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Collection: Paul A. Volcker Papers Call Number: MC279  Box 10  Preferred Citation: Congressional Correspondence, November 1980-January 1981; 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/c435 and https://fraser.stlouisfed.org/archival/5297 The digitization ofthis collection was made possible by the Federal Reserve Bank of St. Louis. From the collections of the Seeley G. Mudd Manuscript Library, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. They further agree to request permission of the Princeton University Library (and pay any fees, if applicable) if they plan to publish, broadcast, or otherwise disseminate this material. This includes all forms of electronic distribution. Copyright The copyright law of the United States (Title 17, United States Code) governs the making of photocopies or other reproductions of copyrighted material. Under certain conditions specified in the law, libraries and archives are authorized to furnish a photocopy or other reproduction. One of these specified conditions is that the photocopy or other reproduction is not to be "used for any purpose other than private study, scholarship or research." If a user makes a request for, or later uses, a photocopy or other reproduction for purposes not permitted as fair use under the copyright law of the United States, that user may be liable for copyright infringement. Policy on Digitized Collections Digitized collections are made accessible for research purposes. Princeton University has indicated what it knows about the copyrights and rights of privacy, publicity or trademark in its finding aids. However, due to the nature of archival collections, it is not always possible to identify this information. Princeton University is eager to hear from any rights owners, so that it may provide accurate information. When a rights issue needs to be addressed, upon request Princeton University will remove the material from public view while it reviews the claim. Inquiries about this material can be directed to: Seeley G. Mudd Manuscript Library 65 Olden Street Princeton, NJ 08540 609-258-6345 609-258-3385 (fax) mudd@princeton.edu  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 205E51  November 6, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Walter D. Huddlesto n United States Senate Washington, D.C. 20510 Dear Senator Huddleston: Thank you for your letter of Octobe r 23, requesting comment on correspondence you received fro m Mr. Earl Templeman, President of the Cecilian Bank of Cecilia, Kentucky. Mr. Templeman expresses concern about the degree of accuracy required in the calcul ation and disclosure of the annual percentage rate (the "APR") under Regulation Z. He appears to believe that, in order to disclo se an APR that is within 1/8 of one percentage point of the ann ual percentage rate--as required by Regulation Z--his bank wil l have to purchase calculators. He questions the need for such an expenditure. The staff believes that Mr. Tem pleman's concern may arise from a misunderstanding of the regulation as it applies to the facts described in his letter. He states that his bank always uses a simple interest method to comput e interest charges on loans. Tha t being the case, and assuming that the bank imposes no other fin ance charges besides interest, the sim ple interest rate and the APR would in fact be identical. Thus, Mr. Templeman's bank would not need calculators to make the computati ons, and could continue to follow its simple interest rate formul a. For other types of transactions , creditors can generally use the Board's Annual Percentage Rate Tables (Volume I for regular tra nsactions, Volume II for transactions with multiple advances and/or irregular payment streams). In addition, the 1/8 of one per cent tolerance to which Mr. Templeman refers was designed to facilitate compliance for creditors, not to impose a strict er rule. The annual percentage rate expresses the cost of a cre dit transaction and is intended to give consumers a standard measur e for comparing credit source s. Because of its value in facilitat ing credit-shopping, which is a primary goal of the Truth in Len ding Act, it is generally considered to be the most important of all the disclosures mandated by the Act. The Board amended the rules for determining and dis closing the APR in January 1980 to give creditors a wider margin of error than was previously ava ilable, without significantly diminishing consumer protec tions. Prior to January 1980, the annual percentage rate had to be disclosed either as an exa ct figure or rounded to the neares t  •  -44 The Honorable Walter D. Huddlesto n Page Two  1/4 of one percent. For example, if the actual annual percen tage rate was 10.04 percent, the credit or had to disclose either that rate or 10 percent, the nearest 1/4 of one percent. Disclosure of any other rate did not comply wit h the Act and regulation, however small the discrepancy. Now , under the regulation as amended, the APR disclosed to the consumer is considered accurate if it varies, either up or down from a precisely computed rate, by not more than 1/8 of one per cent. For example, where the exact APR is determined to be 10 1/4 percent, a disclosed APR anywhere from 10 1/8 percent to 10 3/8 percent will comply with the regulation. Please be assured that the Board and its staff are aware of and share the general concern regarding the complexity of Truth in Lending requirements. We are now in the process of restudying Regulation Z, following the adopti on last March of the Truth in Lending Simplification and Reform Act. We believe the revised regulation that is ultimately adopte d by the Board will alleviate some of the burdens creditors now face in their efforts to com ply. I hope this response will be hel pful to you. be of further assistance, ple ase let me know. Sincerely, StPaul A.V4,1Q.keit  cs.cotiAt (IV 40E) boas G. Silvcr Mrs. Mallaxdi (2)  If we can  -*  A10ALTER D. HUDDLESTON  Actieassigned Janet Hart  KENTUCKY  •  COMMITTEES: AGRICULTURE. NUTRITION. AND FORESTRY APPROPRIATIONS  'ZCnifeb Zfafi.'- 55  crtate  SELECT COMMITTEE ON INTELLIGENCE SELECT COMMITTEE ON SMALL BUSINESS  WASHINGTON. D.C. 20510  October 23, 1980  The Honorable Paul A. Volcker Chairman Federal Reserve System 20th Street and Constitution Avenue N.W. Washington, D.C. 20551 Dear Mr. Chairman: Enclosed please find correspondence I have received from Mr. Earl Templeman, President of thr Cecilian Bank in Cecilia, Kentucky. Mr. Templeman points up what he feels to be unnecessary regulations with regard to interest rates on installment loans. I would appreciate your addressing the specific problems Mr. Templeman brings to light and getting back to me with your comments and response. Thank you in advance for your attention to this matter. Sincerely, all111111111111P  r Walter D. Hidd1eston Enclosure  .•.,-''''. k.,..,  rr  Li....  ••••••=.•••.••,....  •••  "Who •-•  6 :3 A i\j ir c  o  •  ; I _  :1 1 I , '1•4 ,,  I '...44  •.7'4,  lit' ,  'OA VII I F. KY.  Y.  /31 "3 750 Cli !"1. KY. 1.1 2 "4 ''?4  )10  P.  or  y-u ,‘C  of the (Jr;i/y 1 .."!111:001'y  rAljn!I  c\ur  :  )1  1  1/2 01 1% ' 0',. I),Ir 'V :iich :11111 If up - -re II:in 1/8 of 174, 1.e arc 1):I1 tly , •1 1/8 0)1 1 cpw(., ace 1( , -In to the fitlro on a $10,;WO • ttat ovor lho fon yoar 1-• y:od, 1/8 of 1% 2.( ,0 in int ,re:,1. to !y) 1 '1 , q'!3. I I:1v,-, to a -4 a!!‘i rind Hint if r, ,r iiovcr a ri'e u:; 1, ueo, Iu!:derbc6ii:ning 1:Achine. 1, muA also co:1p1y with this regulatiDn. 13e this true, ilKni five machines to take care of our lending ..1:11: will ofricers, t. c.lultj!-:/; in a cost of $8,163 over the five year pc'rjod. l 11  t  Wi Ii!' ,v,)  Our 17ank has al▪ lys used the flimple interest formula on _Ar co:iim(3rcia1 notes. :2 months poriod, on grant you a loan of $10,000 for a Lhr, •?x.plple, should the Tirst ,ity of Cc. L_Dbr, 1980, :-;ay at a rate of 12%, we w:3,11! matiply tl-,0 $10,000 by the 12% :Ind divide by 4, giving us an interest charge of $300. That would be -what y1,1 would owe • on January 1, 1981. We neither discount nor add on interst. the full $10,000 at the time the note is made and pay the simple interest fail to nee how we could be taking advantace of anyone of the note. t11:7; . 1.hoi or how a rruplicatA formula could improve upon it. l)y I !!0  r-ally aware of so:Ile of the:, idiotic reLillations . ,!,roi if you 1 Ilion Lank:3 and if you would have any i:.torest in working  "'.crY truly •ors, , • z  tiove.7;ber 12  271.4 ror3. tiliac. ProxrAre Chairmaa Committee on rLiv, oisizci aud Uxban Ai!fairs Unitad State* Senate kastlington. D.C. 2051+; Dear C4airman Proxmire. Thank you for your recent letter invitigic, the I--otirtl to testify on the subject of current law and policy goverLinc acquisition of ttrift ibst1tution8 toy banks and bank hol,linc coaTanies. Governor Lyle L. clra.liley will be pleased to appear on bchalf of the &oard an gcvemLer 21 at 9:3 a.m. Sincerely, SLEW A.Vo!cket  Le AL (øV -4C3) :)ce Oov. Gramlay cossrs. Eiaenbeis ano Lleier rs.11allardi  1  Kr.11A 4.4 •  PrPrrfroinr wI., cmiirlm•4  HARE,SON A. WIT LIAMS. JR., N.J. (:ANS700.4 r:Al IF. ADLAI  r ••.TIVI, OVIP4  ILL.  ROPENT MORFOIN4. N.C. • .+At_r. vv. 4411$11 E. J$4.,  MICH.  ✓ 4. S. YANIIANES. MD. i•LCI W. STEW•RT, ALA. nc,  Don Winn will do memo to Chairman Volcker  JAKE 41•444. tryAll JOHN TOWER, Tr Y., PA. JOHN NT Ni.I , .. C04.0. WILLIAM L. ARI$.44r44044 NANCY LANDON K•S51- 11 ,4UM, KANS. RICHARD G. LUGAR, IND.  'ZIG/ ifeb  fatez Zenale  CEORGE .1. MITCHELL, MAINE KENNETH A. MC LEAN. STAr4 DIRECTOR M. DANNY WALL, M1NOEHEY STAFF otnrc ron MARY FRANCES OE LA PAVA, CHIEF CLERK  COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS WASHINGTON. D.C.  20510  October 22, 1980  The Honorable Paul Volcker Chairman Federal Reserve System Washington, D. C.  rs,)  Dear Dear Mr. Chairman: This letter is to confirm our request for your testimony before this Committee on the matter of cross industry takeovers between commercial banks and thrift institutions. The Committee would particularly appreciate a discussion of current law (both statutory, regulatory of and decisional) and policy governing the acquisition thrifts by banks and bank holding companies. The hearing will be held in Room 5302 on November 21, 1980 at 9:30 a.m. I am enclosing a copy of the Committee's Guidelines for Witnesses for your information. If you should have any questions, please feel l, free to contact Mr. Lindy Marinaccio, Gcneral Counse at 224-7391. Sincerely,- —  2410Z-P 1  a 111  Chairman WP:lmg Enclosure  1  mire  6  •  WILLIAM Prioxmint, WIS., CHAIRMA •  •  Ay,/ A. WILLIAMS, JR., H.J. v CRANSTON. GAUP% E. STEVENSON, ILL. ,,osERT 1.0AGAN, NC.  JOHN Towrm, JOHN HEINZ, PA.  coNALD • 1. Ricr.Lr. JR., MICH. PAUL S. SARRANES. MD. DONALD W. STEWART. ALA. PAUL E. TSOHGAS, MASS.  IA  JAKE GARP... U  WILLIAM L. ARMSTRONG. COLO. NANCY LANDON KASSIFKAUM. KANS. PICJHARD G. LUGAR, IND.  'Zinifeb Ziatez -Senate COMM ITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS  WINNE-OH A. MC LEAN, STAKW DIRECTOR DANNY WALL, MINORITY STARK DIRECTOR  MARY rRANcts DE LA PAVA, CHIEF CLARK  WASHINGTON, D.C. 20510  GUIDELINES FOR WITNESSES 1.  These guidelines apply to all hearings of the Senate Committee on Banking, Housing and Urban Affairs, unless otherwise indicated.  2.  All hearings will begin at 10 a.m. in Room 5302, Dirksen Senate Office Building, unless otherwise indicated.  3.  Committee rules require that all witnesses submit at least 100 copies of their written statements 48 hours prior to their appearance. Sundays and holidays are not to he included in determining this 48-hour period. Statements should he delivered to Room 5300, Dirkson Senate Office Building, Washington, D.C. 20510. Strict adherence to this rule is essential in order that Committee members may review the statements before the hearing, thus enabling the participants to more thoroughly discuss the issues involved. Statements will not he released to the news media prior to the day of your testimony. Oral presentations must be limited to a brief summary not to exceed 10 minutes. Your complete statement will he printed in the hearing record.  S.  Please complete the attached card and bring it to Room 5300 prior to the hearing. You will be given copies of statements of those testifying with you at thlt  time.  Please supply the address to which you prefer the reporter's transcript delivered for your correction. Kindly turn this card in at loom 5300 Dirl“en Mice Building prior to giSing your te,4imony.  (Name)  (Organisation)  (Business address)  (City and State) \ ATE  BAN I:I NG, 110t.'SINf; AND IIII SN  (Phone)  (ZIP Code) AFFAIRS COM NIITTEF. 36-45-h  GPO  ion is appreciated.  ,  U  .wovemiour 12, lik  1or‘ra.a1a lienry s. Aeuss Chairman Cc.)..i.Liittee on Bsekinci, Finance 4ina Urban Affairs 6444tAkse of Representative* , c3sikitv;to1s, Z.C. 204415 LitrarY. Monk you or your letter of .71cteDer 2 orwardiu%, lctt4r re(:eivvd cy Congressman Cradison conceminc the Luren liovt2.rrarlental regulation, ul his letter to colwressvan Oradi, .varvin I. EMOAA, PresiZent of t!e Fr:laudation :avings and 4404 cot14-any, cincicnati, Ohio. exprossas %is conctArn over the increai, ra,041atory i/ur,14;..1.6 ilsposed on zlis Institution by tzc,:.ulatier LoNard policy ano practice to review regulations oftrefully to onsLtre that .t.4y are written as gifTly as passible in orcor to alloviate mlulatory burdan. In adortinq Pe(.7u1at1on D, tLe J,clard took several actions it furtherance of these oLjectivas. Irstitutions with deposits of less than 42 of c'cer0er 51. 1974, will not *..K! rekqiree to report or maintain rinerves until May19s1. Al that tie the Uoard will consider wl-itsther to postpone furtt4c.r tlAt ivzpoeitiotA oi rusorw retr.airents on ttiese smaller institutions. Thisa action relieves the reculatory burden for MQX4 than 17,t`..0%; dopository institution*, 41X .vf the nation's total. The Uovord also decioeci to allow institutiqns witi. deposit* offl5 i1Lioii or Jess t4,; fila reports quarterly rather than weekly and maittuin reserves dinq each quarter kAssee on thous reports. It 16  With reviaard to Foundation Savings and Loan Company, it appear* that this institution may be e1iit4e for t14: sizplified quarterly krocodures since its aspoalt Ltase as of Lecember 31. was spprostiestely $14.2 tAllion. rir. Nodes should contact the icAtwal IteeerVe Sank of Clc.vvland for a deternisatioc of his institution's status. can assure you ttat trio toarj continuos to 'via concerned a4out the iact of Federal reserve roquirewsnts, particularly on Apall tmetitutions, and will continuo to monitor thus regulation carefully to oetiaroino if f4rthur stepa can t)e taken to si71-lify ,:toci:dures and miniulise feaerworY. rclePO. DLRAMT3-DX4,pit (Olf-4tkiO) bcc. Dan Fivoiles Gil ficl.warti Mallari (2)/ Leval Records (2)  eincerely, sipai  AlI  .1. Erl.r,s. WIS., CHAIRMAN %S L. ASHLEY. OHIO AM S. MOORHEAD, PA. FTE*NAPt:-. J. ST GERMAIN, R.I. HE NRY 0. GONETALEZ, TEX. JeqEPIE G. MINISH, NJ. FRANK ANNUNZIO, ILL. JAMES M. HANLEY, N.Y. PARREN J. MITCHELL, MD. WALTER E. FAUNTROY. D.C. STEPHEN L. NEAL, N.C. JERRY M. PATTERSON, CALIF. JAMES 1 nt ApormArn, MICH. cARRot I ti, I Ilk ; , .. KY. JOHN J. LAUAt CF, N.Y. GLADYS NOON SI'Ll. LMAN. MD. LFS AuCOIN. OREG. DAVID W. EVANS, IND. NORMAN E. D'AMOURS. N.H. STANLEY N. LUNDINE. N.Y. JOHN .1. CAVANAUGH, NEBR. MARY ROSE °AKAR, OHIO JIM MATTOX, TEX. BRUCE F. VENTO, MINN. DOUG BARNARD, JR., GA. YVES WATKINS, OKLA. ROBERT GARCIA, N.Y. MIKE LOWRY. WASH.  tion assigned Mr. Petersen  •  J. WILLIAM STANTON, OHIO CHALMERS P. WYLIE, OHIO STEWART B. McKINNEY, CONN. GEORGE HANSEN. IDAHO HENRY J. HYDE, ILL. RICHARD KELLY. FLA. JIM LEACH, IOWA THOMAS B. EVANS. JR., DEL. S. WILLIAM GREEN, N.Y. RON PAUL_ TEX. ED BETHUNE_ ARK. NORMAN D. SHUMWAY, CALIF. CARROLL A. CAMPBELL, JR., S.C. DON RITTEii. FA. JON HINC+ON, MISS. JOHN EOWARO PORTER, ILL  U.S. HOUSE OF IT EPRESENTATIVES COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-SIXTH CONGRESS 2129 RAYBURN HOUSE  OFFICE BUILDING  WASHINGTON, D.C. 20515  US-42.0  October 22, 1930  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. Dear Mr. Chairman: Congressman Gradison has forwarded to me a copy of a letter from President Emden of the Foundation Savings and Loan Company of Cincinnati, Ohio, pointing out quite specific ways in which he feels Federal regulations stemming from the Depository Institutions Deregulation and Monetary Control Act are excessive. As you know, the Depository Institutions Deregulation and Monetary Control Act of 1980, Title VIII requires that regulations be written as simply as possible and paperwork minimal. The point Mr. Emden raises suggests that it would be useful to review these regulations with these requirements in mind.  Sincerely,  Henry S. Chairman Enclosure  euss  V  THE  LdLo:PFITEnithi-TIE  SAVINGS AND LOAN COMPANY •  OctobeA 3, 1980  ML. L Gtadison U.S. Rep,tesentative Hcuse 066ice Buitding Washingtpn, V. C. 20515 Deaii We Aeceived youA tetteA dated Septembek 4, 1980, conceAning batancing the budget and 6edeAat goveAnment spending, and we agkee with you/E. position. We au a smatt savings and toan doing what we think is a gAeat pubtic seAvice in pumoting thAi6t and 6inancing homes. We have CIA unbetievabte buAden o6 goveAnmentat AeguLation and we aAR. devoting at Least 2590 o6 woAhing tire /Leading and comptying with them. On the 6iAst o6 this month, we au subject to to additionat Aegutatoky bukdens; one, an expanded moAtgage Loan Aegistut AequiAing us to spend a guat amount o6 additionat time in pAocessing a Loan, and two, Regutation "1)", undek the Depositoky Institutions Deugutation and MonetaAy ContAat Act o6 1980 (H. R. 4986). We anz now AequiAed to ptace AeseAves with the Fedekat. ReseAve Bank System (non-inteAest beaAing) to add to the cost o6 doing business to bAing about a natutat Acsutt o6 higheA inteAest chaAges to the home buyeAs o6 this countAy. In addition, we now must spend, Lite/tatty how's each week /Leading and undeAstanding FedeAat ReseAve Bank AeguLations, and most o6 which do not peAtain to smatt thAi6t insti.tiLtions. This a in addition to the hand/tads o6 pages o6 Fedetat Home Loan Bank BoaAd Aegutations that we Aeceive each month, which we atso must head and undeAstand, and moat 06 which do not peAtain to smatt savings and loans. Evemone in Washington tatks about the oveA-Aegutation, but veity 6ow peopte ake doing anything about it as evidenced by the 6act that each yeak bAings suf?sequent additionat AegutatoAy buAdens upon us. We appkeciate youA e66oAts kn Azducing this buAden. SinceActy yoms, ) "4 \CLI-Urt.ke\ • NaAvin I. Emden P/losident  P (.\  T  NIE:sh  Q .r 1 ..  u  f2/4k= 719 VINE STREET  CINCINNATI, OHIO 45202  TELEPHONE (513) 721-0120  INSURED  • BOARD Cc' GOVERNORS ciF THE  FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 205S1  PAUL A. VOLCKER CHAIRMAN  November 7, 1980  The Honorable Henry S. Reuss Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman Reuss: Thank you for your October 15 let ter which asks three questions regarding the Board's response to Section 603 of the Housing and Community Development Act of 1980. That section expresses the sense of Congress tha t lending by Federally insured lenders for conversions of rental housing to condominiums and cooperative housing should be dis couraged in situations in which doing so will adversely affect the housing opportunities of lowand moderate-income, elderly, and handicapped tenants. The Board fully understands the general concern Congress has expressed with the plight of individuals who find themselves displaced as a result of the con version of rental housing, and hav e difficulty in relocating to equiva lent or adequate quarters. We plan to inform each of the State mem ber banks under our direct supervisory authority of this genera l expression of public policy as well as the sense of the releva nt legislative history. We also will coordinate with other agencies through the Federal Examination Council to insure full and consis tent coverage of Federally insure d lenders The staffs of the Board and of the Federal Reserve Banks also participate in many meetings and seminars with community groups and others interested in local investment, and our participants in these sessions will specifically note the sense of Congress embodied in Section 603 in connection wit h these meetings. Our examiners also frequently contact civic, religious, and neighborhood organizations in seeking to ascertain the credit needs of the community in the course of the examination process. Our examiners will pas s along this information to commun ity groups in appropriate cases. In relevant instances, State mem ber banks participating in bank financing of condominium conversio ns will be counseled with respec t  The Honorable Henry S. Reuss Page Two  to the expression of public policy contained in Section 603, Similarly, we plan to indicate the public policy considerations expressed by Congress in our contacts with groups in communities affected by conversions of this kind. Your final question regards what action we intend to take to assure that Section 603 is in fact being implemented by State member banks. The sense of Congress set forth in Section 603 as an expression of public policy contains no mention of enforcement nor any specific delegation of enforcement authority. It is our understanding that the absence of enforcement provisions was a conscious decision by Congress that it did not intend that specific enforcement actions with the force of regulation or formal administrative procedures be undertaken. Indeed, as we understand the legislative history as reflected in the discussion on the House floor, the Congress did not contemplate compulsory enforcement and, in particular, did not intend that the Community Reinvestment Act should be a vehicle for assuring the implementation of Section 603. I would also note that, while the general nature of the Congressional concern is evident, its relevance in particular instances will likely depend on very specific facts; e.g., the number of disadvantaged affected, the nature of procedures and other safeguards of their interests, and the like. It would be extremely difficult, even impossible, without much more precise guidance from Congress to draw up specific guidelines for judging what is acceptable and what is not in an area that importantly affects the rights of landlords and the rights of tenants. We believe that the steps outlined above that the Board proposes to undertake are responsive to the legislative intent and to your concerns. I trust you find this information useful. have any further questions, please contact me. Sincerely,  k:g(/67,ZZ6‘ ? 1:131*!CAL LCTIttiii. SIAIT T  CIAICANN  .11..L'AV.ved (IV-393) 4,  %lama Lart 3011) Fishes ru. Nallsrdi (2) &/#  sT  n  If you  „dr  NI:Y S. REUSS, WIS.. CHAIRMAN 400..4AS L. ASHLEY. OHIO WILLIAM S. MOORHEAD. PA. ETRNAND J. ST GERMAIN. R.I. HENRY 9. GONZALFZ. TEX. J0'..*.t PH G. MINISI-4, N.J. FRANK A.:NUNZIO. ILL. JA•.“ •-• k. HANLEY, N.Y.  rARPE•: J. MITCHELL. MD. WAITER E. FAUNTROY. D.C. ST frvir .1 l_. NE At . N.C.  Actie as signed  Jack Ryan and info co o r  U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS  Jf 1:•17Y ..  PATTEr.nON. CALIF. JAM( If 1. III AN/ .' A r,rt MICH. CARROLL HUBOArli. At , KY. JOHN J. LArAt.cr, N.Y. GLADYS NOON SPELLMAN. h4O. LES AvCOIN, OREG. DAVID W. EVANS. IND. NORMAN E. D•AMOURS. N.H. STANLEY N. LUNDINE. N.Y. JOHN J. CAVANAUGH, NEBR. MARY ROSE OAKAR, OHIO JIM MATTOX. TEX. BRUCE r. VENT°. MINN. DOUG BARNARD. GA. WES WATKINS, OKLA.  NINETY-SIXTH CONGRESS 2129 RAYBURN Housc OFFICE BUILDING  WASHINGTON, D.C. 20515  October 15, 1980  sent Janet Hart J. WILLIAM  STANTON. OHIO CHALMERS P. WYLIE, OHIO STEWART B. McKINNEY, CONN. GEORGE HANSEN, IDAHO HENRY J. HYDE, ILL. RICHARD KELLY. FLA.  JIM LEACH. IOWA THOMAS B. EVANS. JR.. DEL. S. WILLIAM GREEN, N.Y. RON PAUL, TEX. ED BETHiJNE, ARK. NORMAN D. SHUMWAY, CALIF. cARnou. A. cAmrnELL. JR.. S.C. DON RITTER. PA. JON HINSON. MISS.  ns-4247  ROBERT GARCIA. N.Y. MIKE LOWRY. WASH.  Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D. C. 20551 Dear Chairman Volcker: Last week the President signed into law the Housing and Community Development Act of 1980. Among the many significant and far-reaching provisions affecting the growth and economic welfare of homeowners is a provision which demonstrates the real concern Members of Congress have regarding those who are unable to afford the increased housing costs due to condominium conversion. The provision reads as follows: "Sec. 603. It is the sense of the Congress that lending by federally insured lending institutions for the conversion of rental housing to condominiums and cooperative housing should be discouraged where there are adverse impacts on housing opportunities of the low- and moderate-income and elderly and handicapped tenants Involved.” Important questions now arise: *Or  1. How do you intend to discourage financial institutions from lending for a conversion which will have adverse impacts on the low- and moderate-income, elderly, and handicapped? 2. How do you intend to inform civic, religious and neighborhood organizations of the Congressional action so that they may rely upon it to dissuade a socially undesirable conversion? 3. Finally, what necessary action do you intend to take to assure that section 603 is being implemented by the financial institutions under your jurisdiction? Sincerely,  Fernand J. St Germain Chairman, Subcommittee on Financial Institutions, Regulation and Insurance  Henry S. Reuss Chairman  NovemLer 14, 19U  The :4onorable tienry Lellon t;nitetl States ,:;fts..ate wasnincton, D.C. 20510 f.Jear Senator Lellmon. Thank you for your recent letter re:Jarding the proposed merger of Fort at hounton t41.nkShares, Inc., with VJopuzlic of Texas Corporation. and torwarding corrchipondence from your constituent, Mr. Saruel J. Veazey, on Cilia matter. This proposal is still pending before Use eloarfa and your letter will be made a part of th oard's record on tle application. I ould Me you to know that your conpents znd those of your constituent will receive full consideration at the time the board takes filial action. I appreciate your interest anc: concerit and your takinq the time to Ova Li% t:..e '..Atnefit of yota views. 'Sincerely. SiPau] A. lioLckeL  KOD - pjt (41V-395) boo; Ms. O'Day Mrs. Mallard'  )11b  •  •  . W ARRrN 0. MAGNUSOF:I. WASH.. CHAIRMAN  JICRIN C. STENNIS, MISS. ROBFRT C. BYRD. W. VA. WILLIAM ITOXMIRE. WIS. OAHU 4 K INOUYE. HAWAII .IERNIST r. HOLLINGS. Sc. • H. IND. BIRCH THm•s F. EAGLrTON. MO. LAWTON CHILES. FLA. .1. Br NNI Tr JOHNSTON. LA. WALTrR D. HUDDLESTON, KY.  MILTON R. YOUNG, N. DAK.• CLIFFORD P. CASE. N.J. EDWARD W. BROOKE. MASS. MARK 0. HATFIELD. OREG. TrO ST/WENS, ALASKA CHARL I. 9 MCC. MATHIAS, :R , MD RICHARD S. SCHWriK I R. PA. HINRY BELL MON. OKLA. LOWI LL P. *SACKER. JR  7.0NN,  Citifeb Zfalcz Zonate COMMITTEE ON APPROPRIATIONS  011IFNTIN P4. BURDICK. N. OAK. PATRICK J. LrAMI, VT. JIM SASSER, TENN.  WASHINGTON. D.C. 20510  OMNI{ 01 CONCINI. ARIZ• mut sumnosc ANC JAWS R. CALLOWAY CHIEF COUNSEL AND STAFFCM PICCTON  October 15, 1980  -, Mr. Paul Volcker Chairman Federal Reserve Board Federal Reserve Building Washington, D. C. 20551 c Dear Mr. Chairman: Enclosed is a file of correspondence relating to a proposed merger of Fort Sam Houston BankShares, Incorporated, with the Republic of Texas Corporation. It is my understanding that the Board of Governors of the Federal Reserve System has decided to disapprove the merger, but the matter is under reconsideration. My constituent who has contacted me on this matter seems to have a good case. I strongly urge that you examine the facts in this case, and that unless you have conclusive evidence to the contrary, that you allow the present decision by the Governors to stand. Sincerely,  Pra-ayr/t  t k  /  _ 7 Al 414J2.0.  . -  Henry Belimon HB:ca •  •  (  •  IcErS  DOLMAN,  jAm1.5 L. DOLMAN JAMES B. DOLMAN SAMIJUL ) VIA7EY  Doi  MAN & VEAZEY TELEPHONF 405 223-3610  503 Lit Ir Building P. 0. Box 13S8  ARDMORE, OKLANoMA  73401  October 9, 1980  The Honorable Henry Bellmon United States Senator 820 Old Post Office Building Oklahoma City, OK 73102 Dear Senator Bellmon: This letter will confirm our telephone conversation of October 9, 1980. The purpose of this letter is to attempt to set out those facts which you should be aware of in visiting with Chairman Volcker regarding this matter. My family collectively owns the largest block of stock in Fort Sam Houston BankShares, Incorporated, which is a bank holding company with its principal offices in San Antonio Texas. The bank holding company consists of three banks, being the National Bank of Fort Sam Houston, which is one of the nation's leading military banks, and two other small banks in the San Antonio banking market. In late 1979, an announcement was made by Fort Sam Houston BankShares, Incorporated, and Republic of Texas Corporation of Dallas, Texas, of a proposed plan of merger wherein Republic of Texas Corporation would acquire Fort Sam Houston BankShares, Incorporated. On February 20, 1980, at a special meeting of the stockholders of Fort Sam Houston BankShares, Incorporated, the proposed plan of merger was approved by a large margin. It is my opinion the margin of approval was large because most of the stockholders did not fully understand the merger terms and, as is usually the case, went along with management's recommendation. My family, as well as other stockholders, voted against this plan of merger. On June 12, 1980, the Board of Governors of the Federal Reserve System denied, by a vote of six -to-one, the application of Republic of Texas Corporation to acquire Fort Sam Houston BankShares, Incorporated. The Board in its ruling found that Fort Sam Houston BankShares, Incorporated, was well able to compete effectively in the market place independent of the proposed affiliation with Republic of Texas Corporation, and that the proposed merger would have anti -competitive effects on the San Antonio banking market in that Republic already has several affiliated banks in the San Antonio market. A copy of the press release of the Federal Reserve dated June 11, 1980, is enclosed for your information.  The Honorable Henry Bellmon October 9, 1980 Page 2  After the denial by the Federal Reserve Board, Republic requested the Board to reconsider and the Board granted Republic's request. I am told that the granting by the Federal Reserve Board of Republic's request for reconsideration, where there had been a previous denial by a six-to one vote, is most unusual. It is also my understanding that as of this date reconsideration by the Federal Reserve Board is pending. It is my further understanding that if the Board takes no action on this request for reconsideration within a 90-day period, which will expire on October 18, 1930, that the merger is automatically approved without further action by the Federal Reserve Board. As I indicated to you, several letters have been written by various stockholders to the Federal Reserve Board of Governors, not only by my family, but by other stockholders of Fort Sam Houston BankShares, Incorporated. I am enclosing copies of letters which have been written by me and by members of my family to the Board of Governors regarding this matter. My father has also written letters to the Board, but those copies are not enclosed because I wanted to get this material in the mail to you today. It is my concern that the members of the Board of Governors have not been made aware of these letters written by my family as well as other stockholders, but that these letters have been routinely handled within the bureaucracy and have gotten no further than the office of Mr. Don E. Kline, Assistant Director, Division of Banking Supervision and Regulation, of the Federal Reserve Board. I am also concerned that there is a real possibility that the Federal Reserve Board may choose not to deal further with this proposed merger and that the same shall become effective after October 18, 1980. Your willingness to contact Chairman Volcker in this matter is greatly appreciated by myself and my family. As I indicated to you, it is not our desire that you attempt to discuss the merits or demerits of this merger with Chairman Volcker, but as a result of your contacting him, that Chaiman Volcker might become better aware of the concerns of many of the stockholders of Fort Sam Houston BankShares, Incorporated, regarding this merger.  