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Collection: Paul A. Volcker Papers
Call Number: MC279
Box 11
Preferred Citation: Congressional Correspondence,July-August 1981 [Folder 1]; Paul A. Volcker
Papers, Box 11; Public Policy Papers, Department of Rare Books and Special Collections, Princeton
University Library
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Congressional
July-August 1981
August 31, 1981
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:
In response to your letter of August 12, I am pleased
to enclose responses to written questions submitted Ly Congress
man Bereuter and Congresswoman Roukema in connection with the
hearing before your Committee on July 21, 1981.
Please let me know if I can be of further assistance.
Sincerely /
sank rt, Vo!cite(
Enclosures
cc:
The Honorable Douglas K. Dereuter
The Honorable Marge Roukema
CO:pjt (#V-230)
bcc: Mr. McKelvey
Mr. Kichline
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IN\J\A
Chairman Volcker subsequently submitted the following responses
to written questions from Congressman Bereuter in connection with the
hearing before the House Banking Committee on July 21, 1981.
(I)
Commerce Department figures indicate that the ratio of fixed capital to
output in the farm sector is three times that in manufacturing. The
ratio of inventory to output also is approximately three times that in
manufacturing. Of course, this means a heavy reliance on credit in
the agricultural sector.
Vice Chairman Frederick Schultz, of the Federal Reserve Board of
Governors, recently told the House Agriculture Committee that a change
in resources of agricultural banks (i.e., a shift from heavy reliance
on passbook and low-cost savings instruments to money market certificates) is tying formerly local agricultural banks into national credit
markets and therefore into higher national rates.
What answer does the Federal Reserve have for my farm constituents who
fear that high interest rates will bankrupt them any day now?
A.
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High interest rates have unquestionably had an adverse effect on farmers,
as indeed they have on other credit-sensitive sectors such as housing,
automobiles, and small business.
But, it is important to bear in mind
that interest rates are high because inflation and the demand for credit
have remained high.
The Federal Reserve would do the agricultural
community no service in loosening its resolve to slow monetary growth;
in all probability interest rates would soar to new highs as inflation
worsened.
As current efforts by the Federal Reserve to control the money
supply and by the Administration and Congress to cut Federal spending
and reduce the Federal deficit take hold, we should be able to look forward to a sustained reduction in interest rates.
As discouraging as the current situation may seem, there are some
reassuring aspects to the condition in which farmers find themselves.
For example, while the Commerce Department figures you cite on capital
and inventories relative to output are correct, it may surprise many
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-2-
to find that farmers' debt relative to total assets--somewhat less than
20 percent--is much lower than for the manufacturing sector.
This is
because farmers hold a lot of land, which has appreciated greatly in
value over the years.
Although this appreciation hasn't alleviated the
squeeze that inflation has put on cash flow, it certainly provides a
somewhat different picture of their overall financial position.
Perhaps because of this, farmers have not, in general, experienced
difficulty in obtaining credit over the last year or two.
Indeed, as
Vice Chairman Schultz pointed out in his testimony, loan deposit ratios
at rural banks are currently in a comfortable range, indicating reasonable credit availability and the rates paid on loans at these banks,
while high, are somewhat under the national average.
(2)
A recent study released by the Tnternntional Monetary Fund urges use
of an "incomes policy" as well as monetary and fiscal policy to fiPht
inflation. The Reagan Administration opposes such a suggestion. Do
you hnve any views on an appropriate incomes policy, if any, which we
should pursue? Pleaso elaborate.
A.
I do not support an incomes policy to supplement current monetary and
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fiscal policy, as explained more fully in mv response to Representative
Roukema's question.
As also indicated in that response, if any incomes
policy were implemented, I would favor a carrot—and—stick type of
approach, like TIP, presuming that administrative complexities could be
ironed out.
(3)
A.
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A June 29 Business Week article suggested that the government should
shift to short-term debt to take the pressure off long-term markets
in the private sector. Do you agree? Please explain.
There is a presumption underlying this question that relative supplies
of securities, particularly Treasury debt, are the principal determinants
of the shape of the yield curve.
While I do not dispute the notion that
a significant shift towards shorter-term Treasury financing would influence rate relationships, I think that other fundamental factors are at
work holding long-term rates high.
The chief one, in my view, is that
the evidence of progress in controlling inflation is as yet inconclusive;
market participants thus expect interest rates in general to remain quite
high for some time to come.
I think also that the prospect of heavy
Treasury financing needs in coming quarters, regardless of the fonm of
this borrowing, has taken its toll all along the maturity spectrum.
Besides, to the extent that a shift towards shorter-term borrowing did
relieve pressures in long-term markets, it would merely shift these
pressures into shorter-term markets which already are under considerable
strain.
Chairman volcker subsequently subliitted the following response to
a written question from Congresswoman Roukemi in connectioq with the hearing
before the House Banking Committee on July 21, 1981.
On page 11 and 12 of your statement, vim make clear the importance of
II greater caution
and restraint in both wage and price behavior." This
point is emphasized by your further comments about a "crucially important round of union wage bargaining (which) begins next January, potentially setting a pattern for several years ahead."
Are you suggesting that we institute an incomes policy?
kind of incomes policy would you suggest?
If so, what
Can you envision a carrot and/or stick approach which efficiently
accomplishes your goal of "greater caution and restraint?"
What is the role of government, if any, in such a policy?
What suggestions do you have for both labor and management as they enter
this round of union wage bargaining? Please be specific.
A.
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I do think that it is critically important for labor and management alike
to exercise restraint in their wage settlements and pricing decisions in
the months and quarters ahead.
So far the encouraging signs have been
mainly on the price side, although fairly recently there have been some
tentative indications of easing in wage pressures in some sectors of the
economy.
I am hopeful that as time passes the collective bargaining
process--left to its own devices--will confirm these indications, and I
consequently do not endorse an incomes policy at this time.
The plain fact is that incomes policies have never worked very well
during peacetime in this country, in contrast to most European countries
where they have been tried much more frequently and with somewhat more
success in some instances.
difference in experience:
I think there are basic reasons for this
Ours is a more heterogeneous workforce, and
the wage-setting process in the United States is much more decentralized.
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-2-
Moreover, the tradition of private decisionmaking on economic matters,
including wage determination, is more deeply entrenched here than it is
in Europe.
And, the approaches we have tried in incomes policy have
tended to be less comprehensive.
It seems to me that any policy that is successful must take account
of these differences.
This means, for one thing, that the role of govern-
ment should not be one of direct involvement and intervention in private
decisionmaking.
That is one reason why I have long been intrigued by
the so-called carrot-and-stick approach, as illustrated by the tax-based
incomes policy (TIP) proposals, which reward and penalize decisions on
the basis of how they are made in the private sector.
However, such
policies entail significant administrative complexities, and I have yet
to see an imaginative plan that also is workable.
Absent such a solution, I believe we have little choice but to point
out the consequences of inflationary behavior by wage and price setters
and encourage the forces of competition bearing on price and wage decisions.
The impact of import controls, regulation, and such legislation
as Davis-Bacon are all relevant in that connection.
The heavy calendar
of collective bargaining now slated for 1982 will constitute a litmus
test for national economic policy.
By that time the parties sitting
down to the negotiating table will have witnessed more than two years
of systematic efforts to slow monetary growth, and quite possibly a
significant improvement in general price trends.
If vou ask me what
specific advice I would have for them, I would suggest that they look hard
at that evidence, assess realistically the determination of national policy
in unwinding inflation and then adjust their expectations accordingly.
We
-3-
at the Federal Reserve have repeatedly indicated that we will not supply
enough money to finance both high inflation and strong economic growth;
firms or groups of workers that attempt price or wage increases inconsistent
with that fact will be acting in a way that is contrary to both their own
and the national interest.
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.41/
Chairman Volcker
FERNAND J. ST GERMAIN, R.I., CHAIRMAN
HENRY S. REUSS, WIS.
HENRY n. GONZALEZ. TEX.
JOSEPH G. MINISH, N.J.
FRANK ANNUNZIO. ILL.
PARPEN J. MI I CF4CLL. MD.
WALTER L FAUNTROY. D.C.
STEPHEN . NEAL, N.C.
JERRY M. PAETERSrDN, cAur.
JAMES J. BLANCHARD. MICH.
cAnnoLL HUBPARD, JR.. KY.
JOHN J. LAVALCE, N.Y.
Action assigned to Mr. Axilrod
J. WILLIAM STANTON, OHIO
CHALMERS P. wYur, omo
STEWART B. McKINNEY, CONN.
GEORGE HANSEN, IDAHO
HENRY J. HYDE. ILL.
JIM LEACH, IOWA
THOMAS B. EVANS, JR., DEL.
RON PAUL, TEX.
ED BETHUNE, ARK.
NORMAN D. SHUMWAY, CALIF.
STAN PARRIS, VA.
ED WEBER, OHIO
BIU_ McCOLLUM. FLA.
GREGORY W. CARMAN, N Y.
GEORGE C. WORTLEY, N.Y.
MARGE ROUKEMA, N.J.
BILL LOWERY, CALIF.
JAMES K. COYNE, PA.
DOUGLAS K. BEREUTER. NEBR.
U.S. HOUSE OF REPRESENTATIVES
COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
N I N ETY-SEV ENTH CONGRESS
2129 RAYBURN HOUSE OFFICE BUILDING
1. I, A ' I t
STANLE.Y N. Lk
I...
MARY ROSE OAKAFt, C
JIM MATTOX, TEX.
BRUCE F. VENTO, MINN.
DOUG BARNARD, JR., GA.
ROBERT GARCIA. N.Y.
MIKE LOWRY. WASH.
CHARLES E. SCHUMER, N.Y.
BARNEY FRANK. MASS.
BILL PATMAN, TEX.
WILLIAM J. COYNE, PA.
STENY H. HOVER. MD.
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WASHINGTON, D.C. 20515
August 12, 1981
2/5-4247
3°
Honorable Paul Volcker
Chairman, Board of Governors
Federal Reserve System
Washington, D.C.
Dear Chairman Volcker:
Enclosed are questions raised by Members
of the Committee regarding your testimony on
July 21, 1981.
Your consideration and prompt
reply will be appreciated.
Sincerely,
Fernand J. St Germain
Chairman
Enclosure
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QUESTIONS TO (31AIRMAN VOLCKTR
FROM HON. DOUGLAS K. BEREUTER
(1) Gaunerce Department figures indicate that the ratio of fixed capital to
output in the farm sector is three times that in manufacturing.
The ratio
of inventory to output also is approximately three times that in manufacturing.
Of course, this means a heavy reliance on credit in the agricultural sector.
Vice Chairman Frederick Schultz, of the Federal Reserve Board of Governors,
recently told the House Agriculture Committee that a change in resources of
agricultural banks (i.e., a shift from heavy reliance on passbook and low-cost
savings instruments to money market certificates) is tying formerly local agricultural banks into national credit markets and therefore into higher national
rates.
What answer does the Federal Reserve have for my farm constituents who fear
that high interest rates will bankrupt them any day now?
(2) A recent study released by the International Monetary Fund urges use of
an "incomes policy" as well as monetary and fiscal policy to fight inflation.
The Reagan Administration opposes such a suggestion.
Do you have any views on
an appropriate incomes policy, if any, which we should pursue? Please elaborate.
(3) A June 29 Businessweck article suggested that the government should shift
to short-term dcbt to take the pressure off long-term markets in the private
sector.
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Federal Reserve Bank of St. Louis
Do you agree?
Please explain.
QUESTIONS TO CHAIRMAN VOLCKER
FROM HON. MARGE ROUKEMA
On page 11 and 12 of your statement, you make clear the importance of
"greater caution and restraint in both wage and price behavior." This point
is emphasized by your further comments about a "crucially important round
of union wage bargaining (which) begins next January, potentially setting a
pattern for several years ahead."
Are you suggesting that we institute an incomes policy?
If so, what kind
of incomes policy would you suggest?
Can you envision a carrot and/or stick approach which efficiently accomplishes your goal of "greater caution and restraint?"
What is the proper role of government , if any, in such a policy?
What suggestions do you have for both labor and management as they enter
this round of union wage bargaining?
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Please be specific.
•
i9 )
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
August 31, 1981
PAUL A.VOLCKER
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:
I am writing in regard to H.R. 4005, the proposed "AntiInflation Lending Act of 1981." As you will recall, I communicated
my general view earlier to the Committee's staff; however, I felt
that I should now express my opinion more formally.
While I cannot help but be sympathetic to the basic
objectives of the legislation--namely, to fight inflation and
encourage the most productive use of credit--I nonetheless have
serious reservations about it on a practical level. I believe
that it would be very difficult to implement such a program in
a manner that would be at once fair and effective.
Depository institutions, for example, are only one source
of credit, albeit an important one. Certainly many potential
borrowers for "unproductive" purposes would be able to turn elsewhere in the domestic or international credit markets. There is
also a general problem of defining what uses of funds are speculative or unproductive, and even productive uses of credit may
be inflationary in their impact on the economy. Once an initial
arrangement was worked out, there would surely need to be a mechanism for dealing with complaints about unfair treatment and for
resolving disagreements among lenders about the interpretations
of the guidelines, that process, judging from our experience with
the credit restraint program last year, would likely prove costly
and cumbersome.
All of this shouldn't be taken to mean that I don't have
some concerns about the recent rash of takeover bids, potentially
financed by bank credit. I have repeatedly stated to the Congress,
bankers and others that it is important that the banks exercise
sound prudential standards and appropriate caution in considering
these loans.
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'
*1 The Honorable l'ernand J. St Cer a in
Page Two
I hol.c tilat these corrunents will prove helpful as you
consider this legislation.
Sincerely,
S/Paul A. Volckec
MJP:JLK:RS:pjt (VV-195)
bcc: nr. Kichline
nr. Prell
Mrs. Mallardi (2)
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•
•
•
FERNAI, J. ST GERMAIN, R.I., CHAIRMAN
HENPv s. nruss. Wis.
HENRY D. GONZALEZ. TEX.
JOSEPH G NIINISH, NJ.
FRANK ANNuNZIO, ILL.
PARPEN 1. MITCHELL, MD.
WALTER E. FAUNTROY. D.C.
STEPHEN . NEAL. N.C.
JEPRY M. vArTTRSON, CALIF.
JAmES J. In ANCHARD. MICH.
CARROLL HUBBARD. JR.. KY.
JOHN J
-ALCF, N.Y.
DAVID W i vAN ,1,
NORmAN E. 0 AM...)u.?i,
STANLEY N. LIJNOINE. N.Y.
MARY
°AKAR, OHIO
JIM MATTOX. TEX.
BRUCE r. VENTO, MINN.
DOUG BARNARD. JR., GA.
ROBERT GARCIA. N.Y.
MIKE LOWRY. WASH.
CHARLES E. SCHUMER. N.Y.
BARNEY FRANK. MASS.
BILL PATMAN, TEX.
WILLIAM J. COYNE, PA.
STENY H. MOYER, MD.
Action assigned Mr. Kichline
U.S. HOUSE OF PrEPRESENTATIVES
COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS
NINETY-SEVENTH CONGRESS
2129 RAYBURN HOUSE OFTACE BUILDING
WASHINGTON. D.C. 20515
July 9, 1981
223-42.47
Honorable Paul Volcker
Chairman, Board of Governors
Federal Reserve System
20551
Washington, D.C.
