market rates of interest?  tAllFelcral re yrve have saic that in the last •  :Ner:!1 weeks the Federal Reservc has purposely not permitted the Federal funds rate to fall  NS  the market would have it be -  of concerns about the value of the dollar in international markets.  If we arc going to have fluctuating interest rates and  fluctuating exchange rates as well, then the Federal Reserve should permit the market place to work.  We cannot have the value  of the dollar supported by domestic interest rate policies. Question:  I have some sympathy for that view. respond to those critics?  How do you  Has the Fed intervened  to maintain interest rates in order to protect the value of the dollar?  There is a good chance that at the end of this recession the underlying rate of inflation, which is influenced greatly by unit labS r costs, will be at 9 or 10 percent, compared to about 6 percent •at the end of the recession in 1975.  Thus, we will  be starting a new expansion with an extremely high inflationary momentum. Question:  At that point what policies do we follow to reduce  inflatiS n at the same time as demand in the economy is picking up?  And, if the answer is demand restraint, both fiscal and  monetary, does that mean that the economic growth will he sluggish for an extended period of time?  Julti 10  1.97.  liconorable Aoward KetzenlJaum Chakrman 11/couaiittee on Antitrust: tienoliol. and nuninesa Ribta Committcc on t!le Judiciari enited tates LA4nate ,..aahinv ton, D. C. 20510 Lear Chalrman -  tzi.-nLauu_  V:cank lou for Jour lottter of .1141.. 1 conce!rnint, .rccnt ruloAct isaaieJ hi Cori:vrate :Alta tActinje, Inc., indicatimj t!-IA n nuAdier Qf large financial orianisations Lold ainificant 1A-ocl7a oi atocls: in other cowiristink, ordnimationsi a situation you rcter to au 'croas-ounerxihip. You aok for the Board's views concornin issue that be associuted with auch cross evnershiv conflict* of interawt, anticompatitive actionu, nIt.,m01:0 1.,ower or coucentration of rcurces 1% vi..rious maritetx. While wa Ilavo not :jet 1144(1 the oortunity to study thc rvq.ort rttieroncod in our letter, I rotz. tLAt z - ou state that Nue the CLC434o ownersIt4 is the result i iLvt.L.ents by Lank tru:it AcLarttz.onts. Under liection 3 of the ink o1cin Cony Act, kin: euLaidlariea of 1,ank boldin.; couvanies, AVJO ab the cne5 named in ycur letter. %‘ould not 1.e perwittc.1 to lwercise sole dif. orQtionar, votin zuthority over the sharcz of otter ;TIkei hele ir excets of 5 ier oent. loreover, with reki?ect to An: rharoe in a fiduct4ri caolcity, alTlicable law re,iuires that &cis. re1rdin%4 tte aciiuisition t boldin.j an disicinition of shares ngutit te L.ade solely with rocArd to the best interests t.1%e lene ficiar, und Clot such decisions c-ust 1Jo rAide seTaratkl, from the coiAmercial and conzumor banN.int. 1=usinetr of thc banP. Accordin4.-1 it ‘‘.‘Allia bti rf4asone.le to concludu that oroas cwrcriJhi;, resultil Lro.,:.,Aitts hold In a f*duciia- J Lapacit:; cliould not necesenril tO L:rcevith t ai1it1 te, irf1u4nce elr ccatrol tht,itL res4;; Ect to t_17t3 IA Cf the .1,4r11-. CoLi;:an . 1%‘;.t. an S 1..e: cent of t.ln 314n:.3 o,  cf co-lArcq 1  t.14A  i  rtA 5  Me /Unlovable Doward Paije Two  ZvAtitzere,aun  auy ability ta cxtrcieste c'ontrQl cr c controllInc lafluence over tic bank. AhseLt the; to cxercine aucn control or influence, it is unlikel4 that thel .21/ticol;,I ctitive effectE you cite would occur AZ a rcault Q1 the rei,orted cross-ownolii. of st.area. Additiorall LaL.ed on tie i¼ard oldtiervation of the activiticr. (In hoth tlic non;JanKin.;, and ban)iny areas) of iinancisl or9anizations such as Citicor, 12,ankAsterica, Manufacturers, tl'ere is no evidence tat these oranizz4'tions 4re not arcesIvely in cocetition wit,: on other. In conclusion, whilc 1 concur t'IcIt crous ownership tro.nder further study, elf: ostrc etatiuticu are T1t1qated by otlicr iactors and there acter,s to be no cvidonce thlt cro4s•owners/11v hais resulted in ani uadcairahle clfectg to date. rincerely,  Seaml A. Volcker cm:LJPB:vcd (#V-200 hason Petersen S. TrrrtcrAVi.f-c-92 nr. Cleaver Mallardi (2)  Lr  4  EDWARD M. KENNEC,Y. M•SS., CHAIRmAN  BIRCH ISAvH. IND. POP! R C. EIVAD. W. VA. JetfpH BIDEN. DEL. JOHN C CULVF A. 'OAK NONAK• Nur rZF NBALIM OHIO ncHH , • riE COWIN!. ARa.  .  PATH LK  J. I.  AHr  VT.  Action assigned Jack Ryan  Rom  TmuRNIOND. S CHARLES mC c. MATHIAS. JR.. MD. •AUL LAKKL WV. OHRIN G HATCH. uTAH  •  SUBCOM MITTEE ON ANTITRUST. MONOPOLY AND BUSINESS RIGHTS HOWARD  EnwAPD No. KENNEDY INAvH  RuerRT DOLE. KANs. TH•0 COCHRAN. MISS ALAN K. SlmrSON. WYO.  IOHN C CuLvER PA THICK t ILAHY  MAX •AUCUS mOI‘r. HOWELL HEFLIN. ALA.  