The Honorable Henry Bellmon October 9, 1980 Page 3  Please give my regards to Mrs. Bellmon. Yours very truly,  SAMUE1 J. VEAZEY SJV:jnm Enclosures  •  • •  -  •  •  ) :4  •  •  ;.•11.4:4.  '" • "4-'  EDERAL..RESERVE press rele-aso 4  •a  ..  •  •  1""C"--•17777:.!"-ir  -P•N  • 6 ••  t•  •  UUi  11, Iva.)  The Federal. Itoatrva li.orlrd today announce:1 its denial of the application of Republic of T(.;:.tt cio with Fort gau Boustkwi  i1&  TeRsc,  to  mcr;c  Incorpoi:ste 0 ..›2r$  Attached Lis thri 710.:Ird'L CI:dcr role.tit.g to this action. attached are tbe Concacrizn= a2tat of Gcr.7.Trnc.kr  Statemont of Covstroz galatz.  U icfti &n  •  ALikaa„„La  I ...wig . 7 .  •  For immediate celeas.c  • •••  \ \ jjjj • ";:o.'.  .•••7,-  ,A-06qm.. 14  Attach=ants  'I  •  •  %-!•••-•:.-r•r•.7.7.••••••••- •••;-•,-.:177C  "  •.  •••  Aluo  Lbe LaSosztinq  7ZEALAAL RZI3E10.714. NZST=S ICLKIDLIC Or TZXAS CORATIC 016er DerlyIK 1.6:gc:: of 11.7...nk aoldini! Caaisti • Republic: of TaxAL Corpo:ttion, rAalac, Taxar: & bank holding company within the maaninil.of tho Bank Coiding COz.pany Act, has applizd for the Board's ap2royt.1 une..er accticc, 3(a1(5) of the Act C12 5 1842(a)(5)) to neirvc witb AAA: az.c Ucucto:i Ban'hnzref.:, Incorpor ate, San Antonio, Taxac (b7L;LLI"), undar Chz /v.= and charter of P4pf ublic of Texas Corporation ('App1Icent4). Applicant has alp.) tpplit-d for the Dozrd's avproval under acction 4(c)(8) of tbQ Act (12 U.S.C. S 1643 (c)(8)) and section 225.4(b)(2) of the Ward's Regu1atio:1 Y (12 C.P.A. S 225. 4(b)(2)), to actraira all of the outstanding &titres of 7ort Sar. Life In3uranca Catvi:.eny, San Antonio, Texas (nrurt Sam Life), a subgidiary of Mat , and to enca9e in the sale of insurance directly related to extensioos of credit by naB's banking subsidiaries.  Port Sam Life engagas in underwritinl credit  life, an4 credit accideat and 4.wath inzuranc * in connection with - ex— tensions of credit by nilB's  rirg uubsi6iaric!:.  activitice,  have been determined by th.e Doard to LT cloa ely r1ite3 to banking (12 C.F.R. SS 225.4(a)()(ii) and (10)). Notice of the applicatiorts, affordiN opportunity for interetteZ persons to  ubait com:knts and views hag b.acn given in raccordrincT witb  sections 3 and 4 of the Act (45 Fc.:1,-,ral 1-cg irtcr 3GGE:).  Mt/ tic to: filing  comments and views has expircifi, and the applicat ion:, nn6 a11 co:limentL  ••••  -2-  re sat fortn in received have been.considcred in light of th.t facto section 3(o) of tha Act ;12 U.a.C. S 1042(c)) anjU  conaiderations  specified in section 4(c)(&) of tia4 4ct. Texas, Applicant,.the fourth largett bz.nkin9 organization in 1/ billton.  controls 22 banks with eg(„reijm.s de'posits of appi:cih:aately  banks In LLAD reprQsentirtg 7.4 pr cant of totzl deposits In oc.=zrcicl in Texas,State.1( PSDB, the twcntlsth larv;zt bznkinq orcaniiation has two sub-sidiary banks and has rec.:dyad approvx1 to ow.n a  ac  novo  million, reprebank, and controls total depozita o: approAlzately $163.0 senting 0.3 per cent of total Staicvids coercia1 r.,ank deposits. conauramation, the resultin  Upon  bankiris; orgznizatioa wo. ild rank as the  of total fourth largest in the StaLs, controlling about 7.7 pc r cent deposits in commercial banks in TeXAS.  While oc..ncentration of bankiri  , the BoLr6 resources in Texas has bcen a source, of conceril to the Loare) serious concludes that consimmation of thie transaction wou.).d not have . adverse effects on tha coziccntratio4 of 6.1.nkin ra5ourcer. in the State ons Applicant ranks aa the fifth largest of 42 b:inci organizati 3/ thro:Igh t)— r..arke ant relev t (the marke n bankii io Anton San ths in located  ,cc7.1bor 31, 19/8, and Lefiect bank 1/ All bank.ing data arc aa of D4. holding company formation* and acquisitions hpprovco au of January 31, 1900. 2/ Dy Order dated ilarch 10, 1980, the Board iTproved the acquisition by Applicant of Bank of Austin, Austin, Tex. Cons=z.ltion of that acquisition would result in Applicant's controllins; 23 banks and 7.5 per cent of total deposits in the State. 3/ The San Antonio banking Aarket 15 approxilL:AccA by ill': San Antonio SHSA.  ke with colabinl its control of two subsidiary ban million, representin in the market.  4.e  dep.z.eits of $175.6  bank deposits per cent. ot . totti coszcial  :,r;;anization in the FAIM, th..12 fourth Iaa:gost bankir,c  market, through it  ascragatw dvposits tw.c; su1J2idicry bankr controls  ..xkct ckpoeits. t of z.r., can par 5.0 in ant .ea l rep n, lio of $183.0 mil  Con-  plicant'u increasa aricinificantly A,? su=mation of the transaction would beco..as t, CAU!siY,:; hp21icant to cen ptr to t2, osi dep ket mar of share rerwit in the , &nd k6L mar tht In i ios zzt ani urg t the third larges Oatween Applicant and on iti pot com ng sti exi al nti elimination of substa on usly, & proposed combinati As the Doard has indiczttd previo market within the samc banking 1s ior sat ani or9 s kin d ban ize rly-s of simila (4:41tncibtcract capable of b .ie 00s eu0 e iev ach to e that are of a siz tts ag3i*oritivs Cortitly den ;:n ep. ind e rat ope to e management and are abl  PSUB.  ahould anticompetitive effe-cts and tore, would ordinarily have serious circumutaancea. not be approved except in compelling horizontal 6c:oisitioo in This propos-31 represents e large icant i'rasance through lif baw a has y ead alr ant a market where Applic al Lank . s, Dcxtr County Nation Ex.nk .z: tIrc of ger lar Mc ks. ban ita tvo right. and ib fully in it ion zst zni org le sab Kis a is of San Antonio, irc geugraphic maroni the h04t u:.; thro s vic capable of marketing itt per pete alz.o i* able to ccm it t tha s ict ind ld wou B VSE ket. Th4 siz of with Applicant. Moreon eti ili aff ent abL n eve effectively in tht market inr-novti esER al A viable ld wou al poa pro tho of ion mat sum over, con diD, ry vehicle ior other hol ent le sib pos a as and ion zat dependent organi  • 'codpanies not currently repres‘)nted in the mazket, and would significantly increase the concentration of bankinr; reaourccs in the 5zn Antonio banking market.  Based upon the  and other factl of r&crZ, tltb;a:r4  is of the opinion that consw-nation of this propossl  have sutr-  C/ stantially adverse effectm an c:.oc*.l.titioil in the relevant bah.Unv market.ConsummItion of the pro2olal would alt,o foreclose the pozcibility of increased compwtition in th,2 future.  Applicant't absolute/ cise  total resources could support,itz expansion in this marka/L  by  foothold ac(itiinition.  ;1.. novo or  Expansio,n by such :La:An: would ;oat4t rathoz  than eliminate competition.  The .S.an Antonio 1.>,:nb.inej LI.Irkct. it growinci,  and can support continued expansion, by existirn tirr.zs while rcre..a.inin-; attractive for outside entry by  novo or foothold 24-.:ann.  In this  regard, FEUB is also a large, well-n6snaged organizstion fully capable of continued growth and expansion within ths sLarket, which in demonstrated by its recent dr. novo expansiofi in the riarket. In rocchinc its conclusion on the com-.pctftiva' effo.cts; of this proposal, the Board noted that FSHE's load subsidiary bank, National sank of Fort Sam Houston ("Fort Ss= E.ank"), in what ic coar.Jonly terzcid a "military bank" in that it is locatc-C at a izilitary inatallation tInd oerivenn tignificant amount or its deposit and loan business from military personnel located outside the local banking m.arket.  Applicant  4/ 1Thile Chairman Volckcr agrec3 with the Board's dcnial of this application, he uoes not agree with-Lb,Board's chbracterization of the anticorapttitive effects as being substantially adverse.  111 # • that Fort Sam 1.1z,nk's wrket sharc uhould bti l'educed by half asserts • to r.ore fairly assess the coçtitivta offacLc in the locL u.nrkot. This reuucLion would t‘bult ii  1;4.11cant ck.)zat.rollin, uvori concurzAttion  of this propo5.51, about 7.3 pct cont. oE LoL41 ycarket. depoLitc; howoverp even shading Fort Sam ilanOs :;.!iz_ze. of rkcit 6tixmits, ti Doard of the opinion that coi-hlAlmmatiocl of tit* LrumEtIction wcJule. bava cilrious adverse effects on cmq:.nttitioTt.  hank may derive a  Although Port  large portion of its business fi:c4:1 Qilitaxy i.c,:z.cnncl, to a cortzin dagree &11 banks in tho Lin  ioL• Luuinflno frca-.  mar):01,..  military personnel and, th2rerorc, thu shadinr.;c.  F1YImzkot share  to the extent sugsested by kppIicant any ovc..;:ttate the zi9n12icanc.c of Fort Sas Bank's orientaticin. The Board has also considered the. imp...cL of thrift institutions on competition within Co.:, San Antcxlic rkct  lthaush thci.o are t  nuaber of large thrift inGtitutionz locatvd in the San Xntonio banking 7trz.: market, ths Board in thie instancy is unAble to conclu6s froa tho evidence in the record that them° in&titutions coc:octs activ44 with  COQ..  mercial banks over a sufficient rango of financial servicen to mitigate significantly the anticopctitivc/ effect& of the propotial.  Thus, having  Board considered all of the Lacts of re<.:ord in this application, thz..  •-• ,11  sub— concludes that concuumation of the p‘oposed tranGaction roiC htwo ztrkot. stantially adverse effects on co7zi?etition in the Sr Antonio  • 1hr  The finiAncial t.n6 1.:/Ana.-Jer.12.1 resource:. and iuture of Applicant, FSHD, 4114 thcii: cubsid;arice are conciLA,erc:; catisfactory. Accordingly, banking factors; Lac von&ibLent cation.  z,i)roval of the: /Appli-  Applicant propos“ Lo dIsvfalop tbz local cuatomer.and commercial  business of FSRD's banks with particulex ezphasiz oci 63vc1opcdont of Fort &am Bank's local busine.w..  ri:./wovfir, 7:3:13 spNars to bavo the  resources to develop theac oGi.viccs injcNndently of affiliation with Applicant. services.  Applicant also intends to initiate truct. and international Mile these consideratiowlA may lend  weight towarei z+p-  proval of the application, they are inaufficient to outweigh the anticoqpetitive effects of the porgar eccially in licjLt of the' loss to the co=munity of a viable ane, aggcestivo cogz;atitor that could colltinue to serve as an alternativs source of hr_nkincj services. 'Znerefore, considerations relating to iho convenicaca and nceeic of the co.Lunitv to be served Oo not clearly outweigh the substantial anticompetitive effecta that would result fro= corisuzmation of the prcpoacict:tra szizavtion. With respect to tht.i application to acquiLc Port gax Lifs, the Board has determined that the 1.›Iance of public intercat factors prescribed by section 4(c)(0) of Lhe l'bct warrant alipl.oval.  There is  no evidence that Applicant's ..cquinition of Port Saz., Lift? Alone would result in undue concontrc.tion of re&ourcen, occree6 o  ii..tair cocpeti-  tion, conflicts of interest, unsound banking practice.-;, or other adverc c  •  -7• 'efftitIta on the public intere5L.  In thci cor:te.l.t of t213 proposal, ho'  ever, kTlicant could not connu=ate this z.cquisition without acquirin9 control of MID.  Accordingly, the Board concludcm that thi6 applicaLion  must alfo bo denled. It ia the Boarci's juclgzkint that cunsumastion or the proposal would not bo in the public intereat and OW; tbe apViicntiorsi; uhould be denie6.  loing talc; other facts or record, Lhe appliBased on the fore,  cations are hereby denied. i930. By order of the DAArel oZ Govccnorts,:2 effcctiva June 13.,  1.4.1. E:i_C4!Y1-2 at-hy Cathy L. Petryr.hyn huzistant Secretary of the Board  [sr-AL] 5/ Voting for this action: Chairr. Volckur bn6 Governora Partce, Teeters, Rice and Gramley. Voting againgt thic action: Schultz;  Governor  LL CU  1/ As I have inuicatco on previous occelsions,— because of the diverse group of financial product6 Lnd seryicos.tht:t thi&L institutionti r,ow orfor in Oirect competition witn com=rcial banka, thrift inutitutions should be includcd in the anlyuig or coaNtition “.) 4.4 mch greater extent than has been the Boztrei's practice. that view.  I continue to adhere to  ' Bouever, in light of all the facts of i:::cord in this instance  including the abscrico of vutticicnt eviutncc  tctivc ecAmpatition  between thrift institutions an6 col=zircica brink::: in Uliti market, I agrea with the majority's actioa in denyin9 this propobal.  June 11, 1980  31 United Rank Corporation_of is:euYork (Schenecta&y Trust Comilany), 64 Federal Reserve Dullotin 894, 396 (1973); Indepondcnt 5ank Corporstioci (The Old State Bank of Freziont), 65 eederal. Rot:cry° Dulletin 887, 870 (1979); United ilmnk Corc.oration of New York (Schonectdy Trust Cozpany), 66 FecIleral Reservu Dulletin 61, 64 (1980).  DISSNT114G STATEr 0? GOVZIWOR SCUL;LTI:  0  I would approve the upplication of Republic of TOXCAS Corporation to merge with 1.'oxt Sa  UQu4ton Bank6hareu, Inc. bCCDLA:: ; 64) not bulieve  that this merger would have Lerioua edvc.:rsc effects on co:;.pctiLio41. On the contrary, it iu my opinion thr.t thu  Ciiia1tAon of thene two  organizations would enable FSiiLI to coetc more aggressively in the local banking market, thugs enanciin, competition in the :aarket an0 better serving the needs of the local cOmunity.  June 11, 1980  • Tune 25, 1980  Federal Reserve Poard of Covernors 20th & Constitution Avenue, Washington, D.C. 20551 Gentlemen: In view of your recent ruling concerning the merger of the National Bank of Fort Sam Houston Bankshares of San Antonio, and Republic of Texas Corporation, Dallas, Texas, I wish to congratulate the Board on its rejection of this merger. The merger, in my opinion, was absolutely not necessary, and I have oblected, most strenously, from the very beginning. My interest in the National Bank of Fort Sara Houston goes back to its Inception. My father and rnOther were original stockholders. My father was issued Stock Certificate No. 1. T have watched the growth of this small bank Into a larger bank of considerable resnurses that has enjoyed a splendid reputation In banking circles, not only in our City and State but among the military through out the world. After careful study and analysis of the Republic Eank proposal, I found no cv..cler.ce that we need any help from Republic or any other bank, at this t....e. The Fort Sam I3ank has demonstrated its cupabil:ties for many years. I am confident and enthusiastic abouc hc :utura and trust your very substantial rejection will put an end to the acquisition of Fort Sam Houston F4‘. -ikshares by Republic. As you have found, it is sLrong enough to compete on its own. If the merger were to take place, Republic would own at least five banks In the San Antonin area. As you havt. found this lAroula indeed, create an undue concentration of banks under one ownership and would not be in the best interest of the Community. I applaud your wisdom. This is another example of a power play which is in reality not in the best interests of the Fort Sam Houston Bankshares, nor our banking community locally. I am, indeed, grateful to you gentlemen for your denial of this applicaticn, you have reaffirmed my faith in the democratic form of government, and I offer my sincerest congratulations. • dr a r )St  Respectfully,  ,\Iiss Lee  Chandler  •  •  •410  BOARD OF LOVERNORS . 4t-  FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551  November 14, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Benjamin S. Rosenthal Chairman Subcommittee on Commerce, Consumer and Monetary Affairs Committee on Government Operations House of Representatives Washington, D.C. 20515 Dear Chairman Rosenthal: Thank you for your letter of October 24, relating to certain issues associated with the conversion of multifamily rental properties to condominium or cooperative status. I am enclosing, as requested, a copy of my recent letter to Chairmen Reuss and St Germain replying to their questions about the various actions that the Board plans to take in response to the provisions of Section 603 of the Housing and Community Development Act of 1980. You suggest that the Board, in connection with its actions under Section 603 and in contemplation of your subcommittee's hearings on the subject, should undertake studies or analyses of several aspects of conversions; namely, speculative activity in condominium and cooperative units financed by member financial institutions, increased housing costs resulting from such conversions financed by member financial institutions, and inflationary impacts generally, resulting from increased housing costs. Particularly since other federal agencies that supervise financial institutions have received similar suggestions, the matter has been referred to the Federal Financial Institutions Examination Council for interagency review. Once this review has been completed by the FFIEC and considered by the Board, I will notify you promptly of the Federal Reserve's decision. Sincerely,  RIOWLK spjt (I1V-405) bcc: Mr. Kichline Mr. Fisher Ms. Hart Mrs. Mallardi (2)i..-Enclosure  crrkm1.4 S. or 'Cr  .t  T  ROSENTHAL. N.Y.. CHAIRMAN  marr.to,  Actiak assigned Jim Kickable --Janelpart already Wrking on Reuss/St Germain 141Pr  .1( /GT NT V. ATKIP.ON. PA. 1 1 4‘..1, J. PT G.TRmAIN. RI. joo..• CnHYTrti. .:R.. MICH. T II. IF- VITAS, GA.  NINETY-FIXTli CONGRESS  Congre55 of I lie Zthiteb *tato  LYLE WILLIAM/. OHIO JIM JErrRIE,. KANE JOEL IDECK•RO. IND.  MA.PORITY— (ZOO  3i)otize of 1lepre5entatibef COMMERCE. CONSUMER. AND MONETARY AFFAIRS SUBCOMMITTEE OF THE  COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFF ICE BUILDING. ROOM B-377 WASHINGTON. D.C. 20313  October 24, 1980  Hon. Paul Volcker Chairman Federal Reserve Board Washington, D. C. 20551 Dear Mr. Chairman: The Commerce, Consumer and Monetary Affairs Subcommittee is presently examining the Federal response to the growing national trend toward the conversion of multifamily rental housing into condominium or cooperative status. The Housing and Community Development Act of 1980 (Public Law 96-399, signed by the President on October 8, 1980) contains Title VI dealing with Condominium and Cooperative Conversion Protection and Abuse Relief. Section 603 provides as follows: "It is the sense of the Congress that lending by federally insured lending institutions for the conversion of rental housing to condominiums and cooperative housing should be discouraged where there are adverse impacts on housing opportunities of the low- and moderate -income and elderly and handicapped tenants involved." In discussing this provision on the floor of the House, Chairman Reuss stated: "Civic-minded banks and savings and loans will welcome an opportunity to tell a condo converter who wishes to displace low and moderate income, elderly, and handicapped tenants that he should look elsewhere for his money, in that Congress has given its view. Local religious, civic and neighborhood organizations in dealing with lending institutions, can also point to the sense of Congress. Thus the condo resolution here enacted would be analogous to the procedures under the Community Reinvestment Act and- the Home Mortgage Disclosure Act. "Finally, the Federal regulatory agencies, including the Federal Reserve System, the Comptroller of the Currency, the Federal Home Loan Bank Board, the Federal Deposit Insurance Corporation, and the National Credit Union Administration1 aware of the congressional expression, should present that  225-4407  point of view on the same basis that they all discourage and encourage various undesirable and desirable loans in many other areas today. Thus the Fed has recently 'discouraged' lons for corporate takeovers and commodity speculation, and has 'encouraged' loans for home building and similar productive purposes. "Properly applied by the private and public sector, the sense of Congress condo resolution can help stem the tide of socially undesirable conversions." (Congressional Record, September 30, 1980, pp. H10095-6, emphasis added) An extensive study on the subject ("The Conversion of Rental Housing to Condominiums and Cooperatives," June, 1980) prepared by the Department of Housing and Urban Affairs found the following: "Between 58 and 66 percent of residents in converting buildings move rather than stay as renters or owners." (p. IX-32) "Some conversions require people with low or moderate incomes to move because they cannot afford to buy their apartments. About 42 percent of those who moved out of converted buildings had incomes which, according to generally accepted criteria, were too low to have permitted them to buy their converted units; 47 percent of all former residents say they did not purchase because they believe they could not afford to do so." (p. vi, Summary) -  "18 percent of all households (27% of households with persons age 60 and over) who moved from converting buildings have experienced the adverse effects of displacement." ( p. vi)  -  "One-half of all former residents of converted buildings had some difficulty in finding new housing; elderly, nonwhite, and lower income former tenants are more likely to report such difficulties." (p. v, Summary)  -  "Lower income and nonwhite former residents' households are significantly more likely to rate their neighborhood, or some aspect thereof, as inferior to their preconversion neighborhood." (p. 1X-32)  As Mr. Reuss stated in his remarks on the floor of the House, loans for condo and coop conversions which have the adverse impacts stated should be discouraged in the same fashion as loans for commodity specu lation and other socially undesirable activities. He also indicates that the condo resolution "would be analogous to the procedures under the Community Reinv estment Act and the Home Mortgage Disclosure Act." I agree that the Federal Reserve already has the power, under the Community Reinvestment Act, to require regulated financial institutions to serve the needs of the communities in which they do business. Congress has expressed one of these needs to be the discouraging of lending where the adver se impacts set forth in Section 603 occur.  S I understand that Chairmen Reuss and St Germain have written to you (sample copy of their letter enclosed) asking how you plan to implement Section 603 and what steps you plan to take to ascertain situations "where there are adverse impacts on housing opportunities of the low- and moderate-income and elderly and handicapped tenants involved." I am writing to ask that you also supply this subcommittee with answers to the questions posed by Chairmen Reuss and St Germain. I am also concerned about the impact on increasing housing costs generated by speculative activity in the sale and purchase of condominium and cooperative units. As the HUD study indicates, housing costs are invariably increased by conversions: "Total monthly outlays made by tenant buyers are typically 36 percent higher than what they paid in rent, while the median increase in monthly housing costs for buyers coming from other housing is 62 percent...." (p. v, Summary) More recent studies and estimates find even more startling increases in housing costs, even when tax benefits are considered. The HUD study and others have also found a high level of investor or speculative purchases of units, not for use as a primary residence, but for profit on resale. It has been shown that inflated prices for condo and coop units are often made possible and even encouraged by the ready market provided by speculation. In short, speculation bids up prices without relation to intrinsic values. I request that in connection with your response to Congress' view set forth in Section 603, and in contemplation of subcommittee hearings on the subject, that you also consider the role of financial institutions under your supervision on inflation and rising housing costs created by conversions. Specifically, I suggest that the Federal Reserve conduct studies or analyses of: (a) speculative activity in condo and coop units financed by member financial institutions; (b) increased housing costs resulting from such conversions financed by member financial institutions; and (c) inflationary impact generally, resulting from increased housing costs. The subcommittee staff is ready to work with your staff to implement Section 603 and the suggestions for studies set forth above. If you have any questions, please contact Theodore Jacobs, General Counsel of the subcommittee. Sincerely, I  l  Benjamiin S. Rosenthal Chairman BSR:jb  1  CHAIRMAN  pr.- 5 4  V •  AS  L. At!.. 1 -tY. ('HID 'Ht .&D. PA.  4NAND J. Sr Gf rm•IN. Hi-NtRYI A: CZ.. TEX. JG5LpH G. r.i'..rsH. NJ. :K A•:•wo.r.'0 LL FRA, JAr5, M. HAN FY. N.Y. • r' '4) 0.AD.  U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON BANKING. !INANCE AND URCAN AFFAIRS  E. rAuP41RoY. D.C. STE.pHEN L. NEAL. N.C. JERRY M. pATTErtscN. CALIF. WAt..7 1: Ft  JAMES J. 0...ANc1APD. MICH. CARROLL HuBBARD. JR., KY.  NINZTY-SIXTH CONGRESS 2129 RAYI3URN HOUSE OFFICC ()WILDING  JOHN J. LAFALCE. N.Y. GLADYS NOON SPELLMAN. MD. LES AtiCOIN. OREG. DAVID W. EvANS, IND. NORMAN E. D•AtviOuRS. N.H.  WASHINGTON, D.C. 20515  October 15, 1980  J. WILLIAM rtANTON. OHIO CHALmt- IPS, P. wr"...IE. OHIO STirwAKT e mcKINNEY. CONN. C.CoRGE HAN:EN. IDAHO HENRY J. HyDE.., ILL RicHARD KELLY, FLA. JIM LrAcH. IOWA THomAg B. II.vANS JP. or. S wit_LIAm GpF.LN. NY. RoN PAUL, TEX. ED BETHuNE. ARK. NORMAN 0. SHumwAY. CALIF. CARRoLL A. CA•47 ,19E.U.., JR.. S.C. DON RITTER. PA. JON HINSON. MISS.  us-420  STANLEY N. LUNDINE, N.Y. JOHN J. CAVANAUGH, NEBR. MARY ROSE ()AKAR. OHIO Jim MATTOX, TEX. BRUCE F. VENTO, M:NN. DOUG BARNARD. GA. WES WATKINS, OKLA. ROBERT GARCIA. N.Y. MIKE LOWRY, WASH.  Honorable Jay Janis Chairman Federal Home Loan Bank Board Washington, D. C. 20552 Dear Chairman Janis: Last week the President signed into law the Housing and Community Development Act of 1980. Among the many significant and far-reaching provisions affecting the growth and economic welfare of homeowners is a provision which demonstrates the real concern Members of Congress have regarding those who are unable to afford the increased housing costs due to condominium conversion. The provision reads as follows: "Sec. 603. It is the sense of the Congress that lending by federally insured lending institutions for the conversion of rental housing to condominiums and cooperative housing should be discouraged where there are adverse impacts on housing opportunities of the low- and moderate-income and elderly and handicapped tenants involved." Important questions now arise: 1. How do you intend to discourage financial institutions from lending for a conversion which will have adverse impacts on the low- and moderate-income, elderly, and handicapped? 2. How do you intend to inform civic, religious and neighborhood organizations of the Congressional action so that they may rely upon it to dissuade a socially undesirable conversion? 3. Finally, what necessary action do you intend to take to assure that section 603 is being implemented by the financial institutions under your jurisdiction?  j  I  tnand J. St Germain hairman, Subcommittee on Financial Institutions, Regulation, and Insurance  Sincerely, 1 Henry S. Reuss Chairman  •  11V 70.• • Of .• 0 • q-.  •• ,r• • o i./-4%,,,. ,--..„ :2  GO Vi • 4  (7.•r, • I:r  • -.I  • —4 ....e  •  HOARD OF YiVERNOR r1;  .  i:r(i ,,.•_,.  FEDERAL RESERVE SYSTEM  1,,, I, xk5,:-. . '1.,4[FRF  It0, ,••• • •  WASHINGTON, 0. C. 20551  .• ..4` :( ) N.:,.L.f . . 04 -  1,\ ' • • .... •  .• 1 A V: ,  ..  November 17, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Max Baucus Chairman Subcommittee on Limitations on Contracted and Delegated Authority Committee on the Judiciary United States Senate Washington, D. C. 20510 Dear Chairman Baucus: Thank you for your letter of October 29 requesting information in connection with your Subcommittee's review of public information, advertising, promotional and related activities of the Federal Government. The Board issues three publications which fall within the categories listed in your letter; namely, a newspaper, a magazine and an employee publication. The statistics for these publications are shown on the enclosed table and copies issued during the time period you requested are also enclosed. The Board does not print any posters or engage in any billboard advertising. For your information, I have also enclosed a pamphlet entitled "Public Information Materials of the Federal Reserve System" and separate lists of the Board and Federal Reserve Bank publications. We would be pleased to furnish copies of any of these publications which may be useful to your Subcommittee. Please let me know if I can be of further assistance. Sincerely, S/Pa_41 A. Vgicjig  Enclosures COomd (IV-408) bcc:  Helen Uulen Larbara Pills Ann Marie Bray Mrs. Mallardi (2)  •  1980 Statistics for Releases Published by the Board  publication  Number of Recipients  Annual Production Cost  Postage Cost  Contracted Out  Newsletter AmF1C Newsletter  100  l65'  28  No  Magazine BULLETIN  24,300  359,635  2,300  2,989  98,423  William Byrd Press Inc., Richmond, Virginia  Employee Publication intcrest Bearing Notes  1/  215  No  • 1/ Includes estimated costs of duplicating labor and materials.  2/ The William Byrd Press, Inc., was awarded the contract for the composition, printing, and binding  of the monthly Federal Reserve Bulletin for 1980 and 1981. The estimated production cost for 1981 is $385,106 and postage is $130,900 (based on expected increase of 33%). For the years 1978 and 1979 the Bulletin was produced by Judd and Detweiler, Inc., Washington, D.C. Producti on cost for 1978 was $375,846 and postage was $53,934; for 1979 the production cost was $413,089 and postage was $61,102.  Action assignei Cong. Liaison Office; input from Publications, Consumer *airs ani Personnel  •  //c_.  'ZJCniteb Ztafez „Senate WASHINGTON. DC. 20510  October 29, 1980  Honorable Paul A. Volcker Chairman Federal Reserve System 20th Street & Constitution Avenue, NW Washington, D.C. 20551 Dear Mr. Volcker: tising, I am conducting a review of public information, adver . As promotional and related activities in the Federal government part of this review, I request the following: 1. One copy of each newsletter mailed to individuals or to the organizations outside your agency, from January, 1978, present, inclusive. r 2. One copy of each magazine published in-house and/o externally, from January, 1978, to the present, inclusive. and/or 3. One copy of each newspaper published in-house externally, from January, 1978, to the present, inclusive. 4. One copy of each poster published in-house and/or externally, from January, 1978, to the present, inclusive. 5. Description and cost outline for each billboard advertisement, from January, 1978, to the present, inclusive. For each of the above, please include the number of ge and recipients and annual costs of publication, including posta ding handling. Also, state whether any part of the work, inclu printing, is contracted out, and if so, to whom, and at what cost. Thank you for your prompt attention to this matter. n there are any questions, contacts on my staff are Carme Schmelebeck or Sharon Specter at 224-7542.  