Dear Mr. Chairman:
Please find enclosed a copy of H.R. 4005,
a bill that would, under certain circumstances,
permit depository institutions to enter into
agreements to emphasize loans that combat inflation
and improve productivity. I would appreciate having
your written comments on this legislation by the end
of the month. I have also enclosed a press release
which gives some additional background on this
legislation.
Sincerely,
Fernfi.nd J. St Germain
Chad/man
Enclosures
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J. WILLIAM STANTON OHIO
CHALMERS P. WYLIr ol110
STEWART B. McKINNEY. CONN.
GEORGE HANSEN, IDAHO
HENRY J. HYDE. ILL.
JIM LEACH, IOWA
THOMAS B. EVANS. JR., CEL..
RON PAUL. TEX.
ED BETT-IUNE. ARK.
NORMAN D. SHIJMWA
C.ALIF.
STAN PARRIS. VA.
ED WEBER. OHIO
BILL McCOLUJ M. FLA.
GREGORY W. CARMAN. N.Y.
GEORGE C. woRTLF r. N.Y.
MARGE ROUKEM
N J.
DIU_ LOWERY. CALii .
JAMES K. COYNE, PA.
DOUGLAS K. BEREUTER. NEBR.
H
„mi.,s.,(,(),,,;„,,,„
,,.:„„), .R.4005
To coinhat inflation and improve productivity.
•
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IN THE HOUSE OF REPRESENTATIVES
.1t•NE 24, 1981
Mr. 1{Et•ss (for himself and Mr. ST GEammt•;) introduced the following hill: which
Nvas referred jointly to the Committees on Banking, Finance and Urban
Affairs. and the Judiciary
A BILL
To combat inflation and improve productivity.
1
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Bc it enacted by the Senate and House of Representel.r
.) tires of the United States of Anierica in Congress assembliil,
3 That this Act may be cited as the "Anti-Inflationary Lending.1 Act of 1981".
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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VVASHINGTON, D.C. 20515
OR RELEASE:
202-225-3571
For Immediate Release
June 24, 1981
REUSS-ST GERMAIN BILL WOULD PERMIT CREDIT GUIDANCE,
LOWER INTEREST RATE ON ANTI-INFLATIONARY LOANS
Reps. Henry S. Reuss (D-Wis.) and Fernand J. St Germain (D-R.I.),
Chairmen of the Joint Economic Committee and the House Committee on
Banking, Finance, and Urban Affairs, today introduced the AntiInflationary Lending Act of 1981 to lower interest rates by permitting
the Federal Reserve and the Attorney General to work out agreements
with the nation's leading banks to concentrate lending in inflationary
times on "loans that combat inflation".
They pointed out that such agreements would increase lending,
and thus reduce interest rates, on loans for such anti-inflationary
purposes as housing, agriculture, capital investment in new plant and
equipment and energy conservation.
The agreements would make money
less available, and interest rates higher, for loans for such
inflationary purposes as commodity speculation, such as Bunker Hunt's
recent attempt to corner the silver market, and for corporate
takeoversthat simply bid up the price of existing assets.
Banks participating in the arrangements would be exempted from
the antitrust laws.
The bill carries out the Democratic Recommendations in the
March 2, 1981, Annual Report of the Joint Economic Committee:
"The Administration and the Federal Reserve should
encourage the banking system to develop effective
methods to prevent destabilizing bursts of bankfinanced lending for speculative and purely financial
purposes, which make less credit available to enhance
productivity and thus fight inflation."
The bill also follows the recommendation made in testimony earlier
this month before the Joint Economic Committee by Gaylord Freeman,
retired Board Chairman of the First National Bank of Chicago for:
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Federal Reserve Bank of St. Louis
•
2
"the enactment of an amenument to the antitrust laws
that would provide that whenever and so long as the
Board of Governors of the Federal Reserve System shall
declare that it is in the public interest to restrain
the rate of growth in bank credit, it shall not constitute
a violation of any antitrust laws for groups of bankers
to agree together to mutually restrain the rate of
growth in their loans, either in total or in such types
of loans as they may consider especially inflationary..."
"If the legislation- were adopted, would the bankers
assume the responsibility when so requested by the
Federal Reserve? Probably only a small group would,
but they would be a group of the largest banks, capable
of asserting a most anti-inflationary influence.
Bankers, like other businessmen, are interested in
current profits, but they tend to take a longer view
of their operations and assume a somewhat greater
responsibility to maintain a stable economy."
"We are encouraged by Gaylord Freeman's belief that the country's
largest banks would patriotically join the battle against inflation
by discouraging speculative lending, provided they were assured
that their patriotism would not be rewarded with an antitrust
prosecution," the Congressmen said.
"Why not give the banks' better
angels a chance to fly?"
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WASHINGTON, D. C. 205SI
<<"
.August 28, 1981
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:
I am writing in response to your telegram of July
17
regarding the Mobil tender offer for shares of Cono
co. You asked
that I advise you of our actions in response to this
take-over bid.
Since the time of your wire, it has, of course, beco
me clear that
Mobil was unsuccessful in its tender, and my unde
rstanding is
that takedowns under the Mobil credit line establis
hed to help
finance the tender offer have been repaid.
As your wire suggests, some of the concerns that have
been expressed with respect to this and other take-ove
r attempts
relate to questions of industrial structure and the
degree of competitiveness in various sectors of the economy. While
we at the
Federal Reserve are interested in what occurs in that
regard, it
is a field in which we have no direct influence or poli
cy responsibility. I assume, however, that you have addresse
d inquiries to
those agencies that do have regulatory responsibilities
in the area.
As regards the financial side of the issue, we did
not
take any special action with respect to the Mobil
financing. We
have, of course, followed closely credit developm
ents surrounding
the take-over bids for Conoco. The number and size
of the credit
lines involved in that incident were, as is well
known, very large,
but I think it fair to say public perception of
the impact may have
been exaggerated to the extent the lines were
essentially duplicative and in substantial part met by foreign bank
s. In the end,
only one company, and one credit line (of itse
lf substantial size)
was entailed in the Conoco acquisition.
We cannot know the extent to which that situatio
n may be
indicative or a precursor of other large fina
ncings for take-overs.
We would naturally be concerned about poss
ible implications for
supervisory or monetary policy of such developm
ents.
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Federal Reserve Bank of St. Louis
.The Honorable Benjamin S. RosentlIal
Page Two
As regards che supervisory aspects, the large sums involved fur individual banks would suggest the need for careful
appraisal by lending banks both of the economic rationales for
such combinations and the implications for their total commitments.
This is not to say that the companies involved are not solid
enterprises. But I am concerned whether the speed with which some
of these loan syndicates appear to have been pulled together has,
in fact, permitted adequate analysis, either of the individual
credit or the implications for the bank's commitment, liquidity
and capital positions, including its ability to service other
established lines of business. Concerns of this kind should be
reflected in our normal supervisory surveillance.
What I characterized above as monetary policy consequences
encompasses the import of your references to credit market impacts
of the take-overs. In the broadest context, take-over loans in
themselves should not be a drain on our limited supply of savings,
because stockholders selling out should have funds available for
reinvestment (or for loan repayment). However, in the short run,
and particularly as the financing is focused on the banking sector,
the credit demands associated with the take-overs can have some
short-run impacts on the distribution of credit. Thus, the total
commitments and loans of commercial banks may be expanded, and
bank credit and the monetary aggregates could be affected, a fact
that would have to be considered in conducting monetary policy.
In committing themselves to a large volume of take-over loans,
banks may restrict their lending to other potential borrowers --the
concern you expressed in your wire. This would, to the extent that
these other borrowers do not have access to alternative credit
sources, potentially be harmful to the economy.
I do not want to suggest that there is evidence that
the banks have acted imprudently or that the bank credit impact
of the recent spate of acquisition attempts became in any sense
a dominating influence on trends in bank credit; I would also
note that while all sectors of the economy are being faced with
the burdens of high interest rates and the effects are particularly
painful in the area of homebuilding and elsewhere, credit availability appears to have been maintained for small businesses,
farmers, and consumers alike.
I should also emphasize that much of the take-over
financing has been arranged with foreign banks beyond our direct
supervisory control, and such financing could be arranged through
other channels outside the banking system. The Federal Reserve
is not itself ordinarily in a position to make judgments about
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Federal Reserve Bank of St. Louis
The Honorable Benjzimin S. RosenLial
-Page Three
which mergers may be justified in terms of econ
omic rationale and
pro6uctivity and which are not, and there is a
strong presumption
that decisions about the allocation of credit
should be left to
individual institutions and market incentives.
All of these considerations militate against the sort of "action"
you suggested.
We will, of course, continue to observe and
monitor
developments in this area, and I have indicate
d on a number of
occasions to bankers or others my concern over
the possibility
of a kind of infectious competitive fervor
about take-overs
distorting banking judgments or the credit mark
ets.
Sincerely,
Paul A. VolcIcer
MJP:PAV:pjt OV-204)
bcc: Mike Prell
Mr. Ryan
Mr. Kichline
Mrs. Mallardi (2)
•
IDENTICAL LETTER ALSO SENT TO:
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Federal Reserve Bank of St. Louis
Chairman David Obey, Task Force on
Economic Policy and Productivity,
House Budget Committee.
•
BOARD OF .)OVERNOR5
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WASHINGTCN, D. C. 20551
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FEDERAL RESERVE SYSTEM
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August 27, 1981
PAUL A. VOLCKER
CHAIRMAN
The honorable Fortney h. Stark, Jr.
house of Representatives
Washington, D. C. 20515
Dear Mr. Stark:
Thank you for your letter requesting my comments on
H. R. 3465, a bill that would amend the Investment Company Act
of 1940 to permit banks, bank holding companies and savings and
loan associations to sponsor, organize, advise and distribute
the shares of an investment company registered under that Act.
This would presumably include securities of open-end funds
(commonly known as mutual funds), and closed-end funds investing
in equity securities, corporate bonds, municipal bonds, and
money market instruments.
Your bill raises a number of important issues concerning the separation of commercial and investment banking
activities that is now embodied in the Banking Act of 1933
(Glass-Steagall Act). The Federal Reserve Board has in the
past considered a number of questions relating to commercial
bank participation in securities markets as dealer or underwriter, but it has not specifically addressed whether the law
should be changed to allow full bank participation in the
business of offering and distributing shares of investment
companies. In my view,Board consideration of your proposals
should occur as part of a comprehensive review of the laws
and regulations governing the role of commercial banks in
financial markets, taking into account the evolution of the
financial system since the early 1930's, and changes in the
regulatory and economic framework within which that system
functions. The Board's staff is developing the background
information necessary for such a review, but Board consideration of these matters is not likely to occur before the fall.
Whatever the Board's views about the proper division
of commercial and investment banking over the long run, I
would like you to know that from my own perspective I have
serious reservations about the wisdom of allowing banks and
other depository institutions to offer money market mutual
funds at this time. The convenience of purchasing these
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Federal Reserve Bank of St. Louis
The Honorable Fortney H. Stark, Jc.
Page Two
very
instruments at local offices of depository institutions,
as well as the aura of safety and soundness that they would acquire
by being associated with such an institution, could make them very
attractive to y ,ople currently holding savings and smaller denomination time deposits. Outflows from these deposits would have to be
met either by acquisition of higher-cost funds through marketrelated instruments or by reductions in earning assets. Further,
because of Investment Company Act restrictions on self-dealing,
the investment company's assets could not be reinvested in the
CDs of the bank or S&L adviser without an exempting order from
the SEC. Thus, purchases of shares in a money market fund sponsored by a bank or S&L would not necessarily keep these funds
from being invested outside the service area of the sponsoring
institution. Depository institutions would benefit from offering
fund shares by maintaining a financial relationship with customers
who might otherwise have moved their savings to an existing money
market fund and they would gain a small amount of income from
servicing and advising the funds. however, smaller banks and
thrifts could find that offering such funds, or having them
offered by other depository institutions, would significantly
erode deposits and reduce earnings at a time when the profitability of these institutions is already under considerable
pressure.
A more direct way of approaching the problem would be
to permit banks and thrifts a deposit instrument that would compete more directly with money market funds, a matter within the
province of the DIDC, upon which I serve. In considering that
possibility, we have needed to take account of the strong concerns
of depository institutions about maintaining current, relatively
low cost, sources of funds. To put the point directly, the heavy
pressures on earnings of many depository institutions limit
flexibility in taking steps that otherwise, and at the appropriate
time, would appear desirable.
I would also bring to your attention . certain proposals
we have made for reasons of competitive equity and improving
monetary control, to place reserve requirements on money market
mutual funds to the extent those funds arc used as transactions
balances.
Thank you for the opportunity to comment on your proposals. I will send you more definitive views when they are
developed by the Bcard.
Sincerely,
DLK:PAV:pjt (#V-163)
bcc: Mr. Kohn
Mr. Plotkin
Mrs. Mallardi (2)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
S/Paul A. Volcket
•
•
e*DRTNEYIL(PETE)STARK
9TH DisTIR
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Action assigned to Mr. Mannion.
1N AYS AND MEANS
DISTRICT OF COLUMBIA
SELECT NARCOTIC S
CONGRESS OF THE UNITED STATES
HOUSE OF REPRESENTATIVES
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WASHINGTON, D.C. 20515
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Federal Reserve Bank of St. Louis
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LA-
Honorable Paul A. Volcker
Chairman
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551
Dear Paul:
Recently I introduced legislation that would permit banks,
bank holding companies, and savings and loan associations
to establish investment companies and sell shares in those
companies to their customers.
The purpose of my bill, H.R.3465, is to provide financial
institutions with an opportunity to compete with money
market mutual funds.
I would appreciate your views on this legislation.
Sincer
Hon r4416
e Fortney H. Stark, Jr.
Menber of Congress
FHS/eg
THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS
•
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Federal Reserve Bank of St. Louis
$.7„.„ (.„N,;,,.:„ H
.R.3465
Isl. sEssioN
milend the IoNe,:tment ('olop:olv .ki.t of 19
and for other porpo.r.
IN THE HOUSE OF REPRESENTATIVES
19S1
nIvrred j(610Iy to Ow
Mr. STARK intmdumi Ow Wnwing hM: which
Cmmnittees fm Ranking. Fill3MT Mid Vrhan AffaiN and Energy and
Cfmmwn.c
A BILL
To amend the Investment Companv
• Act ot 1940, and for other
purposes.
1
Be it enacted by the Senate and House of llepresentatires of the United States of America in Congress assembled,
3 That the Investment Companv Act of 1940 is amended bv
4 adding the following new subsections at the end of section 22
5 of such Act (15 U.S.C. 80a-22):
(i
"(h) Notwithstanding paragraph Seventh of section
7 51:36 of the Revised Statutes of the United States, as amend8 ed (12 U.S.C. 24), section 5, 20, 21, or 32 of the lianking
9 Aet of 1933, as amended (12 U.S.C. :3:35, 377, :378, or 78),
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Federal Reserve Bank of St. Louis
1 or the Banking Holding Companv Act
:I 11:111k, a
(11 1!):)(;, aS :1111('Ilded,
bank holding company or a subsidi:irv thereof, or a
:3 savings and loan associat ion4
"(1)
111:1V
organize, sponsor, operate, control, or
5
render investment advice to an investment company
(;
(including a company which would be an investment
7
company except for the provisions of section 3(c)(1) of
8
this title), or
9
"(2) may underwrite, distribute, sell, or issue se-
10
curities of any such investment company which is orga-
11
nized, sponsored, operated, controlled, or so advised by
12
a bank, a bank holding company or a subsidiary there-
13
of, or a savings and loan association: Proridcd, That
14
officers and employees of banks or savings and loan as-
15
sociations who sell such securities meet such standards
16
with respect to training, experience, and sales practices
17
as the Comptroller of the Currency and the Federal
18
Borne Loan Bank Board, respectively, shall prescribe
19
by regulations. A. savings and loan association shall not
20
be deemed to be a "broker" or "dealer", as those
21
terms are used in the Securities Exchange Act of
22
1934, by reason of its engaging in any of the functions
23
described in this subsection. As used in this subsection,
24
the terms "bank holding company" and "subsidiary",
25
with respect to a bank holding company, have the
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
meanings given them in section 2 of the UNTO. Holding.)