METZENBAuM. CHAIRMAN grRom THURmoND CHARLES MC C. MATHIAS. JR. PAuL LAXALT ORRIN G. HATCH  MAX SAUCUS NEWNAN SCHwARTE CHIEF' COUNSEL K NO It[CTCM  STEPHEN •  . CHIEF' COUNSEL  9JCiiitcb Zfalcz Zocrtafc COMMITTEE ON THE JUDICIARY WASHINGTON, D.C.  20510  Jply 1, 1980  The Honorable G. William Miller 'Chairman Federal Reserve Board Federal Reserve Building Constitution Avenue at 20th Street, N.W. Washington, D.C. 20551 Dear Mr. Chairman: Corporate Data Exchange, Inc., a New S. •S non-profit research organization, has recently issued a report entitled C.E.D. Stock Ownership Directory: Bankinz and Financing, which profiles 240 major companies active in financial and banking markets. The Directory indicates that economic power in our financial markets is becoming concentrated in the hands of the large, national banks. The data indicates that these banks -including Citicorp, Chase, BankAmerica and J. P. Morgan suS stantial holdings in smaller regional banks and large insurance companies, as well as a pattern of cross-ownership in each other's securities. The level of cross-ownership is considerable. The eleven largest money center banks hold up to 15.42 percent in each other. Collectively they control 10.9 percent of Citicorp; 10.4 percent of J. P. Morgan; 9.35 percent of Continental Illinois; 15.42 percent of First Chicago; 6.32 percent of Chemical, and 13.48 percent of BankAmerica. Morgan is the top stockholder in Citicorp with over 4 percent and places second in four banks including Manufacturers Hanover, Bankers Trust, Continental Illinois and BankAmerica. While I recognize that this cross-ownership pattern is largely the result of the investments of the trust departments of the various banks, it nonetheless raises serious conflict of interest and antitrust questions, particularly in terms of autonomy of individual bank policy, potential shared monopoly results in various markets, and overall economic concentration in the banking sector.  p1=1•1116.  •  •  • The Hon. G. William Miller  2  July 1, 1980  I would very much appreciate the views of the Fede ral Reserve Board on these issues.  //  Sincer  ow d M. letzenbaum, Chairman Sub ommittee on Antitrust, Monopoly & Business Rights HMM/gce  •  _o  4:4 (.()1q  .A - • ••  • •  • . 774'. •  r  OVEINfl1E.  FEDERAL RESERVE SYSTEM vittSriiNGTON. 1.3. C. 20551  •  • ••.:•  .  •  . PAUL A. vOicKin CHAIRMAN  July 31, 1980  The Honorable William Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. Dear Mr. Chairman: I understand that the Senate Banking Committee during yesterday's mark-up favorably considered a bill to establish within the Board of Governors a National Consumer Usury Commission and that the Board is required to provide the Commission with administrative support, professional and clerical services, office space and equipment, and to pay the salaries and expenses of the Commission. Further, the Chairman of the Board of Governors or his delegate is to be the Chairperson of the Commission. As you know, the Federal Reserve has supported the concept of a study of state usury laws looking toward certain recommendations as to appropriate state or federal actions. Our assumption was that the principal burden would be carried by the states themselves in conducting the study. We did not, frankly, have in mind a new responsibility for the Federal Reserve itself, but rather a role as interested observer. In view of the Board's present heavy responsibilities -and they have increased considerably in recent years as a result of new legislation and regulations, the behavior of the economy, and the rapid changes and increased complexity of the financial sector -- I sincerely doubt that at the Board of Governors we can give this significant project the kind of attention it deserves. Our staff resources generally -- including the consumer affairs staff --are already severely strained, and I am greatly troubled by any new assignments that might further occupy the Board and further drain staff resources. Consequently, I would urge the Commission be set up without direct Federal Reserve involvement. If, despite these strong reservations on our part, Congress is determined to establish the Commission "within the Federaii Reserve," along the lines of the proposed bill, I would like to share with you certain thoughts. I would read the legislation as permitting the Chairman of the Board to delegate the position of Chairperson to some other official within the Federal Reserve  •  4.0  The Honorable William Proxmire - Page 2. System and not necessarily to another member of the Board. Further, in light of the fact that our office facilities in Washington are already being used to capacity, I would interpret the bill as not requiring that we would be obliged to provide office space at the Board buildings here in Washington. Also, I would understand that the staff resources required by