If  Sincere]. Acc,/ Max Baucus Chairman, Subcommittee Limitations on Contracted and Delegated Authority  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20951  November 18, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Robert N. Giaimo Chairman Committee on the Budget House of Representatives Washington, D. C. 20515 Dear Chairman Giaimo: As you complete your days as Chairman of the House Budget Committee, I want to express my appreciation for your dedication and leadership these past four years. I do not know of any job in Government that is as difficult--or as thankless--as the task of setting limit ations on Federal spending. The key role you have played in that process is reflected in the distinction you have had of being the first Chairman elected to serve for a second term. It is no coincidence that this was at a time when Congress recog nized that it was critical to gain control over the Federal budge t. I particularly appreciate your strong efforts in this past year both to control spending and to improve the budgetary process. Those of us whom you leave behind will do our best to continue your efforts and to do so in a manner that reflects your own sense of fair play and concern for the well-being of all our citizens, including those who need the understand ing and help of Government. May the years ahead bring you many enjoyments and personal rewards. Sincerely, Si Paul  DJW:PAV:vcd bcc: Mrs. Mallardi (2)  RUDY BOSCHWITZ M NNESOTA  2Cnifeb Ztafez Zenate  ( LO  •  •  11A4. 111144v44:,  • .•  •  GO  •  .  V L10I  BOARD OF 30VERNOR5  .•  ••-„  , I1,li,i! • • AL  RES ••• • • •  4 it.u. •  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  November 19, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Fernand J. St Germain Chairman Subcommittee on Financial Institutions Supervision, Regulation and Insurance Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Chairman St Germain: Thank you for your letter of October 16 conc erning the difficulties encountered by Hortence Cotto in attempting to cash her father's social security check at bank s where neither she nor her father maintained an account. You requested that I provide you with steps that I believe could be taken to facilitate the cashing by the elderly of social secu rity checks at institutions supervised by the Federal Reserve. The Board's legal staff has informed me that there are no Federal laws or regulations that requ ire banks to cash U.S. Government checks. Thus, a bank's check cashing policy has generally been regarded as a matter of inte rnal operating procedure, and a bank is free to establish its own policies regarding the circumstances under which it will cash checks. The Board's staff is aware that many banks have adop ted a policy of cashing checks only for customers who maintain an account with the bank. This policy is based on economic grounds since substantial costs are incurred in providing check cashing services and there is little incentive for a bank to provide this service to nondepositors. Furthermore, in recent years bank s have been experiencing a growing problem in cashing checks, espe cially checks that are presented for payment by nondepositors. Banks have frequently encountered instances where checks that were cashed for nondepositors of the bank are returned to the bank unpaid. When the bank attempts to recoup the funds from the person for whom the check was cashed, it discovers that the person is unable to be found or is otherwise unable to reim burse the bank. In order to avoid losses resulting from such tran sactions, many banks have decided to establish a policy of cashing checks only for depositors. This practice insures that the bank will be able to locate the depositor in the event that a check he or she has cashed is returned to the bank unpaid and reduces the institut ion's risk of financial loss.  The Honorable Fernand J. St Ger niain Page Two  I would agree with you that a major problem with resp to the cashing of social ect security checks is that of providing recipients with acceptab le identification. Banks currently have great difficulty in guardi ng against fraudulent iden tification, which is important becaus e in cashing a government check the bank, and not the government, bears the risk of loss. As you may know, current Treasury regulati ons require banks cashing government checks to guarantee that all endorsements on the ch eck are genuine. These regulations further permit the Treasury to dema nd refund from the bank if the check is later found to bear a forg ed or unauthorized endorsement. In fi scal year 1977, for exampl e, the Treasury received over 223,000 cl aims for lost or stolen ch ecks, representing more than $192 million. Of these claims, the Trea sury actually initiated reclamation proc eedings concerning more th an 171,000 of these checks against th e banks which cashed them . In light of these consider ations, a requirement that or other depository inst banks itutions cash social secu ri ty or other government checks would impose additional risks of loss on these institutions. The impact of this increased risk na turally would vary among individual in stitutions. Any action to impose such a requirement should, theref ore, provide both reasonab le identification procedures that woul d be acceptable to the Trea sury and arrangements for protecti on against liability wher e these identification procedures are fo llowed. It is unlikely that mand atory check cashing requ would fully solve the prob irements lems posed by your letter . I also believe that further efforts shou ld be made to encourage Social Security recipients to utilize th e option of having their benefits deposited directly into an account at a depository institut ion. While this does entail the establis hment of an account at an institution, I do not think this is a major or costly burden, an d it has been shown that direct deposi t is a more efficient and safe way of disbursing government be nefits than checks. The Federal Reserve stan ds ready to assist you, th Treasury, and the Social e Security Administration in developing ways of facilitating the cashing of social security checks. We believe this is not an ea sy problem to resolve, an d hope that we can aid in finding a workable solution. Sincerely, LSAspjt (01V-401) bcc. Lee Adams Mrs. Mallardi (2) Legal Records (2)  SZPay_l A. toldw_wi  Action assigned Mr. Petersen  '4 AND J. ST GERMAIN, RI., CHAIRMAN ANK ANNUNZIo, ILL. JAM t S !.4. HANLEY, N.Y. CARRo! L in.. KY. JERRY M. PATTERSON. CALIF. THOMAS L. ASHLEY. OHIO NORMAN E. 0 AMOURS. N.H. JOHN J. CAVANAuGH, NEBR. JIM mATTOX, TUX. JOSEPH G. mINISH. N.J. WALTER E. rAUNTROY, D.C. DOUG BARNARD. GA.  CHALMERS P. WYLIE. OHIO HENRY J. HYDE. ILL.  U.S. HOUSE OF REPRESENTATIVES  GEORGE HANSEN, IDAHO JIM LEACH, IOWA CARROLL A. CAMPBELL, JR., S.C. ED BETIAUNE. ARK.  SUBCOMMITTEE ON FINANCIAL INSTITUTIONS SUPERVISION, REGULATION AND INSURANCE OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-SIXTH CONGRESS  WASHINGTON, D.C. 20515  October 16, 1980  Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System 20th & Constitution Ave., N.W. Washington, D. C. 20551 Dear Mr. Chairman: On a number of occasions, social security recipients have complained that they have had difficulty cashing their monthly social security checks at commercial banks. The latest of these complaints is contained in the enclosed correspondence from one of my constituents Hortence Cotto of Riverside, Rhode Island on behalf of her father Joseph Saial. As this letter indicates many social security recipients do not have drivers' licenses and other identification and banks use the absence of such identification as a justification to refuse to cash the checks. The only alternative, in many cases, is a commercial check cashing service, a liquor store or other business establishment which often impose substantial fees. I am deeply concerned about the inconvenience and costs that are unnecessarily imposed on senior citizens in this regard and I am asking that your office take steps to develop a plan which would facilitate the cashing of these checks. I have asked the Commissioner of Social Security to develop a plan which would provide proper identification for senior citizens and I have further asked that he consult with you and other financial supervisory agencies in this effort and that you will let me know what steps you believe can be taken to facilitate the cashing of these checks at institutions under your supervision. Sincerel  Fernan hair FJStG:gLj Enclosure  J. St Germain  •  S  -$21)-L.ist,ek,w1 .  4:1t-t-e--ri  J.lt‘z-r.27 .2/410-0 0-gol  eawAL43  4/1  1:‹). 4 ) -1  ri • iea V 4 4, C/  / 44 1°C  Clefg4  0---7  .x1-7 --te4-41 of,/ AZr  aky  1,14146‘  "14Cf  e-,o Ax/,  c4fee  cz2,1.) _-)  J6.1  •  2•4Z---  _<,41  6,1,1 zv-21 Or—veld, e__  •  S  *  ; 446 C  411,619  j  . / °<J *  6  g0<itdi/ 2lf0•4-4r2/ /  - i/ 7A-4t (  r 74e  6:1  / # A‘r°(  •4A14 4 1 ; /1!../..0 4/rri R.  . A)..e •  LI  ct/  t .0/4  ./-zit%Ci?.4A-, •  #ealfvt-  /31,4-47- c7L-1  LZV  Z•Le  4-4 , e(r-e4--y 69.4  liev.  frp ,  .  /(.‹% r  V  1 g a-"Pt  A IV  I  V LW1-,  ."&„44  ,..c.„4, 6,1 , t5L,•  J_aA,• d  0444--;--41•  .  • -  el-cet--!  •  •  July 7, 1930  Federal Reserve Board of Governors 20th and Constitution Avenue, N.W. Washington, D.C. 20551 Gentlemen: My congratulations to you en your rejection of the proposed merger of Fort San Houston BankShares, Incorporated, of San Antonio, Toxas, into Republic of Texas Corporation, of Dallas, Texas. An a stocnolder of Fort Scm Houston PankShares, Incorporated, I did not support the proposed merger. My family has been intorestad in and associated fcr rany 1 eal-3 v1:11 an National B3r. o Fort Sun Houston, which is the largest mamber bank of Fort Sam Houston nankSharas, Incorporated. My mother and father, the late Mr. and Mrs. Samuel J. Chandler, of San Antonio were early stockholders. I have dcno most of my banking with the National Bank of Fort Sem Houston for 45 years. Thl National Bank of Fort Sam Houston and Fort San Vouston BankShares, Incorporated, both have demonstrated their capabilities through the years and their ability to compete effectively in a very competitive, business environment. Most respectfully,  Elizabeth C. Veazey  •  • 1v  ,  "  •1 '11 ..11 I  •-•  ;1, n  v  n  1) 1  •  r  4, •  )1.141.  4prrni1ri  ?(. r !", 1  1t1  1 1—vr( b•-,1 0-r  1-:""(t  -,  "M"'" "^•Ir'•  r,  1'117  rii I rz  1 r_  T  o  '.7  (311 a r  1/1  it. 1, ,..N r 4 .rt FT I11.  1  . ,  , Inc(11r n -,t 1 r.11^ ? • • •  1  gr  tr,, pa  ,..,r  " !1 "  -'  '7 • ••••,  )1^. 1-  n  1  •*$! 03  •-7 4 :  n  n "'`'Ibl  IC  ! °•  •••  •  ; ; rr" ! i" il ntn r• ; ,% 1,, 1 ' t ..  1 I.... •.  e...7*-%j • .ni, 1 l'.  4  ,  ^ I !, c, r,••-••••,•1-1, j.• ti' r7.-;-•  T.,  • .06 "/ r. a•  ! 4 ••$ 4-4  IP•  -  ***. r)  r  ")1  r  . ." •••,'•—• •••".1"46  -1  e •  of " , •-•i /1‘• 4 `.•e  '*,••, C+ •:•1  -  .3'1';  1 t 4 ,1 f'• I• ; i•fs I ••  n. re s, -• !,,z,„  1r  /  ,ei .-.,1 t_• ,vn 'b.  .•t n 1 1 ,- .• 1 l'..1 .•••1•• !".),,,•.1, ', i c rs ... ..• ,•.,  ?* 7 e f1 , n "1  "  - /-  c  ri  •"  r'  1 Y. rl  s.dl  $  1.1'70r"!YrriT'llI h  e. •  re" , ,,re,  4r•  rs f3 .  r• r%  f ' '-; - ?`1 1"  •  rf  n r  /-  ..--,i = .- • ei ;  1  t  c  .1 -,-, •-,.-.,--, -1  r%  , -, - ,:,. • - i. t.1,  , •, , •, • ,r)....• t  h  P  r;  v••  C.7 i  nr"1 •ir  C VUITV1  ç,1,: j rir;  ••  .,.;: n. I 4yi;,„ ,, „...„„• 4 .. ;,• ,-. 1.- ..,,  1. i '',  r  • ,  4-  ' 'h 01  V N 1.  ,/•••  i  • ^  "s. ••••• ,•i 44  " ..  s  •  • July 1E, 19C1  Federal Reserve P.oard of Governors 2Ot!) and Constitution Avenue, N.W. Vashington, D.C. 20551 (entlemon: IncorAs a sl:areholder co' 70rt 7,n7i T70112T1 lisarpointed to re:1 in 7:e poratel, rrrin:j7-te reGvest r'rn1 Pesorre roar,i ws of-7epublic I To)M corT)oratior 1 recoils Per the rolrl's o - "ort "onston earlr derill r‘f t1):' proposel 17an'hares, of 7, xrls Cor7,^r1tien, n11115, rort (-rim ro l!.:4nn Tncorncrated, Tn n:ripfli a'ln to clncr-ptino is fully c'11mrlret -21, , p(te errect've]v if! '?epuhlic 0F TrNqs rerperition. I propesei! fully concur wit:1 1e m1r3'!, fin'in- in in; rilr:r nonving --rr;cr 7,10 have n1 !'el.!inos Co7nrInicr. !'nt tierp ,:•r of serious ndverse r.rfccts on cor-)e*:ition in t!,o 'ran 1%rterie t,anising marl et. T Itroe thr: TW-r.1] nnsr.,rv- ^Inn"! Jeny the application of Porulqic or Texas rernorstion to mere with Fort !7nm Houston Pinres, Tpcornornted, an Antonio, Texas. Your consideration of this 1-tter is airreciitcd.  11-Nrsth  C. r:17.(1v  •  • July 1 0,  7W ,ral r.-:121vr- "n'r(1 nf rvrr 20th and C.otitntion .Avenue, `!.W. Waqin7ton, 7).C. flontlerv,n: r4ks  ,Inr(!-; of Fort ''ank"71,77-^s, vcordisnr ninto d to loarn t- hit tit^ !'"ierr.l. T.- Serve T Board had rra:Itr ronuo!;t nf rr.. i bi i r TPY.1‘ Cornr,ration to rocon t!:0 rorIrd's (!nr2if-r (!, 71111 or t-')f. 2ronoce,ri rerr of Fert In ron7;ton <2,1 Antonio, Tcxas, with nopllic of Tnri!: corPorltion, r)nllas, TCX15. • • r-rt Tr -v ITn1:;.on r ro: is Full.p. netP eritiv^1r 1 " T'1(:" nronssed -ith fult! co”.71:r wi 4 h rnarl'  in(7ornorated, nIA.f, to conn  tOVI  'n -^„,",- n.; 1, trancti:)1 in -r a!le ‘1,nlirnnt'c flr'mnublic's) shore or 7:Irl‘ot "'hlt 01 -, ronosal !;,Thst.iptiollv nr1vf,r-.0 ^frr,r- f- on cori-,r,ti/.- ion in te rrirt:e*" nr ,1 forPrloqo f.h! '7-7ron53e'! con, .'tHtion T urge the Po(1eral Torve T1o7r,l, to n7iin 1- ho ro)nlirntio,- of Repulllic of Texas Corporation to mrp-e with Fort cron iinuStOn BankSharcs, Tncorrorr;ted, Sin .Antorio, nnd in Fn doing, to reaffirm thc 1),(117. 's nresert nf maintnining a competitive bankinc7 environne.,It. 11, )1.1H,  "• 11-1+-  Thank you for your conifl-rati ,-.-  1) 4-  !;r0AUFf j. SJV:jnm  •  rhi"  • 109 IT, French Place, ft3n3C San Antonio, Texas 78212 September 25, 1980  Covernor Nancy H. Teeters Federal Reserve Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Covernor Teeters: The recent actions of tho Fc0:2ral reserve Board in the matter of the merger of Fort San l!ouston BankShares, Incorporated, and the Republic of Texas Corporation perplex mc. For rPny years I hive followed closely the activities of th- 7;ationp1 Bank of Fort Sam rouston and have been friends of rost of its principal officers snd its founding stee.-holders. I have been proud of the bank's tradition of worldwide service to the military. A year ago the directors of Fort San ”ouFton T%%anl:Shares Incorporated, agreed in principle to merge with Pepublic of Texas Corporation. This action I attribute largely to the interests of two groups of stockholders—one, a group of business men who paid too much for a large block or stock a few years ago, and the other, a group who received Fort San Houston stock in exchange for the stocl- of their small bank. They, I believe, are more interested in the liquidity of their holdings than in the tradition of service to the military. Management, as in most such cases, persuaded rank-and-file stockholders to go along. I objected strenuously to the merger both in principle en(' as to price, but to no avail. The stockholders voted approval. I fully expected the Federal Reserve Board to approve the merger as a routine matter. To my great surprise the Board disapproved by a vote of six-to-one, and issued a seven-page news release on June 11, 1980, detailing Its reasons for disapproval. Its basic reasons were so right-Fort an is big enough to compete, and a merger, giving Republic five banks in San Antonio, would make Republic too big. T was so delighted with the lloard's action that I wrote the Board expressing my admiration.  •  •  •  Covernor Nancy P. Teeters t;.cyptember 25, 1980 Page 2  The Fedral Reserve Board again surprised re. It agreed to reconsider. Why, I do not know. Certainly nothing has changed. The Loard's seven-page rationale remains as valid as when it was written. It has been almost a year now since the merver actions wore initiated. Stockholders were led to believe that consurl7lation would be complete by June 30, 1980. Fort Sam Nouston BankShares, Incorporated, has continued to grow. If merger is now approved, Republic would get the benefit of the appreciation at the expense of Fort Sam stockholders. This adds to the aggravation as, in my opinion, the price was far too low in the first place. Our ntc6;ho1dors and bank employees certainly deserve an early decision. It is a very unsatisfactory situation. I an forwardinr: a copy of this letter to Chafrman Volcker for his information. Your consideration of this letter is appreciated. Sincerely yours,  Lee Ray Chandler  cc:  Mr. Paul Volcker, Chairman Federal Reserve System Washington, D.C. 20551  thAttovat;  CY- 39°0 BC:JAPE) flr "FIVERNORS  1:  • .„, •  FEDERAL RESERVE SYSTEM WASHINGTO"., 0. C. 20551  ••/AAL  • • • .• • • •  November 24, 1980  PAUL A. VOLCKE P C H AIR M A N  The Honorable Toby Moffett House of Representatives Washington, D.C. 20515 Dear Mr. Moffett: Thank you for your letter of October 21 enclosing a copy of a letter you received from Mr. Sherwood W. Travers of The Savings Bank of Ansonia regarding the Depository Institutions Deregulation and Monetary Control of 1980 (P.L. 96-221) (the "Act"). As you are aware, the purpose of the Act is to enhance the ability of the Board to conduct monetary policy. Under the Act, reserve requirements are imposed on transaction accounts (checking-type accounts) and nonpersonal time deposits held by all depository institutions. Depository institutions are defined to include commercial banks, mutual savings banks, savings banks, savings and loan associations, and credit unions, if they are federally insured or eligible for federal insurance. The Board has been sensitive to the burdens imposed on small institutions by the reserve reporting and the reserve maintenance requirements. However, we have also kept in mind the primary objective of the Act, i.e., to increase the effectiveness of monetary policy through the application of uniform reserve requirements. To achieve this greater effectiveness of monetary policy, it is necessary that the Board have the ability to monitor monetary and credit aggregates by obtaining deposit data from virtually all institutions. In this connection, The Savings Bank of Ansonia pointed out in its letter that it must prepare and submit weekly reserve reports even though the amount of cash it maintains in its vault will fully satisfy the reserve requirements it must meet in the near future. While it is true that its required reserves will be satisfied by vault cash, the weekly report of deposits which will be submitted is essential to the monetary statistics that the Federal Reserve compiles. Furthermore, although we recognize that institutions have incurred additional costs in making operational changes to conform to the new requirements, once these changes have been completed the preparation of the report will be less burdensome on a continuing basis.  The Honorable Toby Moffet t Page Two  The Savings Bank of Anso nia also feels that it "small" institution in te is a rms of the overall nati on al money supply. With total deposits of $1 69 million, The Savings Ba nk is actually a relatively large inst itution. Only 8 per cent of depository institutions have $100 mi llion or more in total de po si ts. If all institutions the size of The Savings Bank were ex em pt from the reporting requirements, the Federal Reserve's ca pa ci ty to conduct monetary policy would be substantially weakened. The Board has afforded special consideration to in tutions with total deposi stits of less than $15 millio n. For institutions with less than $2 mi llion in deposits, the effe ct iv e date of the regulation has been deferred until May 1981, an d for institutions with more than $2 million but less than $1 5 million in total deposits, a simp lified quarterly reporting procedure has been established which wi ll begin in January. I hope that this informat ion is useful. know if I can be of furt her assistance. Sincerely,  SBW:PSP:DJW:pjt (4V-399) bcc: Mr. Schwartz Mr. Pilecki Ms. Winebarger Mrs. Mallardi (2) Legal Records (2)  Please let me  TOBY MOFFETT  Action assign  o  411%  • •  4  Oil tcr Buttroe: C ) 225•  vvitlir 04 IN'EPSTATE A•-• I r-; COMMERCE  Coltgres.5 of the Zlititco 31)oust of 3.kcptcstittatibeg tAastiturvon,  ,OmMIT TEE ON GOVERNMENT OPERATIONS  Oct,oer  Mr. Petersen  20313  19S0  orsma0FMm 160 Fairmircrori Arr 131HLTJL COMNICTIC7T TELIPKNE (211) 581-5753 I'S rt it STRUT [mato C ,01%1C1•CUT N052 Irtrrw ...r 00);45-5577 144 Wr s7 MAIN Sritri NEN BITT4101. CONN(CTICUT 06052 TELEPHONE. (203) 224-7156 (Tou.-Fttit.1400-3824521)  /36  Dear Mr. Volcker: I would greatly appreciate it if you would have tho proper person on your staff analyze the enclosed letter which I received from a constituent, and prepare a response to be sent to both the constituent and me. I would also appreciate any information which you think might help me to hotter understand my constituent's problem, and how the Depository Institutions Deregulation and Monetary Control Act is being carried out. _ Thank you very much for your help. Sincerely, •  Toby Noffett Member of Congress Mr. Paul A. Volcker Cli a i rman Federal Reserve Board 20th fl Constitution Avenue, N.W. Washington, D.C. 20551 FM:el  ‘.;  .4  L  f f6,4sor  October 1, 1980  The Honorable Anthony Toby Moffett 127 Cannon House Office Building Washington, D. C. 20515 Dear Representative Moffett: The Savings Bank of Ansonia is a S193 million institution which has total deposits of $169 million. In our fiscal year ending May 31, 1980, our net operating earnings were $1,944,000. Based upon our earnings for the first three months of this Year, because of the drastic increases in the cost of our deposits, our earnings may approximate $600,000 to $650,000 next Mav. 71.17:: of our assets are invested in mortgages, restly in 1 - 2 family homes. In March of 1980 the Congress passed the Depositary Institutions Deregulation and Monetary Control Act of 1980. Under this Act, as a mutual savings bank, we are required to maintain daily deposit statistics and, if necessary, maintain reserves of cash in vault and/or with the Federal Reserve Bank of Boston. Since the regulation has been available to us in August we have spent approximately $900 sending our officers to New York and Boston to attend seminars in learning to comply with this regulation. We have spent countless hours analyzing our accounts to determine how much of our deposit account base might be applied to natural persons and how much of it night be non-personal accounts. We have determined that we have 54,666,000 in transaction accounts. From that must be deducted $864,000 for demand balances and cash items in process of collection, leaving a net transaction account of $3,802,000. We have determined that we have $4,113,000 in non-personal deposits. The sum of these two, $8,215,000, is the amount against which we must hold a reserve. The reserve, 32: of this S8,215,000, amounts to $246,456. In the first year we will be required to hold in our vault cash of $32,150, and at the end of the eighth Year, that amount increases to the full $246,456.  ' 7  I  `7;1  irlr7C  nk  of Ar,sonia •211 /44,-iin Sfr o.et • Anconia, Corirwcticuf 06-101 • 134 7561  The lit!norabl  iv 1H': Th,ffe'  October 1, 1980 Page Two  For Septel.,ber, our average cash in vault, which is conservatively is $;39,190. In other words, we must do the calculations shown LIR enclesed sheet every day of every week of every month from now on to determine that we must hold cash of $32,000 in our vault to meet this new federal requirement. I would point out to vou that the total deposits of this bank subject to reserve represents .00000002 of MB 1 at its presen t balance. it seems that the enactment of this legislation and the implementation as set forth in the Federal Reserve System's regulations is unneeded and unnecessary harrassment of the small banks which have no troubl e meeting the reserve, but must incur vast additional expenses to establ ish the fact that we do not need to maintain additional reserve. We will incur a daily service charge from our data processing service to determine the total of our telephone and pre-authoriz ed transfer savings accounts, the total of our non-personal saving s accounts and certificates of deposit, the total of the certificates of deposit which had an original maturity of less than 4 years and the total of all deposit accounts which have a balance in excess of $100,000. I ask that review this matter, the laborious and expensive calculations which we will be forced to do daily for no benefit in reserve holding to the federal government or the Federal Reserve System. Phase consider this matter and see if you do not agree with me that relief is required for banks of considerably more than our size who are going to be seriously hurt in attempting to comply with the reporting required under this regulation which will have no effect on the reserv e amounts held against our deposits and a remarkably small effect on the monetary statistics. Yours very truly, THE SAViNCS F:CCK OF ANSONIA •••  , •  ••1  •••....  President SWI:mbp cc:  National Association of !,;utual Savings Banks 200 Park :,venue New York, New York 10017  • BOARD Or GOVERNORS 7  6 1F-  FEDERAL RESERVE SYSTEM WASHINGTON, 0. C.20551  November 24, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Robin Beard House of Representatives Washington, D. C. 20515 Dear Mr. Beard: Chairman Reuss has asked me to respond to your letter of October 17 to him regarding the Depository Institutions Deregulation and Monetary Control Act (Pub. L. 96-221). One of your constituents has expressed concern about the reserve requirements imposed on "transaction accounts". As you are aware, Title I of the Act imposed Federal reserve requirements on depository institutions other than Federal Reserve member banks for the first time. "Depository institutions" are defined to include commercial banks, mutual savings banks, savings banks, savings and loan associations, and credit unions, if they are federally insured or eligible for federal insurance. Reserve requirements are imposed against transaction accounts and nonpersonal time deposits held by such institutions. The Act itself defines "transaction account" as a deposit or account on which the depositor or account holder is permitted to make withdrawals by negotiable or transferable instrument, payment orders of withdrawal, telephone transfers, or other similar items for the purpose of making payments or transfers to third persons or others. Such term includes demand deposits, negotiable order of withdrawal accounts, savings deposits subject to automatic transfers, and share draft accounts. The final Federal Reserve Regulation D--Reserve Requirements of Depository Institutions--was announced on August 15 implementing the Act. In adopting the final regulation, the Board took into account the more than 750 public comments received on the proposed regulation. .The regulation as finally adopted permits a maximum of three telephone or preauthorizcd withdrawals per month from a share to a share draft account to cover overdrafts, or for any other reason, without such account being regarded as a transaction account. Thus, credit unions, and other depository institutions, can continue to offer services to their customers  '4  11,  The Honorable RobIllBeard Page Two  for occasional overdrafts without subjecting such accounts to a reserve requirement ratio of up to 12 per cent. Therefore, as long as the number of transfers from a share account to a share draft account to cover inadvertent overdrafts that occur in the share draft account do not exceed three per calendar month, the share account does not fall within the definition of "transaction account". This exception was intended to allow occasional overdraft protection plans to continue, but to make reservable, in accordance with the mandate from the Act, those accounts such as automatic transfer accounts that facilitate third-party payments. This effectuates the objective of the Act which is to enhance the ability of the Federal Reserve to conduct monetary policy more effectively through the imposition of uniform Federal reserve requirements on similar accounts held by all depository institutions. Please let me know if I can be of further assistance. Sincerely, 11Voldec  cc.  Citairman Reuss  P;,.i.,Ji..vcd (*V-409) 1_ cc  %r. Schwartz  Winebargor Legal Records (2) Mrs. Mallardi (2)100"'  ENRY  S. nrusl.  WIS., CHAIRMAN  THOIHI.`S L. ASHLEY. OHIO WILLIAM S. MOORHEAD. PA. FERNAND 1. ST GERMAIN. R I. HEN'7Y EL GONZALEZ. TEX. JOSUPIE G. MINISH, N.J. FPAI:K ANNUN710, ILL. .P0.'ES M. HANLEY. N.Y. PARPEN .1. MITCHELL. MD.  •  •  J. WILLIAM STANTON. OHIO CHALMERS P. WYLIE. OHIO STEWART B. MCKINNEY. CONN.  U.S. HOUSE OF REPRESENTATIVES COMNIITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  WALTER E. FAUNTROY, D.C. STEP111-14 L. NEAL. N.C.  NINETY-SIXTH CONGRESS  GLADYS NOON SPE, LMAN. MD. LES AL.COIN. ORE. DAVID W. EVANS, IND.  THOMAS B. EVANS. in  EEL. S. WILLIAM GREEN. N.Y, RON PAUL, TEX. NORMAN D. SHUMWAY, CALIF.  2129 RAYBURN HOUSE  OFFICE  BUILDING  cAnnoLL  A. CAMPBELL. JR.. S.C. DON RITTER, PA.  CAPH )k  HI_ LILA :D. JR.. KY. JOHN J. I ArAl, CE, N Y.  RICHARD KELLY. FLA. JIM LEACH. IOWA  ED BETHUNE, ARK.  JERRY M. PATTERSON. CALIF. JAMEsI Pt ANCHAPD, MICH.  GEORGE HANSEN, IDAHO HENRY J. HYDE. ILL.  WASHINGTON. D.C. 20515  JON HINSON. MISS. 22.S-420  October 31, 1980  NORMAN E. D'AMOURS, N.H. STANLEY N. LUNDINE. N.Y. JOHN J. CAVANAUGH, NEBR. MARY ROSE OAKAR. OHIO JIM MATTOX, TEX. BRUCE r. VENT°. MINN. DOUG BARNARD. GA. WES WATKINS, OKLA. ROBERT GARCIA, N.Y. MIKE LOWRY, WASH.  Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D. C. 20551 Dear Chairman Volcker: Please find enclosed a letter I recently received from Congressman Beard regarding the reserve requirements imposed on credit union transaction accounts. I have replied by indicating that the Federal Reserve's regulations provide that if there are a limited number of overdrafts in a given month, a reserve requirement will not he imposed. I would appreciate it if you would respond to Congressman Beard in more detail, explaining the limitations in the regulations and indicating how a credit union can proceed so that its share accounts . stay within those limits. Sincerely, c/ Henry S. Reuss Chairman Enclosure  _  ROBIN E3EARD  srarcr orncesi  6T.4 Disrp'icy. TENNESSEE  WASHINGTON OFFICE: 229 C A N1401,4 Hot/SE OFFICE MAL/JIM° WASHINGTON. CD C.  Congre55 of the Uniteb  205IS  (202) 228-2811  tate5  iotisSe of Ilepreantatiing  5575ftmAsit Surm815 MIEMPHIS. TCNNESSE1E 38119 (901) 7674652  22 Pusuc ScuAwc COLUMIIHA. TICHINESscc 33401 (615) 388-2133  Pliactington,7D.C. 20515  October 17, 1980  Hon. Henry S. Reuss Chairman Committee on Banking, Finance and Urban Affairs 2129 Rayburn Building Washington, D.C. 20515 Dear MT. Chairman: I have been contacted by one of my constituents regarding P.L. 96-221, the Depository Institutions De-Regulation and Monetary Control Act.  My  constituent is very upset at the provisions that require a penalty reserve to be paid on each "transaction account". If overdrafts are paid from the regular share account, it becomes a transaction account and the penalty reserve must be paid. The payment of the reserve is a heavy expense to the Credit Union, and therefore overdrafts will no longer be paid from the regular share account in his Credit Union.  ac .(  I would appreciate it if you would look into this matter and let me know if there is any possibility that the Committee may consider altering the bill to change this matter. Thank you for your attention in this request. With warm regards. Sincer a  o in Beard, N.C. RB/wl  •  001/4  BOARD OF  .•• ' •  .  