Comp:mv Act of 195G....
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BOARD OF 30VERNORS
OP THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
August 26, 1981
PAUL A. VOLCKER
CHAIRMAN
The Honorable Christopher J. Dodd
United States Senate
Washington, D.C.
20510
Dear Senator Dodd:
Thank you for your letter of August 11 seek
ing further
views of the Federal Reserve Board about
a possible federal usury
ceiling for consumer, agricultural, and busi
ness loans.
The Board has for some time held the view
that interest
rates for consumer loans and other types
of credit are best determined in markets unconstrained by rate
ceilings of any kind. If
some ceiling is to be established nonethel
ess, the Board remains
vigorously opposed to using the discount
rate as an index to which
the ceiling might be pegged. Under these
circumstances, you have
asked what the Board would regard as an appr
opriate rate for
indexing purposes, should the Congress deem
it necessary to
establish a federal usury ceiling.
It may be that none of the available rate
measures would
make an ideal index, given the broad spec
trum of loans potentially
covered by the proposed Credit Deregulation
and Availability Act
of 1981. At the least, a serviceable inde
x rate should be genuinely market-determined, not administered
by individual market
participants or by federally related agen
cies. The selected peg
rate should also reflect, as nearly as
possible, yield movements
in markets for alternative investments
with maturities similar to
maturities on the loans to be regulated.
The discount rate is
clearly inappropriate under either criterio
n, because it is a
policy rate set by the Federal Reserve on
loans of quite short
maturity. Much more suitable as a possible
index for consumer
loans would be the U.S. Treasury's 3-ye
ar or 5-year constant
maturity rate series, in view of the dept
h that characterizes the
markets for these uniform-quality medi
um-term Treasury securities.
You have also asked for the Board's view
about an appropriate markup over the recommended inde
x rate. Unfortunately, no
single markup could apply reasonably
to every type of consumer
loan, given wide differentials in risk
, loan size, and other
factors. For a small loan to a borrower
of relatively poor credit
rating, the higher servicing costs and
large allowance for
possible default would require a markup
substantially higher than
for a large-downpayment loan secured by
a new automobile. Current
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
t •
The Honorable Christopher J. Dddd
Page Two
usury laws in many states, for instance, permit annual
percentage
rates to range up to 36 percent on at least soMe portion
of a small
personal loan. Given recent yields on 3- to 5-year Treas
ury
securities of between 15 and 16 percent, a markup of 20
percentage
points or more would be necessary merely to duplicate the
ceilings
prevailing under the small loan laws of several states
--limits that
in many cases were set some time ago when market rates
were lower
than they are now.
Regarding other questions in your letter, I am enclosing
the study on industry concentration that you requested. Also
enclosed are pages copied from a Federal Reserve Bank of
Boston
publication, the Functional Cost Analysis, which present
estimates
of costs and net returns on installment lending (excluding
credit
card operations) for three size groups of commercial banks.
Pages
from the reports for 1973, 1976, and 1979 provide the historical
perspective that you desired for comparison with 1980. These
data
reflect returns on all loans outstanding, not just on new loans
made, and the cost-of-money figures represent average rathe
r than
marginal costs; thus the data are not directly applicable to
calculating the finance rate currently necessary to maintain
an
historical average yield. Thc comparison of 1980 figures with
earlier data, however, does demonstrate that profitability
on
consumer lending dropped sharply during 1980.
I hope these comments are helpful to your deliberations.
Please let me know if I can be of further assistance.
Sincerely,
szpaul A. Yolcket
Enclosures
CAL:RMF:JSZ:MJP:pjt (07-227)
bcc: Mr. Kichline
Mr. Fisher
Mr. Luckett
Mrs. Mallardi (2)
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Federal Reserve Bank of St. Louis
-
Chrmn. Volcker
Action assigned to Jim Kichline
JAKE GAriN, OJT %H.(AAIRMAN
JOHN TOWER. TEX,
JOHN HEINZ, rA.
WILLIAM L
HARRISON A. WILLIAMS. JR..
N.J.
wILLIAmi PROx*AIRE, WIS.
ARMSTRONG, COLO
RICHAIR0 G
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A.i.roN - I kit 0 A MATO N.Y.
JOHN H. CH•rif
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HARRISON SCHMITT. 14. MEX.
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At_AN CRANSTON. CALIF.
(x-INALD W. RIEGt E, JR.,
MICH.
SARRANES, MO.
CHR ,STOPHER J. DOOD, CONN.
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ALAN J. DIXON. ILL.
'ZICrtiteb
M. DANNY Witt t
rArr DIRECTOR
HOWARD A. MENELL. MI4ORITy •.T.AFF DIRECTOR
AND C(..1.1NSFL
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Federal Reserve Bank of St. Louis
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COMMITTEE ON BANKING. HOUSING. AND
URBAN AFFAIRS
WASHINGTON, D.C. 20510
en:WE CIF T•':
August 11, 1981
Honorable Paul A. Volcker
Chairman,
Board of Governors of the
Federal Reserve System
Federal Reserve Building
Constitution Avenue
Washington, D. C. 20551
Dear Mr. Chairman:
During the July 21, 1981, hearing of the Senate Financial
Institutions Subcommittee on S. 1406, the Credit Deregulation
and Availability Act of 1981, Governor Nancy Teeters testified
that, "If the Congress should choose to impose a federal usury
limit rather than to remove interest rate controls altogether,
the Board would strongly advise against tying such a ceiling
rate to the Federal Reserve discount rate ...." I would appreciate it if the Fed could give me the benefit of its thinking
as to what might be a more appropriate rate to use should the
Committee decide to pursue the idea of a federal usury limit.
In addition, I would appreciate it if the Fed could suggest
how much above such a rate a usury ceiling might be set in order
to achieve the twin objectives of encouraging competition and at
the same time preventing the charging of unconscionable interest
rates in captive markets where there is no competition. In this
regard, I think it would be useful if you could indicate what
rate of return banks have historically made on consumer loans,
what their present return is now and what interest rate would
be necessary under present circumstances in order for them to
meet their historical average.
(
Finally, during the hearings the Consumer Bankers Association testified that the Fed studied a number of firms and the
degree of concentration in 213 Standard Metropolitan Statistical
Areas and 233 county markets between 1966 and 1975 and concluded
1
4%
2-
nced
that more markets experienced structural changes that enha
ciate
competition than changes that reduced it. I would appre
it if you would furnish me with copies of those studies.
3,
Please provide the information by Wednesday, September
act Peter Kinzler,
1981. If you have any questions, you should cont
Affairs
Minority Counsel, Senate Banking, Housing and Urban
Committee, at 224-9213.
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Federal Reserve Bank of St. Louis
Thank you for your cooperation in this matter.
Sincerely,
CI r
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FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
••0FA,
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•
•. —AL RE.• •..• •'
PAUL A. VOLCKER
CHAIRMAN
August 26, 1981
The Honorable Larry Pressler
United States Senate
Washington, D.C. 20510
Dear Senator Pressler:
Thank you for your recent letter regarding the impact
of high interest rates. I appreciate having the views of your
constituents, as well as your own about monetary policy.
I want to assure you that my colleagues and I share
your concern about the stresses being created in the economy
by high interest rates. While some sectors of the economy seem
to be quite resistant to the prevailing financial pressures,
others clearly have been hit hard by the rising cost of credit.
The Federal Reserve has not sought to bring about these high
rates. Rather they are the inevitable result of the application
of the measured monetary restraint needed to reduce inflationary
forces in the economy.
The only way in which the Federal Reserve could, in
the short run, bring relief from the high rates, is by pouring
reserves into the banking system and thus stimulating faster
credit growth and faster monetary expansion. But, such a
shift in the direction of policy would serve only to heighten
the already deep-seated fears --reflected, among other places,
in the very depressed bond markets--that the government is in
fact not committed to seeing the fight against inflation through
to a successful end. The added monetary stimulus would intensify price pressures in the economy, worsening the inflation
problem that is at the root of today's high interest rates.
We cannot end inflation without resolute application
of policies of restraint on aggregate demand. Some of the damage
of severe financial stress can be averted, however, if less of
the burden of restraint is placed on monetary policy. The credit sensitive sectors of the economy would benefit greatly if, in
particular, there were a less substantial federal government
demand on the debt markets. Sustained, large budget deficits,
which appear unavoidable unless there is further progress in
cutting expenditures, can only tend to squeeze out private
borrowers who do not have, in effect, first call on the nation's
financial resources.
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Federal Reserve Bank of St. Louis
•
BOARD OF.GOVERNORS
OF THE
The honorable Larry Pressler
Page Two
It is my hoke that the public's recognition
of the
sincerity of the government in its commitmen
t to anti-inflationary
restraint will show through in wage and pri
ce decisions throughout the economy. There have been a few fav
orable signs recently
on the inflation front, but I'm afraid that
these
considerable degree reflected the impacts of the signs have in
very harsh direct
effects of high interest rates on spending dec
isions. There has
been little evidence of the kind of change in
psychology that
can greatly ease the adjustment from an inflation
ary to a noninflationary ecnnomy. It is incumbent upon
us in government to
grasp the opportunity presented by these glican
erings of progress
to pursue polic-;es that will overcome the existi
ng skepticism and
move us morarapidly toward an environment of
greater economic
vitality and lower interest rates.
As you can imagine, I am aware of the proposals
for
alteration of the Federal Reserve. I am par
ticularly concerned
that they might divert attention at this cru
cial juncture from the
economic realities with which we must contend.
You may well be
right that an easing of rates would defuse some
of the political
criticism the System is attracting, and you wil
l readily understand
that no onewwould welcome declines in interest rat
es more than I-if those declines reflect and are consistent wit
h success on the
anti-inflationary effort. However, I fear tha
t the "joy" would
prove short-lived if we sought lower interest rat
es at the expense
of jeopardizing progress on inflation. Indeed, the
effort would
in -hose circumstances be counterproductive--not onl
y
interests of the Federal Reserve, but more important to the
ly, to the
nat,ion.
I try not to underestimate the difficulties of the
present
situation, economically or politically. The thresh
old of patience
and pain is and will be tested. I hope and trust we
will also not
underestimate the dangers of failing to turn inflat
ion around --or
to put it more positively, the enormous opportunity
chauge the debilitating economic trends of the pas we have to
t decade or more
I would be delighted to continue this dialogue ove
r breakfast or
otherwise if you so desire.
,•••
Sincerely,
S/Paul A. Voickg
MJP:JSZ:PAV:pjt:sep ON-228)
bcc: Mr. Kichline
Mr. Prell
Mrs. Mallardi (2)
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Federal Reserve Bank of St. Louis
Action assigned to Mr. Kichline.
ii:111 PACKWOOD, ORE°
CHAIRMAN
,I
BARRI
, GOLDWATER. ARIZ.
HARRISON H. SCHMITT. N. MEX.
HOWARD W. CANNON. NEV.
RI till( LI_ •. LONG. LA.
JOHN C. DANFORTH. TAO.
NANCY LA NOON IS A SIT DAUM, KANS.
ERNEST r. HOLLINGS. S.C.
DANIEL K. INOUYE. HAWAII
LARRY PRESSLER. S. OAK.
--.PCJCCE GORTON, v. A Sm.
WENDELL N. rono. KY.
DONALD W. RIEGLE, JR., MICH.
TED STEVENS. ALASKA
J. JAMES EXON. NEWT,
DOC KASTEN. WIS.
HOWELL HEFLIN. ALA.
WILLIAM m. oirrehiorwrrre, cHirr covevsrL
Jun•way L. SARVIS. SAINORITy CHsEIF COUNSEL
EDWIN K. MALL, MINORITY GENERAL COUNSEL
"ZUnifeb ,Sfafez Zertafe
COMMITTEE ON COMMERCE. SCIENCE.
AND TRANSPORTATION
WASHINGTON. D.C. 20510
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1961 AUG 13 n 4 P: 48
OFT1:1
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;
August 7, 1981
Honorable Paul A. Volcker
Chairman
Board of Governors of the
Federal Reserve System
20th Street & Constitution Avenue
Washington, D.C. 20551
Dear Chairman Volcker:
I have just returned to Washington from South Dakota where I
held a number of listening meetings across the state with my
constituents.
My constituents have informed me in the loudest and most direct
manner that the current high interest rates are destroying the
economic base of the state. The farms and small businesses of
South Dakota are being crushed by the current rates because of
their high dependence on credit.
Farmers must borrow constantly to produce the year's crop. If
family farmers are unable to borrow money at reasonable rates,
and if small businesses do not have access to loan funds, the
way will be paved for the corporate takeover of these enterprises. Many of the people I met with in the building and construction industry told me that they are currently on the verge
of going out of business. Many in the housing industry have
already gone out of business because of the slump in sales
caused by the astronomically high interest rates. Some of my
State's banks report that they have only thirty percent of their
funds loaned out because few people can afford to borrow at the
current rates.
If present trends continue unabated, it is apparent that irrepairable damage will be done to many individuals engaged in
agriculture and small business, as well as the economy at large.
Therefore, I urge you to use your powers to seek the earliest
possible reduction in interest rates.
As you know, there are currently a number of proposals being
discussed in the Congress regarding modifications of the Federal
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
i tf •.
•
Honorable Paul A. Volcker
Page 2
August 7, 1981
Reserv's powers. I believe it would be the preferable
and more
orderly process if the Board took action on this matte
r of interest rates. Otherwise, the extreme pressures which are
building
up in Congress because of interest rates may lead to
a drastic
and perhaps oversweeping revision of the Federal Reser
ve Board.
A move to reduce interest rates would go far to easin
g these
pressures and to restoring the vigor of our economy.
Thank you
for your consideration of this matter.
Sin
arry
Unite
LP/jck
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Federal Reserve Bank of St. Louis
ely,
ssler
tates Senator
41.
August 26, 1931
The honorable John Tower
United States Senate
Washington, D.C. 20510
Dear Senator Tower:
I am writinc in response to your request for comittent on
correspondence you received from Ms. Joanne Potter. Ms. Potter's
letter concerned Manufacturers hanover Trust Company's denial of
her application for VISA and Master Card accounts.
The Federal Reserve Lank of New Yorl- received identical
correspondence from us. Potter on April 14, 1981, conducted an
investigation of the natter, and responded to her on July 29,
Manufacturers reviewed Ms. Potter's applications for VISA and 1981.
Master Card and, based upon the bank's curient crcdit
has approved both credit applications. Consequently, it is our
understanding that this problem has been satisfactorily reso
lved.
I hope this information is helpful to you.
me know if I may be of further assitance.