the Commission could be derived from outside the Board in Washington -- that is by the use of Federal Reserve Bank personnel or consultants -- even though the cost would ultimately be borne by the Board within the overall limit of $1 million. Even with these understandings, I am not at ease with this additional responsibility imposed on the Federal Reserve. Indeed, if the legislation is not to be read as I have suggested, then I do not sec how we could satisfactorily carry out the task. Finally, I cannot refrain from commenting that the steady accretion of responsibilities being assigned to the Board of Governors is a matter of considerable concern to me. I believe that the work of the Usury Commission is one instance where the responsibilities need not rest so heavily upon the Board's involvement. Sycerely,  /A  i9'% da  •II  AP  •  • o• f GOVe  • •-,,  Q A  BOARD  OF C3OVERWIRS OF THE  FEDERAL RESERVE SYSTEM  -  •  WASHINGTON, O. C. 20551  PAUL A. VOLCKER  • RA L '• •..• •  CHAIRMAN  July 31, 1980  The Honorable Parren J. Mitchell Chairman Subcommittee on Domestic Monetary Policy Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Mr. Mitchell: I fully appreciate the evident frustration you feel over a situation that has, contrary to the conventional "wisdom" of a few years ago, left us with both inflation and unemployment at excessive levels. I share that frustration, but I also feel some optimism that we are beginning to come to grips with problems and policies that have been "shoved" aside for years. It seems to me evident that the kind of problems we face have accumulated over a long period of time and there is growing realization that the solutions cannot lie in a painless "quick fix." That understanding seems to me, in turn, to lay the kind of base we need to in fact deal with the problems effectively. Monetary policy is an important part--but only a part-- of that picture. It is against that background that I'm glad to answer your specific questions. Question 1 indicates your doubts about our intent in not providing specific numerical targets for money growth for 1981 our Humphrey-Hawkins Report. I regret the confusion that arose on this score, and I believe your specific questions are answered fully in the attached letter to Chairman Reuss. If you have any remaining questions about our intentions with respect to the monetary aggregates or doubts about our wish for effective communications with the Congress, I hope you will bring those concerns to my attention.  I  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Your second question inquires as to the meaning of the short fall in actual M-1 growth from targets in April and May (prior to that time, money growth was relatively strong). I would note, in responding, that in recent weeks M-1 growth has been relatively strong, with M-1B returning within the target range; M-2 is currently in the upper part of its range. Very few economists, to my knowledge, attach real significance to fluctuations in monetary growth lasting for less than, say, one quarter.  The Honorable Parren J. Mitchell - 2. As I explained in my statement before the Committee, the sharp April-May drop was both unexpected and unusually large in relation to economic activity and interest rates. The Federal Reserve actively supplied reserves through open market operations in accordance with our targeting procedures, but it was apparent, always in retrospect, that demands for money (and credit) were dropping rapidly; banks repaid borrowings for a time so rapidly that those repayments offset the provision of reserves through open market operations. The precipitous decline in interest rates at the virtual onset of recession-historically unusual at least in degree--certainly has been anti-recessionary in effect. The argument can be made, hypothetically, that with greater foresight and even more aggressive open market operations, all of the April-May shortfall could have been forestalled, and interest rates would have declined more. But then a further judgment would have to be made as to whether, after all, that would have been desirable in the light of such questions as: (1) whether strong momentum in the money supply figures would not soon have required cutbacks in the provision of reserves through open market operations, with an abrupt change in the direction of interest rates; (2) whether perceptions of a weakening of the resolve of the Federal Reserve to deal with inflation might not have actually delayed or frustrated the downward adjustment of critical long-term interest rates and led to intensified inflationary expectations generally; (3) whether the potential "whip sawing" of markets and market perceptions, by fermenting widespread public confusion, would not have been ultimately