P•  • ,.. ;- \!1.11{1{ "  (DVERNOR'I)  •  : •  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  November 24, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable John Breaux House of Representatives Washington, D. C. 20515 Dear Mr. Breaux: Thank you for your letter of November 18 recommending that Mr. Thomas C. Jeffery be considered for appointment as a Director of the New Orleans Branch of the Federal Reserve Bank of Atlanta. The Federal Reserve is very much interested in talented individuals from a wide variety of backgrounds for possible service as Reserve Bank Directors. We shall keep Mr. Jeffery's name in mind as a possible candidate for the New Orleans Branch Board, and your recommendation has also been sent to Mr. William F. Ford, President of thc Federal Reserve Bank of Atlanta, for consideration of Mr. Jeffery as a candidate for a Reserve Bank appointed Director of the New Orleans Branch. I appreciate your interest in identifying qualified individuals for Reserve Bank Directors. Sincerely, Voidie(  vG,t (Te 41 ) sr. '41Po •  4 • • '•  14.411atw  ) fa  Congressional Liaison Office will have draft to Chairman 11/24  Air  JOHN BREAUX 7m DISTISICT. LOUISIANA  COMM ITT!Es PUBLIC WORKS AND TRANSPORTATION  WA•:INGTON ADOWE Si  Room 2159 RA* .-4,4 Housr Orricr Bult_niNo ruci.a. (202) 225-2031 2530 POST  ric.r AND Or,  Firm NAL BUILDING  LAX, CHARt ri. LOtlISIANA  70601  Congrt55 of tbe Zinitcb fgate5 PotisSe of itprtfSentatibeti  (3161 113-1122 it,1 I I in•k, LAr•vel le, Lut,istANA  CHAIRMAN. FISH AND WILDLIFE SUBCOMMITTEE AD HOC SELECT COMMITTEE ON THE OUTER CONTINENTAL SHELF  Ria.sbingtott, D.C. 20515 70531  MERCHANT MARINE AND FISHERIES  •  DEMOCRATIC STEERING AND POLICY COMMITTEE  (316) 232-2061  SELECT COMMITTEE ON COMMITTEES  November 18, 1980 p • The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: I write on behalf of Thomas C. Jeffery, who has applied For a director position to the New Orleans Branch of the Federal Reserve System. Mr. Jeffery is a professional engineer and has worked for the Pittsburgh Plate Glass Corporation for twenty four years. He is currently manager of the Development and Licensing Office of the company's chemical division. Ho is also the holder of eight U.S. patents and numerous worldwide patents. Finally, several distinguished articles he has written have appeared in national and international publications. He is well known and widely respected in the field of chemical engineering. In addition to his outstanding professional career, Mr. Jeffery has been a prominent member of the various committees of the Louisiana Credit Union League. For the past fifteen years he has served as Chairman of the Student Loan Committee, helping those pursuing higher education with their critical, financial arrangements. He has also been an active participant in the League's Legislative and Governmental Affairs Committee and in this capacity has studied extensively the new rules and regulations pertaining to the use of share draft systems in state and federal credit unions. Mr. Jeffery has been an outstanding community leader over the past two decades and has devoted much of his personal time to improving credit union services and their reputation. I feel he would make an excellent  Page 2 November 18, 1980 director and therefore urge your fullest consideratio n of his application. With warmest personal regards. Sincere*  daft  ,/. ?OhN BREAUX, M.C. JB:dhh cc:  T. E. Allison  Novetlii;er 24, 1980  The Lonorable Joseph G. Minish Cnairr4an subcozzattee on Cenral Oversight an0 Renegotiation CoimUttee on Winking, Finance and LrLan Affairs iiouse of Representatives 2051S washington, D.C.  iAlor Chairman tqini4h, Thank you for your letter of Noverber 19 invitirr, the board to testify t)eiore yoLa. SutcwaAttee on the Currency and Eoreicn Transactions eporting Act. I ai4 ploased to desicinate Mr. John £. Ryan, Director of the Division of iankin4d Supervision and Regulation, to appear on behalf of the Doard on Deceraier 3 at 9;30 a.m. Sincerely. S/Paul L Volckei  CO.pjt (0/-419) bee: Jack Ryan Mrs. liallardi (2)u.0'  BOARD OF GOVERNORS or THE  FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551  November 24, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable William Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. 20510 Re:  Money Supply Error Investigation  Dear Chairman Proxmire: As you will recall on October 25, 1979, the Board of Governors announced certain downwa rd revisions to the money supply estimates it had previously releas ed on a preliminary basis for the weeks ended October 3 and Oct ober 10, 1979. These revisions amounted to approximately $700 mil lion and $3 billion, respectively . The Board attributed these revisi ons to errors in deposit data submitted initially to the Federal Reserve Bank in New York by a major money center bank and which were thereafter submitted to the Board. On October 26, 1979, Manufacturers Hanover Trust Company ("Manufacturers") in response to various inquiries announced that it had made the errors in comput ing the data it previously reported to the New York Federal Reserve Ban k. Shortly after that incident, in the light of the conceivable possibility that the underlying err ors in the deposit data had been the result of some prearranged pla n or scheme, or that institutions involved, or persons connected wit h those institutions, had used their knowledge of the errors for financial gain, the Board and the Federal Reserve Bank of New Yor k engaged independent Special Counsel, Fulbright & Jaworski of Washington, D. C., to conduct an investigation into the matter. Special Counsel was directed to determine whether any institution or individual, including Manufacturers and persons connected with Manufacturers, the Board or the Federal Reserve Bank of New York, improperly and knowingly profited from preparation and rel ease of the erroneous money supply data during October 1979. Special Counsel conducted an extensive investigation over the past several months and enjoyed the full cooperation of the Boa rd, the Reserve Bank and Manufacturer s in this endeavor.  The Honorable William Proxmi re Page Two  The investigation has now been completed, and a copy of Special Counsel's report is enclosed for your review. We are pleased to note that Specia l Counsel has concluded, as summarized on page 6 of the report, that: 1. Manufacturers and pers ons connected with Manufa the Board or the Federal Re cturers( serve Bank of New York did not improperly and knowingly profit from the preparation, release or revision of the erroneous money supply estimates during October 1979. 2. There is no indication that any other institutio or individual improperly and n knowingly profited from th e preparation, release or revision of these erroneous money supply estimates during October 1979. The Board and the Federal Reserve Bank of New York ar of course, gratified that e, Special Counsel found ther e were no improper or illegal acts or omissions associated with these events, and that the integrity of the Federal Reserve System as well as of Manufacturers in this matter has been confirmed. Sincerely,  S/Paul A. Volcket  Enclosure  IDENTICAL LETTERS TO SENATOR GARN, CONGRE SSMEN STANTON AND GREEN NLP:PAV:vcd/pjt bcc: Mr. Petersen Mrs. Mallardi (2)u/ Legal Records  .1111106 TRIC.;A SCHROEDER ETRICT. DENVER. Coo  00  DISTRICT OCIICIe 1767 1-110t4 Sr./rut Orsrvr. COt oPt A no 80218  •  (303) 837-2354 wkININGTON  i0o1k_ 6)144AL  09/1C11,  2437 Rk•suor4  Houir OrrIce 13uut...otwo WASHINGTON. D C. 20515 (202) 225-4431  R  OSERVICESCOMMITTEE  a'POST OFFICE AND CIVIL SERVICE COMMITTEE  Congre55of the Zinitcbckatt5 Pout‘t of ittproSentatiincS Wassbington, rLC. 2051$ Refer reply to: Walz/440.A/jg  November 24, 1980 J. Roger Guffey, President Federal Reserve Bank of Kansas City Federal Reserve Station Kansas City, MO 64198 RE:  Olive Walz  Dear Mr. Guffey: Your reply of October 7, 198 0 arrived on my desk November 13, 1980. I am not satisfied with the answers provided. Althou gh, I am pleased that "this ban k will probably not sustai n any bosses", the problems are very serious. I am disturbed by the fac t that the Denver Branch Non cash Collection Unit has been out of balance since October, 1979 has been audited six tim es since June of 1979, and nothing has been resolved. I would like an explanation of how and why the out of balance situation happened and how and when it will be corrected . It seems to me Ms. Walz was caught in the middle and has been made the scapegoat. I would like to know why, after many years of servic e, there was not more of an eff ort to find a suitable positi on for Ms. Walz, since she cou ld not accept the job offere d for medical reasons. Please respond to my DeVer District Office. ‹:  With kind regards /I( \ \( Schroede of Congress PS:jgb  THIS STATIONFRY PRINTFD ON PAP ER MADE WITH RECYCLED FIBERS  2 November 24, 1980 Mr. J. Roler Guffey, President  CC:  Paul A. Volker, President Board of Governor's of the Federal Reserve System 20th Street & Constitution Ave, N.W. Washington, D.C. 20551  p • BOARD OF GOVERNORS nF- THE : 4:,P; • --1 ..,`47  FEDERAL RESERVE SYSTEM  4A 1 :• ,,o, .,;:i 1 ItJ • L., ...../:, •  WASHINGTON, O. C. 20551  •• 5e ,.1.::_ i i .1. ' •- .1-. , •,4,' • 404Id -:, '_>i,24 • ' •.-AL Rf.Sic..••  November 24, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Henry S. Re uss Chairman Committee on Banking, Fina nce and Urban Affairs House of Representatives Washington, D. C. 20515 Re:  Money Supply Error Inve stigation  Dear Chairman Reuss: As you will recall on Octobe r 25, 1979, the Board of Governors announced certai n downward revisions to the money supply estimates it had previously released on a preliminary ba sis for the weeks ended October 3 and October 10, 1979. Th es e revisions amounted to approximately $700 million and $3 billio n, respectively. The Board attributed thes e revisions to errors in de po sit data submitted initially to th e Federal Reserve Bank in New York by a major money center bank and which were thereafter su bmitted to the Board. On October 26 , 1979, Manufacturers Ha nover Trust Company ("Manufacturers") in response to various in quiries announced that it had made the errors in computing the data it previously reported .to th e New York Federal Reserv e Bank. Shortly after that incide nt, after consultation with you and in the light of the conceivable possibil ity that the underlying errors in the deposit data had been the result of some prearranged plan or scheme , or that institutions invo lved, or persons connected with th ose institutions, had us ed their knowledge of the errors for financia l gain, the Board and th Fe e deral Reserve Bank of New York engaged independent Special Counsel, Fulbright & Jaworski of Washington, D. C., to conduct an investigatio n into the matter. Special Counse l was directed to determin e whether any institution or indivi dual, including Manufacturer s and persons connected with Manufa cturers, the Board or the Fede ral Reserve Bank of New York, improperly and knowingly profit ed from preparation and re lease of the erroneous money supply data during October 1979. Sp ecial Counsel conducted an ex tensive investigation over the past several months and enjoyed the full cooperation of the Board, the Reserve Banks and Manufa cturers in this endeavor.  0nil  The Honorable Henry S. Reuss Page Two  The investigation has now been completed, of Special Counsel's re and a copy port is enclosed for your review. We are pleased to note that Special Counsel has co ncluded, as summarized on page 6 of the report , that: 1. Manufacturers and persons connected with the Board or the Fede Manufacturers, ral Reserve Bank of Ne w York did not improper and knowingly profit ly from the preparation, release or revision of the erroneous money su pply estimates during October 1979. 2. There is no indi cation that any other or individual improper institution ly and knowingly prof ited from the prepar tion, release or revi asion of these erroneou s money supply estimate during October 1979. s The Board and the Fede ral Reserve Bank of Ne of course, gratified w York are, that Special Counsel found there were no improper or illegal ac ts or omissions associ ated with these events and that the integrit , y of the Federal Rese rve System as well as of Manufacturers in th is matter has been confirmed. Sincerely,  Wag,A. Vog.citot  Enclosure  NLP:PAV:vcd (V.W4i) bcc: Mr. Petersen Mrs. Mallardi (2)/f Legal Records (2)  7 HENRY S. REUSS, WIS., CHAIRMAN 7.10MAS L. ASHLEY, OHIO WILLIAM S. MOORHEAD, PA. FERNAND J. ST GERMAIN, HENRY 0. GONZALEZ, TEX. JOSEPH G. MINISH, N J. FRANK ANNUNII0, ILL. JAmES U. HANLEY, N.Y. PARREN J. MITCHELL. MO. WALTER E. FAUNTROY. D.C. STEPHEN L. NEAL. N.C. JERRY U. PATTERSON. CALIF. JAMES I. 'IL ANCHARD, MICH.  •  •  J. WILLIAM STANTON. OHIO CHALMERS P. WYLIE, OHIO STEWART B. McKINNEY, CONN. GEORGE HANSEN, IDAHO HENRY J. HYDE, ILL. RICHARD KELLY. FLA.  U.S. HOUSE OF REPRESENTATIVES  JIM LEACH, IOWA THOMAS B. EVANS, JR., DEL. S. WILLIAM GREEN, N.Y. PON PAUL, TEX. ED BETHUNE, ARK. NORMAN D. SHUMWAY. CALIF. CARROLL A. CAMPBELL JR., S.C.  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  CARROLL HUBB/Ozt, ' . KY. JOHN J. LAFALCE. N.1. GLADYS NOON 5PELLMAN, MD. LES AuCOIN, OREG. DAVID W. EVANS, IND, NORMAN E. °AMOURS, N.H. STANLEY N. LUNDINE, N.Y. JOHN J. CAVANAUGH, NEEJR. MARY ROSE OAKAR, OHIO Jim MATTOX. TEX. BRUCE F. VENTO, MINN. DOUG BARNARD. JR.. GA. WES WATKINS, OKLA. ROBERT GARcIA, N.Y. MIKE LOwRY, WASH.  NINETY-SIXTH 2129 RAYBURN  HOUSE  CONGRESS  OFFICE BUILDING  DON RITTER, PA. JON HINSON, MISS.  WASHINGTON, D.C. 20515  JOHN EDWARD PORTER, ILL. 225-4241  November 18, 1980  The Honorable Paul Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. Dear Chairman Volcker: I have been informed that the report of the independent legal firm concerning the mistake in monetary data collection last October as requested by the Committee is now completed. Please forward this report to us.  Sincerely, , Henry S. Res Chairman  •  • BOARD OF r3OVERNORE OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  November 26, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Frank Annunzio Chairman Subcommittee on Consumer Affairs Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman Annunzio: Thank you for your letter of November 10 regarding the Board staff's proposed commentary on Regulation E. Your comments about the passbook-update question have been sent to the Division of Consumer and Community Affairs. I have asked the staff to give careful consideration to the point you raise before they issue the commentary in final form. We appreciate having your comments and your assessment that, overall, the commentary will be helpful in clarifying the provisions of the Regulation. Sincerely,  S/.Paill  DSS:DJW:vcd (#V-411) bcc:  Ms. D. Smith Mrs. Mallardi (2)‘../-  •vich4:  I.  FRANK ANNUNZIO, ILL., CHAIRMAN  THOMAS D. EVANS, JR., DEL. CHALMERS P. WYLIE. oHio DON RITTER, PA.  GLADYS NOON SPELLMAN, MD. PRUE': F. VENTO, MINN. WALTFR E. FAUNTROY. D.C. PARREN J. MITCHELL. MD.  U.S. HOUSE OF REPRESENTATIVES  CURTIS A. PRINS, STAFF DIRECTOR  NINETY-SIXTH CONGRESS  SUBCOMMITTEE ON CONSUMER AFFAIRS  TELEPHONE: 225-9181  OF THE  COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS ROOM 212 HOUSE OFFICE BUILDING ANNEX  WASHINGTON, D.C. 20515  November 10, IMO  Honorable Paul A. Volcker Cl ariman Federal Reserve Board 20th Street & Constitution Avenue, N.W. Washington, D.C. 20551  c,‘  RE:  EFT-2  Dear Mr. Chairman: I have reviewed the proposed official staff commentary on Regulation E. Overall, it appears the cormentary is helpful in clarifying various provisions of Regulation E. However, I strongly disagree with the question and answer designated as 9-50 which reads as follows:  0-50  Q:  Is a financial institution required to update a passbook every time the consumer presents it (for example, when the consumer uses the passbook to make a deposit or withdrawal)?  A:  No. The institution need only update the passbook (by entering the amount and date of preauthorized credits) when the consumer presenting it requests updating. [5 205.0(c)]  This answer is contrary to both the regulation 205.9(c) and the Electronic Fund Transfer Act [section COG(d)]. Both the regulation and the statute expressly require disclosure of the amount and date of each transfer "upon presentation," rather than only "upon request," as the proposed commentary provides. This require disclosure is in place of supplying the consumer with a periodic statement. Consequently, this is important documentation which it is essential the consumer receive For these reasons, I believe this corrirntary answer should be reconsidered and changed so that it is consistent with the law and the regulation. With every best wish, Sincerely,  Frank Annunzio Chairman  \  .• • of GOVe . ' • R4,•. 0•  DOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  November 26, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Bill Nichols House of Representatives Washington, D. C. 20515 Dear Mr. Nichols: Thank you for your letter of November 17, concerning the classes of depositors eligible to maintain NOW accounts. As you are aware, the purpose of the Cons umer Checking Account Equity Act of 1980 is to permit deposito ry institutions throughout the nation to offer NOW accounts by extending NOW account authority beyond New England, New York and New Jersey. The statutory language adopted by Congress parallels the regulations previously adopted by the Board and the FDIC concerning NOW account eligibility. The summary prepared by the Board's staf f presents a compilation of the numerous interpretati ons and rulings adopted by the Board over the years concerni ng what activities are operated primarily for religious, philanthropic, charitable, educational or other similar purposes. The summary format was used in order to alleviate the need for member bank s to sift through numerous pages of textual materials in order to determine whether a particular type of 'entity is qualified to maintain a NOW account. We believe that this should simplify the ability of institutions to comply with the NOW account prov isions of the Act. You indicate concern with certain of the Board's rulings on who is eligible to maintain NOW accounts. The ease with which the institution could attribute the funds to the business organization is a key element in determining whether a NOW account could be maintained. For example, a husb and and wife operating an unincorporated business are permitted to maintain a NOW account because in many instances the checking account of the family is used for business purposes. It woul d prove burdensome and difficult to require the separation of the fami ly's funds into those used for personal expenses and those used for business purposes. A partnership, however, is a separate lega l entity that typically possesses a separate deposit account used solely for business purposes. The same rationale applies to the treatment of a sole proprietorship and an incorporated entity such as a professional corporation owned by one person. A further discussion of other  The Honorable Bill Nichols Page Two  NOW account categories you raised in your letter can be found in paragraphs 3080 through 3106 of the Board's Published Interpretations, a copy of which is enclos ed for your information. To change these interpretations at this time would have the effect of disadvantaging institutions tha t have established longstanding NOW account relationships with these entities. We believe that the categories previously adopte d by the Board are consistent with Congressional intent, partic ularly since the statutory language is derived from the Boa rd's NOW account regulation. You also requested that the Dep ository Institutions Deregulation Committee adopt uni form regulations concerning NOW account eligibility. While the jurisdiction of the DIDC is quite broad in the area of the paymen t of interest on deposits, it does not extend to definitional mat ters such as these. The author ity to define eligible NOW account depositors remains with the agenci es themselves. In this regard, in the interests of uniformity, the FDIC and Federal Home Loan Bank Board have adopted positions similar to those of the Board's with respect to NOW account eligibility. I believe that thi s approach in arriving at a coordinated position is more con sistent with the objective of deregulation and is preferable to that of adopting additional regulations that have the potent ial for disrupting existing relationships between depository institutions and NOW account customers. We appreci,ate your interest in this matter. let me know if I can be of fur ther assistance. Sincerely,  Enclosures  (ws/tn (07413) C; 0r. Schwartz mitaXardt Lova Rocords (2)  Please  December 1. 1980  The Honorable Thomas b. Lvans, Jr. ilouse of Representatives Washin4ton, L.C. 20515 Dear Ir. Ivens. The board has been working hard to simplify tht Truth in Lending requirements, and I wanted to bring to your attention the Loerd's recent proposals in this area. In May, we issued a first redraft of Regulation to carry out the Truth in LerwIng Silx,plification and Reform Act. t:asect upon the conmerts received, and a cood deal of additional work here at Vie joard, we have just propose a second draft for further comment vitich should move us further toward simplification. Not only should col...kliance . Lie much simpler, but we truly believe that the chaes4es sugciested will benefit consumers by focusing on dis closures ir the everyday types of consumer transactions, ana by directing enforcer.ent more toward substance rather than technicalities. The Regulation is, however, still very formidable looking. Unfortunately, Regulation 2. cannot ever be a short, sizple doctri,ent. Nevertheless, we believe that the proposal represents some substantial improvewents. The "enclosed summary will ciive you a feeling for how we went aLout the task of simplifying the Regulation, and why we think it will venefit everyone concerned. We would, of course, be delighted to have your comxents. Sincerely,  saul A, Volcket 1.nclosure GLG:DJW pjt bcc; Mr. Garwood Mrs. mallardi (2)  • 1- 11"4  • • • •, ..  •%.0  BOARD OF GOVERNORS  GOt/4,.•  OF THE  :6  FEDERAL RESERVE SYSTEM  •  WASHINGTON, D. C. 20551  December I, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Frank Annunzio Chairman Subcommittee on Consumer Affairs Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman Annunzio: As you know, the Board has been working hard to improve Regulation Z pursuant to the Truth in Lending Simp lification and Reform Act. The Board issued a proposal for comment last May, and we appreciated receiving your views. We have done a good deal of additional work toward further simplification, and have reissued the prop osal for further public comment. I wanted to make sure that you personal ly received a copy. In line with your earlier comments, we have elim inated the concept of "alternate shopping disclosures." The Board has made a number of new proposals. As I'm sure you well know, no real improvements can be made with out sacrificing at least some of the technical information now provided . Thus, it will be easy to point to individual circumstances in which cons umers will receive somewhat less disclosure than before. However, we believe that the proposal carries out the purpose of the Act to effectively info rm consumers about the cost of credit at the same time that it reduces the burd ens of compliance-particularly on small business. We have trie d to retain the important protections under the Act, while directing it more towa rd clear, easy-tounderstand disclosures for the everyday common type s of credit transactions. In addition, enforcement under the proposal can be dire cted more to matters of substance rather than technicalities. This shou ld also benefit consumers. The enclosed summary will give you a feeling for how we went about the task of simplifying the Regulation, and why we think it will benefit everyone concerned. As always, we will welcome your thoughts. Sincerely,  ad elpitisii Enclosure  tfth taWci4, co-itettaxemxil /-eZA A-uu.g.ti4  U-  • .• • of GOVt• • R •  •  -filey,  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  •0 • -n  WASHINGTON, DC. 20551  •  '.A L RF-$'•••  December 1, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Jake Garn United States Senate Washington, D. C. 20510 Dear Senator Garn: In view of your interest in simplifying the Truth in Lending requirements, I wanted to personally brin g to your attention the Board's recent proposals in this area. In May, we issued a first redraft of Regulation Z to carry out the Truth in Lending Simplification and Reform Act. Based upon the comments received, and a good deal of additional work here at the Board, we have just proposed a second draft for further comment which should move us further towa rd simplification. Not only should compliance be much simpler, but we truly believe that the changes suggested will benefit consumers by focusing on disclosures in the everyday types of consumer transactions, and by directing enforcement more toward substance rather than technicaliti es. The Regulation is, however, still very form idable looking. Unfortunately, Regulation Z cannot ever be a short, simple document. Nevertheless, we believe that the proposal represents some substantial improvements. The enclosed summary will give you a feeling for how we went about the task of simplifying the Regu lation, and why we think it will benefit everyone concerned. We would, of course, be delighted to have your comments. Sincerely,  Enclosure  /awe . tiv ceaat.; cs-ao tve-v‘i-! //  ftvu3,  •  Olet.e.4,t4  •• •  .• ofGotiti;•.  BOARD OF GOVERNORS *co  OFTHE  FEDERAL RESERVE SYSTEM  *0  WASHINGTON, D. C. 20561 I  '1A L Ft?..5" • •.. •.• •  December I, 1980  RAUL A. VOLCKER CHAIRMAN  The Honorable William Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. 20510 Dear Chairman Proxmire: In view of your interest in simplifying the Truth in Lend ing requirements, I wanted to personally bring to your attention the Board's recent proposals in this area. In May, we issued a first redraft of Regulation Z to carry out the Truth in Lending Simp lification and Reform Act. Based upon the comments received, and a good deal of additional work here at the Board, we have just proposed a seco nd draft for further comment which should move us further toward simplifi cation. Not only should compliance be much simpler, but we truly believe that the chanIII- sted will benefit consumers by focusing on disclosures in the everyday types of consumer transactions, and by dire cting enforcement more toward substance rather than technicaes. The Regulation is, however, still very formidable looking. Unfortunately, Regulation Z cannot ever be a short, simp le document. Nevertheless, we believe that the proposal represen ts some substantial improvements. The enclosed summary will give you a feeling for how we went about the task of simplifying the Regulation, and why we think it will benefit everyone concerned. We would, of course, be delighted to have your comm ents. Sincerely,  /f,firtIuitla Enclosure  ;., / sf-OD /4v  • .*  •• f• GOvt •• R4,•. o•  .•  . •: 17 '0 •-n  BOARD  OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  .1RAL • • ..• •  December 1, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Russell B. Long United States Senate Washington, D. C. 20510 Dear Senator Long: Thank you for your letter of November 21 reco mmending that Mr. Thomas C. Jeffery be considered for appo intment as a Director of the New Orleans Branch of the Fede ral Reserve Bank of Atlanta. The Federal Reserve is very much interested in talented individuals from a wide variety of backgrounds for possible service as Reserve Bank Directors. We shall keep Mr. Jeffery's name in mind as a possible candidate for the New Orleans Branch Boar d, and your recommendation has also been sent to Mr. William F. Ford, President of the Federal Reserve Bank of Atlanta, for consideration of Mr. Jeffery as a candidate for a Reserve Bank appointed Director of the New Orleans Branch, I appreciate your interest in identifying qualified individuals for Reserve Bank Directors. Sincerely,  (WHW:DJW):vcd (#V-420) bcc. Mr. Ford--FRBk. of Atlanta (w/copy of incoming) Mr. Wallace Mrs. 1,a1lardi (2)  F(USSELL D. LONG  • LOUISIANA •  • 'ZCnifeb Ziafez senate WASHINGTON. D.C. 20510  November 21, 1980  The Honorable Paul Volcker Chairman, Board of Governors Federal Reserve System Constitution Avenue 20551 Washington, D. C. Dear Chairman Volcker: I understand Mr. Thomas C. Jeffery is being considered for appointment to the Class C Director position in the New Orleans Branch Federal Reserve Bank of Atlanta. While I do not know Mr. Jeffery personally, he comes highly recommended by Mr. Edgar L. Fontaine of the Louisiana Credit Union League, copy of his letter enclosed. Therefore, I would appreciate your giving his qualifications for this position full consideration. With every good wish, I am Sincerely yours,  cc:  • Mr. Eric Hingst Federal Reserve Bank P. 0. Box 1731 30301 Atlanta, Georgia  r"PIPPFP"'""wommigromoirwwasprw.--wwwirwwwwfwe  •  a /I  •  toffilea ./ea emaliZ 14elo" it Zetzgwe Ti  SUITE 804 • 144D CANAL ST • NEW ORLEANS. LA /0112• PHONE (504)581-4251 • 1.K10 662-7881  EDGAR L. FONTAINE 1.6.A• • ,g (").•pc tOf  October 2,1980 Russell B. Long and J. Bennett Johnston Louisiana United States Senators Senate Office Building Washington, D. C. 20510 Dear Senators Long and Johnston: Recently the credit unions of our Nation have been brought, to an extent, under the Jurisdiction of the Federal Reserve S>stem as a resul t of statutory changes that now permit the use of share drafts by both federal and state chartered credit unions. While we were eager to inclu de the use of share drafts in our credit unions, many of us have been concerned for the need of the Federal Reserve System applying additional rules and regulations to govern credit union conduct in this respect. To offset this growing concern, there have been suggestions on the part of the Federal Reserve Board to include credit union perso nalities in the overall administration of the Federal Reserve System, and principally in the area of Class C Director positions of the Reserve Bank branches. The League Organization has proposed, among several other nominees, the services of Thomas C. Jeffery as a nominee for a Class C Direc tor position in the New Orleans branch. The purpose of this lette r, therefore, is to introduce to both of you to this proposition, cite the credential s and qualifications of Mr. Jeffery, and to respectfully reque st your assistance .in bringing about the acceptance of this nomination. Mr. Jeffery is the Manager of Development and Licensing Divis ion of the Pittsburgh Plate Glass Industries, Inc., 'Chemical Division, U.S., located in Lake Charles, Louisiana. Mr. Jeffery has achieved renow n and distinction In his chosen profession as a chemical engineer, and is iurmer oarionai Chairman of the Industrial Electrolytic Division of the Electra Chemical Society, holder of six (6) U.S. Patents and numerous forei gn patents in the industrial countries of the World, and this resulted in addit ional dimensior: regarding international financial pressures. Apart from the qualifications and outstanding working exper ience, Mr. Jeffer represents in his chosen profession and occupation he has played an outstanding role within the Louisiana credit union devel opment by virtue of his leadership position in our Legislative and Government al Affairs, and as the Chairman of the League's Student Loan Program Commi ttee for the past fifteen (15) years.  