Sincerely,
(Signed) Wi
R. daniQw.
William R. Ealoni
Special Assistant to the Board
SJP:sep (#V-214)
bcc: Ms. Potkai
Mrs. nallardi
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Federal Reserve Bank of St. Louis
Please let
JA.Kr
GARR, LITAH, CHAIRMAN
Action assigned Ja.net Hart
JOHN TO'. ER, TEX.
J:.4IN HEINZ, PA..
riILLIAM L— ARMSTRONO, COLO.
HARPISON A. WILLIAMS, JR.. N.j.
WILLIAM PROXMIRE, NIS.
ALAN CR ANSTON. C.ALI
RICHARD G. LUGAR. IND.
ALFONSE M.[...AMATO, N.Y.
."09•44 H. CHATEE R.I.
DONALD
JR.. MICH.
PAIJL S. SARRANIS. PAD.
CHRISTOPHEA J. DODD, CONN.
HARRISON &CHM ITT, N. M
AIJIN
w. ntrot.x,
DIXON,
sTArr
DIR ECTOR
M. DANNY WALL,
HOWARD A. MENIELL, MINORITY STAFF DIRIECTOR ANZ) COUNSEL
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Federal Reserve Bank of St. Louis
Zfafes Zetrate
COMMITTEE ON SIANK1NG, HOUSING, AND
URBAN AFFAIRS
WASHINGITON, D.C. 20510
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July 23, 1981
••
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The Honorable Paul A. Volcker, Chairman
Board of Governors of the Federal
Reserve System
Federal Reserve Building
Washington, D. C. 20551
Dear Mr. Chairman:
Enclosed is a copy of a self-explanatory letter that I have
received from Joanne M. Potter, Houston, Texas, concerning
her credit card problem with Manufacturers Hanover Trust
Company.
I would very much your reviewing this letter and sending
me a response in order that I may reply to my constituent.
Sincerely yours,
111•••••••••••••.••••••••••
John Tower
JT:tbr
enclosure
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
April 6, 1981
Sen3tor John Tower
Chairman, Senate Armed Services Committee
142 Russell
Senate Office Building
Washington, D.C. 20510
Sir:
Enclosed is a letter I sent to Manufacturers Hanover and Trust Co.,
concerning their biased and discriminatory practices towards a spouse
of a military person (active or retired).
I would appreciate your follow-up on this matter.
Sincerely,
,
/1) (26t-7,Y(
Joanne N. Potter
Copy to:
Manufacturers Hanover Trust
Api it u,
i:61
•
Supervisor
Retail Card Services Department
Manufacturers Hanover Trust Co.
:uff ..' Avenue
hicksvil -le, NY 11801
Sir:
This is a letter to protest your biased and discriminatory policies and also to
inform you of an inconsistent policy interpretation between your Credit Division
and your Collection Division.
My husband, Bert T. Potter, and I, Joanne M. Potter, had exemplarily maintained
a joint Master Charge (card) account
with you for approximately
four years. In mid -January, 1981, Bert included a letter with our account payment requesting that his name be dropped from the account and that it be in
just my name.
About a week later, Bert returned a phone call to Mrs. Santori of your Collection
Division. She was most courteous and suggested instead of dropping his name
from our account, it would be much easier to perform a "Marital". She indicated
the "Marital" was a MHT routine practice and that:
1.
2.
Bert and I cut our Master Charge cards in half and return them to her.
Close out our account.
She said applications would then be sent to us in case either of us desired to
open a new account which would routinely be accomplished because of MHT's
"Marital" policy.
Bert expressed concern about closina the account but was assured there would
be no problem. Thus the above was accomplished. I received my application
form about a week later (end of January) from Mrs. Santori. I completed and
returned it to MHT almost immediately.
On Saturday, March 14, 1981, I received a "Denial" from your Credit Division
and the reasons given were not Germane to Your "rarital" policy as Mrs. Santori
presented to Bert. A copy of the "Denial" is attached.
On Monday, March 16, 1931, Bert phoned Mrs. Santori to get the "story". She
could not understand the "Denial" but affirmed that your "Marital" policy
was as she had described it in January. Again she was most cooperative and
courteous and referred Bert to your Credit Division.
Understandably, Bert could not get any information from your Credit Division
because of the Privacy Act. So on Tuesday, March 17, 1981, I phoned and
talked to the Credit Division. After my conversation, I truthfully believe
that your Collection and your Credit Divisions have different concepts of
your "Marital" policy. I also believe MHT is biased and discriminatory
against women.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Page -2- As concerns your "denial" reasons, Fert retired, honorably, from the U. S. Coast
Guard (as a Commander (0-5)) in 197 and since then we have resided at the above
address. We moved every two to four years prior to 1978, and we have only
lived here since his retirement which, in turn, has caused insufficient time for
my local employment. I believe your residency and length of employment reasons
biased and discriminatory against spouses of military personnel (active or
retired). Furthermore, they should not even be an issue in your "Mar:tal"
policy, as presented by Mrs. Santori.
A reconsideration is requested.
Sincerely,
(-)
Aanne M. Potter
Copy to:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Senator John Tower
Chairman, Senate Armed Services Committee
Rep. Melvin Price
Chairman, House Armed Services Committee
Senator Alan K. Simpson
Chairman, Senate Committee on Veteran's Affairs
Rep. G. V. (Sonny) Montgomery
Chairman, House Committee on Veteran's Affairs
National Organization For Women
VADM Charles S. Minter, Jr. USN (Ret.)
President, The Retired Officer's Association
Thomas G. Bousquet, Attorney at Law
Credit Bureau, Houston, TX
Federal Reserve Bank of New York
cox;
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Federal Reserve Bank of St. Louis
COIPANY
iNvvs , N,194a4L
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BOARD Or 730VERNORS
TH E
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
August 25, 1981
PAW_ A. VOLCKER
C HAI RMAN
The Honorable Ronald M. Mottl
House of Representatives
Washington, D.C.
20515
Dear Mr. Mottl:
I am writing in response to your letter
of Xugust 11
in which you express concern about
Federal Reserve policy and
urge that I resign.
As you might expect, I am not inclined
to get into a
personal defense. It would, in any
event, detract from a discussion of the more substantive issue
raised by your letter.
That more substantive issue is whethe
r we are pursuing
a policy aimed, as you put it, at ben
efiting the "privileged
few." I must take strong exception
with such an assertion. Our
policies are directed toward solvin
g the problem that most
Americans have identified as our nation
's greatest economic
ill--namely, the inflation that has
escalated over the past
decade, imposing increasing strain
s and distortions on our financial system and economy.
The Federal Reserve has only limite
d tools at its disposal in fighting inflation. But
it can make an absolute crucial
contribution: it can impose the res
traint on the growth of money
that is a necessary ingredient in any
effort to restore price
stability. This is precisely what
the System is endeavoring to
do. It is seeking a gradual modera
tion of the trend growth of
money, with an eye toward achieving
non-inflationary rates of
expansion as soon as is possible wit
hout undue disruption of the
economy.
Monetary policy is inherently a rather
blunt instrument;
the burden of restraint falls uneven
ly across sectors of the
economy. Those areas of activity whe
re expenditures tend to be
credit financed feel direct and rel
atively strong initial effects.
This is not inherently a matter of
big business versus small
business and consumers: the impact
cuts across such lines.
Some of the unevenness of anti-infl
ationary restraint
can be avoided if less of the bur
den were to be placed on monetary
policy. If, in particular, the fed
eral government's demands on
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
The Honorable Ronald n. Mottl
Page Two
tl:L. credit markets are reduced through budgetary restraint, then
the Lurden of the fight against inflation can be Gpread more
evenly. Much of the tension in the capital markets today, in
fact, reflects concerns among investors that large federal
deficits will need to be financed for some time to come.
I recognize that these arc very difficult times for
many in our economy. Some hopeful signs of progress in the antiinflation battle have become visible of late. It would be a
tragedy, particularly given the costs that have been iticurred to
date, if we were to back off in our effort now. If, instead, we
stick to our course with a degree of patience, I believe we can
look forward to the achievement of a healthier economic environment in which all Americans will have greater opportunity for
prosperity.
Sincerely,
S/Paul 11 Volcker
MJP:JSZ:AFC:pjt (#V-229)
bcc: Mr. Kichline
Mr. Zeiscl
Mr. Prell
Mrs. Mallardi (2)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Action assigned to Mr. Kichline.
SUI3URE3^ N CAUCUS
FOUNDER ANCI CO-CHAIRMAN
RONALD M. MOTTL
23D DIVTRICT. OHIO
cciAmrrrrEs1
WASHINOTON orr.cr,
2459 RAYIPURN Hausa Orricc DUILDINO
Ta.ars-ioNe, (202) 225-5731
VETERANS' AFFAIRS
Sum0mwrrcrf.:
CHA1RmAN,
1-40`1'!TALS AND HEALTH CARE
Congrt55 of the Einittb igatts'
DI STRICT' OrFIC r3•
2951 FEDCRAL OPTIC( BIJILDIHO
CLEVTLAND. 01410 44199
31)oui5e of Iltprefsentatibui
taagbingtonAD.c. 20515
Trt_r_prooNc: (216) 522-4382
HOUSING AND MEMORIAL AFFAIRS
ENERGY AND COMMERCE
14812 OfTROIT AVENUE. /207
LAIC UNDO°. OH io
OVERSIGHT AND
August 11, 1981
TELECOMmUNiCATIoNs. CON.
:.uMER
PROTECTION. AND FINANCE
44107
Tin-Errata; (216) 522-7152
5393,14.41mRoAo
44129
PARMA. OHIO
Tii..iPi4orsr,(216) 522-7090
(""t
-11
Mr. Paul A. Volcker
Chairman, Board of Governors
Federal Reserve System
Twentieth Street & Constitution Avenue, N.W.
Washington, D.C. 20551
Dear Mr. Chairman:
CD -an
rr:
(4.C.3
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I am writing to protest, once again, your appalling monetary CO
policy which keeps the construction, home sales and auto
industries in a depression, but which permits the giant
corporations to have almost unlimited lines of bank credit at
the cheapest available rates.
It must sicken the young couple struggling to save a down
payment on a home and meet a 17 percent mortgage, to read
reports such as that appearing in yesterday's New York Times
stating that at least 13 major corporations have lined up $46
billion in credit lines ranging in size from $1 billion to
$6 billion. Yet these massive purchases of credit are not for
the purpose of improving this nation's productive capacity -the Times reported that most of the credit arrangements are to
finance takeovers of other companies.
Aside from
banks turn
can coerce
profitable
the staggering size of these credit lines while the
small borrowers away, these corporations reportedly
such low interest rates as to make the loans barely
for the banks.
These reports simply demonstrate what I and many others have feared
as the Fed blindly pursues a tight money policy. That is, it is
the small businessman and the individual home or car buyer who
suffer from Fed policies, while the business giants merrily roll
along borrowing and spending as they please.
Perhaps that is why your policies find such favor in the corporate
board rooms. Such policies are an affront to the average American.
I again urge your resignation, so that we might restore public
faith that our economic policies are implemented for the benefit
of all and not for the privileged few.
erel
RO ALD M. MOT'L
Member of Congress
RMM/km
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
.
•
August 25, 1981
The Honorable Robert E. Badham
Rouse of Representatives
Washington, D.C. 20515
Dear Mr. Badham:
Thank you for your letter of August 20 recommending
Mr. Michael E. Thomas to serve on the Board's Consumer Advisory
Council.
I can assure you that Mr. Thomas' qualifications
will receive full consideration when the Board makes the
appointments to the Council, to fill the positions of individuals whose terms expire on December 1981.
I appreciate your taking the time to bring him to
our attention.
Sincerely,
S/Paul
Volcket
CO:sep (0-237)
bcc: Mrs. Bray (w/copy of incoming)
Mrs. Mallardi (2)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
*ARMED SERVIct
51./RCOkIv
COMMITTEE
wasi4INGToN orrocc,
Tr
1108 LONGWORTH HOUSE Orrtcr BulUDINO
PROcUREMENT AN') MILITARY
NUCLEAR S1—:,TEMS
WASHINGTON. D.C.
20515
(202) 225-5611
RE'
,, ARCH AND CEVELoRMI NT
HOUSr: ADMINISTRATION
CON1N1IT TEE
Congre55 of tlic laniteb aqatc5
cHOCOMMITTEES:
COMMITTEE ORGAP.IlzATION
PoufSe of ;teprOentatibt5
DISTRICT orricr,
1649 WESTCLIFF DRIVE
NEWPORT BEACH. CALIFORNIA
92660
(714) 631-0040
ACCOUNTS
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Federal Reserve Bank of St. Louis
ROBERT E. BADHAM
DISTRICT.CALIFORNIA
40TH
411/
August 20, 1981
Mr. Paul M. Volker, Chairman
Board of Governors of the
Federal Reserve Board
Washington, D.C. 20551
Dear Mr. Volker:
I understand that the Board will soon begin the process of
evaluating the candidates to fill the vacancies on the 1982
Consumer Advisory Council. I am pleased to recommend the
nomination of Michael E. Thomas for membership on the council.
Michael is a constituent of the 40th Conaressonal District,
which I represent in the United States House of Representatives.
After scanning Michael's resume, you will soon discover that he
is well versed in finance, economics and systems, all of which
would make him a valuable addition to the council. I would
appreciate your consideration of Michael and have enclosed a
copy of his resume for your review.
CordiaZ
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/ ROBERT E. BhDHAM
Member of Congress
.*
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Federal Reserve Bank of St. Louis
August 6, 1961
The lionoraple Ray Kogovsek
House of Representatives
'ilashington, D. C. 20515
1;ear Conressman Kogovsek:
Thank you for your recent letter outlining the program
for 50 community leaders from 4estern Colorado that you and
Congressman tirown are arranging.
Unfortunately, a prior commitment will prevent me from
participating in the prcgram. The September 30 date conflicts with
the annual meeting of the International Monetary Fund and World
Bank which will reguim my attention during that particular week.
However, Governor Lyle E. Gramley has agreed to represent
the 3oard at the seminar and will be pleased to meet with your group
beginning at 3:15 p.m. on that date.
Sincerely,
cc:
Mrs. Mallardi
#216
JRC:tjf
IDENTICAL LETTER TO CONGRESSMAN HANK BROWN
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
twgust 6, 1961
The Honoraple Ray Kogovsek
House of Representatives
4ashington, D. C. 20515
'6ear Congressman Kogovsek:
Tnank you for your recent letter outlining the program
for 50 community leaders from *stern Colorado that you and
Congressman Brown are arranging.
Unfortunately, a prior commitment will prevent we from
participating in the program. The September 30 date conflicts with
the annual meeting of the International Monetary Fund and World
Bank which will require my attention during that particular week.
However, Governor Lyle E. Gramley has agreed to represent
the 3oard at the seminar and will be pleased to meet with your group
beginning at 3:15 p.m. on that date.
Sincerely,
cc:
Mrs. Mallard.