damaging to our efforts to maintain policy consistency. These matters of judgment cannot be escaped when, in the technical jargon, the "money demand function" gyrates over a period of a few months in a manner that cannot be explained on the basis of past relationships. I am convinced, in the context of the frustration about the inflation/unemployment dilemma you expressed, that we do not have the simple choice of abandoning concern about inflation and inflationary perceptions as we deal with recession. Indeed, in my judgment, failure to deal with inflation will ultimately be reflected in an unsatisfactory recovery. Viewed in that light, I am not at all convinced, even in retrospect, that leaning much harder against the temporary falling away of money demand in recent months would have been constructive.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I believe the reply to your third question about why the money supply declined so precipitously in April and May is discussed above, as well as in my statement to the Committee. Given   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Parren J. Mitchell - 3.  the nature of our open market operations during the period, it is evident the impetus for the decline came from the demand side. There are precedents as recently as late 1978 and early 1979 for a decline in M-1 demand following a sharp rise in interest rates; this year, there is some evidence the extraordinary declines are also related to decisions by consumers to rapidly cut their indebtedness, drawing on cash balances in the process. Of course, a substantial part of the decline was related to the decline in business activity itself. Questions of cause and effect in that relationship have been a matter of controversy among economists for many years, but I know of no analysis that suggests that a decline in the money supply has an instantaneous effect on business activity. Your fourth question about the "intent" of the Federal Reserve in permitting money growth to accelerate from 1976 to 1979 can, I believe, be generally answered by saying that the responsible officials indeed felt that their decisions would contribute over time to growth and employment. Obviously, those officials were reaching those decisions in a particular context, constrained and influenced by existing circumstances. In fact, an enormous growth in employment was achieved during those years, but I share your sense of dissatisfaction over the level of both unemployment and inflation. This is not the place for an extended analysis of the extent to which other policies and developments (e.g., rising energy prices) affected our economic performance during that period, or indeed constrained the actions of the Federal Reserve, but I am sure you recognize that monetary policy decisions (and ultimately growth of the money supply) cannot be analyzed without taking those other policies and circumstances into full account. In retrospect, I too would wish the Federal Reserve had pressed somewhat harder to curtail monetary growth in those years, as implied by your question 5. But that simple hindsight judgment can hardly do justice to the difficulty and complexity of the decision-making at the time. What is important is that we recognize the need for monetary discipline as we move ahead, and that we also recognize the need for complementary policies in other areas. Your own leadership in achieving that understanding has, in my opinion, been a signal public service. Indeed, it is only that kind of understanding and public support that, over time, will provide a solid base for the Federal Reserve to "follow through" on our intent to reduce over time monetary growth to non-inflationary levels-the essence of your last question. That is why I consider  0  The Honorable Parren J. Mitchell - 4.  frank and open relations with you and other members of the Committee and the Congress of such crucial importance, and I look forward to working with you in your leadership role in the future. Sincerely, ;;  Attachment  0  (0<tv• ctat  I  1/90)IED  Ciaw)-$..  ) Paux43  %  PARREN J. MITCHELL. MD., CHAIRMAN • STEt1IF N L. NEAL, N C. NORMAN E. D'AMOURS, N.H. DOUG BARNARD. GA. JIM mArTc".x. TEX. JOHN J. CAVANAUGH NEBR. 225- 7315  Action assigned Steve Axilrod  GEORGE HANSEN IDAHO RON PAUL. TEX. DON RITTER. PA.  