t• I 2 • Fae Snators Long and Johnston October 2,1980  The quality of conduct of the credit union development is largely dependent upon the talent, dedication abd volunteer services offered by many capable credit union leaders. These leaders are chosen from the credit union of origin and as a member of the PPG Employees Credit Union of Lake Charles, Mr. Jeffery has been chosen from this group for the statewide leadership roles that he presently represents. The PPG Employees Credit Union was organized in 1952 and serves the economic needs of more than 1800 employee members of the Pittsburgh Plate Glass Industries of Lake Charles. Within the credit union development of the Lake Charles community, Mr. Jeffery serves actively in the local Chapter Organization and lends his specialized academic and engineering knowledge and position to the conduct of their community programs. He is especially included among the officials whose leadership merits the high esteem that is held for the credit unions of the Lake Charles area. The activities of the League's Student Loan Program are a paramount concern of this Headquarters Organization, and the statewide Committee headed by Mr. Jeffery responds to the many and varied developments that occur in our efforts to provide economic assistance to young men and women who aspire to college and university education, but who lack financial means. Mr. Jeffery also served as Vice Chairman of the Louisiana Higher Education Assistance Commission whose composition included Bank Presidents. The advice in this letter, we believe, lends evidence of the esteem we hold for the outstanding contributions made to the Louisiana credit union development on the part of Mr. Jeffery, who, without monetary gain,lends continuous service on behalf of our efforts for achieving economic betterment for the thousands of our citizens.who participate in Louisiana credit unions. We are most hopeful that the mentioned will be considered participation in the affairs Charles Credit Union Chapter  nomination of Mr. Jeffery for the position in light of his continuous leadership and of the PPG Employees Credit Union, the Lake and the Louisiana Credit Union League. Sin •rely,  Edgar L. Fontaine naging Director CC: Board of Directors - rpc Employees CU Officials - Lake Charles Credit Union Chapter League Student Loan Program Committee  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM AUHO •.A'esc ; ••.RA 1. L IIESt :•  WASHINGTON, D. C. 20551  December 3, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Berkley Bedell House of Representati ves Washington, D. C. 20 515 Dear Mr. Bedell: I am pleased to enclos e a copy of the most Country Exposure Lend recent ing Survey, which show s foreign lending by large United States banks during the firs t half of 1980. The survey, conducted semi-annually, covers credits to (claims on) foreign residents held at all domestic and foreign offices of 143 United States banking organizations. In addition to information on types of borrowers, loan ma turities, and loan guarantees, the survey provides information on commitments to provide funds to fo reigners. The survey data are given on a country-by-country basis. I have forwarded copi es of this survey to Chairmen of the House the and Senate Banking Co mm it te es, the Senate Foreign Relati ons Committee, and th e Ho us e Affairs Committee, Foreign Sincerely,  S/Paul A. 'OLCke(  Enclosure CO:DJW:vcd bcc:  Mike Martinson Mrs. Mallardi (2)‘•/  ..•••... . : t4 •• Of GOV, BOARD  .••  OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 •.RAL RES .• •....•  December 3, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable William Proxmi re Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. 20510 Dear Chairman Proxmire: In view of past Congressiona l interest in this area, I am pleased to enclos e a copy of the most recent Country Exposure Lending Sur vey, which shows foreign lending by large United Sta tes banks during the first half of 1980. The survey , conducted semi-annually, covers credits to (claims on) foreign residents held at all domestic and foreig n offices of 143 United States banking organizations. In addition to information on types of borrowers, loan maturities, and loan guarantees, the survey provide inform ation on commitments to provid e funds to foreigners. The survey data are given on a country-by-country basis. Sincerely,  S/Paul A. Vpida  Enclosure IDENTICAL LETTERS TO CHAIRMAN REUSS (HOUSE BANKING), CHAIRMAN CHURCH (SENATE FOREIGN REL ATIONS) CHAIRMAN ZABLOCKI (HOUSE FOREIGN AFF AIRS) CO:DJW:vcd bcc:  Mike Martinson Mrs, Mallardi  • 4.  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  December 4, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Nancy Landon Kassebaum United States Senate Washington, D.C. 20510 Dear Nancy: Thank you for your letter of November 19, regarding Federal Reserve services to Wichita, Kansas, with which you enclosed a copy of a letter from Mr. C. Q. Chandler, President of the First National Bank of Wichita. Mr. Chandler's letter had previously been received during the comment period following publication in the Federal Register of proposed prices for Federal Reserve Bank services. It is our intent to consider all comments before final regulations and prices are issued . Mr. Chandler's letter raises issues in which bankers throughout the nation are interested. Since the importance of these issues will increase after Federal Reserve Bank services are priced, I welcome this opportunity to explain the perspe ctive of the Federal Reserve. It is common banking practice to set deadlines which define the latest time at which checks may be deposited to receiv e credit according to published availability schedules. Normally, in Federal Reserve oiDerations, the deposit deadline is set to provide just enough time to process the expected number of checks and to transport and deliver them timely to the banks on which they are drawn ("payor banks"). In their attempt to reconcile the needs of both collecting and payor banks, the Federal Reserve Banks have established deposit deadlines which are based not on the location of the collecting bank, but rather, on factors which include the location of the banks on which the checks are drawn, available transportation, and required processing time. Each Federal Reserve office has deposi t deadlines which are applicable uniformly to all banks in the nation interested in obtaining check collection services throug h that office. Unfortunately there are no inexpensive solutions to the problems of transporting checks long distances. We expect that the impact of location will be lessened through greate r use of automated clearinghouses (ACH's) and when some form of nation wide electronic check collection (which eliminates the physical movement of paper) becomes feasible. In the interim, howeve r, manipulation of deposit deadlines would not be consistent with the Federal Reserve's objective of improving the efficiency of the payments system.  The Honorable Nancy La ndon Kassebaum Page Two  In the past, the Boar d has approved a numb from the Reserve Bank er of proposals s to accelerate the ch ec k collection proc by establishing regi ess onal check processi ng ce nters ("RCPC's"). have been informed I by my staff that prev ious studies conducte by the Federal Rese d rve Bank of Kansas Ci ty concluded that a check processing cent regional er ("RCPC") to serv e the banks in Wichit could not be cost ju a stified. Thus, no proposal has been su for approval to the bmitted Board. However, I un derstand that recent as a result of meetin ly, gs between Wichita bankers and senior ment at the Federa managel Reserve Bank of Ka nsas City, a joint st will be conducted udy to determine if curr ent banking conditio warrant a Federal Re ns serve presence in Wichita at this time. Board involvement in this decision will await the outcome of new feasibility st the udy. Congress specifically sought to stimulate competition for bank private sector ing services when it established pricing requirements for the Federal Reserve in the Monetary Control of 1980. We have be Act en told by a number of banks across the that the additional nation cost of Federal Re serve pricing will in the expansion of result local clearing arra ngements. Because th arrangements are priv ese ate sector agreemen ts, it would be in priate for the Fede ap proral Reserve to prov ide compensation or considerations as su ot her ggested in Mr. Chandl er's letter. The matter of main taining competitive financial institutio equity among ns is a subject abou t which the Board is deeply concerned, ari 'd the availability and cost of Reserve operating services Bank is important in th is context. Within constraints of differ the ent geography and di fferent banking laws and customs, the Syst em is attempting to provide equitable ce banking services wher ntral e they are needed . The practicality has always been an of cost important factor in bank operations, and the implementation with of pricing of Fede ral Reserve services will assume greater , it significance. I appreciate this op portunity to comment issues facing the Fe on some of the deral Reserve in im pl em enting the Monetary Control Act of 1980 . I hope that this in fo to you. rmation will be helpfu l Sincerely, MJH:DJW:pjt (#V-414) bcc: Mr. Hallmon Mr. Wallace Lee Adams Mrs. Mallardi (2) Henry Czerwinski, 1st V.P. Kansas City FRBa nk  sgai  HOWARD W. CANNON, WV, CHAIRMAN •  WAR-k ' N O. MAGNUSON, WASH. PtJSEit fl. LONG, LA. [FINEST f'. HOLLINGS, S.C. DANIEL K. I•ntPrE, HAWAII ADLAI E. STIN,ENSON. Wf psDrLL H. rem', KY. DONALD W. Ri  .LF, JR., MICH.  PcI) rAcyvvoon. OREG. B ARIly GOLDWATER. Ant?  v.Ar1171004 H. SCHMITT, N. MEX. JOHN C. DANFORTH, MO. NANCY LANDON KASSEBAum, KANs. LArmy r SCLER. S. OAK JOHN W. WARNER, VA. '  J. JAMES EXoN. NI IIR. HOWELL HEFLIN, ALA.  'iCnikb ,3fafez  AUBRrY L. SARVIS, ST •re- DIRECTOR AND CHIEF COUNSEL E!IWIN K. HALL, GrNf RAL COUW,CL Wilt I kg .4 PIEFFN':I. PH ER, MIPaortiTy STAFF DIRECTOR  ena e  COMMITTEE ON COMMERCE. SCIENCE. AND TRANSPORTATION WASHINGTON, D.C. 20510  November 19, 1980  Mr. Paul A. Volcker, Chairman Federal Reserve System 20th Street N.W. and Constitution Washington, D.C. 20551 Dear Paul: Enclosed you will find a copy of a letter from Mr. C. Q. Chandler, President of the First National Bank of Wichita, Kansas, addressed to Mr. Theodore E. Allison of the Federal Reserve Board of Governors. Mr. Chandler sent me a copy of this letter and it outlines what I believe to be some legitimate concerns on his part regarding the pricing of Federal Reserve services to a Wichita bank. You will note, that he alleges that because of rules established by the Kansas City Federal Reserve, Wichita banks pay a considerable premium, as compared to the cost of the same services for banks located in or near cities with a Federal Reserve Bank or branch. He also notes some significant price differentials between Kansas City and Wichita banks with regard to charges made for Federal Reserve services. It appears to me that Mr. Chandler's concerns are legitimate and he has suggested as a possible solution the location of a branch or remote check processing center in the area. I would very much appreciate being advised of the Fed's position with regard to both the problems Mr. Chandler outlines, and suggestions he has made. Warmest regards,  Nancy Landon Kassebaum United States Senator  '  October 28, 1()M)  Mr. Theodore E. Allison Secretary Board of Governors of the Federal Reserve Svsleiii Washington, D. C. elr Mr. !(  I.,xplicit pricing of services offered IA the Federal Reserve System.  Wichita is the largest city in Kaw;as aryl provides the State with the largest percentage of ts banking services. Many banks in Kansas, Oklahoma, New Mexico, Texas and Eastern Color:ido use Wichita banks as principal correspondents, and many corporations headquarter their operations in the vicinity. The volume of checks processed through Wichita is very and for this reason, check processing (barges are of major importance to us, The Yansas City Fed is 200 miles from Wichita awl, yet, we are required to meet the same (or earlier) deadlines for check processing as the banks in Kansas City. We have for years attempted to find a solution to this problem, such as having a branch or RCPC located in our area but, up to now, the only one acceptable has been for us to stop our computer runs early in the day and employ air couriers to meet the deadlines imposed. \Ye are, therefore, even thoueh a Fed member, already paying a considerable premium for Fed services because of our remote location, as (0TH to the cost of the same services for banks located in or near cities with a Federal Reserve Bank or branch. Our particular bank will process approxiMately nine million items this yeaI- valued at over Five Billion Dollars, which never go through tic Fed, and for which we receive no consideration fur having kept out of the Fed work flow.  •  `.11i:;on I  Altho,Agh living costs do not L;upport !hi• premise that Ean:-3as and Missouri are among the UL()St ex-pensi% c place.:; to live in the United States, we note that the prices at the Kansas City l'ed arc among the highest. Of the 23 prices quoted for 'Fed city items, our I nsa s City Fed price Of 1.7 cents is exceeded only by New York, Philadelphia and Chik:ag...,. Of the 2.7 price:, (picoed for y'e d e()unt rv ar,.d 1:(71q: tt;:r Kansa:.-; City Fed price of 2.4 cents is excet (led only Ir) Ne\k- York .:1(1 Chicago. We estimate that our 7.dditional ce:=t JOF check processing due to this pricing schedule will ext ccd $ IOW OGO. 00. The (.- tir rent: v and coin prit - in t,,, is similarly difficult to explain. The Kansas City Yeti has pr,)posed these comparativc•(•harges for our bank :111(1 Ea.nsas City C11 r rent  F.ans ichis..t  Coin  Per Stop  II  1.7.1  t e t ha! I he ch,tr...:0 !nade per stop in V.•ii hita 1 St;tte, and prt..tter L1:1 .1 1;1 r(40:-; r %) t i'r  Ow  'HI the (.:11ite.ni  illatie by brant  hes  . :;it-is;i:• City Ve(i„ , 4* the 1.,  Although I recognize that most hanks will, in fact, pass these additional costs on to the consumer, and that the small taxpayer will ultimately carry the hurden, it seems most discriminatory to me tor the little taxpayer in Nans:ts t D:tv 111., 1•e th,‘ r! in Missouri, 011ahoma, '),•( • olormlo r t•.tr (1(.( i Hon in which his k ., )11)1  .\\ * C ,ra 1  !tit  S \V(' r  ' )t" 01  11.1 ."  n.  t't)nSir : t  voa make your I strongly ur..;(.• iiat regulations, that you make every effort to retoo\t. the ili:-:crintinA tory pricintz, ‘vhorever possible. Sincerely you rs,  C. Q. Clmncller President and (. 11.1i1- 111.(11 ot tin  loa rci  •••• ...,;ovGo_v_t/e4,  ROARO OF GOVERNORL OF 'HE  -.••  FEDERAL RESERVE SYSTEM WASHINGTON, D. G. 20551 PAUL A. VOLCKER  December 9, 1980  CHAIRMAN  The Honorable Harrison A. Williams, Jr. Chairman Subcommittee on Housing and Urban Affairs Committee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. 20510 Dear Chairman Williams: Thank you for your letter of November 10 regarding the actions the Board intends to take in response to the enactment of Section 603 of the Housing and Community Development Act of 1980. The Board understands the general concern Congress has expressed over the plight of individuals who find themselves displaced as a result of the codiversion of rental housing to condominiums and cooperative housing, and who have difficulty in locating equivalent, adequate shelter at reasonable cost. We plan to inform each of the banks under our direct supervisory authority of this general expression of public policy as well as the sense of the relevant legislative history. In addition, the staffs of the Board and of the Federal Reserve Banks participate in many meetings and seminars with community groups and others interested in local investment, and our participants in these sessions will specifically mention the sense of Congress embodied in Section 603. Our examiners also contact civic, religious and neighborhood based community organizations in seeking to ascertain the credit needs of the community in the course of the examination process, and they will be directed to inform these organizations of this information. In particular instances, state member banks found to be participating in the financing of conversions will be counseled with respect to the expression of public policy contained in Section 603. While the spirit and intent of the Congressional statement are clear, its applicability in particular instances will depend on, a variety of procedural safeguards and individual circumstances. It would be extremely difficult, without much  1110  The Honorable Harrison A. Willi. ms, Jr. Paye TWo  •  more precise guidance from Congress, to draw up specific guidelines for judging what is acceptable in an area that significantly affects the rights of both landlords and tenants. Indeed, the sense of Congress set forth in Section 603 contains no mention of enforcement nor any specific delegation of enforcement authority. It is our understanding that the absence of enforcement provisions'reflected a decision by Congress that it did not intend that specific actions with the force of regulation or formal administrative procedures be undertaken. It appears that there is some ambiguity in the legislative history regarding the role of the Community Reinvestment Act in the enforcement of Section 603. The legislative history reflected in the Senate debates indicated that if a lender acted in a Way deemed to be contrary to the sense of the Congress, it would be taken into account in assessing the lender's record unS er the Community Reinvestment Act. The legislative history in the House, as reflected in the discussion between Messrs. Wylie and Reuss on the House floor, indicates that the Congress did not intend that Section 603 be taken into account under the Community Reinvestment Act. Our examiners will continue to assess the record of a state member bank in meeting the credit needs of its local community by using the inter-agency assessment factors and examination procedures. I would expect that the examiners will continue to be sensitive to the problems of displacement and that they will recognize and give credit to lenders who participate in innovative methods of revitalizing neighborhoods in ways which can help minimize displacement of residents. We have informed our examiners about the programs of the Neighborhood Reinvestment Corporation, particularly Neighborhood Housing Services, as well as about (jovernment programs such as HUD's Section 8 program, so that they will be knowledgeable about ways to help minimize displacement. In training our examiners, we certainly intend to continue to familiarize them with these and other programs sS that they can assist state member banks to more effectively helS meet the credit needs of their communities. You asked on page 3 of your letter for my personal view about whether an increasing share of national resources should be devoted toward conversions of rental units to condominium or cooperative ownership. While I claim no special expertise on real estate conversions, it seems to me that the issue requires a full assessment of benefits as well as costs, particularly from the vantage point of the economy as a whole. Consideration also could be given to the consequences tl,at  Th(, Honotoklc HarLison A. Willims, Jr. Pag(, Three  structure would stem from ottrnotives to conversion within the of our general economic system. incorm,)tinn refTnn7,ive hopn thot. you will find thi If I can be of furthnr assistance, please Lo your questions. contact me. Sincerely,  Waal MckeE  KB:RP:yea (#V-410) bcc:  Mt. Filler Nr. Baebel Ms. Hart Mrs. Mallardi (2)  -  --  -  trrirr  z HARRISON A. WIU4AMIlk JR.. NJ., CHAIRMAN WILLIAM PROXt.iIRE. WIS. ALAN CRANSTON. CALIF. ROBERT MORGAN. N.C. DONALD W. RIEGLE. JR.. MICH. PAUL S. SARBANES. MD.  •  JAKE DARN. IJT'AH JOHN TOWER. TEX. JOHN HEINE. PA. RICHARD G. LUGAR, IND.  ALBERT C. riscparra, STAFF DIRIETOR JESSELIS E. BARLOW, MINORITY STAFF DIRECTOR  • "Zertifeb Zfalcz Zenate SUBCOMMITTEE ON HOUSING r e AND URBAN AFFAIRS WASHINGTON. D.C. 20510  I  r't  November 10, 1980  Mr. Paul A. Volcker Chairman Federal Reserve System 20th Street & Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Volcker: As you know, the President signed the Housing and Community Development Act of 1980 into law on October 8th. I am writing to direct your attention to Section 603 of the Act, which stresses the important role to be played by Federally insured lenders in mitigating displacement caused by conversions of rental housing. Section 603 states: "It is the sense of the Congress that lending by Federally insured institutions for the conversions of rental housing should be discouraged where there are adverse impacts on housing opportunities of the low- and moderate income and elderly and handicapped tenants involved." It is my hope and belief that this important and explicit statement of the sense of the Congress will aid your efforts to promote further the anti-displacement policy which is implicitly contained within the Community Rein- . vestment Act (CRA) and its implementing regulations. The incorporation of Section 603 within the existing CRA examination procedures should not be difficult. I have noted that assessment factor (L) of CRA's implementing regulations directs a focus to: "Other factors that in the agency's judgment reasonably bear upon the extent to which the institution is helping to meet the credit needs of its entire community." The uniform examination procedures for CRA, developed and issued by the four Federal financial supervisory hgencies, amplify the meaning of factor (L) by stating that pertinent factors may include "whether the institution's policies promote efforts to assist existing residents in neighborhoods undergoing a process of rein- • vestment and change."  Mr. Paul A. Volcker November 10, 1980 Page Two  Clearly, loans which assist current residents to avoid displacement would result in a positive rating under this factor, while failure to extend such loans could indicate that an institution is failing to meet adequately the credit needs of its community. Section 603 of the 1980 Act is simply the corollary to this existing criteria, stating that lending for the purchase of a rental property for conversion, or commitments of mortgage availability for the individual . units being marketed within such a property, are activities which should be discouraged where they promote and facilitate the displacement of low- and moderate-income tenants. I am in full accord with Senator Proxmire's declaration, made during the debate preceding Senate passage of the Conference Report on S. 2719, that "if a lender acted contrary to this sense of the Congress, clearly this would have to be taken into account in assessing such lender's record for Community Reinvestment Act purposes." A determination as to whether adverse impacts result from a specific conversion will, of course, be dependent on particular marketing practices and terms surrounding the conversion, local housing conditions, and other factors. However, it is my view that the definition of "adverse effects of displacement" utilized by the Department of Housing and Urban Development in its June 1980 study of conversions -- "movement to rental housing that is of similar or lower quality at higher cost, or of lower quality at equivalent cost" -- is certainly an excellent point of departure for such an evaluation. I am particularly concerned about HUD's finding that households containing persons of age sixty or older were 50 percent more likely than younger households to suffer such adverse effects. This is particularly disturbing in light of the strongly held opinion among aging experts that forced uprooting of the elderly from their neighborhoods, sever them from vital social support systems, and can precipitate physical and psychological hardships.  Mr. Paul A. Volcker November 10, 1980 Page Three  Although not directly related to Section 603 and CRA, I also wish to raise a question in regard to HUD's finding that the vast majority of conversions involve, at most, only cosmetic alterations of existing multifamily housing stock. In a time of rental housing crisis, should an increasingly larger portion of the Nation's finite capital resources be utilized to facilitate alterations of the legal status of existing shelter; where such change diminishes affordability, results in negligible qualitative improvement, and triggers increased Federal tax expenditures to subsidize mortgage interest and property taxes? Your view on this question of deep concern will be greatly appreciated. In closing, let me say that I look forward to hearing from you regarding the actions you are planning to take in response to Section 603 of the 1980 Housing Act, as well as your general comments regarding implementation of CRA's anti -displacement policy to date. Information received from some citizens and public interest organizations suggests that the Federal financial supervisory agencies should consider more vigorous actions to discourage displacement. I certainly hope to explore these important issues with you further in the days ahead. With best personal regards, Sincerely,  rison A Williams, HAW:pcsc  If-LW:AND J 1ST GUM MAIN. R.1.. CHAIRMAN f RANK ANNLINzIO. •AMES 0.4 NHANI 1Y. N.Y. , KY. CA RROt L 14014RARD. Jf RRY M rAilf FICON, cAur., ASHt. f Y. OHIO 1HomAs NORMAN F. AMOURS. N.N. JOHN J. CAVANALH:14. NEEIK. JIM MAI TO.K. TLX. JO•Wri-1 (3„ Y.'ALTER C. f ALINT ROY. D.C. DOUG RA RNAR D. OA-  U.S. HOUSE OF FREPRESENTATIVES  CHAIM( Rs P. WYLIE. OHIO HENRY J. HYDE. ILL. GEORG(' HANSI N, IDAHO JIM LEACH, IOWA CA R ROLL A. EA NIPBELL. JR.. S.C. CD BETHUNE. ARK.  SUBCOMMITTEE ON FINANCIAL INSTITUTIONS SUPERVISION. REGULATION AND INSURANCE OF THE  COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS NINCTY-SIXTH CONGRESS  WASHINGTON, D.C. 20515  December 9, I,JI  Mr. Anthony M. Solomon President Federal Reserve Bank of New York New York, New York 10045 Dear Mr. Solomon: Thank you very much for your letter of December 3 discussing the oPIeration of the discount window and your philosophy of how this window should relate to thrift institutions. However, I believe that Public Law 96-221, rather than past practices, will be the governing factor in how the Federal Reserve System must administer the discount window. That Act, as you recall, specifically states that any depository institutions in which transaction or non-personal time deposits are held "shall be entitled to the same discount and borrowing privileges as member banks." P.L. 96-221 further instructs the Federal Reserve, in administering the discount window, to take into consideration the special needs of thrift institutions 11 consistent with their long-term asset portfolios and sensitivity of such institutions to trends in national money markets." In summary, the law clearly says (1) open the discount window to thrifts, and (2) tailor the administration of the window to take into account the long-term nature of the thrifts' portfolios. I realize that the Federal Reserve has utilized the discount window for a variety of purposes for the commercial banking industry and it is only natural that an agency, now 67 years old, has surrounded the discount window and other functions with what many may regard as inviolate tradition. P.however, is now the law and the Federal Reserve, like the entire financial community, must adjust to the requirements and changes mandated by the Congress. I must say that the Federal Reserve was given the fullest opportunity to participate in the hearings and other deliberations before P. L. 96-221 was enacted with the new mandate for operation of the discount winISw.  de  Mr. Anthony M. Solomon  December 9, 1980  Page Two  For a number of years I have been very interested in the manner in which the discount window is utilized in the different Federal Reserve districts and this current discussion over the extension of the window to thrifts only serves to further whet my desire to learn how this window , can and should be administered. Dependent on other legislative schedules think it may well be useful for this Committee or one of its Subcommittees to study the discount window in detail in the next Congress, to determine how and when it has been used in the past, and how it might be used in the future taking into consideration the mandates of P. L. 96-221. Since the law has been in effect since last March 31 and since it Is reasonable to assume there are ongoing needs of the thrift industry in your district, I would hope and trust that there woull be quick resolution of any remaining questions regarding the operation of the discount window under the new mandate. Again, thank you very much for keeping me informed on the New York Federal Reserve Bank and I am looking forward to learning how you implement Public Law 96-221. Sincerely,  . St Germain nd U. ,h irman FJStG:mLr  Lecv:-.L4Jr  101 190  The Honoranle eenry S. RC4Slit Chairman Committee on banking, Finance and jrben Affairs house of 14opresentatives Weshineton, L.C. 20515 Dear Chairman Reuse:Thank you for your letter of Noveeber 20, regarding the L.onitoring of compliance with Section 603 of tie HousInc and Ce=unity Development Act of 1980. It appears that there is some ambiguity in the legislative history regarding the role of the Community Reinvestment Act in the enforcement of Section 6A. The lesislative history reflected in the discussion between yourself an‘l Congressman Wylie on trio souse floor indicates that tLe Congress did not intend that Section 401 be taken into account under the Ce3runity Reinvestment Act. The legislative history ref1ecte..1 in tae Senate ee'estee indicated that if a lender acted in a way deemed to i.;e contrary to the sense of the Congress, it would oe taken into account in aasessincl the lender's record under the Col:munity Reinvestment Act. As I stated in my letter to you of Novelaber 3. 1980, we intene to inform state member Lank* as well as community organizations about the expression of public policy contained in Zection 603. Wrier our examiners are examining banks under our supervision, they will be inquiring whether the bank has LAMA financinc conversions of rental property. We will counsel state weber banks, which have had a part in financing those ,projects, about the sense of Congress an0 the legislative history in Section 603. We anticipate that various sources, including consumers and coimunity based organisations. will bring specific exaliiples to our attention where conversions have had adverse 1. p - act on low- and moderate-inemte tenante. The examination troce6ures used in CPA examinations call for the extv4iners to assess a bank's record of performance  The kage Iwo  ilenry S.  &c•  by using twelve factor. (Alti factor calls for examiners to assess, "other factors that, in the Voardis judgment reasonably i:uar ion the extent to wnich a State v.eiziaer tanke is helping to 7.eet the credit ncet4s of its entire community." The proceL,ures list several axei41es of the factors the Board had in 1-And, including ewhether the institution's policies prospote e.Cforts to assist existing residents in neighborhoods undercing a process of reinvestcent and aanve." We have used tais exarle as a way of teechinc our ehaminere to be *ensitive to the proidlevis of displacement I;(> that they will recognise anu(Ave credit to lenders who participate in innovative methods of revitalixinsi neiborhoods in ways we.ich can help minimize dis;Jacement of existing residents. We have informed our exe:Linors about the proqrams of the Neichborhood Reinvestment corporation, 1,articularly Neir;hborh000 housinc services, as well ills governt proc;ra:as sucl, as 1..1D 1 s Section 8 program, so tiiat they will I-4e knowledgeable about ways to minimise dis;v1acent. We intend to keep training our examiners shout thus* an other prograns so they can assist state nemider banks to or effectively help meet the credit needs of their coz-v.u-  If I can  I aope this has been responsive to your questions. of further assistance, please contact re. Sincerely, SiPaul A. Iluicitec  JKB:pjt (V•417) bcc: r4 Llaeldel k:rs. mallardi (2)%0/  ,4Y n. REUSS, VVIS., CHAIRMAN lk L CHOMAS L. ASHLEY, OHIO WILLIAM S. MOORI-IEAD, PA. FERNA`10 J. ST Gr:RMAIN, R.I. HENRY B. GONZALEZ. TEX.  Jost.rt4 G. MINIs14, N J. FPANK A•'NUNTIO. ILL. JAVIrS M. HANLEY, N.Y. PARREN J. MITCHF_LL, MD.  • U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  %VALTER E. FAUNTROY. D.C. STEFFIF.N L. NEAL, N C. JERRY M. PATTEPCON. CALIF. JAMES J. BLANCHARD, MICH. CARROLL HUDrAf“;), .31.4.. Ny,  NINETY-SIXTH CONGRESS 2129 RAYBURN HOUSE  JOHN J. LAFALCE. N.Y. GLADYS NOON SPELLMAN. MD. LES AuCOIN. onro. DAVID W. EVANS, IND. NORMAN E. D'AMOURS, N H. STANLEY N. LUNDINE, N.Y. JOHN J. CAVANAUGH, NEBR. MARY POSE OAKAR. OHIO  OrFICE  RUILC,ING  J. WILLIAM STANTON, OHIO CHALMERS P. WYLIE. OHIO STEWART B. McKINNEY, CONN. GEORGE HANSEN. IDAHO HENRY J. HYDE, ILL. RICHARD KELLY. FLA. JIM LEACH. IOWA THOMAS B. EVANS. JR.. DEL. S. WILLIAM GREEN, N.Y. RON PAUL. TEX. ED BETHUNE. ARK. NORMAN D. SHUMWAY, CALIF. CARROLL A. CAMPBELL, JR., S.C. DON RITTER, PA.  WASHINGTON, D.C. 20515  JON HINSON, MISS. 223-412417  November 20, 1980  JIM MATTOX. TEX. BRUCE F. VENT°. MINN. DOUG BARNARD. GA. WES WATKINS, OKLA. ROBERT GARCIA, N.Y. MIKE LOWRY. WASH.  Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System 20551 Washington, D. C. Dear Chairman Volcker: On October 15, 1980, Congressman St Germain and I wrote you regarding section 603 of the Housing and Community Development Act of 1980. In that letter, we posed three questions concerning your plans for implementing section 603. I now have an additional question I would like you to answer: How do you intend to keep informed of whether or not a financial institution makes loans in compliance with section 603? I would like you to describe your system for monitoring the loans of your members to ensure that the spirit of section 603 is being observed. I note with interest Senator Harrison Williams' letter of November 10, 1980 in which he urges you to incorporate section 603 He refers into the Community Reinvestment Act examination process. to a statement made by Senator William Proxmire that loans made in violation of section 603 should be taken into consideration when assessing a lender's record for Community Reinvestment Act purposes., Upon reflection, I find their concept intriguing and would appreciat4 your views on it. Sincerely, ) Reuss Henry Chairman  •••p  J. ST GrrtmAIN. R.I.. CHAIRMAN .-.4•411‘ ANNUNZIO. ILL. JAmps M HANLEY. N.Y. CARROLL HUPRARD, JR., KY. JERRN M. PATTERSON. CALIF. THOMAS 1. A41  Y. 01410 NORMAN E. 0 AMOUR. N H.  JOHN J CAVANAUGH. NEBR. JIM MA, 10X, TEX. joscpm Q MINISH. NJ.  •  U.S. HOUSE OF REPRESENTATIVES  P. WYLIE. OHIO HENRY). HYDE. ILL_ GEORGE HANSEN. IDAHO JIM LEACH. IOWA  CARROLL A. CAMPBELL Ali, B.C.ED BETmuNE., ARK.  SUBCOMMITTEE ON FINANCIAL INSTITUTIONS SUPERVISION, REGULATION AND INSURANCE OF THE  WALTER (. FAUNTROY, 0 C. DOUG BARNARD, GA.  •  cviALmt ns  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-SIXTH  CONGRESS  WASHINGTON, D.C. 20515  #S7t)  December 11, 1980  •  Honorable Frederick H. Schultz Vice Chairman, Board of Governors Federal Reserve System 20th and Constitution Avenue, N.W. 20557 Washington, D.C. Dear Governor Schultz: As a follow-up to my meeting with you of this morning, I am submitting this letter through you to the Board of Governors requesting the Board to respond to me in the same tone as that of our meeting. Assuming the severity of the liquidity and/or earnings problem of the thrift industry, both within the immediate and foreseeable future, what contingency plans does the Board have to address the long-range structural problems of the thrift industry or the short-term problem of returning thrift portfolios to a point where their asset structure more closely matches their liability structure. 'What benefits, costs, or other results would such a contingency plan achieve? Would you please request that your staff and the Board address any recommendations the Board might have to remedy the current difficulties of the thrift industry. I would hope that such discussions would include a reconsideration of the Board's policy concerning thrift institution access to the Federal Reserve discount window. For your convenience, let me quote the pertinent section of Public Law 96-221 which refers to discount and the borrowing authority: "(7) Discount and Borrowing -- Any depository institution in which transaction accounts or nonpersonal time deposits are held shall be entitled to the same discount and borrowing privileges as member banks. In the administration of discount and borrowing privileges, the Board and the Federal Reserve banks shall take into consideration the special needs of savings and other depository institutions for access to discount and borrowing facilities consistent with their long-term asset portfolios and the sensitivity of such institutions to trends in the national money markets."  14.1111111111111111111111111111Milallt  Hon. Frederick H. Schultz December 11, 1980 Page Two Reserve Pegulation This statutory provision, combined with Federal ng to "Extended Credit A, in particular that section of regulation pertaini statutory and and Exceptional Circumstances" appears to be adequate res, thrift access regulatory mandate to provide, if the Board so desi I would hope that you would also consider a to the discount window. ow and some form combination of easier atcess to the discount wind ent in its apparent of government assistance; or if the Board is adam ount window access is position that under current circumstances disc rnment assistance unavailable to the thrift industry, what form of gove would the Board recommend? the Federal If the Board believes that existing authorities of Federal Deposit Insurance Reserve, the Federal Home Loan Bank, and the itude of the current Corporation are insufficient to address the magn ions, what legislation, and long-range problems facing thrift institut statutory limitations. if any, would it recommend to address these ve(s) of the Board It would be appreciated if a representati ) of the Federal Deposit would consult with appropriate Board member(s Board so their input can Insurance Corporation and the Home Loan Bank be incorporated into your considerations. of the situation, In recognition of the magnitude and severity views on an expeditious request that you and/or the Board submit your basis. Thank you for your cooperation. Sincerely 4  St Germain n, Subcommittee on air inancial Institutions Supervision, Regulation and Insurance  .• • F GOVt' • : • co  BOARD  _•) .. 0-  OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  December 11, 1980  RAL RES • •..• •  PAUL A. VOLCKER CHAIRMAN  •  The Honorable Fernand J. St Germain Chairman Subcommittee on Financial Institutions Supervision, Regulation and Insurance Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman St Germain: The Board has appointed eight new members to its Consumer Advisory Council, to succeed those persons whose terms expired this year. Mr. Joseph N. Cugini, whom you recommended for appointment, was among those selected to the Council. The selections were made from more than 900 nominees this year and the Board was pleased at the large number of highly qualified individuals whose names were submitted for consideration. For your information, I am enclosing a press release announcing the Board's selections . We very much appreciate your interest in the Council and thank you for recommending Mr. Cugini. Sincerely,  0.0.14Wlyjt Enclosure  bmis  Jhima Marls ixay Ws. Nollarti (2)  adoWANIL ltrs. also sont to.  .:.,4,c.at.ors tort, Gam, Cranston' (sigasd Paul), sad Cong. 00141w/tor  BOARD OF GOVERNORS  ofto.  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 205S1 40.  December 15, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Ronald M. Mottl House of Representatives Washington, D. C. 20515 Dear Mr. Mottl: I appreciate the opportunity to res pond to your letter of December 1 on the conduct of monetary policy. You express concern, which I share, about our high and sharply fluctuating interest rates and you urge the Federal Reserve to abandon its new technique s for controlling the money supply. I commented about the broad thrust of monetary policy and about our new operating procedures in recent Congressional testimony. As I indica ted in my statement, it may be possible to improve those procedures and some months ago I requested our staff to review them thoroughly. However, while improved technique s may be helpful, the general thrust of monetary policy alo ng with appropriate fiscal and other economic policies are much more important in solving our nation's fundamental economic problems. Progress toward reducing the rate of inflation and restoring the growth and pr,oductivity of our economy will lead to the lower and more stable interest rates that we all want. For your convenience, I have enclos ed a copy of my recent Congressional statement on these issues. I would be pleased to discuss these vit al questions further at a mutually convenient time. Sincerely, S/Paul A. Volcker,  Enclosure (11/19/80 statement) NB:vcd (4V-422) bcc:  Mr. Bernard Mrs. Mallardi (2)  ROBINDEARD 6Tt4 DISTRICT. TENNrssrr  DisTRK- T orricrs• 5575 Pori-4w Surrt 815  MEMPHIS. TENNtrvsEr WAIIINGTON ornct . 229 CANVIONI 14r.k/CT: OT ICU OolLCIING WA sp4INGrou. 0 C. 20515  (202) 225-2811  Congrc5s' of tOc Zinitcb  tatc5  ji)otifSe of 3Arpregnitatibt5  22 PURLIC SQ.lA Pr CoLtpusii.. TENNtssrr 38401 (615) 388-2133  611agbington, ae. 20315 November 24, 1980  Paul A. Volcker Chaiman Federal Reserve System 20th and Constitution, N.W. Washington, D.C. 20551 Dear Mr. Cha i nm I am enclosing for your review a copy of a letter I received from Mr. John David Douglas of Somerville, Tennessee regarding the Report of Transaction Accounts, Other Deposits and Vault Cash, form FR2900. I believe it is self-explanatory. I would appreciate it if you would review the merits of this letter, and let me know if there is any possible way in which you might be able to lessen the frequency of reporting for this bank. Thank you for your attention in this request. ,1 Vith warm regards. Since ely,  ft '  I: bin Beard, M.C. RB/wl Enclosure  38119  (901) 767-4552  •  ir  H  ,.'  V. e•Pres-Jcnts P. BULL E JOHN DAVID DCUGLAS  OH L .' - W  (ü1 0‘.1 /  Vtce  vm,T.  Twit;K As; Tit  P:74114.AZ VILLE BB  f1- • J  ‘4.11,11,411  I 11 I .,.  .•••••  41 1111i ,  _  vv.4. 14 :41 ji" Assistant Cashiers  :z-it cs, MARJORIE L  CET TY 1-10Vi ELL  14().11Kitvii.a.c.  !.•  ViLe -Pre- i W. H. REID R  PRISCILLA LANGDON 'ATf-ERYI‘J S. McCASKILL  '  ,  'TEN( P. SANDERS  HARrr  DALTON BYRD LILLIAN R PLII.L I AM STEPHEN H SHE L TON  1 - r•• .• r••••  1,0  h'r,  1-.1  t '  $  •  Trnn site ti rn L".. - t.'10 ron'1i t..)(i ' i'eclern 1 rrc ve'i "quit •"-,:-;ks" , F . 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BOARD OF GOVERNORS OF THE  1.-•., : , ••  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  A . (').  December 15, 1980  RAUL A. VOLCKER CHAIRMAN  The Honorable Adlai E. Stevenson United States Senate Washington, D. C. 20510 Dear Senator Stevenson: On behalf of all the members of the Boar d, I am pleased to respond to your letters about Edge Corporations and the "quaed business entity" (QBE) proposal. As you recognize, the Board in proposing the QBE conc ept sought to carry out the mandate contained in the Internat ional Banking Act of enhancing the ability of Edge Corporations to further the trade of the United States. At the same time, the Board sought to achieve this objective without changing the inte rnational character of Edge Corporations and allowing them to intrude unduly into domestic banking. The QBE proposal provoked substantial disagreement in the banking industry. The large bank s generally supported the proposal while most regional and smaller banks argued that it would permit Edge Corporations to engage in domestic business, thereby violating the spirit if not the letter of the McFadden Act and section 3(d) of the Bank Holding Company Act. Some suggested that the matter should be resolved by Congress and not by the Board. The Board postponed action on the proposal and instructed the staff to review the issu e further and to explore alternative approaches. Since then, staff has proceeded with that review and held further discussi ons with interested parties including Edge Corporations them selves and regional banks. This past summer, the Board rece ived a new proposal on the subject from the Bankers Associat ion for Foreign Trade which is currently under staff review. It is currently contemplated that the issue will be brought back to the Board early in 1981. During this same period, the staff has been moni toring the- experience of Edge Corporations under the revised Regulation you will recall, the revision did in 't'4II several respects the rules applicable to the operation of Edge  S  MIL  •  The Honorable Adlai E. Stevenson Page Two  Corporations. One of the liberalizing actions was to authorize domestic branches for Edge Corporations . Another was to enlarge their ability to finance production for export. The Board's report to Congress on the Internationa l Banking Act pointed out the marked expansion in Edge Corporat ions and Edge Corporation offices since the revision of the regu lation. This expansion has occurred both in cities where Edge Corporations have traditionally been located and also in citi es where there had been no previous representation. This rapid growth furnishes clear evidence that U. S. banks perc eive an increasing number of locales as viable markets for inte rnational financial services, including trade financing, of the kinds provided by Edge Corporations. In closing, I would like to assure you that when the QBE question comes before the Board for consideration, your views will be again brought to the attention of every Board member. Sincerely,  FRD:DJW:vcd (#V-421) bcc:  Fred Dahl Mrs. Mallardi  A Action assigned Fred Dahl ALAI E. STEVENSON ILLINOIS  •  'ZICTlifeb Zfafes Zenate WASHINGTON. D.C. 20510  November 25, 1980  Paul A. Volcker, Chairman Board of Governors Federal Reserve System 20th Street and Constitution Avenue Washington, D.C. 20551  g;1  Dear Mr. Volcker: I have reviewed the Federal Reserve Board's Report of September 17, 1980, on the International Banking Act of 1978 (IBA). While the Board has adopted several regulations which should make U.S. banks more competitive with foreign banks and expand the role of U.S. banks in promoting U.S. exports, I am deeply concerned that the Board has delayed action on the important regulatory revision dealing with "qualifying business entities" (QBEs).  W•j1  r7rImmool  64;444  The IBA required that regulations which would disadvantage or unnecessarily restrict Edge Corporations be modified. The present prohibition against permitting these corporations to provide full service banking to entities whose business is primarily in international commerce discriminates against U.S. banks which must compete with foreign banks providing these services, and inhibits the production of goods for export. The Board, in its proposed regulation on this matter, recognized the limitations of current regulation limiting export financing to the shipment and storage of goods for export. The Board was on point when it declared: Under current rules and policies of the Board each deposit and credit transaction by a United States resident must be directly related to an international transaction. The Board's strict interpretation of the statutory requirement has resulted in Edge Corporations being unable to fully service, and compete effectively for the business of, firms specializing in international trade. Moreover, these rules have placed an administrative and supervisory burden on both Edge Corporations and the Federal Reserve System. The proposed approach would reduce these burdens and enlarge the ability of Edge Corporations to provide international financial services and, in this way, would be consistent with the new expression of legislative intent contained in the IBA. Those United States residents  • S  •  'Paul A. Volcker November 25, 1980 Page two  that do not qualify as international customers would continue to be able to obtain limited banking services directly connected to international transactions. While the more liberal test that 1/2 or more of a QBE's purchases or sales be in international commerce would have been preferable, the 2/3 test proposed by the Board is an acceptable compromise. 41e:' c-'  The international trade dilemma of the U.S. is well-known to the Board. The latest statistics highlight the problem: in September 1980, exports fell 2.1% to $18.7 billion, imports rose 1.2% to $19.5 billion, and the U.S. trade deficit grew to $764 million. This is but a continuation of the trend since 1977. The unsettling fact is that foreign banks are supplying much, if not most, of the financing for U.S. exports. According to a study by the Export -Import Bank, foreign banks finance one-third of all U.S. exports, while U.S. banks finance only 7% of U.S. exports. As the author of the Edge Act provisions of the IBA, I intended to enable Edge Corporations to compete with foreign banks and facilitate and stimulate the export of U.S. goods and services with full banking service for U.S. firms which are predominately engaged in importing and exporting. To comply with the legislative mandate of the IBA and prevent further erosion in the U.S. international trade position, I urge the Board to adopt the QBE regulation it proposed on February 14, 1979 and for the reasons it then stated. With thanks for your attention to this matter, Sincerely,  a(Asi ///,64_40v),  g.-••  .  '  rollmop.  -  •  A  (11-(475)  0V• GOvt • •  HOARD OF 50VERNORS  0.  OF THE  • c) • -n  FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20 551  December 18, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Henry J. Nowak Chairman Subcommittee on Access to Equity Capital and Business Opportunities Committee on Small Business House of Representatives Washington, D.C. 20515 Dear Chairman Nowak: Thank you for your letter expressing conc ern about the impact of current high interest rate s on small businesses and summarizing your Committee's recommen dations for monetary policy as contained in the report on "Fed eral Monetary Policy and Its Effect on Small Business." We at the Federal Reserve share your conc ern about the burden that high interest rates impose on small businesses. We recognize that the heavy dependence of small companies on shortterm bank credit makes them vulnerable to increases in interest rates, especially since their access to alternative sources of funds generally is limited. High inte rest rates are primarily a result of the rapid rate of inflation we have experienced and of expectations by the public that price increases will continue. The only effective way to reduce inte rest rates over the long run--and thereby provide a reasonably stable financial environment for large and small firms--is to curb underlying inflationary pressures. The Federal Reserve is committe d to a policy designed to reduce inflationary pressures over time by gradually moderating the growth of money and credit. In pursuit of this goal, the Federal Rese rve since October 1979 has sought to restrain monetary expansion by controlling the growth in bank reserves. This reflects a change in operating procedure from one that prev iously had focused on influencing short-term interest rates; the change was undertaken in order to improve the System's control over growth in the monetary aggregates. But the new proc edures also have meant that interest rates have moved more rapi dly in response to changing market forces and therefore have been subject to more volatility than in the past. Indeed, the rise in interest rates since August in large part reflects an upturn in money demands associated with the rebound in economic activity and renewed inflationary expectations. While the Fede ral Reserve could hold down short-term interest rates temporar ily by accommodating these accelerating money and credit demands, such a policy would greatly aggrevate the inflationary spiral and like ly lead to still higher interest rates over time.  The Honorable Henry J. Nowak Page Two  We realize that in the near term our efforts to slow monetary growth may cause pro blems for small business bor rowers and others. In this regard, we continue to encourage com mercial banks to make special effort s to meet the needs of their small customers as credit condition s tighten. Under the specia l credit restraint program earlier in the year, many large banks rep orted they had instituted special programs to accommodate small customers, including in some cases a dua l prime lending program. We pre sume that many of these programs are still in place. The Federal Reserve has avo ided, however, setting specif guidelines on the terms of ban ic k lending to businesses. The determination of interest rates and other loan terms must tak e into account borrower needs and characteristics as well as genera l market conditions, and such factors can be appropriately det ermined only by direct interaction bet ween individual lenders and bor rowers. If rates are set independentl y of risk and other individua l loan considerations, substantial distortions in credit flows may occur, including a possible reduction in the availability of credit to small businesses. The Federal Res erve strongly opposes the use of reserve requirements as a means of cha nneling credit to particular sectors or groups within the economy. Such credit allocation progra ms-for small businesses or other deserving groups--would make it much more difficult to carry out aggregate monetary and cre dit policy, as well as distort the flows of funds in private cre dit markets. We believe a direct subsidy program would be a mor e efficient and explicit means of meeting the credit needs of small businesses if the Congress det ermines such subsidies are des irable. In the meantime, the Federa l Reserve will continue its efforts to slow inflation and hope that relief from interest rate pressures will come soon. Thank you again for your let ter. Sincerely,  VIS:NO:ES.JLK:pjt (#V-425) bcc: Mr. Kichline Mr. Mains s. Stockwell Ms. Scanlon mallardi (2)./  •  4 .•  .•  f GOV4-•.c.)..  BOARD OF 30VERNORE  C.  OF THE •m  oLQ  I- • •  .‘•41 RES • • •.• •  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20E51  December 22, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Mary Rose Oakar House of Representatives Washington, D. C. 20515 Dear Ms. Oakar: I certainly appreciate the concerns expressed in your letter of December 10 about the difficulties being generated by recent high levels of interest rates. And I share your hope that these rate levels will not be long lasting. But the surest way for the rates to be of short duration is for the Federal Reserve to attain its monetary targets. If we attempted to drive rates down "artificially" by pumping in bank reserves, that would only cause the money supply to increase further, thereby fueling inflationary pressures, and ultimately leading to even higher interest rates. At the same time, I, like you, would prefer less volatility of interest rates than we experienced last year. That will probably be a natural by-product of bringing inflation under control and if significant exogenous shocks to the economy--such as large oil price increases or an unexpected widening of the budgetary deficit--can be avoided. Finally, you mention the need to re-evaluate our present operating procedures. We have had such a project underway for a few months now, and I may be able to indicate, at least preliminarily, findings at the time of our February report on monetary targets under the Humphrey-Hawkins Act, Sincerely,  itiV-4d47) ucc  A. Aauilrot. ors. 144114r4  I ,  IN,^411 I ROSE OAKAR  015 TRICT OFFICE: 523 F ;,C PAL COUNT Elum.r,mo 21 5 SI/Pr/410R Ay,.411E CLr‘r(A:./n, 0,410  44114  (216) 522-4927  •  41  2.0rfs Disrn Cr. OHIO  COMMITTEES: BANKING. FINANCE AND URBAN AFFAIRS POST OFFICE AND CIVIL SERVICE  Congre55 of ayZUiiitcb*tatt5 3t)ottge of 3ArprOttitatibeg  WASHINGTON OFFICE: 107 CANNON Hot.r:r OFFICE QUILDING  SELECT COMMITTEE ON AGING  Chair, Task Force on Social Security and Women  Wrigbington, Ile. 20515  WASNINGTCN. D C. 20515 (202) 225-5871  December 10, 1980 Honorable Paul Volker Chairman Federal Reserve System 20th and Constitution Avenue N.W. Washington D.C. 20551 Dear Mr. Chairman: It is with utter dismay that I continue to read economic predictions that interest rates will continue to rise and may even hit new highs in 1981. As you know, following the raising of the discount rate by the Fed last Thursday from 12% to 13% (plus a surcharge of three percentage points to big banks), most major banks on Friday boosted their prime rate to 19%. Many analysts have warned that the prime will exceed 20% shortly. Where will it all end? It is my fear that the continued scarcity of credit and continuing spiraling of interest rates will so severely handicap consumer spending and business investment that unemployment will continue to grow at an intolerable rate creating a severe crisis in our national economic growth. Frankly, I think it is time for the Fed to review its policy of monetary restraint (now over a year old) and more specifically, to re-evaluate that part of the Fed policy which places an emphasis on the control of bank reserves as a means of achieving better control of money stock as opposed to the traditional policy of paying closer attention to interest rates. I need not remind you what the volatile interest rates have done to the auto and housing industries. Without belaboring the point, this week I received calls from three small businessmen, all constituents of mine. All three are filing for bankruptcy because they can no longer borrow needed capital to continue their businesses I am concerned that these examples will prove to be just the tip of  •  2  the iceberg if the Fed's current tight monetary policy remains totally inflexible. My concern is exacerbated when Today's Wall Street Journal quotes Frederick Schultz, Vice Chairman of the Fed as saying "the risks of overkill are less than the risks of underkill." Very frankly, Mr. Chairman, I do not agree with Mr. Schultz and if his statement is typical of current economic thought at the Fed, then I see no alternative but to have the House Banking Committee, on which I serve, address itself to possible remedial legislation regarding current powers entrusted to the Federal Reserve System. I will end on a somewhat optimistic note. Indeed, it is encouraging that there are some at the Fed who are concerned that the Federal Reserve may do severe economic damage by driving up the interest rates. Board Member, Nancy Teeters voted against the latest two increases in the discount rates, and she apparently feels that these increases are driving the market interest rates too high. I concur and would strongly encourage other Members to follow suit. Sincerely, / 2  / Mary Rose Oakar Member o Congress MRO:efr  •  •••  C  ',c)0? GOV4 •  BOARD OF r3OVERNORS OF THE  FEDERAL RESERVE SYSTEM  •  •  WASHINGTON, O. C. 20651  •. RAL RES" •  •• • • • •  PAUL A. VOLCK ER CHAI RMAN  December 22, 1980  The Honorable Fernand J. St Germain Chairman Subcommittee on Financial Institutions Supervision, Regulation and Insurance Committee on Banking, Finance & Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman St Germain: Your December 11 letter to Vice Chairman Schultz asks the Board to consider polidy options that might be adopted to help "reme dy the current difficulties of the thrift industry". While I discussed answers to your questions with Governor Schultz before he was called out of town, he asked me to convey the substance of our conversation to you. As he indicated in his discussion with you earlier this month, the Board --in conjunction with other supervisory agencies--has had the difficulties of the thrif t industry under intensive and continuing review, and will be consulting further with these other agencies in the new year. In characterizing the current difficulties of the thrif t industry your letter refers to the severity of the industry's "liqu idity and/or earnings problem". It is important to note that altho ugh an "earnings" problem can lead to a "liqudity" problem, these two types of difficulties are quite different and consequently call for rather diffe rent remedies. The discount window is designed to help institutions deal with liquidity but not with earnings problems. Presently, the primary problem facing thrift institutio ns is a deficiency of earnings. The interest costs of maintainin g thrift fund flows have escalated rapidly because thrift liabilities are essentially shortterm and have had to be rolled over at steeply rising inter est rates, whereas their assets include a sizable proportion of longer-term mortgages that carry returns well below present deposit costs. Thus far, the thrifts have generally Continued to pay the high interest rates needed to attract deposits. In fact, some have used a sizable share of resulting deposit inflows to acquire relatively short -term high yielding assets in lieu of mortgages thereby improving their earnings at the  •  • 2  the margin. While this approach has not provided enough interest income to offset the drag on earnings of the low-yielding mortgages already in their portfolios as the mass of maturing money market certificates has been rolled over, it has helped to maintain a fairly comfortable cushion of liquidity. The discount window of the Federal Reserve System is available to help meet the needs of any eligible depository institution faced with temporary liquidity strains, so long as the institution is in a solvent operating position. We believe this is in accordance with the letter and spirit of the Monetary Control Act. Before seeking such assistance, institutions-whether banks or thrifts--are expected to turn first to their reasonably available alternative sources of funds, either in the market or from other lending institutions. Thrifts, of course, can obtain funds from the Federal Home Loan Bank System or from other special industry lenders, as well as in the market. From recent contacts of our Federal Reserve Banks with thrifts, we expect that a few such institutions may, in fact, soon find it appropriate to have recourse to the "window" for limited periods. Thus, our general approach to use of the discount window in meeting such short-term liquidity needs is, as directed by the Act, no different for thrifts than for commercial banks. In addition, as the Act also directs, our recently revised regulation for administering the discount window includes a program that specifically "takes into consideration the special need of savings and other depository institutions for access to discount and borrowing facilities consistent with their long-term portfolios and their sensitivity to trends in the national money markets". This provision of the Act was inserted against the background of repeated episodes of so-called disintermediation, when thrifts were either experiencing or being threatened with a prolonged inability to compete effectively in markets to maintain their liquidity and asset positions. Accordingly, our clear understanding is that this statutory directive means the discount window should be available to assist depository institutions with longer-term assets when they are confronted with serious prolonged strains on their liquidity arising from an inability to sustain deposit Inflows--a circumstance that might become rather general at times of high interest rates. Contrary to our usual practice of encouraging rapid repayment of discount window borrowing, assistance for thrift institutions in these circumstances should he available for rather extended periods. Such arrangements contrast sharply with the short-term adjustment dredit lending-running from one day to a very few weeks--that has been provided for dommercial banks in the past and is also now available to thrift institutions meeting the same criteria as banks. Because of the generally ample, and even of the thrift industry today, it is not surprising not been used. Nevertheless, it is important that in place-which it is--against the possibility that will arise.  