'
#216
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IDEATICAL LETTER TO CONGRESSMAN HANK BROWN
4-7;)tate5
Congre511 of tbe Elnittb'
3bouot of Reprecientatitig JUL 3°"I°: 34
3 re 2°51PrFIGE
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July 27, 1981
to
The Honorable
Paul A. Volcker, Chairman
Board of Governors of the
Federal Reserve System
Federal Reserve Building
Constitution Avenue between 20th
and 21st Streets
Washington, D. C. 20551
Dear Chairman Volcker:
On September 30 and October 1, we will serve as
co-hosts for a Western Colorado Washington Seminar. It is
expected that approximately fifty community leaders from areas
of the Third and Fourth Congressional Districts of Colorado
that lie west of the Continental Divide will spend two days
here in Washington listening to and asking questions of
representatives of both the Executive and Legislative Branches.
We invite you to be a participant in this program, and
would be grateful if you could meet with our group from 3:15
to 4:00 on Wednesday, September 30.
We recognize the problems with scheduling, but it is
our hope that an invitation extended in advance will find you
with an opening in your schedule at the time mentioned above.
If there is a need to shift to some other time during the twoday period, we will do everything possible to make the change,
because we are anxious to have your participation in this event.
Either Vera Lou Durigon, (225-4761) or Bill Cleary,
(225-4676) will be waiting to work with your office in making
the arrangements.
a
Again, it is our sincere hope that you will be able to
take part in this program.
Thanking you in advance, we remain
Sincerely yours,
irl r4C7
RAY KOGOVS
Member of Con ressv ell
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
,-
HANK BROWN
Member of Congress
fr fro
,
GREGORY W. CARMAN
THIRD DI STR ICT, NEW YORK
WASHINGTON OFFICE:
1729 LONGWORTH HOUSE OFFICE BUILDING
WASHINGTON, D.C. 20515
COMM ITTEES
(202) 225-3865
BANKING. FINANCE AND URBAN
AFFAIRS
Congre
of the Einiteb
tate5
SUBCOMMITTEES:
INTERNATIONAL TRADE, INVESTMENT
AND MONETARY POLICY
HOUSING AND COMMUNITY
DEVELOPMENT
ji)oute of RepreOntatib0
DISTR ICT OFFICE:
322A MAIN STREET
HUNTINGTON, NEW YORK
(516) 549-8400
11743
Utietzbington, Ile. 20515
GENERAL OVERSIGHT AND
RENEGOTIATION
CONSUMER AFFAIRS
SELECT COM MITTEE ON AGING
August 6, 1981
SUBCOmmiTTEES:
RETIREMENT INCOME AND EMPLOYMENT
HOUSING AND CONSUMER INTERESTS
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
M
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The Honorable Paul A. Volcker
Chairman
Federal Reserve Board
20th St. and ConstitutioAve.
NW
Washington, D. C.
20051
=21
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Dear Mr. Chairman:
Thank you for your recent letter regarding Money Market Iiinds
as it relates to H.R. 2980.
I am sorry for the delay in responding
but I have studied the issue carefully.
I have concluded that the points you raised are correct and
that H.R. 2980 should not be supported.
Therefore, I will not
support enactment of this measure.
I certainly appreciate the time
and effort you clearly took to express your opinion on this matter,
and I hope you will keep me abreast of your thinking on the other
important issues of the day.
I pledged, when elected, that I would reflect the good, decent,
common sense of the people, and you have made that pledge a reality.
With kind regards, I am
Cordially,
Gre
ry W. Carman
Member of Congress
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August 20, 1981
PAUL A. VOLCKER
CHAIRMAN
The Honorable Ted Stevens
Chairman
Subcommittee on Civil Service, Post Office,
and General Services
Committee on Governmental Affairs
United States Senate
Washington, D.C.
20510
Dear Chairman Stevens:
Thank you for your letter on the problem of senior
executives leaving the Federal Government due to inadequate pay.
This is a serious concern for the Federal Reserve, as I am sure
it is for other government agencies, and I appreciate the opportunity to comment.
As you know, the Federal Reserve Board is not part of
the Federal Government's Senior Executive Service (SES); however,
compensation of the Board's official staff parallels very closely
the SES pay structure, including the limitation on pay. Our inability to grant salary increases to our top-level people has had
a harmful effect on morale and has severely distorted pay relationships. As a result of this problem, salary distinctions are
insufficient to reflect accurately differences in levels of
responsibility. Due to the pay cap on executives salaries, the
Board's officer salary structure is so severely compacted that
the salaries of 76 percent of the Board's official staff are
currently frozen; after October 1 of this year, assuming retention
of the pay cap, that figure will increase to 91 percent. Because
of the pay compaction problem, the Board is faced with the problem
of promoting employees to higher levels of responsibility with
little or no increase in salary.
Within the past year, a number of key officials have
resigned from the Board, partly or largely for reasons dealing with
inadequate compensation. Most of these employees have accepted
employment offers which exceeded their Board salaries by 70 percent and more. (You may be interested in the enclosed listing of
officers who left the Board in 1981.) Although Federal salaries cannot match those in the private sector, an increase in salary level
s
of modest proportions may have averted the exodus of some of
these
people. Thus far this year, the annualized attrition rate for
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-
The Honorahly Ted :tevyns
Page Two
the Board's official staff is exc,eedini, 20
pereent, almost double
the rate experienced in 1980 andlnearly triple
the rate experienced
in 1979.
In the post, when pay was more competitive
and the attrition rate for our key senior offil,cials was
fairly low and stable,
most of ouy vacancies were quicklly filled.
But with the recent
sharp increase in resignations among our key
officials, it has
become extremely difficult to find replacie
ments with the quality
of experience necessary to cover 'critica
l nrens. Unfortunately,
we can no longer rely as luiavily on recr
uitinh competent replacements from outside of the h,deral Reserve
due to the increased
gap between our salary lelels and thos
e offered in the private
sector.
The Federal Reserve has traditionally been
staffed at
senior levels by people intent on making
the Federal Reserve their
career. However, to an increasing degree,,
we now find ourselves
training people who aff- er a number of year:leave for greater
financial rewards. Uhile many dedicated
individuals have made
sacrifices in thy past, today's salary ;:ip
is too great for us
to expect to be ahle to retain many of thes
e individuals. I am
greatly concerned that lul"ther erosion of
talent could result in
a decline of overall Board effectiveness.
I realize that in a
period of severe budgetin restraimt
it is difficult to argue
for pay increases for the highest paid
government workers. However, I do believe the situation has beco
me sufficiently serious
that the only responsilde course is to
take prompt action to lift
the pay cap. Agaln, thank you for the
opportunity to comment.
Sincerely,
Wool A. Volcker
__
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ETM:JW:RS:vcd (V-222)
bcc :
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Vice Chairman Schultz
Mr. Mulrenin
Mr. Weis
Mr. Syron
Mr. Salvaggio
Mrs. Mallardi (2)
-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Officers Leaving the Board in 1981
(As of 7-28-81)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
New
Salary
Reason
$ 90,000
61,000
110,000
62,000
125,000
90,000
90,000
75,000
70,000
Retirement
Pay
Pay
Pay
Greater Opportunity
Pay
Pay
Pay
Pay
Pay and Greater Respon.
August 17, 1981
The iloporaLle Ld Bethune
Kouse of Pepresentatives
;;aohin(jton, D.C.
20515
Ucar 1:6;
Thank you for your letter of July 23 recommending
D. Yancey as a mcmlier of the Board's Consumer Advisory
Council.
I cr.n assure you that rr. Yancey's qualifications
will receive full consideration when the Board makes
the 1981
appointracnts to the Council.
Again, thank you for your interest.
Sincerely,
SZ
CO:pjt CA7-225)
bcc: Er.i. Bray (w/copy of incoming)
Lrs.
(2).7
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
EQ. BETHUNE
COMMITTEES:
2ND DISTRICT. ARKANSAS
BUDGET
BANKING, FINANCE AND
URBAN AFFAIRS
Congre55of tbeillnitebtate5
WASHINGTON OFFICE:
1535 LONGWORTH
HOUSE OFFICE BUILDING
WAsHiNGToNrki).C. 20515
• (202) 2Z5-2506
Aptick
DISTRICT OFFICE:
1527 FEDERAL BUILDING
700 WEST CAPITOL
LITTLE ROCK, ARKANSAS 72201
(501) 378-5941
of ikeprezentatibeg
Wasijington, 33.e. 20515
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Federal Reserve Bank of St. Louis
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July 23, 1981
)
The Honorable Paul A. Volcker
Chairman
Board of Directors
Federal Reserve System
Washington, D. C. 20551
Dear Mr. Chairman:
By the attached letter to Dolores Smith of your
staff, I have suggested the potential appointment of
E. D. Yancey, of Searcy, Arkansas, to the Fed's
Consumer Advisory Council.
Anything you can do to make certain that this
suggestion receives serious consideration will be
appreciated.
Member of Congress
ts.
EB/jct
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Enclosure
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111
1-10(ISU OFF ICL
WAr.04INGTON. D C. 20515
(202) 221.:-25C.,6
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
DISTRICT OF F ICE:
IC.E"
3I)ou.s.)e
1 of Ikeprt5nitatilm5
Martintort, 73.e. 20315
1527 FLDFRAL Dt/ILOINa
700 Wrsr CAF'l TOL
LI1 TLE ROCK. ARKANSAS 7;.2
(501) 378-5941
July 23, 1981
Ms. Dolores S. Smith
Assistant Director
Division of Consumer and Community Affairs
Board of Governors
Federal Reserve System
Washington, D. C. 20551
Dear Ms. Smith:
Recontly I was advised by the Federal Reserve Board of
its desire to receive the nomination of qualified individuals
to serve on its Consumer Advisory Council. By the enclosed
resume, I would like to suggest that serious consideration be
given to tho posslbility of naming E. D. Yancey, of Searcy,
Arkansas, to one of those positions.
Until recently, Mr. Yancey served as the Chief Executive
Officer of First Security Bank in Searcy. That experience,
plus many other related experiences as an entrepreneur,
consultant and community activist, give E. D. a unique
capacity to speak authoritatively to the needs of consumers
within the framework of the Federal Reserve. I think he
would make an outstanding addition to the Advisory Council
and help the Fed meet its obligations under the Consumer
Credit Protection Act.
If I can provide any additional information, please
don't hesitate to contact me.
Sincerely,
Ed Bethune
Member of Congress
EB/jct
Enclosure
Removal Notice
The item(s) identified below have been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to personally identifiable information.
Citation Information
Document Type: Resume
Citations:
Number of Pages Removed: 3
Resume, E.D. Yancey, 1981.
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
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BOARD OF
50VERNORS
CV "HE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
August 17, 1981
PAUL A. VOLCKER
CHAIRMAN
The Honorable William E. Dannemeyer
House of Representatives
Washington, D.C.
20515
Dear Mr. Dannemeyer:
On behalf of the members of the Board, I am responding
to the issues you raised in your letter of July 27. I read it
with great interest and with concern because I believe it refle
cts
some serious misunderstanding of monetary policy and the trend
of monetary growth.
Let's agree that today's high interest rates owe their
existence in some degree to past and current inflation, and
set
aside the legitimate debate about how much excessive monet
ary
growth accommodated inflation in the past. What matters now is
looking ahead. Contrary to your observation, I think you would
be hard pressed to find very many people, particularly in finan
cial markets, who think there is no visible direction to monetary
policy. While they may not necessarily agree with it, I think
most observers now have a clearer view of the thrust of monetary
policy than has been true for some time, and that the money
supply is "under control."
That does not mean we can control, or should try to
control, money fluctuating from week to week or month to month
.
On the issue of expectations, while these influences are
very
difficult to nail down, there is no straight-forward reason for
short-run fluctuations in money growth by itself to result in
a
high level of interest rates. The public's demand for money
is
inherently very volatile from week to week or from month to month
,
and the compelling conclusion of much empirical work done here
and
elsewhere is that to eradicate the resulting short-run variations
in money would require extremely large fluctuations in interest
rates. Moreover, all evidence indicates these rate fluctuations
would serve no useful purpose, because short-run variations in
money leave no significant imprint on the economy (since the
impact of money on economic activity is distributed over a
lengthy time span).
You also raised questions about actual monetary growth
and about Federal Reserve operating procedures. On the forme
r
issue, I should note that the figures you cite on monetary growt
h
are calculated in terms of six-month moving averages. That does
not happen to be the way we typically present our targets,
but
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The Honorable William E. Dannemeyer
Page Two
certainly there have been fluctuations over a period of
a quarter
or two. nore important, the data you cite are not adjus
ted for
shifts into NOW accounts from Eaving accounts and other
assets.
Failure to make this adjustment can result in serious disto
rtions,
and a misreading of the trend. The reasons for the high growt
h
rates you cite are (1) a surge in the money stock last
summer
for four or five months and early fall, much of which offse
t the
weakness in the spring, and (2) the lack of proper allow
ance for
the impact of shifting out of savings deposits and other
such
assets into NOW accounts.
I think that if you examine the enclosed chart from our
mid-year report, you will see that Ml-B growth thus far this
year
have been quite moderate. In fact, through July it has falle
n
below the 3-1/2 percent lower bound of its range--a performanc
e
that seems appropriate in light of the relatively strong growt
h
in the broader monetary aggregates and the evident changes
in the
public's cash management behavior. (I would gather from the
testimony of several Administration officials before Congress as
well as their public statements, that the Administration also
views this performance as consistent with its desires for
monetary
restraint.)
As regards the question of operating procedures, I
frankly believe that the outstanding issues on this score are
of
second order importance. Many of the changes in procedure that
have been mentioned frequently would be of limited value in terms
of monetary control over time spans of economic significance,
say several months. The question is whether these changes would
be worth the sizable costs they might impose, in some cases,
on
financial institutions and markets. We are, however, continuing
to examine various options, such as a return to contemporaneous
reserve accounting or a change in discount window policy, that
might enhance short-run monetary control.
Finally, with respect to the impact of federal budget
deficits on interest rates, it is our view, and I might note,
obviously that of most credit market participants that, other
things equal, large federal demands on the credit markets do
add to the upward pressures on interest rates. Too many factors
are involved to give a simple quantitative answer to the question
of how much of a deficit reduction would be necessary to resul
t
in a significant decline in interest rates; all that can be
said with reliable accuracy is that, the more the Congress
does
to restrain federal spending and reduce the deficit, the
less
will be the pressures on credit markets.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The Honorable William E. Dannernyer
Page Three
I hope that these remarks will be helpful. While I
don't necoarily expect you to agree with our policies, no one
is well-served Ly unnecessary confusion about what we are doing.
If you would like to explore these issues further, please let
lac know.
Sincerely,
SZPaul A. Mau
Lnclosure
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MJP:JSZ:RFS:pjt (4V-213)
bcc: Mr. Prell
Mr. Zeisel
Mrs. Lallardi (2)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Ml-B
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Billions of dollars
Annual Rates of Growth
Adjusted
450
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VALLIAM E. DANNEMEYER
39TH DISTRICT. CALIFORNIA
REPLY. IF ANY TO.
•' •
COMMITTEES:
, ENERGY AND COMMERCE
WASHINGTON orricrs
C 1032 Lowswonru Housr Orricr Bun.
WASHINGTON. D.C. 20515
(202) 225-4111
POST OFFICE AND CIVIL
SERVICE
DISTRICT MTGE:
1370 BREA BoutroArto
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Congre5 of tbe tinitcb iptate5
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FULLERTON. CALIFORNIA 921135
(714) 992-0141
31)ouck of itepresientatiinz
lazutington, rte. 20515
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July 27, 1981
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Mr. Paul A. Volcker, Chairman
Board of Governors of the
Federal Reserve System
20th at Constitution, N.W.