U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON DOMESTIC MONETARY POLICY OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY—SIXTH CONGRESS  WASHINGTON, D.C. 20515  July 24, 1980  The Honorable Paul Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: I listened to your testimony on the "Conduct of Monetary Policy", which was delivered before the Banking Committee last Wednesday, with great interest. Unfortunately, a schedule conflict forced me to leave the hearing before my turn to question you came up. I had prepared a seven question sequence which I intended to put to you at the time. Let me ask that you give me written answers to these questions at your earliest convenience. It is my intention to circulate both my questions and your answers. I want to focus on the relationship between the Federal Reserve's conduct of monetary policy and our apparent inability as a nation either (1) to prevent unemployment from growing, or (2) to get inflation under control. A few years ago, nearly all economic commentators would have said that we couldn't possibly fail on both counts. However, somehow we did. While I recognize that we had a run of bad luck and that other policies played a part, I want to explore with you the Federal Reserve's role in this incredible double failure as well as your present and future course. Question 1 In your July 22 Report to the Congress, pursuant to the Hawkins-Humphrey Act, you and your fellow governors on the Federal Reserve Board present projections for our economy's performance --for real GNP growth, inflation and unemployment-- in 1931. However, you refuse to target money growth for 1981. This suggests that you and your colleagues think that money growth doesn't matter, or matter very much anyway. How do you explain this? Do you really believe that how well or badly our economy performs in 1981 is independent of how slow or fast our money supply (use the M1B measure) grows that year? Before going on to the next question, let me put myself on record as being sorely disappointed with your failure to present 1981 monetary growth targets. The spirit of the Hawkins-Humphrey Act for sure, and I believe the letter of the law as well, requires it; although in some artful, self-serving techinical sense, your lawyers may construe the act otherwise. Long ago, Sam Rayburn said, "I have been forced to the conclusion that the Federal Reserve authorities. . .consider themselves immune to any direction or suggestion by the Congress. . . ." I had hoped that today's Federal Reserve officers, especially you, were more open and less elitist than past Federal Reserve authorities.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -The Honorable Paul Volcker. Page Two July 24, 1980  However, in view of your unilateral waiving of the provisions of Section 2A of the Federal Reserve Act, as amended by the Hawkins-Humphrey Act, there now appears little if any reason to think that. Question 2 For three years from September 1976 to September 1979, M1B, our basic money supply, had grown faster, on average, than 81 percent per year. Then it plunged. Between the fourth quarter of 1979 and the second quarter of 1980, M1B grew only 1.7 percent, and from December 1979 to May 1980 it didn't grow at all. The historical record indicates that when money growth is caused or allowed to decelerate as sharply as it did during the first half of this year, recessions develop or, if already underway, are exacerbated. Is there any reason to think differently; to believe that sharp declines in money growth are anti-recessionary in their effects? Specifically, consider the latest sharp decline, the one that's been developing since early this year. Has this helped to keep the economy moving forward and to prevent unemployment from rising this year? Question 3 Why was money growth caused or allowed to decelerate so precipitously and dangerously this year? Question 4 In the quarter of a century since the Korean War, when money growth has accelerated, by and large and on average inflation has followed along two years later; and when money growth has declined, two years later, inflation also has dropped. In the late 1970's, money growth jumped beginning in the second half of 1976 from 5 percent per year to over 8 percent per year. In the twelve months ending September 1976, M1B grew only 5. For the next three years, from September 1976 to September 1979, as was earlier noted, it averaged over 81;. per year. What was the Federal Reserve trying to do when it caused or allowed this explosion of money growth to develop? If the effort was made to increase real growth and reduce unemployment, did it succeed? Question 5 Could the Federal Reserve have prevented the soaring of money growth in the late 1970's? (I note in passing, that it occurred together with declinin2 budget deficits. Thus it occurs to me that you were not prevented from doing your job by growing fiscal excesses.)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Question 6 Where are you taking money growth from here? Question 7 How can we be sure you'll follow through? Sincerely, 000 e,,v Parren J. Mitchell, Chairman Subcommittee on Domestic Monetary Policy
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