improving, liquidity position that our new facility has the policy be understood and generalized liquidity strains  a.  •••  3  Important as this new faCility may.at times become, we have never concv1ve0 of the discount window as a means of deliberately subsidizing the operAtions of hanks or other depository institutions and find no legislative basis for such a determination. Consequently, the discount window is not designed to deal with the earnings problem of thrifts, as differentiated from their liquidity needs. Any plan for Federal Reserve loans at low interest rates to institutions with ample liquidity, simply because they are confronted with a protracted earnings problem, would change the fundamental nature of the window. Among other things, if such a plan were to he effective, it would require Federal Reserve lending on a scale far beyond any amounts heretofore contemplated. It would release a very large volume of reserves to the banking system and risk imperiling our ability to meet our reserve and monetary targets. In addition, it would require setting the discount rate, not to facilitate the needs of general monetary policy but rather on the basis of earnings criteria. To the extent earnings of thrifts were so benefited, Federal Reserve earnings and ultimately Treasury receipts would be reduced without clear legislative authority. While we do not believe that the Federal Reserve discount window is an appropriate vehicle for the deliberate subsidization of thrift industry earnings, that does not mean that the window would be ineffective in dealing with a prolonged liquidity squeeze, since it does provide a potentially critical "backstop" for protecting the general stability of the industry. We are fully aware of the harsh realities of the earnings problem now facing thrift institutions; they are the subject of the inter-agency concern to which I alluded earlier. In line with your suggestion, we will keep you Informed as this interchange of ideas with other agencies continues, looking toward practical approaches for dealing with whatever problems arise--including possibly proposals for new legislation. th.  (Vet-duttei 'pat.  .  jqttii  ;7Ezt)ea7(Peed,  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, 13. C. 20551  December 24, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Al Ullman Chairman Committee on Ways and Means House of Representatives Washington, D.C. 20515 Dear Al: Thank you for your letter of December 15, concerning the reservability of deferr ed compensation accounts und er Regulation D. As indicated in your letter, the se accounts, are maintained and controlled by employers in accordance with IRS requirements. Because of thi s, Regulation D currently req uires that these funds be regard ed as nonpersonal time deposi ts, subject to a 3 per cent res erve requirement. I have ask ed the Board's staff to review this matter and present to the Board its recommendations for a possible amendment to Regulation D. I anticipate that this matter will be considered by the Board in the near future. Sincerely,  S/Pauli64011440t  GTS:pjt (#V-431) bcc: Gil Schwartz Mrs. Mallardi (2)-°' Legal Records (2)  AA"SSLgiiu M. 1PLersen  AL lriLMAN 2001sTnicT. OREGON  CHAIRMAN. COMMITTEE ON WAYS AND MEANS JOINT COMMITTEE ON TAXATION  Congte55 of tbc Unita' tatt5 3i)ott5t of ileprrgrntalitie5 IZIaribinton, 13.C. 20515 December 15, 1980 Mr. Paul Volcker, Chairman Federal Reserve System Twentieth Street and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Paul: On August 1, 1980, I wrote to you regarding the treatment of deferred compensation accounts under Regulation D. My concern was that the Board would define "nonpersonal time deposits" in such a way that these accounts would be reservable. On October 22, 1980, Gerald A. Kerans of Equitable Savings and Loan wrote you to ask for a ruling on the deferred compensation accounts they hold for the State of Oregon and other public and private tax exempt employers. Gilbert T. Schwartz of your staff replied on November 14, stating that under the regulations, it was the opinion of the Federal Reserve that deferred compensation accounts would be subject to reserve requirements. I am writing to ask that you consider regulatory action to correct this problem. Deferred compensation plans were established pursuant to section 457 of the Internal Revenue Code. In order to meet IRS requirements, these plans were set up to maintain employer control over the funds in a technical sense, while allowing them to function in the same manner as IRA and Keogh accounts. The effect of imposing reserve requirements on deferred compensation accounts will be to put them in an untenable position. To meet IRS requirements the institutions must maintain the current employer-employee financial relationship. However, to do so will now make the accounts subject to Regulation D reserve requirements. In view of the fact that these accounts are similar to IRA and Keogh accounts, I belive it is reasonable to exempt them from reserve requirements as well. Thank you for your attention to this  1410*. AU:jsb  ,AL ULLN1AN n  CHAIRMAN. COMMITTEE ON WAYS AND MEANS  licc-r. ornrc.c•i  JOINT COMMITTEE ON TAXATION  Congtr55 of tin Ztiniteb  tatr5  3i)ouiSt of ikepresentatang Watbington, ;:3.e. 20315 August 1, 1980 Mr. Paul Volcker, Chairman Federal Reserve System Twentieth Street and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Paul: On June 4, 1980, the Federal Reserve Board issued for public comment a proposed Regulation D which would implement the reserve requirement provisions of Public Law 96-221, the Monetary Control Act of 1980. The Board proposed to define deferred compensation accounts as "nonpersonal time deposits" under the meaning of Section 103 of the Monetary Control Act. Reserve requirements would be extended to IRA and Keogh accounts as well. While the Board may technically have the authority to make deferred compensation accounts reservable, I believe it would not be consistent with sound monetary policy to do so. Deferred compensation accounts do not function as demand deposits and thus have little or no effect on monetary policy. They are designed, along with IRA and Keough accounts, to provide for retirement income. As such, they serve the same function as any other pension trust. Reserve requirements could significantly strain the resources of many savings institutions. The cost of providing deferred compensation plans will increase, and it will remove part of the money supply which could be used for home loans. Additionally, it will affect the competitive position of savings institutions vis-a-vis other institutions which have retirement accounts not subject to reserve requirements. The Board may have a legitimate fear that deferred compensation accounts could be abused if not subject to reserve requirements; I believe the regulations could be altered to prevent this, while still exempting deferred compensation plans from Regulation D as it would apply to nonpersonal time deposits. At the least, I hope the Board can exercise its statutory discretion, as provided for in Section 19(b)(2) of the Federal Reserve Act, and prescribe a reserve ratio for deferred compensation deposits of zero. Thank you for your attention to this matter.  AU:jsb  •  S HOARD Or 730VERNORS Tii  FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 2055!  PAUL A. VOLCKE R CHA'RMAN  August 11, 1980  IL_ ,.ullorable Al Ullman Chairman Committee on Ways and Means House of Representatives Washington, D.C. 20515 Dear Al: Thank you for your letter of August 1 concerning the definition of the term nonpersonal time deposits for reserve requirement purposes under the Monetary Control Act of 1980. Last Tuesday, the Board adopted in final form the reserve requirement regulations. After consideration of the issues raised by applying reserve requirements to deferred compensation accounts in the form of IRA or Keogh accounts or pension fund time deposits, the Board determined that such funds should be treated as personal time deposits, exempt from the reserve requirements of the Act. Similarly, any funds held by fiduciaries in which the entire beneficial interest is held by individuals would be personal time deposits. On behalf of the Board, thank you for your comments on this matter. Sincerely,  •  •  rb4e October 22, I90 Chairman of the Federal Reserve Board of Governors Federal Reserve System Washington, D.C. 20551 Re:  HOME OFFICE S 1300 W SIXTH AVE. P0 BOX 72, 97207 PORTLAND, OR 97201 (503) 243-1611  Publication issued by the Federal Reserve Board on the final rule for Regulation D--Docket No. R-0306.  Dear Mr. Chairman: A ruling is respectfully requested on behalf of Equitable Savings and Loan of Portland, Oregon and its sister institutions with respect to exemption from reserve requirements under Regulation D for funds held on deposit under deferred compensation agreements. FACTS The State of Oregon and many other public certain of their employees participate in employers have selected Equitable Savings act as the institution for receipt of the  and private tax exempt employers and deferred compensation programs. The and Loan Association ("Equitable") to deferred funds.  PROGRAM OF UNFUNDED DEFERRED COMPENSATION Under the plan of deferred compensation, employees who choose to participate enter into a contract (copy attached and by this reference made a part hereof) with the ei,ployer whereby upon employee's election, prior to the beginning of the month of service for which the compensation is payaLle, a specificd amount of employee's compensation is set aside through a bookkeeping entry by the employer in a deferred compensation account for the benefit of the employee. The contract provides, in part, as follows: 1.  Investment. All or any portion of the Account may but shall not be required to be invested by Employer in a savings account or accounts of Equitable Savings and Loan Association. , such amount may, but shall When the Account at any time totals $ account not be required to be transferred to a of Equitable Savings and Loan Association. Employer shall have absolute and uncontrolled discretion with respect to whether the Account (including dividends and other income) is invested and, if invested, with respect to the institution or institutions in which it shall be invested.  2.  Obligation Equal to Value of Account. The Employer's obligation to the Employee at any time shall be equal to the value of the Account at such time. With respect to such obligation, Employee shall be a general (not secured) creditor, and the parties confirm that no trust nor trust fund is  October 22, 1980 Chairman of the Federal Reserve Board of Governors Page two  intended. If all or any portion of the Account is not invested, the value of such uninvested portion of the Account at any time shall be equal to the value of all deferred compensation credited to such portion of the Account. If amounts credited to all or any portion of the Account are invested, the value of such invested portion of the Account at any time shall be equal to the fair market value of the investment. The Employer's obligation to the Employee shall be reduced by any charges or fees incurred in liquidating any investment, including any interest penalty for early withdrawal, er of amounts deposited in any financial institution. In addition, the Employ 2 of 1 percent of 1 .thly fee not to exceed / may charge each Employee a mc-, amounts deferred each month for administrative costs. This fee shall be withheld from the nondeferred compensation of the Employee. 3.  At the time the Employee signs this Plan and AgreeSettlement AgreerTient. ment he or she shall complete the Settlement Agreement by which the Employee shall elect the manner in which deferred amounts are to be paid.  4.  Distribution. In the event of Employee's separation from service with Employer due to retirement, death, disability, or other voluntary or inee's voluntary termination, the Employer shall distribute the value of Employ ent. Account to the Employee in the manner specified in the Settlement Agreem unicability" shall mean a continuous physical or mental incapacity which es causes the Employee to be unable to perform his or her employment servic ation as determined by the Employer and such incapacity results in the termin In the of Et,ployee's employment or contractual services with the Employer. event of the Employee's death distribution shall be made to Employee's designated beneficiary. At the time the Employee signs the Plan and Agreerent, he or she shall designate one or more beneficiaries on a Designation of Eeneficiary form supplied by the Employer.  5.  Manner of Distribution in Absence of Settlement Agreement. In the event that the Employee has not signed an effective Settlement Agreement prior to the earliest distribution date provided under this Plan and Agreement, the Employer shall, upon such distribution date, liquidate and pay to the Employee or the Employee's beneficiary an amount equal to one fifteenth (1/15th) of the value of the Account (as of such distribution date) each year for fifteen (15) years, adjusted annually for any increase or decrease in the value of the Account. The annual requirement may be met by monthly, quarterly, or sffliannual payments at the discretion of the Employer so long as the annual minimum is met.  6.  Absence_orj)ea_th of Designated Beneficiary. Notwithstanding the provisions of paragraphs 7 and 8, in fK6- event Employee dies and (a) the Employee had ciary not filed a Designaticrn of Beneficiary, or (b) no designated benefi an shall survive the Employee, then the Employer shall liquidate and pay Employee's amount equal to the value of Employee's Account in a lump sum to the  October 22, 1980 Chairman of the Federal Reserve Board of Governors Page three  or is enestate. In the event of death of a beneficiary who is receiving no contintitled to receive distributions under this Plan and Agreement and the Employer gent beneficiary is named or survives such beneficiary, then shall liquidate and pay an amount equal to the balance of the Employee's Account in a lump sum to the beneficiary's estate.  0  •  7.  8.  9.  In the event an Employee is faced with an unforeUnforeseeable Emeraer)cx. seeable emergencildetermined in the manner prescribed by regulation under fying Section 457 of the InternAl Revenue Code) Employer may, after satis itself that the requirements of the aforementioned regulations have been met and upon application by Employee, permit the distribution from the Employee's Account of only that amount reasonable needed to satisfy the emergency need. Such amount shall be determined by the Employer in the Employer's sole discretion. All amounts of compensation deferred under this Property of Employer. Plan and Agreement, all property and rights purchased with such amounts, and all income attributable to such amounts, property, or rights shall reicted main solely the property and rights of Employer (without being restr only ct to the provision of benefits under this Plan and Agreement) subje shall have no right, to the claims of Employer's general creditors. Employee general creditor of title, property nor claim to such amounts except as a Employer. a state chartered General Factual Information. Equitable Savings and Loan is . It is a publicly savings and loan association with accounts insured by FSLIC in Equitable held corporation in existence since 1890. Deposit of funds by the employer is authorized by ORS 294.035(7).  THE REGULATION "D" l Reserve Board on The following taken from the publication issued by the Federa that savings accounts the final rule for Regulation D --Docket No. R-0306 indicates within the definition held on deposit under deferred compensation arrangements are ts: of personal time deposits and exempt from reserve requiremen The IRA and Keqgh Plan Time Deposits and Escrow Funds. (from page 13) name of—a depositor Monetary Control Act provides that any tim67TeposiChe1d in the nonpersonal that is not a natural person is subject to reserve requirements on its, which can time deposits. Under this provision IRA and Keogh Plan time depos time deposits since only be issued to individuals, would be treated as nonpersonal due to the the" are held by the df_positou institution as trustee or custodian deposits are technical requirements of theInternal Revenue Code. Since these Td TS tTnIgiii_J 1- 6-ETe from ofker Tp_ersonal. Time effFd e7efly the will regard -depositor as his own funds subjed -TO---his -direct control, the Board such fundsas personal time deposits. 'emphasis  October 22, 1980 Governors Chairman of the Federal Reserve Board of Page four  ber of. commentators Time Deposits Held by Trustees. A num stees treatment of time deposits held by tru te ria rop the app to as ue iss the raised l beneficial interest is held by natura ire ent the re whe es ari uci fid er oth and such imposition of reserve requirements on the t tha es iev bel rd Boa The s. person transmonetary policy. Therefore, any non of t duc con the for ary ess nec not or funds is a trustee or other fiduciary whether of e nam the in d hel t osi dep e tim ferable a personal time deposit if the entire as ed ard reg be l wil , son per l ura nat not a sons. A nontransferable time deposit per l ura nat by d hel is st ere int l cia benefi normally be regarded as a personal ld wou d fun n sio Ten a of et ass an is thd.t. interest of such funds normally is al ciefi hen ire ent the ce sin t osi time dep added)" held by natural persons. "(emphasis (2) "Deposit does not include: (from page 31) perly delpsitory institution that it keeps pro the by d hel or ed eiv rec ds fun st tru (i) ts in m itsaeneral assets or which it deposi fro rt apa and ds fun st tru as ed aat s_tgre If elf as trustee or other fiduciary. its of dit cre the to on uti tit ins r anothe l department of the depository institucia mer com the h wit ted osi dep are ds trust fun assets, a deposit liability of the inl era gen its h wit d gle min ise erw oth tion or " stitution is created; "(emphasis added) ns: (f) (1) "Nonyersonal time deposit" mea t, that is not a transaction psi dep s ing sav a ing lud inc t osi dep (i) a Owe eficial interest is held by a depositor ben au ch whi in ds fun ing ent res rep account, asis addedY which is not a natural _person; "(emph (from nAno 34)  osit" does not include nontransdep e tim nal rso npe "No (2) (from page 35) ch the entire beneficial interest whi in or of dit cre the to ts osi e dep ferable tim l Retirement Account or Keogh dua ivi Ind an to nt sua pur l dua ivi ind an is held by n 408, 401. "(enphasis added)" tio Sec ) -1954 . R.C (I. .C. U.S 26 er und n ft0 Pla RULING REQUESTS ble Savings and Loan and its ita Equ of alf beh on and ing ego for the In view of t the following ruling be issued: sister institutions, it is requested tha held under deferred compensation 1. Savings accounts and time deposits eral Reserve as "personal time arrangements will be treated by the Fed es under Regulation D. deposits" for reserve requirement purpos 2.  for the same basic purposes on cti fun ts oun acc ion sat pen com ed err Because def l treat them as if they were as pension trusts, the Federal Reserve wil IRA or Keogh accounts.  •  October 22, 1980 Chairman of the Federal Reserve Board of Governors Page five 3.  That the sweeping definition in Regulation D of personal time deposits as any case where the beneficial interest is held by natural persons (whether or not the immediate funds are held by a public entity or corporation) is meant to include deferred compensation accounts, without specifically naming them. •(]••  PROCEDURAL STATEMENTS Please address your reply and ruling letter to the undersigned. If information is desired, please telephone the undersigned at (503) 243-1800. To our knowledge, the issues herein are not pending before any District office of the Federal Reserve. A conference is hereby requested, if any decision should be under consideration inconsistent with any of the foregoing ruling requests before any such decision is actually made.  Respectfully submitted,  4  s -Jt'-e( •Gerald A. Kerns Vice President Deferred Compensation GK: bg Enclosures:  bcc:  Copy of Employer/Employee Agreement Settlement Agreement and Designation of Beneficiary Form  John Mason Jim Scott Jim Truax Darlene Smith Neal Fisher, State of Oregon John Shank, C/O Al Ullman's Office  •  •  •  • BOARD Or GOVERNORS  • . • • • ...  DI THE F  '  ' • c••:. '  r• •• ''  FEDERAL RESERVE SYSTEM  • •  • • •• •,..  • •  WASHINGTON, D. C. 20551 AODOISi  4 ;11111:  OrrICIAL  COUR( SPONIOrP.Cr  • •  e.  NO  "am, 4  • • eA 4,1.t ' '  NP.( .  1110• 640  •  November 14, 1980  Mr. Gerald A. Kerns Vice President Equitable Savings and Loan Association 1300 S. W. Sixth Avenue Portland, Oregon 97201 Dear Mr. Kerns: Chairman Volcker has asked me to respond to your letter of October 22, 1980, concerning the treatment for reserve requirement purposes under the Board's Regulation D--Reserve Requirements of Depository Institutions (12 CFR Part 204) of funds held on deposit under deferred compensation agreements. You state that these plans are offered to employees of the State of Oregon and many other public and private tax exempt employers. Under the plan of (, - eferred compensation, employees who choose to participate enter into a contract with the employer whereby the employee may elect prior to the beginning of the month of service for which the compensation is payable to have a specified amount of the employee's compensation set aside through a bookkeeping entry in a deferred compensation account for the benefit of the employee. The deferred compensation agreement provides that the funds will be placed in a deposit account at rquitable Savings. Such plans are established pursuant to section 457 of the Internal Revenue Code (26 U.S.C. (I.R.C. 1954) § 457). You ask whether savings accounts and time deposits held under deferred compensation arranaements will be regarded as personal time deposits under Regulation D exempt from reserve requirements on nonpersonal time deposits. In this regard, you assert that deferred compensation funds serve the same basic purposes as pension funds and, thus, should be treated as if they were IRA or Keogh Accounts and that such accounts are personal time deposits since the beneficial interest in the funds is held by natural persons. In general, under Regulation D, a time deposit, including a savings deposit, is subject to reserve requirements on nonpersonal time deposits if it is transferable or if any beneficial interest in the funds is held by a depositor which is not a natural person. Such deposits with maturities of less than four years are subject to a three per cent reserve ratio while those with longer maturities are subject to a zero per cent reserve requirement.  • Mr. Gerald A. Kerns  -2-  With specific reference to the deferred compensation agreement that you enclosed, paragraph 4 provides in part "The Employer's obligation to the Employee at any time shall be equal to the value of the Account at such time. With respect to such obligation, Employee shall be a general (not secured) creditor, and the parties confirm that no trust nor trust fund is intended." In addition, paragraph 12 states "All amounts of compensation deferred under this Plan and Agreement, all property and rights purchased with such amounts, and all income attributable to such amounts, property, or rights shall remain solely the property and rights of Employer (without being restricted to the provision of benefits under this Plan and Agreement) subject only to the claims of Employer's general creditors. Employee shall have no right, title, property nor claim to such amounts except as a general creditor of Employer (emphasis added)." These provisions in the agreement are intended to preserve the tax deferred status of such funds under section 457(b)(6) of the Internal Revenue Code which requires an eligible state deferred compensation AnfOrrc%ei linHenr the plan to provirie rhtAll AmnlIr0-c of nnmnnncnrinn plan, all property and rights to property purchased with amounts of compensation deferred under the plan, and all income attributable to the property must remain solely the property of the state subject only to the claims of the state's general creditors until made available to the participant or other beneficiary. Thus, while the plan participants may select among any optional methods provided under the plan for investing amounts of deferred compensation, they cannot have any secured interest in the assets purchased with their deferred compensation. Moreover, the assets may not be segregated for the participants' benefit that would put the asse0 beyond the reach of the general creditors of the sponsoring entity.-/ The Monetary Control Act of 1980 (Title I of P. L. 96-221) provides that any time deposit held in the name of a depositor that is not a natural person is subject to reserve requirements on nonpersonal time deposits. Under this provision, IRA and Keogh Plan time deposits,  reprinted 1/ H. R. Rep. No. 1445, 95th Cong., 2nd Sess. 55 (1978), in 1978 U. S. Code Cong. and Ad. News 7093.  • Mr. Gerald A. Kerns  -3-  be treated as nonpersonal which can only be issued to individuals, would institution as trustee time deposits since they are held by the depository Internal Revenue or custodian due to the technical requirements of the from other personal Code. Since these deposits are indistinguishable his own funds subject time deposits and are regarded by the depositor as d such funds as to his direct control, the Board determined to regar time deposit personal time deposits. In addition, any nontransferable ded as a personal held in the name of a trustee or other fiduciary is regar by natural persons. time deposit if the entire beneficial interest is held held The Legal Division is of the opinion that time deposits your letter must under the deferred compensation agreement described in , the rebe regarded as nonpersonal time deposits. In this connection provisions quirements of the Internal Revenue Code and the explicit sponsoring of the agreement provide that the funds are assets of the tors. Conseparty and are subject to the claims of its general credi remain entirely quently, the beneficial interest of the funds does not hable with natural persons. We believe that such accounts are distinguis have confrom IRA and Keogh Plan funds in that the individual does not ship of trol over the funds and the tax law provision regarding owner addition, the the funds is more than a mere technical requirement. In as a trustee or fidudeferred compensation agreement cannot be regarded tion since ciary relationship as might exist in a pension fund situa specifically provide the terms of the deferred compensation agreement the agreement. that a trust relationship is not contemplated under If you have questions on this matter, you may contact me Legal Division. (202/452-3625) or Paul S. Pilecki (202/452-3281) of the Sincerely yours,  Gilbert T. Schwartz Assistant General Counsel  • •  • • •oc cot,/ •• 4' • .cs •.',„ ; ,_ 1).;*•• 1, 0 1,.. .r ::-7 ,' . •4 ‘.• " • •  • -•:-. •".; ..... :?,•,.-2- .  RDARD OF. GOVERNORS i-TF-  FEDERAL RESERVE SYSTEM  :-.1.C.!,Jrrfrnv.  ..•..••  WASHINGTON, O. C. 20551 PAUL A. VOLCKER  December 24, 1980  CHAIRMAN  The Honorable Henry S. Reuss Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman Reuss: I am writing in response to your letter of December 2, requesting that the Federal Reserve and other banking supervisory authorities make information available to the public on loans by individual U. S. banks to individual foreign borrowers. As you are aware, U. S. bank supervisory agencies already collect and provide to the public much information on individual banks, as well as a great volume of aggregate data on the banking system. In particular, all banks file Quarterly Reports of Condition, and all banks with significant international activities also file with their bank supervisory agency detailed supplements to the Reports of Condition. These reports and supplements are available to the public, as are Reports of Condition filed by Edge Corporations that engage in international banking. The banking supervisory agencies recently revised extensively the Report of Condition to expand significantly the information available on the international activities of banks, and these improvemerkts have made those reports more useful to depositors and investors seekin g to evaluate the activities of the banks. In addition to these reports, bank holding companies file reports with the Securities and Exchange Commission providing information designed to meet the needs of investors. Where the foreign activity of a bank is a significant part of the total (generally 10 percent or more), information on assets and revenues is to be reported for separate geographical areas (as distinct from countries) that account for a significant share of a bank's business. And, of course, the banks themselves publish information on the nature of their international operations in reports that they prepare for their stockholders. I believe the information now collected from banks and provided to the public represents an appropriate balancing of the needs of the public and of the bank supervisors for information against the costs that the statistical reporting system imposes on banks.  -•  Tmr-  The Honorable Henry S. Reuss Page Two  Your letter raises issues of confidential ity of banking data. Publication of information on the accounts of individual customers would, of course, be directly contrary to our tradition regarding the privacy of individual bank customers. It should also be emphasized that release of info rmation on country totals, bank by bank, could reveal transactions of individual customers, since in some cases all transactions (loans as well as deposits) of an individual bank with a particular country are for the account of a single institution in that country. Moreover, release of individual bank data on particular countries could in some instances adve rsely affect the competitive position of the bank involved vis-a-vis other U. S. banks and vis-a-vis foreign banks. The general competitive position of U. S. banks in international banking rela tive to foreign banks would be adversely affected. I should point out that domestic U. S. banking data are not published bank by bank in the degree of detail that you are suggesting be done for international lending. (Individual banks may, of cour se, provide some information of this type in their annual reports.) The United States already publishes more information on domestic and international lending by our banks than is available on banks of other countries. For the reasons outlined above, I do not believe it appropriate for the Fede ral Reserve to publish the information described in your letter. Your letter also expresses concern that foreign lending by U. S. banks has reduced the amount of credit available for investment and other purposes in the Unit ed States. Most foreign lending by U. S. banks is conducted at their foreign branches with funds obtained from foreign sources; thes e credit flows are thus outside the U. S. banking system. Moreover , it is important to recognize that bank credit is only one element in the total international capital flows of the United Stat es. In recent years the United States has had a current acco unt deficit, and has, on balance, been a net importer of capital. Thus, foreigners have been net suppliers of credit to the Unit ed States over this period, although at any one time there may be an outflow of funds through the U. S. banking system that was more than matched by inflows through other channels (aggregate data on these flows are, of course, publicly available). In conclusion I should emphasize that the volume of credit avai lable to U. S. borrowers is affected only marginally by internat ional credit flows and for the most part it reflects developments in domestic credit markets. Sincerely,  (11V 424) Nr. Geoutill ;•4rs. 3a1lardi  V S. RE'JSS, WM. CHAIRMAN MAS L. ASHLEY, OHIO ,4ILLIAM r, MOORHEAD, PA. FERNAND J. ST GERMAIN, R.I. HENRY B. GoNZALEZ. TEX. JOSEPH G. MINISH. N.J. FRANK ANNUNZIO. ILL.  