Washington, D.C. 20551
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Dear Chairman Volcker:
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It is certainly no secret that high interest rates are due to
excessive
growth in the money supply, over which you have jurisdiction.
It is
equally clear that interest rates are remaining at or near record
levels
because of erratic fluctuations in monetary growth. And it is
becoming
more apparent that growing concern over economic indicators is
due to
our psychological conditioning that interest rates will continue
to
rollercoaster at a high average because there is no visible direction
to monetary policy.
The President has stated that he wants steady but moderate (i.e.
slow)
growth, a policy which the Federal Reserve Board must implement.
Do
you contend that the Fed cannot control monetary growth in this manner
?
And if you can control it, why is this not being undertaken? If
it is
being undertaken, do you feel that you have effective control over
the
situation?
Milton Friedman, in an article published in Newsweek (June 15, 1981),
argues that, regarding the setting of and achieving target rates of
growth, "the Fed has adequate power to do so. The failure reflects
rather the Fed's unwillingness to change its operating procedures
to
enable it to control monetary growth more promptly and more reliab
ly."
Do you agree with Dr. Friedman's contention that you do indeed have
the authority to implement monetary policy? If you do, why is the
Fed
not using all available options to ensure proper implementation?
Furthermore, Mr. Chairman, you testified on July 22 that you aim to
hold Ml-B growth to 3.5% rather than midway in the 3.5-to-6% range
of
six months ago. Money stock measures printed in the June 1981 Econom
ic
Indicators, prepared by the Council of Economic Advisers, however, contradict this assertion that rates have been in the 3.5-to-6% range.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
••
From the attached chart, we find that Ml-B has been growing at a rate
of from 6-to-10.2% (annual rate) in the past five months, proceeding
in a generally downward trepd from the high of 13.4% set in October of
last year. How do you reconcile "in the 3.5-to-6% range" from 6-to10.2%?
Finally, if deficits -- because of enlarging the money supply by having
to finance the debt -- are a chief cause of high interest rates, how
much will the FY 1982 deficit (currently projected at $60.7 billion)
have to be pared in order to bring down interest rates?
There is small wonder why businessmen and economists from Wall Street
to Main Street mistrust promises of control and direction of the money
supply. They are banking on continued confusion.
Very truly yours,
/7
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Member of Congres/
Vti1i
WED/bn
Encl
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Federal Reserve Bank of St. Louis
a)
b)
c)
d)
e)
MONLY STOCK 1
COMPONENTS
JAN
Ml-A
375.1
Ml-B
44.1
M2
1,261.6
M3
307.5
419.8
total
2,408.1
change
+30.7
1981
MONETARY AGGREGATES
(in $ billion)
FEB
367.2
54.0
1,274.5
312.2
423.3
2,431.2
+23.1
MAR
365 8
60.0
1,292.6
307.5
416.4
2,442.3
APR 3
MAY 3
366.6
364.9
67.1
66.6
1 304.1
1 312.2
306.5
316.1
n/a
1112 ___
(2,044.3) (2,059.8)
(+18.4)
(+15.5)
CHANGE ON ANNUAL BASIS
a)
b)
c)
d)
e)
MONLY STOCK AGGREGAMS
Ml -A
Ml-B
M2
M3
JAN
-.8
+10.2
48.4
+12.7
n/a
FEB
-8.0
+7.2
+7.8
+12.1
n/a
MAR
-10.4
+6.9
+9.1
+12.3
n/a
APR
-11.7
i8.5
+10.4
+12.5
n/a
MAY
-.0
---1-73
+6.0
+9.2
+11.5
n/a
Notes: 1 - components are separated in order to show individual changes
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Federal Reserve Bank of St. Louis
Ml-A = currency + demand deposits + travelers checks
Ml-B = other checkable deposits at banks & thrift institutions
M2
= overnight repurchase agreements & Eurodollars +
money market mutual fund shares + savings & small
time deposits at banks & thrift institutions
M3
= large time deposits +-term repurchase agreements
= other liquid assets (Savings bonds + short-term
Treasury securities + bankers' acceptances +
commercial paper + term Eurodollars
2 - components are added to show aggregates
M1 -A = a) only
Ml-B = a) + b)
M2
Ml-B + c)
M3
= M2 + d)
M3 + e)
- totals in parentheses do not include L component
••
1977-80
!,!ONETARY AGGREGATES
(in $ billion)
VnNLY STOCK
AGGREGATES
Ml-A
Ml-B
M2
M3
L
1977
331.4
336.4
1,296.4
1,462.5
1,722.7
1978
354.8
364.2
1,404.2
1,625.7
1,936.5
1979
372.7
390.5
1,525.2
1,775.1
2,151.1
1980
387.7
415.6
1,669.4
1,963.5
2,377.4
(:;. CHANGE ON ANNUAL BASIS
MONEY STOCK
AGGREGATES
Ml-A
Ml-B
M2
M3
L
1977
n/a
n/a
n/a
n/a
n/a
1978
+7.1
+8.3
+8.3
+11.2
+12.4
1979
+5.0
+7.2
+8.6
+9.2
+11.1
1980
+4.0
+6.4
+9.5
+10.6
+10.5
ECONOMIC INDICATORS
1977
17-918.0
+11.6
1978
271-5U.1
+12.4
1979
2,413.9
+12.0
1980
2,626.1
+8.8
1981:1
2,853.0
+19.2
CPI (1967=100)
% change
171.7
+5.8
187.1
+7.1
208.4
+11.4
233.9
+12.2
250.9
+8.8
Deficit
-53.6
-59.2
-40.2
-73.8
-79.6
GNP ($bil)
% change
1
Notes: 1 - 1981 data for GNP is for first quartor, data for CPI is
May, data for deficit is July Mid-session Review of Budret
Source: Economic Indicators, June 1981, prepared for the Joint
Economic Committee by the Council of Economic Advisers
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Federal Reserve Bank of St. Louis
• • • ..
•
c'
t (•( )1./ • .
BOARD Or 60VERNORS
OF
THE'
FEDERAL RESERVE SYSTEM
7
WASHINGTON, O.
August 14
20551
1981
The Honorable Fernand J. St Germain
Chairman
Committee on Banking, Finance and
Urban Affairs
house of Representatives I
Washington, D. C. 20515
Dear Chairman St Germain:
This is in further response to your letter to
Chairman Volcker concerning the Board's proposed interpretation of NOW account eligibility.
After consideration of more than 800 comments
received on the proposal, the Board has adopted, effective
September 1, 1981, an interpretation regarding NOW account
eligibility. Under the interpretation, eligible NOW depositors at member banks will include: (1) all individuals,
including sole proprietorships; (2) nonprofit organizations
that are described in sections 501(c)(3) through (13) and
(19), and 528 of the Internal Revenue Code; and (3) governmental units, if the funds are in the name of or used for
the purposes of schools, colleges, universities, libraries,
hospitals or other medical facilities.
A copy of the interpretation is enclosed for your
information. Please do not hesitate to contact me if I can
be of further assistanbe.
Sincerely,
1Signed) Anthony F. 0010
Anthony F. Cole
Special Assistant to the Board
Enclosure (8/14/81 P.R.)
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Federal Reserve Bank of St. Louis
AFC:vcd (V-165)
Identical letters to:
Sen. Tsongas (V-178) l'w/eCong. Rousselot (V-183)
Sen. Stevens (V-148)
bcc: Mrs. MallardiL/"--
Cong. Fra4 (V-174)
'
L /°.
Cong. D'Amours (V-123 & V-160)
Action assigned to Congressional Liaison Office.
416
JAMES A
MC CLURE. 10AHO, CHAIRMAN
MARK O. HAT,
''FLO. Or/EG.
'1.1:400J
WAIKER, JR.. CONN.
P
HENRY M. JACKSON. WASH.
-rT JOHNSTON. LA.
J. arNNt
DALE DUMPERS. ARK.
JOHN W. WARNER. VA.
GORDON J. HUMPHREY. N
wrpelri...L H. FORD. KY.
HOWARD M. METZ ENSAUM. OHIO
SPARK M. MATSIUNAGA. HAWAII
- v. uourPoci. N. MEX.
MALCYX.1.4 W LLOP. WYO.
/RANK H
DON NIC A
MURKOWSK I, ALASKA
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OALA.
JOHN P. EAST. NC.
JOHN HEINZ, PA.
1OHN MELCHIOR, MONT
PA lit
MICHArl. D. HATHAWAY
CHAIR
"ZICniicb Zfalez Zenafi
TIIIONGA I, MASS.
RILL IBRAD4-EY. N.J.
DANSCL A. CiAik.r
BOARD GE GOVERMGRS
CF
SYSTEM
EPU "l
STAEF DIRECTOR
A. TRARANDT. CRISP' COUNSEL
I JUN 26
COMMITTEEag
ENERGY AND NATURAL RESOURCES
NI 11: 35
zostoRECEIVE0
OFFICE OF iliE CHA:Rnti
WASHINGTON, D.C.
-a. STA/ I DiAL.C.TOR FOR 114g MINORITE'
June 24, 1981
(
Honorable Paul Volcker
Chairman
Board of Governors
Federal Reserve System
20th and Constitution Avenues, N.W.
Washington, D.C. 20551
Dear Mr. Chairman:
Last year, when the Congress considered the Depository Institutions
Deregulation and the Monetary Control Act of 1980, Public Law 96-221,
I was a member of the Senate Committee on Banking, Housing, and Urban
Affairs. As a member of that committee I was involved in the consideration
of the 1980 Act both during its mark-up in committee and during
consideration on the floor of the Senate. Having followed the progress
of this legislation closely, I was surprised to learn recently that the
Federal Reserve Board is proposing to adopt regulations restricting the
availability of NOW accounts based on the legislative history of the 1980
Act by denying individuals who own sole proprietorships the right to hold
their business deposits in NOW accounts.
So far as the Senate Banking Committee is concerned, I am aware of no
intention to limit the availability of NOW accounts to individuals acting
as sole proprietors, as the Board's proposed regulations would do. When
I voted on this legislation both in committee and on the floor of the
Senate, it was my intention, and I believe the intention of my colleagues
to extend the benefits of NOW accounts to depositors throughout the
United States under the same terms and conditions as they were available
to depositors in New England, New York and New Jersey at the time of the
enactment of the 1980 Act. The Board's suggestion of contrary Congressional
intent based on colloquy on a different point on the House floor is so
strained as to test the credulity of all but the most ardent opponents of
NOW accounts.
As you no doubt know, NOW accounts originated at a savings bank in
Massachusetts. The early history of these accounts records persistent
efforts by some financial institutions' lobbyists to wipe them out by
prohibiting them by federal legislation. Only through vigorous effort on
the part of the Congressional delegations from Massachusetts and
AM.
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Federal Reserve Bank of St. Louis
•
•
101
e
be
•
Honorable Paul Volcker
Page 2
June 24, 1981
New Hampshire was a NOW account experiment permitted to proceed in those
to states. Then, in the course of the next eight years, NOW accounts
gradually spread across the country, but not without opposition from some
financial institutions who urged the Congress to continue protecting
banks from the possibility of paying interest on demand deposits held
by their customers.
The Board's most recent proposal to deny NOW accounts to sole proprietors
is, I suppose, testimony to the persistence of those financial institutions'
lobbyists who have resisted NOW accounts at every turn. Does the Federal
Reserve Board seriously believe that its long-standing regulations
regarding the holding of NOW accounts by individuals who happen to be
sole proprietors of businesses have suddenly become inadequate? Why
should rules which seem to have worked well for close to 10 years in
Massachusetts and elsewhere now become too difficult for the Federal
Reserve Board's staff to administer? Won't a change in the Federal Reserve
Board's rules at this date, after banks across the country have learned
to operate under the current rules for several months, simply cause the
Federal Reserve staff to be deluged with more requests for interpretations?
I hope that the Board of Governors, when it takes up this proposed
regulation, will resist the importunings of those in the banking business
who have consistently urged the Board and the Congress to protect them
from their depositors. The proposed regulation is inconsistent with the
intent of Congress in passing Public Law 96-221, and it should not be
adopted.
.
00.00,011..m.11
PAUL E. TSONGAS
United States Senator
PET/rbt
cc:
Oft
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Federal Reserve Bank of St. Louis
Hon. Irvine H. Sprague, Chairman
v- aL{
• Of GOViz
...V
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
August 13, 1981
The Honorable Thomas F. Hartnett
House of Representatives
Washington, D. C. 20515
Dear Mr. Hartnett:
Thank you for your letter of August 4 requesting conmient
on correspondence you received from Mr. Garland L. Smith. Mr. Smith
believes that high interest rates are inflationary and inquires
whether the Federal Reserve Board can restrict growth in the money
supply without affecting interest rates. He also expresses concern
about high interest rates augmenting commercial bank profits.
High interest rates are commonly associated with high
inflation, but it is high inflation rates that inevitably cause
high interest rates rather than the other way around. In a period
of rapid inflation, lenders insist upon interest rates high enough
to compensate them for the anticipated decline in the purchasing
power of the dollars they are lending. Borrowers are willing to
pay these high rates because they too anticipate that both interest
and principal will be repaid in cheaper dollars.
It is widely acknowledged that expansion in money and
credit must be reduced if price stability is to be restored, and
the Federal Reserve is committed to a policy of lowering money and
credit growth over time. A necessary by-product of such a commitment, in the face of strong inflation-related underlying demands
for money and credit, is an advance of interest rates relative to
inflation. When interest rates rise relative to expectations of
inflation, businesses are encouraged to postpone less promising
investment projects and households to defer consumption, thus
reducing demands in markets and easing upward pressures on prices.
Of course, as Mr. Smith suggests, interest rates themselves are
a cost of production and can influence prices. However, the relative contribution of interest rates to final costs of most products
is small, and the overall effect of an increase in the real cost
of credit--that is, interest rates adjusted for inflation--is to
reduce upward pressures on prices generally.
high interest rates affect commercial bank earnings, as
Mr. Smith points out, by increasing the rate of return they receive
on loans and other earning assets. At the same time, however, the
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Federal Reserve Bank of St. Louis
•
The honorable Thomas F. Hartnettil
Page Two
cost of funding new loans--which increasingly is done at rates linked
to the money market--also increases. Thus, higher interest rates do
not necessarily cause bank profits to rise. Indeed, bank expenses
have become increasingly sensitive to money market rates as their
dependence has grown on six-month money market certificates and
other liabilities with rates determined in the money markets.
Only with inflation under concrIol will interest rates
fall to permanently lower levels and will a firmer foundation be
established for our financial system. With the cost of credit more
stable, the risk to indivpduals and businesses in making long-range
plans will be lessened sidnificantly. Recently, we have seen some
tentative signs of a moderation of price pressures. Nevertheless,
the underlying rate of inflation is deeply entrenched. Further progress against inflation will be hastened by actions complementing
monetary restraint such as prudent fiscal policies that reduce the
Federal Government's demand for the economy's scarce savings and
by appropriate private sector behavior.
I hope this information proves useful to you.
me know if I can be of further assistance.
Please let
Sincerely,
(Signed) Donald J. Winn
Donald J. Winn
Assistant to the Board
TB:TDS:JSZ:AFC:vcd W-224)
bcc: Messrs. Kichline, Simpson, Brady
Mrs. Mallardi
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Federal Reserve Bank of St. Louis
•
••
Action assigncl Mr. Kichlin.6
THOMAS F. HARTNETT
/ ST DISTRICT. SOUTH CAnoL:NA
STEPHEN L. JONES
AomINISTRATIVE ASSISTANT
rsi
c,01.1 IA ITT EE:
ARM ET) SER‘"CES
11111
Congre555 of the Einittb
7Doufse of tepresSentatiboS
tateisi mil; -5 r !n!
•
t- I
7
Utlazbington,Ile. 20515
August 4, 1981a,
Mr. Paul Volker
Federal Reserve Building
Washington, DC 20551
Dear Mr. Volker,
Enclosed please find a letter concerning the Federal
Reserve Policy. It would be greatly appreciated if you
would draft a reply to the questions raised by Mr. Smith
at your earliest convenience.
Thank you for your assistance in this regard, and if
I can provide any further information please do not hesitate
to call upon me.
Sincerely,
Thomas FC.J.Lrtnett, M. C.
TFH/js/jt
Enclosure
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Federal Reserve Bank of St. Louis
213
I'
JUL2
1°,- 1
11.artnett
of P.c7rerentativPr
.
!:oure
WrhinTtcn, -J.
7on.
LPpr
m h077:"F'
Hartnett:
vederal RPsPrve Board ray
that
P
rertricted money sunply is
necersnr:. to combnt inflation. To rec-trict the money surply, they take
actionr which result in hiE-her intPrest rntes. Hi her interest rates
inr—eare t 11^ r.ort of r-oods and services, this is inflationary. Hicher
interort rater inorense the cost of operatinf- the 7,overnment and the
cost of rervcein - the nntional debt. Thir ir inflationary. Is not the
rcrIlltr of hir'h0r interest rtes more inflation instead of less?
The 7ederal Reserve Bonrd rertriet the money supply
with actionr thnt do not increase interest rates? If this cannot be done
wl-y not action by the Conc.ress, to tax the bankr for all profits made
from Federal ResPrve potions which result in increased interest rates?
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Federal Reserve Bank of St. Louis
Sinerely,
,
r, I
kf/14 ,
\f.
'
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Garland L. Smith
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BOARD OF U0OVERNORS
or . 1-1E
FEDERAL RESERVE SYSTEM
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WASHINGTON; G. C. 20551
...3,A4,14{11'
August 13, 1981
The Honorable Bill Archer
House of Representatives
Washington, D. C. 20515
Dear Hr. Archer:
Thank you for yoir letter of July
28 requesting comment on
correspondence you received from Mr.
Severin Knutson. Mr. Knutson's
letter, which is addressed to the Fed
eral Reserve Bank of Dallas,
expresses his concerns regarding the
application of Bantex Bancshares,
Houston, Texas, to become a bank hol
ding company by acquiring Greater
Houston Bank, Houston, Texas.
Mr. Knutson states that he believes
the minority shareholders
of Greater Houston Bank should have
been offered the same compensation
for their shares as the majority sha
reholders. Unfortunately,
Mr. Knutson did not apprise the Res
erve Bank of his concerns until
some six months after the Reserve Ban
k had approved the Bantex application. Consequently, although the
Reserve Bank did respond to
Mr. Knutson's letter promptly, it was
unable to take account of
Mr. Knutson's comments during its
consideration of the Bantex application. It should be noted, howeve
r, that even if Mr. Knutson's
comments had been received before the
approval of the application,
the Reserve Bank's ability to take
account of Nr. Knutson's concerns
would have been severely limited by
relevant judicial decisions.
In Western Bancshares v. Board of
Governors, 480 F.2d 749 (10th
Cir. 1973), the court held that the
Board exceeded its authority
when it denied a bank holding compan
y app
the applicant had not made an equal off lication solely because
er to all shareholders of
the bank to be acquired.
I hope that the foregoing will be
helpful.
me know if I can be of further
assistance.
REM:CVH:AFC:vcd (#V-215)
bcc: Mr. Mannion
Mr. Howard
Legal Records (2)
G.C. Log #338
Mrs. MallardiV
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Federal Reserve Bank of St. Louis
Please let
Sincerely,
(Signed) Donald Y. Winff
Donald J. Winn
Assistant to the Board
•
•
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Federal Reserve Bank of St. Louis
Action assigned Mr. Bradfield
PILL ARCHER
7rw D:70 1. Te ..s
Con2ren of Hie iLlniteb (e)tate5
MT MM.
NAV; A.,n MEANS
Thouge of iltpre5entatibe5
C•11,7f:
1.:"1:11-1,711
HNIE 0.9r9.:t 13.11.ems
Fults.t.tcmic
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Washington. 3D.C. 20513
2s 1
July 28, 1981
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r Eh-iiirman Volcker:
-J2Goultvery much appreciate having your
!.'cO.Pmen€ on the attached letter which I
recently received from one of my constituents in Houston, Mr. Severin Knutson.
Thank you very much for your assistanc
in this matter. With best wishes, I am
erely
•
Arcler
Member of Con(!rcss
Honorable Paul A. Volcker
Chairman
Federal Reserve System
Federal Reserve Building
Constitution and 20th Street, N.W.
Washington, D. C. 20551
Enclosure
THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS
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Federal Reserve Bank of St. Louis
71
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or,701-1;.7cd.
rf the 0117,111,711 stc)csI7holders and have
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thcy have that wil.1 not ha-,,.re
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sold
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cnly f:11r -way a 1)271% holc_lin.(?.
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nlajority has is
that the minority stoc7rholder.3 have the same intercst,
percentage wise. a3 the niajority. This way, the nlinority
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truly,
:;evrrin I:nutson
cc: The IIonorabio Jelin G. Tov,rer
T_Tnited States Senate
cc: Tlic I-Ionorable Lloyd M. Bentsen,
Jr.
United States Senate
Congrent.;man Dill Archer
—17vuo.
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BOARD OF —JOVERNORS
Or THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 205Si
ILL:I,•:"--, --> .
August 7, 1981
PAuL A. vOLCKER
r
A1
IA A N
The Honorable Tom Railsback
House of Representatives
Washington, D.C.
20515
Dear Mr. Railsback:
Thank you for your letter of July 24 describi
ng your
concerns, and those of your constituents, rega
rding the impact
of high interest rates.
I am very concerned about the strains and
tensions that
high interest rates are creating throughout
the economy. As you
suggest, the key to lasting relief from high
interest rates is
the reduction of inflation and inflationary
expectations. Ending
inflation and regenerating productivity in
the American economy
are the goals of the President's economic prog
ram, and they are
primary goals of the Federal Reserve as well
. We are seeking to
contribute to their achievement by maintain
ing a policy of
restraint on monetary growth, which also
is a major element of
the President's program. The real question
facing us now is
how we get there from here and whether we
will have the patience
to stay the course.
In the current situation, I do not see any
"quick fix"
for the problem of high interest rates. Some
short-run relief
from interest pressures might be provided
by pumping up the
money supply through more generous provisio
n of reserves. However, this would ultimately intensify general
inflationary pressures
reinforcing the tendencies that gave rise
to the high interest
rate problem in the first place. In fact
, the recent behavior
of financial markets suggests that anti
cipatory responses of
investors to an indication of reduced comm
itment to anti-inflationary
monetary restraint might limit or even prev
ent the temporary
decline in interest rates.
As I see it, we are faced with no real alte
rnatives
to sticking with the current program. I woul
d suggest, however,
that the financial markets might respond favo
rably to indications
of further progress by the Congress and the
Administration in
putting in place expenditure cuts that are
needed to offset
the long-range tax cuts recently enacted. In
the days since
the tax cuts were passed, the bond markets
have been quite weak-despite evidence of moderate monetary expansio
n and easy pressures on short-term money markets--as particip
ants have focused
on the huge Treasury financing task ahea
d.
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Federal Reserve Bank of St. Louis
The Honorable Tom Railsback
Page Two
I will11 that I could offer greater reassura
nce to you
and youl constituents that credit-sensitive segm
ents of our
economy will find happier times just ahea
d. In my own view,
we arc 1,eginninu to see some progress towa
rd reducing inflation.
To relent now, would only discard any bene
fit from all of the
pain and sacrifice we have had so far. Whil
e I cannot say
exactly when, I am convinced that as infl
ation declines7 more
decioively interest rates will surcly
fall.
Thank :
i ou again for writing.
Sincerely,
S/Paul A. Volcker_
LIJP:JSZ:DS:pjt (4V-218)
bcc: 11r. Kichline
Ur. Prell
nrs. nallardi (2)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Action. assigned Mr. Kichline
'TONI RAILSOACK
i9TH
ILLirvols
Rcom2104
rtArougN 1.4Duar Orrict DkALDINo
YVAsNINtireN. D C. 20515
COUNTIES:
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JUDICIARY COMMIT TEE
July 24, 1981
ii-4_1P40111
6145S
AHLA: 309-833-2231
SELECT COMMITTEE ON
NARCO1 ICS ADUSE AND
CONTROL
The Honorable Paul Volcker
Chairman, The Federal Reserve System
Washington, D.C. 20551
,iLovr
Dear Mr. Chairman:
Over our July 4th recess I spent a great deal of time with my constituents in
Western Illinois. I met with retailers who must turn to short-term financing to carry
their inventories; small manufacturers who require additional capital to remain competitive:
fanners and homebuilders who operate on borrowed money and depend on customers who
borrow money; and representatives of savings and loans who have had to contend with record
outflows of deposits and mortgages yielding less than the current interest rate being
payed on mortgages. A recurrent theme ran through all of these meetings: persistent
and abnormally high levels of interest rates have caused a great deal of financial hardship
for those considering or forced by the demands of their businesses to turn to the credit
market. These people have had the additional burden of dealing with volatile swings in
interest rates over the last year and one-half which, when coupled with high rates of interes
and tight credit, has placed many in precarious financial health and dashed the dreams of
others to go into business.
I am deeply concerned about the burden that record interest rates and tight money
have placed on Americans. For all but the largest companies who are able to secure
credit well below the so-called prime rate, high interest rates have been a real
hardship and given us little hope for relief anytime soon. There is no doubt that our
country needs to return to stable and reasonable interest rates.
We in Congress share your goal of checking the inflation spiral and removing the
inflation expectations which have racked the financial planning of all Americans in
recent years. Unfortunately, high interest rates are a pernicious cost of waging the
inflation battle. I realize that dealing with inflation is a complex task, made more
difficult by less than exact monetary tools, and by variables beyond the control of the
Federal Reserve. President Reagan's economic program of balancing the budaet and restoring
growth to our economy through budget reductions, tax incentives and regulatory reform,
which I support and believe in,should go along way toward reducing the demands government
borrowing has placed on the credit market. For government borrowing to finance deficit
spending, and to a lesser extent other factors such as pressure from heavy wage increases
and credit demand, has been a catalyst to higher interest rates.
I am encouraged by reports that inflation has markedly slowed. We must continue our
battle against inflation on one front and turn our attention on another front to avoiding
a recession. Economic growth contracted in the second quarter of 1981, due in large part
to record interest rates. Estimates show that the'real' rate of interest greatly exceed
both the Treasury bill rate, and even the most pessimistic appraisal of our underlying
inflation rate. I am concerned by the possibility that the Federal Reserves' continued
policy of tight money expansion will push our country into a recession; this would place
further strain on many Americans who have had to cope with prohibitive interest rates
for too long.
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Federal Reserve Bank of St. Louis
THIS STATIONERY PRINTEll ON PAPER MADE WITH
nrcycLrn Finrpc
-41V
The Honorable Paul Volcker
page 2
It is the s• Al businessman, the farmer, the homebuilder, the
manufacturer--the
most profitable
productive sector of our economy-- who have had to absorb the
high cost of borrowing by dipping into their savings and capital becau
se they are
unable to pass along to their customers this additional cost. It
is the prospective homebuyer and businessman who have had their hopes shattered by high
interest rates. In
formulating our country's economic policies we must be mindful
of their impact on all
Americans. In our effort to fight inflation and restore growth
to our economy, we
must not lose sight of who must shoulder the burden of unsta
ble and high interest rates.
I invite your comments on this area of great mutual concern.
With thanks in advance for your attention to this issue, I am
Sincerely,
TdM RAILSBACK
MEMBER OF CONGRESS
TFR/ec
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
AV'
August 6, 1981
The honorable William Proxmire
United States Senate
Washington, D.C.
2051U
Dear Senator Proxmire:
Thank you fur your letter of July 31 recommending
Ms. Mereuith M. Fernstrom as a member of the Boar
d's Consumer
Advisory Council.
I can assure you that Ms. Fernstrom's qualificatio
ns
will receive full consideration when the Board sele
cts new
Council memuers sometime this fall, to fill the posit
ions of
individuals whose terms expire in December 1981
.
I appreciate your taking the time to call our atten
tion
to qualified individuals who could contribute to
the Council's
work. The Board makes a special effort to achi
eve a geographic
distribution within the Council, as well as a balan
ce in representation amongvarious segments of the credit
industry and
consumer interests. This task is not an easy one,
given the
small number of positions (usually around 10) to
be filled each
year and the large number of highly qualified nomi
nees.
Again, thank you for your interest.
Sincerely,
CO:pjt (#V-223)
bcc:
Mrs. Bray (w/copy of incoming)
Mrs. Mallardi (2)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Action assigned Cong. Liaison Office
JAKE
GAMY, UTAH. CHAIRMAN
HARRISON A. WILLIAMS, JR.. N.J.
WILl iAm PRox mint'. WIS.
ALAN LRANSToN, cAur.
JR., MICH.
DoNALD w.
TtX.
)044N TOWr
,PA.
JOHN mciT.
WILLIAM L. A.:MS' R
RiCHARD G. LUGAR.
FONSE M. D'AMA"
JOHN H. CJ4AFFF
HARRISON SCHMITT,
&Y.
MEX.
PAUL S. SARITANES. MD.
rmous rorHroe J DODD, CONN.
ALAN J. cuxON, ILL.
M. DANNY WALL, STAr F DIPFCTOR
HOWARD A. MENELL, MINORITY STAFF DIRECTOR AND COUNSEL
••
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COMMITTLE ON BANKING. HOUSING. AND
URBAN AFFAIRS
1g61 Mir; -5
20510
WASHINGTON. D.C.
ris 19: ?3
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July 31, 1981
The Honorable Paul A. Volcker
Chairman
Federal Reserve Board of Governors
Constitution Ave., N.W.
Washington, D.C. 20551
hi3
Dear 'qr. Chairman:
I am very pleased to nominate Ms. Meredith M. Fernstrom as a candidate
for membership on the Consumer Advisory Council of the Federal Reserve
Board.
Ms. Fernstrom has a unique and extensive background in both consumer
affairs and financial services which makes her ideally suited to serve in this
capacity. She is known both nationally and internationally as one of this
country's leading consumer affairs professionals.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Let me highlight a few of Ms. Fernstrom's career positions and accomplishments:
• She is currently Vice President-Consumer Affairs for American
Express Company, responsible for monitoring consumer opinion,
advising management on policy and marketing decision from the
consumer information to the public.
• From 1976-80, she was Director of Consumer Affairs for the
U.S. Department of Commerce, where she advised the Secretary
and departmental officials on the consumer implications of
Commerce Department policies and programs, and served on
the White House Consumer Affairs Council.
• She developed and chairs the Consumer Subcommittee of the
EFTS Study Group on the American National Standards Institute
Committee on Financial Services, sponsored by the American
Bankers Associaton.