Gemmill tion assigned Mr.  •  lik  GEORGE HANSEN, IDAHO HENRY J. HYDE. ILL.  U.S. HOUSE OF REPRESENTATIVES  WALTER  r  RICHARD KELLY. FLA. JIM LEACH, IOWA  JAMES M. HANLEY, N Y. FV,RPEN J. MITCHELL. MD.  J WILLIAM STANTON, OHIO CHALMERS P. WYLIE. OHIO STEWART B. MCKINNEY. CONN.  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  EAUNTROY. D.C.  THOMAS B. EVANS. JR.. CEL. S. WILLIAM GREEN, N.Y. RoN PAUL, TEX.  STEPHF N L. NEAL. N.C. JERRY PA. FATTERSON. CALIF. JAMES J. ULAN( IlArto  2129 RAYBURN HOUSE OFFICE DUILnINC  CARROLL HusnAno. JR., KY. JOHN J. LAEALCE. N.Y.  WASHINGTON, D.C. 20515  NINETY-SIXTH CONGRESS  GLADYS NOON SPELLMAN, MD. LES AuCOIN. OREG. DAVID W. EVANS, IND. NORMAN F. D'AMOURS, STANLEY N. LUNDINE, N.Y. JOHN J. CAVANAUGH, NEBR.  ED BETHUNE. ARK. NORMAN D. SHUMWAY, CALIF. CARROLL A. cA.ArnELL, JR.. S.C. DON RITTER. PA. JON HINSON, MISS. 225-4241  December 2, 1980  MARY ROSE (DAKAR. OHIO JIM MATTOX, TEX. BRUCE F. VENTO, MINN. DOUG BARNARD. GA.  wrs WATKINS, OKLA. ROBERT GARCIA. N.Y. MIKE LOWRY. WASH.  Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System 20551 Washington, D. C. Dear Chairman Volcker: The American public needs to know much more than they do today about the foreign lending practices of U.S. banks. Since the Federal Reserve, together with the Comptroller of the Currency and the Federal Deposit Insurance Corporation, already gathers and publishes some of the most useful, though still inadequate, information on bank commitments abroad, I urge you to take the lead in improving the public's knowledge about foreign lending. There is no current source of fully detailed information about U.S. bank lending abroad. Attempts by private citizens and groups to compile data on foreign loans take months of research using sources such as World Bank files, banking trade publications and newspaper clippings. Besides being laborious and slow, the process often results in incomplete information. Some valuable information is now routinely compiled by various sources. The World Bank prepares a World Debt Table that lists the external debt of foreign countries but does not disclose who the creditors are. In addition, the World Bank summarizes information from public sources on borrowings in the international capital markets. This gives details of loans, including the names of lead banks in syndicated lending, but still does not systematically disclose the extent of an individual bank's commitments abroad. The Federal Reserve, the Comptroller of the Currency and the FDIC also compile information on foreign lending. Banks with foreign offices that lend more than $20 million abroad are required to file a Country Exposure Report listing how much is lent to the entire banking sector, the public sector, and all other borrowers in each foreign country, and the maturities of these loans. The three Federal agencies have treated the material submitted by individual banks as  Hon. Paul A. Volcker December 2, 1980 Page 2 confidential. Therefore, when this information is aggregated for release to the public as the semi-annual Country Exposure Lending Survey, it masks the foreign exposure of any particular bank. In addition, the original information submitted by banks does not include the names of foreign borrowers, so that the purposes of the loans are not clear. Quarterly data on foreign lending are also submitted by U.S. S.nks to the Treasury and the Federal Reserve for use in Bank for International Settlements publications and in the Federal Reserve Bulletin. Once again these provide no breakdown by borrower, and are only made public in aggregated form to show lending by all U.S. banks. There are several groups on whom this lack of available detailed infS rmation falls particularly hard. First, many religious and secular organizations are interested in knowing which U.S. banks are providing credit to countries that consistently deny their citizens basic human rights. Even while these countries are being denied U.S. government economic or military assistance or a favorable U.S. vote for multilateral aid under sections 116(a) and 502B of the Foreign Assistance Act of 1961, American banks are providing private capital that supports the status quo in those countries. Without a more detailed breakdown than currently is available, the groups that defend human rights cannot effectively try to convince banks that loans should go for more socially responsible purposes. Another group, bank stockholders, are concerned not only with these human rights matters but also with the financial soundness of their bank's exposure abroad. The most recent Country Exposure Lending Survey notes that total foreign lending for the 130 most active U.S. banks was $250 billion in 1979, up 12 percent from 1978 and perhaps as much as four to five times the total foreign lending just a decade ago. If all this money were going to blue chip investments, stockholders would hardly need to worry. Yet significant amounts are going to the public sector in countries that are heavily in debt and to private entities in countries where political turmoil makes these ventures highly speculative. Stockholders ought to know when their investments are being put at the risk of the political winds, and not have to rely on the ability of federal bank examiners to assess the safety and soundness of these lending practices. Finally, the American people and Federal policymakers should know why so much credit is escaping abroad when the lack of capital is crippling productivity and prosperity here at home. Even while U.S. business hungers for investment capital to buy new machinery so it can better compete abroad, and even while the American consumer  vs Hon. Paul A. Volcker December 2, 1980 Page 3 searches vainly for funds to buy a car and help our struggling U.S. automakers, American banks are lending abroad in ever-larger amounts. We must begin to assess this situation and make sensible policy on how best to revitalize our economy by providing the capital needed to overhaul our ramshackle economic structure. For all these reasons, and to satisfy the needs of all these groups, the current reporting on foreign lending needs to be made more open to public scrutiny. Much of the vital detail is already in your possession. By expanding the data only slightly to include the names of foreign borrowers and by releasing bank-by-bank data without aggregation, your statistics could provide all the insights the public needs to make informed judgments on the economic and social propriety of bank lending. Bank confidentiality is really not an issue when the stakes are so high for our nation's productivity, for the solvency of U.S. banks and for America's commitment to human rights around the world. Your general power to require banks to prepare any necessary reports (12 U.S.C. 5248(a) for member banks and 12 U.S.C. 51844(c) for bank holding companies) and the similar powers of the other bank examining agencies (12 U.S.C. 5161 for national banks and 12 U.S.C. 51817 and 51820 for FDIC-insured institutions) certainly provides ample legislative authority for you to work with the Treasury and the FDIC to bring to light the information I believe is urgently needed. I look forward to your early consideration and reply to this proposal. Sincerely,  Henry S. Reuss Chairman  .•  GoviR* •.  •  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  December 29, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Howell Heflin United States Senate Washington, D. C. 20510 Dear Senator Heflin: Thank you for your recent letter regarding the impacts of the current high level of int erest rates. I share your deep concern regard ing the impact of high interest rates on many segments of the economy. I would very much like to see a decline in rates and a return to a more sta ble, healthy economic situation. Unf ortunately, the solution to thi s problem does not reside with the Federal Reserve alone. The sur ge in interest rates has occurred as demands for money and credit have increased with the rebound in economic activity since mid year. As the System has sought to adhere to its long-range objective of holding monetary expansion to the moderate rates consistent with an unwinding of inflation, bank reserve positi ons have tightened, placing pressure on the money markets. If we had accommodated the increased demand for reserves, the result would have been monetary growth faster even than the very rapid rates we have actually experienced. Faster monetary growth would onl y have added impetus to the inf lationary forces that underlay the interest rate pressures; moreov er, the abandonment of our announ ced commitment to monetary restraint would have had devastating effect s on expectations in the financial markets and elsewhere. Until there is a general sense that we have begun to make some headway in reducing the momentum of inflation, there can be little hope of a sustai ned reduction in interest rates -especially long-term rates. I agree with you wholeheartedly tha t reliance solely on monetary pol icy to achieve control over inf lation is inappropriate. Complemen tary discipline on the part of fiscal policy will move us much more quickly toward the end of lower inflation and lower intere st rates, with much less wrench ing of financial markets along the way. I have, of late, received a number of letters from members of Congress expressing concern about high interest rates, but als o indicating a commitment to fiscal restraint. There is in the se letters a recognition of  The Honorable Howell Heflin Page Two  the interactions of policy and the need for a coherent assault on the serious problems confronting us. I am much encouraged by this and feel more confident as a resu lt that we will find a solution to these problems. Sincerely,  NJP.JLK.DJW:vcd ( V-434) bcc.  Mr. Prell Mr. Kichline Mrs. Mallardi (2)  4  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  •o  WASHINGTON, D. C. 20551  fRALRE-s.  December 29, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Floyd J. Fithian House of Representatives Washington, D.C. 20515 Dear Mr. Fithian: Thank you for your recent letter regarding the problems caused by high interest rates. I share your concerns and would ver y much like to see interest rates decline from their pre sent levels. We simply cannot, however, afford to bring about that decline by fostering a more rapid expansion of money, which would in turn only exacerbate inflationary pressures in the economy and lead ultimately to higher interest rates and even gre ater economic difficulties. A sustained lowering of interest rat es will be possible only when actual and anticipated inflation has slowed substantially. Proper fiscal policies, as you ind icate, have an important role to play in the fight against inflation and high interest rates. Indeed, only if there is a clear, credible long-range commitment to both fiscal and monetary restra int can we hope to see a reversal of the expectational spiral that has given such a powerful momentum to the rise of wages and prices. These are very troubling times. We at the Federal Reserve are doing everything we can to ass ure that the policies we pursue are in the best interest of our nat ion's citizens. We welcome the counsel and cooperation of the mem bers of the Congress. In that spirit let me express again my tha nks to you for writing. Sincerely, ,ljtut  :AJP;JI.X..pjt (V-426) Prell • Kichline Lra. mallazdi (2)  WASHINGTON orrice. 129 CANNON HOUSE  •  •  OFFICE BUILDING WASHINGTON. 0 C (202) 225-5777  DISTRICT OFFICES, 513 MAIN STREET LAFAYETTE, INDIANA 47901 (317) 742-0211  20515  commirTcrs AGRICULTURE FOREIGN AFFAIRS GOVERNMENT OPERATIONS  Congrr55 of tly Unita'6tate5  518 Sarni BurraLo STotrit WARSAW, INDIAt.A 46580  jPottiSe of 1lepregentatibt5  (219)269-1813 203 CITY HALL PORTAGE, INDIANA 46368  U.Inobinciton, Ile. 20315  (219) 763-3505  TOLL FREE ACTION LINE (800) 382-7517  FLOYD J. FITH IAN  -OFFICE ON WHEELS" T•tAvtLeN0 otEGLILAIRLY THROUGH THE OISTVIICT  2ND DISTRICT, INDIANA  Dec. 2, 1980  Mr. Paul A. Volcker, Chairman Federal Reserve Board . Constitution and 20th St., N.W. Washington, D.C. 20551 Dear Chairman Volcker: I am writing to you because the recent increases in interest rates may prevent recovery from the recession and stimulate another round of unemployment increases and slowdowns in the auto, steel, housing, and real estate industries. Our economy should not be put through the wringer twice in the same year. High interest rates have not substantially reduced the inflationary spiral that has gripped the nation for the last year, and in fact may have actually contributed to it. I do not see how a repeat of a failed policy would bear new fruit. High interest rates have in fact contributed to the dramatic reduction in housing starts, driven real estate firms out of business, curtailed construction jobs, injured auto sales, driven auto dealers to bankruptcy, created a slump in the steel industry, and resulted in millions of unemployed workers. Small businesses are severely impacted by high interest rates for their inventories and many have closed their doors forever. The people I have the privilege of representing feel strongly about the need to bring down interest rates to a reasonable level and to keep them there, while at the same time controlling inflation. Lowering interest rates and curbing inflation can both be accomplished with proper fiscal policies and a balanced federal budget. The time has come to reduce interest rates and cut government spending. You may have my assurance that I, as a Member of Congress, will spare no effort to cut spending and to continue my work for a constitutional amendment to balance the federal budget. I would respectfully urge you and the Federal Reserve Board to bring interest rates to a reasonable level. Since  F YD FI Member FF/em THIS STATION/FRY PRINTEri ONi PAPFR MAOF WITH  nrrvi-t rri  Congress  ft  •  UENRYJ.NOWAK,N.Y.  J. WILLIAM STANTON. OHIO  CHAIRMAN  TOBY ROTH. WIS. LYLE WILLIAMS, OHIO  TOM STUD, OKLA. PARREN J. MITCHELL, MO. FREDERICK W. RICHMOND, N.Y.  pnittb „States pollee of ?teirresentatitiez Committee on  BERKLEY BEDELL, IOWA CLAUDE LEACH. LA.  ntn11inc,  c*Itliroittinittre Du cArrroo to KJ Ititu Tapital nub Pusittres Mpporttittitiro  P-363 gagburn Plus*  ffirs  DAVID E. FRANASIAK SUBCOM M I TTE1C COUNSEL  202-225. 7797  HAROLD L. ARONSON. JR. MINORITY SUOCOMMITTEIC COUNSEL  202-225-4541  puiibirtg  2U515  December 2, 1980  Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System Washington, D. C. 20551 Dear Mr. Chairman: Once again, our Nation's small business community is being pushed to the brink of disaster by high rates of interest. The prime rate has climbed four and one-half percent in the last month, and it appears that even higher rates are likely. These high rates,, if allowed to continue, will stifle that sector of our economy which creates the jobs and innovations we most desperately need for an increase in productivity today. Mr. Chairman, this simply cannot be allowed to happen. I strongly urge you to implement my Subcommittee's recommendations of last September which are detailed in our Report on Federal Monetary Policy and its Effect on Small Business. These recommendations are the result of six days of exhaustive Subcommittee hearings. During the course of these proceedings, we heard from a broad cross section of small businesses, economists, financial experts, banking officials and your vice Chairman Frederick H. Schultz, wh9 testified twice. In addition, I directed my staff to conduct a nationwide survey of small businesses. The responses reinforced our belief that smaller firms bear the brunt of tight money policies. I strongly urge you to reconsider your recent policy actions, and to restructure your approach along the lines recommended in the Report. Specifically, I urge you to: 1. Stabilize the interest rates. Rate fluctuations make IL virtually impossible for the small business person to plan for the future.  Honorable Paul A. Volcker December 2, 1980 Page Two  2.  Urge the large banks to institute a dua l prime rate.  3. Urge the banks to peg their loans to smaller firms at rates other than prime. The prime is an artificial rate and it is not the best rate offered a bank's best customers. 4. Lower the banks' cost of money for loans to small businesses. The Federal Reserve has the power to do this by allowing the banks to immediately write off their small business loans. Another approach would be to allow banks to loan a percentage of their reserves held on deposit at the local Federal Reserve bank, to smaller firms. Other approaches are possible and are wel l within the broad latitude conferred on the Board by Congress. If we act now, we may be able to save hun dreds of thousands of smaller firms from certain financ ial ruin. With best wishes and kind regards, Sincerely,  Henr Cha  , "1":4411it'VY,VA'K  ha -  Nowak  •  BOARD OF GOVERNORS O  THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  December 29, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Toby Roth House of Representatives Washington, D.C. 20515 Dear Mr. Roth: Thank you for your recent letter conc erning the current direction of monetary policy. I full y understand that the real estate industry faces grave problems as a result of rapid inflation and the current high level of interest rates prevailing in the economy. I share your concerns and would very much like to see interest rates decline from their pres ent levels. We simply, cannot, however, afford to bring abou t that decline by fostering a more rapid expansion of money, which woul d in turn only exacerbate inflationary pressures in the economy and lead ultimately to higher interest rates and even greater economic difficulties. A sustained lowering of interest rate s will be possible only when actual and anticipated infl ation has slowed substantially. Proper fiscal policies, as you indi cate, have an important role to play in the fight against inflation and high interest rates. Indeed, only if there is a clear, cred ible long-range commitment to both fiscal and monetary restrain t can we hope to see a reversal of the expectational spiral that has given such a powerful momentum to the rise of wages and prices. These are very troubling times. We at the Federal Reserve are doing everything we can to assure that the policies we pursue are in the best interest of our nation's citizens. We welcome the counsel and cooperation of the memb ers of the Congress. In that spirit let me express again my than ks to you for writing. Sincerely, S/Paul k Vo!cket  JI.FiRMF:JLgpjt (*V-433) bcc: •r. Freund re. Nallardi (2) r. Fisher .r. Kiehl/no  An assigned Mr. Kichline TOBY ROTH EIGHTH DISTRICT WISCONSIN SCi  4  TECHNOLOGY COMMITTEE SURCOMNAITTEES • ENERGY RISE ARcH AND PRODUCTION INvEsTiGATIONS AND OVERSIGHT ND  SMALL B cc CoMEAITTIL SUBCoMmt1TEES SBA AND SBIC AuTHORify AND Gi FARA' SMALL BusINEss PROBlEmS ACCESS TO EQUITY CAPITAL AND BUSINESS OPPoRTuNutis  tAir I Vie I  1r  •  116 ;At, •02 /  ,, ;f  , Sift 1rPrtrynt  WASHINGTON OFFICE:  1008 LONGVVORTH HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 DISTRICT OFFICES: 126 NORTH ONEIDA STREET APPLETON. WISCONSIN 54911  Congrefs of tlie tittiteb AbtattE4 Apitsse of ikepregentatibel filagbingtort, 33.C. 20515  207 FEDERAL BUILDING 325 EAST WALNUT STREET GREEN BAY. WISCONSIN 54301 101 NORTHERN BUILDING  8,44 PIERCE AVENUE MARINETTE. WISCONSIN 54143  December 15, 1980  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D. C. 20551 Dear Chairman Volcker: This communication is to express my concern regarding the meteoric rise of the prime rate. The jump to twenty percent ties the record set last April and has risen five and one-half percentage points since Election Day. I fear the strong business loan demand will push it up even higher, thus further damaging the already reeling housing industry. Allow me to briefly outline how this problem has affected the State of Wisconsin. For the three years of 1977, 1978, and 1979 housing starts in Wisconsin were 43,000, 43,000, and 35,000 respectively. Together, these yearly starts indicate that a normal year would be about 40,000 starts. However, in 1980 housing starts will be down to about 8,000 or off 75% from last year. Further, with an average interest rate of 15% only 6% of the citizens of this country can qualify for a mortgage loan. The homebuilding industry offers an excellent example of the bankruptcy of the Federal Reserve Board's policy of recession to stop inflation. By virtually halting housing construction, current policies simply bottle up demand for housing and spur greater inflation in the future. There is no question the demand for housing will increase dramatically in the 1980's. The number of people between the ages of 25 and 34 will increase by about five million in the next ten years. Approximately 2.3 million new housing units is a conservative estimate of the annual increase in demand for housing expected in this same period. The pent-up demand created during the current downswing will cause a substantial upward pressure on prices when the economy recovers.  41  Page 2  Being fully aware that the Federal Reserve Board alone cannot halt spiraling inflation, I am prepared to exercise my responsibility as a Member of Congress to more effectively control Federal expenditures. The Federal Reserve Board and the Legislative Branch must begin to act in concert to smother the fires of inflation and curb wayward deficit spending. Therefore, I respectfully request that the Federal Reserve Board re-evalute its policy of putting people out of work in order to stop inflation. With best wishes, I am Sinc rely  TOBY'0Th Mem r of Congress TR/JBB  .•• GOI/k, •. R4,•„  ..•  -N 0 •  BOARD OF GOVERNORS OF THE  • •  FEDERAL RESERVE SYSTEM  • "1  WASHINGTON, D. C. 205S1  ••4•IALREs - •• •••  ••  •  December 29, 1980  PAUL A. VOLCKER CHAIRMAN  The Honorable Ken Kramer House of Representatives Washington, D. C. 20515 Dear Mr. Kramer: Thank you for your recent letter regarding Federal Reserve policy and the behavior of interest rates. I shall attempt to respond to the several questions you raised. First, you inquired as to the Board's current interest rate policies. In a sense, the Federal Reserve does not have an interest rate policy per se. Under the procedures adopted a year ago, the System provides reserves to the banking system in a volume believed consistent with the monetary growth objectives set by the Federal Open Market Committee. Interest rates then are determined against this backdrop by the interplay of supply and demand forces in the market. Interest rate movements are watched carefully for they provi de an indication of the credit conditions affecting economic activity, but it was precisely the ambiguity of this indication in an environment of high inflation and volatile price expectatio ns that led us to move away from our former procedures in which interest rates had greater importance as a guide for day-to-day operations. As the economy has snapped back in recent months from the slump in the spring, and as demands for money and credi t have increased correspondingly, there has been a natural tende ncy for monetary growth to accelerate. Because the Federal Reser ve has sought to hold monetary expansion within bounds, in line with the needs of our longer-range anti-inflationary strategy, the pressures of demands on limited supplies have expressed themselves in rising nominal interest rates. In addition, howev er, interest rates have tended to rise because of shifts in expec tations about inflation, prompted by such factors as the unexp ected sharpness of the economic rebound, the lack of progress in slowi ng the pace of wage and price advances, and concerns about large federal budget deficits. The large and unexpected surge in interest rates clearly has caused hardships for many households and businesses. We  The Honorable Ken Kramer Page Two  recognize that less wealthy individuals and smaller businesses may encounter particular difficulty because of their relatively limited financial options. We very much wish that these problems could be avoided. However, the powers of the Federal Reserve to deal with the complex of forces creating the upward pressures on interest rates are limited. Essentially the only option we have would be to abandon the objective of monetary moderation and pour reserves into the banking system to accommodate burgeoning demands for money and credit. This would not be more than a temporary palliative for the difficulties you have identified, however, for the greater monetary ease would intensify inflationary forces and eventually produce worse financial market tensions and economic disorder. Thus, we have adhered to what we feel is the only responsible course of action, namely an effort to apply measured monetary restraint with an eye to the moderation of growth of aggregate demand and to the provision of a sense of long-range stability in monetary policy. It is clear that, if inflation and inflation expectations do not diminish, nominal interest rates will tend to remain relatively high and the room for economic expansion will be limited. I cannot say what will happen to interest rates in 1981; economic forecasting in general has proved exceedingly difficult, and predicting interest rates is an especially treacherous exercise. I would only say that it is my hope that the sustained commitment of the Federal Reserve to anti-inflationary restraint--supported by a disciplined fiscal policy and constructive action elsewhere in the public and private sectors--will bring about a diminution of inflationary momentum and lead to some reduction in interest rates. Sincerely,  MJP:JLK:DJW:vcd (#V-432) bcc:  Mr. Prell Mr. Kichline Mrs. Mallardi (2)  Action assigne4 Mr. Kichline 1111118'  KEN KRAMER ¶Tr4 ID-LTR,CT. COLORADO  •  411  DISTRICT OFFICES, 1520 NORTH UNION 1301ILEVARD CoLont400 SemINGs. CounR4Do 80909 (303) 632-8555  COMMITTEES.  275 UNION ExcHIANor  EDUCATION AND LABOR SCIENCE AND TECHNOLOGY  8933 EAST UNION Avrvut  WASHINGTON crricr: 1724 LoNr.vvvRTH 1-frir.r OrricE SviLorma WASHINGTON,  EsioLu.v000, CoLomA co  Congre55 of tbe Ziniteb ltatef  n  C. 20515 (202) 225-4422  30ott5e of ikeprefSentatibeti tliastingtort, 33.C. 20315  -2  (303) 779-6990  dl  December 12, 1980  The Honorable Paul A. Volcker Chairman Federal Reserve System Board of Governors 20th Street and Constitution Avenue, NW Washington, D.C. 20551 Dear Chairman Volcker: High interest rates have alarmed many persons concerned about the health of the nation's economy. I have been contacted by several of my constituents disturbed by the possible effect interest rates above 20" may have on small businesses. As a result of my constituents' concerns, I would like to be advised as to the Federal Reserve Board's current interest rate policies. In your report back to me, I would appreciate having your analysis of the potentially devastating impact such high interest rates will have on farming and ranching, as well as on the many other small businesses which often require short term borrowing or speculative investment, and your prediction as to interest rate levels in 1981. Many thanks for your prompt attention to this inqu Si nc  .en Kramer KK:mr  1  80110  nnApo Of 7,OVEPNOPS FEDERAL RESERVE SYSTEM WASHING1ON, 0. C. 20551  PAUL A. VOLCKER  January 2, 1981  CHAIRMAN  The Honorable William Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. 20510 Dear Chairman Proxmire: The Board of Governors is pleased to forward to you its twelfth Annual Report on Truth in Lending. The Report highlights the efforts of Congress and the Board to simplify the Truth in Lending Act and Regulation Z. In addition, the Report covers creditor compliance, enforcement and the Board's administrative functions under the Truth in Lending Act for the year 1980. Sincerely,  Enclosure IDENTICAL LETTERS SENT TO THOSE ON ATTACHED LIST: JCK:DJW:vcd bcc: Mr. Kluckman Mrs. Mallardi (2)  Senate Chairman Proxmire, Senate Banking Cmte, Chairman George Mitchell, Subcmte. on Consumer Affairs, Senate Bkg. Donald W. Riegle Paul S. Sarbanes William L. Armstrong Nancy Landon Kasscbaum  House Chairman Reuss, House Banking Cmte, J. William Stanton Frank Annunzio, Chairman, Subcmte. on Consumer Affairs, House Bkg. Gladys Noon Spellman Bruce F. Vent° Walter E. Fauntroy Parren J. Mitchell Thomas B. Evans, Jr. Chalmers P. Wylie Donald Ritter Benjamin S. Rosenthal, Chairman, Subcmte. on Commerce, Consumer, and Monetary Affairs, House Gov. Ops. Cmte. Lyle Williams Copies of report (w/o ltr.) sent to: Ken McLean Danny Wall John Quinn Beth Climo Paul Nelson Jim Sivon Curtis Prins Jim Kutchcr Frank Maguire Don Tucker  •  S. HOARD Pr bOVERNOPS Cy THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  PAUL A. VOLCEP  January 2, 1981  CHAIR LA AN  The Honorable Thomas P. O'Neill, Jr. Speaker of the House of Representatives Washington, D. C. 20515 Dear Mr. Speaker: The Board of Governors is pleased to submit its twelfth Annual Report on Truth in Lending. The Report highliahts the efforts of Congress and the Board to simplify the Truth in Lending Act and Regulation Z. In addition, the Report covers creditor compliance, enforcement and the Board's administrative functions under the Truth in Lending Act for the year 1980. Sincerely,  Enclosure  Speaker of the !louse of Representatives received Speaker of the 70113C of Representatives by  JCK:DJW:vcd bcc: Mr. Kluckman , Mrs. Mallardi (2)u  — re -  • --w -,-7-••••••-agarr-  -Tar-ratTVPRIPPE'rulirgr  •.• oc t.r)v; •. • 4' •  -TA.N1',-)•  ••%..'•;  • C/  i , /r  POAPD Pr GovERNoRS •  •. 4 It .;  *  j  •  • ;•• • • e • •.44LRC' 1 t • •.• • •  ,1r• T.i !FEDERAL  RESERVE SYSTEM  WASHINGTON, 0. C. 20551  ••  PAUL A. vnLCKER  January 2, 1981  CHA1MMAN  The Honorable Walter F. Mondale President of the United States Senate Washington, D. C. 20510 Dear Mr. Vice President: The Board of Governors is pleased to submit its twelfth Annual Report on Truth in Lending. The Report highliqhts the efforts of Congress and the Board to simplify the Truth in Lending Act and Regulation Z. In addition, the Report covers creditor compliance, enforcement and the Board's administrative functions under the Truth in Lending Act for the year 1980. Sincerely,  Enclosure  President of the U. S. Senate received President cf the U.S. Senate by JCK:DJW:vcd bcc:  Mr. Eluckman Mrs. Mallardi (2) we'.-  noArlo  fl  .OVERNORS ç't Tk.r  FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551 •  •••,.•  • I•  •  • -•.4(1R1  •  PAUL A. VOLCKER  January 5, 1981  CHAIRMAN  The Honorable Fernand J. St Germain Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman St Germain: The Board of Governors is pleased to forward to you its twelfth Annual Report on Truth in Lending. The Report highlights the efforts of Congress and the Board to simplify the Truth in Lending Act and Regulation Z. In addition, the Report covers creditor compliance, enforcement and the Board's administrative functions under the Truth in Lending Act for the year 1980. Sincerely,  Enclosure IDENTICAL LETTERS TO CHAIRMAN ST GERMAIN (HOUSE BANKING) CHAIRMAN GARN (SENATE BANKING) CHAIRMAN CHAFEE (CONSUMER AFFAIRS SUBCMTE. OF SENATE BANKING) SENATORS D'AMATA AND SCHMITT JCK:DJW:vcd bcc: Mr. Kluckman Mrs. Mallardi (2)  .71 . ..T-••••••••••  •
Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102