• She was the first Consumer Education Director for the District
of Columbia government, Office of Consumer Affairs, from
1974-76.
• She is a member of the Board of Directors of the International
Society of Consumer Affairs Professionals, and serves on advisory
committees to the Chamber of Commerce of the U.S., the Joint
Council on Economic Council, and the Consumer Federation of
America.
• She has been a frequent speaker and has published articles
on the consumer apsects of financial services issues in a variety
of national, state and local finanical industries forums.
2.
111..."1
f Ms. Fernstron's resume, a copy of which is enclosed, expands on this
record of accomplishments, and indicates her current address and phone
number.
Vs.
Tristrom is hig-hly respected by consumer, business and government
1:(1. Knowledgeable, objective representation of the consumer
interest. tier present responsibilities at American Express will enable her to
bring unique insights to the Council's deliberations as well.
I believe Ms. Fernstrom will make a valuable contribution to the
Council, and I strongly encourage your approval of her nomination.
Thank you.
IVP/1mp
Enclosure
cc: Dolores S. Smith
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Removal Notice
The item(s) identified below have been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to personally identifiable information.
Citation Information
Document Type: Resume
Citations:
Number of Pages Removed: 4
Resume, Meredith M. Fernstrom, 1981.
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
August 7, 1981
The honorable Bill Lowery
house of Representatives
Uashington, D. C. 20515
Ddar flr. Lowery:
I am enclosing responses to the questions you
sent to ue following my testimony before the house Banking
Committee on July 21.
If I can be of any further assistance, please
let me know.
Sincerely,
sLeaul ii.Votcket
Enclosures
BG:AK:LP:DL:JZ:vcd (V-217)
bcc: Mr. Kichline
Mr. Zeisel
Mr. Lindsey
Mr. Promisel
Ms. Kusko
Mr. Gay
Mrs. Mallardi (2)/
6
4. •
,, •
•
" 116.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1.
For Lhe past year inflation has been declining from double-digit rates,
yet interest rates remain at unprecedented high levels. There are several
theories as to why this is happening. What circumstances do you feel are
responsible? How long do you expect this situation to exist, assuming a
scenario in which other economic factors remain essentially the same?
Despite favorable signs on the inflation front, interest rates,
particularly long-term rates, remain at high levels.
One reason is
that market participants have partly discounted recent easing of price
pressures as reflecting some reversal of the "special factors" in the energy,
food and commodities sectors that had raised inflation rates in 1979 and 1980.
Thus, recent easing in the underlying rate of inflation is viewed as being
less pronounce
1
indexes.
than the moderation of increases in the various price
In addition, market concerns about the prospective size of the
federal deficit may be contributing to high interest rates.
Even so, as
the next several answers indicate, when inflationary expectations begin to
respond to the more permanent lessening of inflationary pressures that I
believe is in train, interest rates will begin to move down.
/"
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Federal Reserve Bank of St. Louis
2.
One of the theories used to explain the inflation/interest rate relationship that we are presently experiencing is that of "inflationary expectations." If this is in fact the cause of our current interest rates, how
can we best turn around the psychology of inflationary expectations?
One element in turning around inflationary expectations is public
recognition that a commitment to monetary and fiscal restraint underlies
governmental policies.
Another element involves a response to such policies.
in private sector wage and price decisions that shows through in sustained
declines in the observed rate of inflation.
As actual price behavior pro-
vides a confirmation of the government's commitment to long-run price
stability, a reduction of inflationary expectations will naturally tend
to occur.
The fundamental prerequisite for this process to unfold is having
governmental policies in place that in fact resist inflationary presAures.
In this regard, the Federal Reserve is pursuing growth rate ranges for the
monetary and bank credit aggregates this year--and has announced ranges
for next year--that we believe are consistent with a deceleration'O'f inflation over time.
Of course, a wide range of fiscal and regulatory Tolicies
also have important roles to play in an overall anti-tinflationary strategy.
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Federal Reserve Bank of St. Louis
3.
Besides having a significant impact at home, interest rates have a great
impact abroad. How do high interest rates here affect the economic policies of our principal trading partners? Of the international economy as
a whole?
Because the economy of the United States is so large, high interest
rates in this country have important effects on other countries.
The basic
thrust of our policy--to achieve a lasting reduction in our inflation rate--is
widely appreciated abroad.
However, the short-run effects of this policy, in
terms of output and employment, are transmitted to other countries and, in some
cases, exacerbate an already-weak demand situation.
Efforts by foreign
authorities to support the value of their currencies in the face of a strong
dollar intensify these effects.
Moreover, high U.S. interest rates impose
financial burdens on countries, including some hard-pressed developing
countries, who are borrowing in international markets.
However, the level of U.S. interest rates is not the only factor
putting downward pressure on the currencies of our trading partners or
imposing burdens on developing countries.
All countries--including the
United States--must guard against a temptation to assign undue responsibility
for economic problems to external forces.
On July 16, I presented my views on this subject in.more detail,
before the Joint Economic Committee.
A copy of that statement is attached.
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Federal Reserve Bank of St. Louis
4.
What is the impact of monetary policy on GNP?
Economists generally believe that a policy of monetary
restraint
places broad limits on the growth of nominal GNP--tha
t is, the combined
result of changes in real output and the price
level.
The Federal Reserve's
policy of monetary restraint is directed toward redu
cing inflation.
But
unfortunately, this policy does not work directly
on prices, and its initial effects often fall on real output and employme
nt.
So long as infla-
tion continues near its current rate and inflationary
expectations remain
imbedded in economic decisions and institutions, pres
sures on interest rates
will be intense; and real activity is likely to be cons
trained, particularly
in credit-sensitive sectors such as housing and auto
mobiles.
Over the longer
run, however, the gradual reduction in the expansion of
money and credit will
lead to an easing of inflation and inflationary expe
ctations.
This will set the
stage for stronger--and sustained--real growth, lower
interest rates, and
•
reduced unemployment.
s.
5.
What is the impact of federal budget deficits on monetary policy?
In an environment of restrained monetary growth, the size of the
federal budget deficit is an important determinant of credit market conditions
and interest rates.
New borrowing by the federal government, whether to
finance budget deficits or off-budget programs, competes with private demands
for a limited supply of credit and inevitably aggravates interest rate
pressures.
The demands of the government are insensitive to interest rates
and thus will always be met.
However, if private demands for credit are
strong, rates for other borrowers often will be pushed up in the process.
Thus, it is essential that fiscal policy and monetary policy work together
in the effort to achieve noninflationary economic growth.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
6.
There are several important wage contract negotiations coming up next year.
What are the implications for inflation? What role, if any, should the
government play in this process?
In 1982, collective bargaining negotiations will take place in
major industries including petroleum refining, trucking, rubber, electrical
equipment, automobiles, and agricultural equipment.
Altogether, about 31
/
2
million workers will negotiate major new settlements.
However, to the extent
that these highly visible settlements are reflected in other wage decisions,
their eventual importance in the overall inflation picture looms much larger
than the number of workers involved might suggest.
important for another reason.
Negotiations in 1982 are
Over the past decade, wages in many of these
industries have been rising more rapidly than productivity.
rising labor costs have put upward pressure on prices.
Consequently,
A fundamental issue
that must be faced by both labor and management is whether workers can continue
to receive real wage gains in excess of productivity growth without adverse
consequences to firms, industries, and the nation'as a whole.
With regard to the role of the government, I believe its4s,funda/'
mentally to foster and maintain a competitive economic environment.:. Regulatory
policies affecting wage- and price-setting should be critically reviewed.
These and other governmental policies aimed at protecting ipcomes and insulating
markets from competitive pressures merely will delay tough decisions that need
to be made at the bargaining table.
To the extent that these decisions ease
pressures on costs and prices, the result will be greater economic growth,
more jobs for American workers, and a speedier return to stable prices and
lower interest rates.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
'4.4LL LOWERY
Action assigned Mr. Kichline
ed 411T DISTRICT. CALIFORNIA
vvAsNiNoToN orricE:
1331 LONGWORTIA HOUSE. OFFICE Bum oiNG
WAstiiNoioN. D.C. 20515
(202) 225-3201
•
L0A4 ANT if II
BAN;<INC.:FINANCE AND URBAN
AFFAIRS
DISTRICT OFFICE
880 FRONT STREET. Room 6-S-15
SAN DIEGO. CALIFORNIA 92188
(714) 231-0957
SCIENCE AND TECHNOLOGY
CONGRESS OF THE UNITED STATES
HOUSE OF RErRESENTAT1VES
July 28, 1981
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moThellOorable Paul Volcker, Chairman
---)Boad of Governors of the Federal
Reierve System
--Washington, D.C. 20551
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Dear Chairman Volcker:
I regret that I was not able, due to schedule conflicts, to have an
opportunity to address questions to you when you testified before
the House Banking Committee on Tuesday, July 21.
However, pursuant to the Chairman's announcement during the hearings,
I would like to submit additional questions for your earliest response.
Thank you for your excellent testimony and your attention to these
questions.
Sincerely,
BILE LOWERY
Member of Congress
BL:slw
•
Questions for Chairman Volcker
NA.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1. For the past year inflation hal, been declining from double-digit
rates, yet interest rates remain at unprecedented high levels. There
are several theories as to why this is happening. What circumstances
do you fr?el are responsible? How long do you expect this situation
eAist, assuming a scenario in which other economic factors reamin
essentially the same?
2. One of the theories used to explain the inflation/interest rate
relationship that we are presently experiencing is that of "inflationary expectations." If this is in fact the cause of our current
interest rates, how can we best turn around the psychology of inflationary expectations?
3. Besides having a significant impact at home, interest rates have
a great impact abroad. How do high interest rates here affect hte
economic policies of our principal trading partners? Of the international economy as a whole?
4.
What is the impact of monetary policy on GNP growth?
5.
What is the impact of federal budget deficits on monetary policy?
6. There are several important wage contract negotiations coming up
next year. What are the implications for inflation? What role, if
any, should the government play in this process?
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OF ':OVERNOP r)
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FEDERAL RESERVE SYSTEM
wn -,r4INGTON, D.C. 2051,t
August 6, 1981
The Honorable Donald J. Mitchell
House of Representatives
Washington, D.C.
20515
Dear Mr. Mitchell:
Thank you for giving us the opportunity
to C0111111ent on
the concerns expressed by your consti
tuent, Mr. R.M. Green,
regarding the effect of high interest
rates on small businesses.
I understand Mr. Green's concern about
the level of
interest rates. However, these rat
es are largely a reflection
of the rapid rate of inflation we are
experiencing and the deeply
embedded expectation that prices wil
l continue to climb. As a
result, lenders arc reluctant to com
mit their funds without being
compensated for the declining value
of the dollars they will
receive in payment. In these circum
stances, the only way we
are likely to achieve a lasting declin
e in interest rates is
through a lowering of inflation and
inflationary expectations.
Since maintenance of control over the
growth of money and credit
is an essential ingredient in the fig
ht against inflation, the
Federal Reserve has little choice but
to continue to pursue a
policy of restraint.
Of course, disciplined monetary policy
in conjunction
with a policy of curtailed public spe
nding will entail, in the
short run, some strains, such as tho
se that arc occurring in
financial markets. We recognize that the
hi(jh cost of credit
creates particular problems for small
businesses, especially
for borrowers who rely primarily on len
ding institutions for
financing. However, in the longer run
these enterprises can
prosper only in an environment of pri
ce stability. It is only
with reduced inflation that we, and
they, can look forward to
a more prosperous economic environme
nt.
We appreciate your forwarding your con
stituent's concerns
about current economic and financial
developments. If I can be
of any further assistance, please do
not hesitate to let me know.
Liincerely,
JG:LS:JLK:CO:pJt (#V-208)
'ipleci)DaddLVIria
bcc: Mr. Kichline
Mr. Slifman
Mr. Glassman
Donald J. Winn
Assistant to the Board
Ms. Zickler
Mrs. Mallardi (
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
DONALD J. MITCHELL
Action assigned Mr. Kichline
31ST DISTRICT, NEW YORK
2305 RAYBURN HOUSE
OFFICE BUILDING
COMMITTEES:
TELEPHONE (202) 225-3665
WASHINGTON, D.C.
ARMED SERV/CES
SUBCOMMITTEE ON
MILITARY INSTALLATIONS
CeitgrerA of tlit
AND FACIL'TIES
SUBCOMMITTEE ON
MIL IT ARY PFRSONNFL
AND Cc.,MPt.NSAT iON
RANKING MINORITY MEMBE,R
tato
ji)oust of ikeprefentettitnt4
tuasbington, n.c. 20313
20515
DISTRICT OFFICES:
319 NORTH MAIN STREET
HERKIMER, NEW YORK
13350
(315) 866-1051
11.60 WEsT IhAsisd STREET'
JOHNSTOWN, NEW YORK
12095
(518) 762-4508
SUBCOMMITTEE ON
INVESTIGATIONS
ASSISTANT REGIONAL
wifir
July 24, 1981 )
)
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/
NEw CITY HALL, THIRD FLOOR
LIBERTY PLAZA
ROME, NEW YORK
i 3440
(315) 339-0013
(MoN-WEo-Fni)
6 STEUBEN PARK
UTICA, NEW YORK
13501
(315) 724-9302
Honorable Paul Volcker, Chairman
Federal Reserve Board
21st & Constitution Avenue, NW
Washington, D.C. 20551
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Dear Mr. Chairman:
1
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Enclosed is a copy of a letter I received from Mr. R.M.
Green, President of Credle Equipment Incorporated, which
warrants immediate attention.
[ share Mr. Green's concern that policies of the Federal
Reserve Board toward interest rates are hurting our economic
recovery process. The recent decline in the GNP is also a
signal.
Any comments you may have on the future courses of the
Federal Reserve Board would be greatly appreciated.
Sincerely,
onald J. Mitchell
Member of Congress
DJM:pgm/m
Enclosure
cc: Mr. R.M. Green
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cONEsTrIUCTION ^Pdti PAUP4101hAt. MAIVIINI3M
V Apdi HOUIPMENT
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P 0 Rox 4246, Utica, New York
13504 (315.) 735 4466
22nd July 1981
The Honorable Congressman
Donald J. Mitchell
House Office Building
Waqhington, D. C.
20515
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JUL o
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CongreFsman Mitchell,
This letter is written to ydu, in desp
eration, due to the high
interest
rates we are experiencing today. The busi
ness climate in our industry
is at a standstill due to lack of cons
truction and hi911 interest.
This firm, in business for almost fifty yrar
s,
ncvr experienced
such economic difficulties. We have had to
lay off ilnployes and now
are forced to go on a four day week.
No need to toll you what this
Ttwons to our ,
mploy(.c,s and community. Unless the Fede
ral Reserve Board
obout this high interest, I am afraid that
not only our
husins, but many others are doomed.
On behalf of Credle Equipment,Inc., I strongly
urge you to protest
the high interest brought about by the Federal Rese
rve Board.
We are a "small business" located in a "labor surp
lus area" involved
in the sale, service and rental of construction
equipment, tools and
supplies. In spite of the fact that the prop
er application is on file
and we are located a short distance from Grif
fiss Air Force Base at
Rome, N. Y., we received a very nominal amou
nt of business (1980-$4900;
1981-$1850.) We need your nelp...NOW:
Very truly yours,
CkEDLE EQUIPMENT;IpC.
. ,x",
//1
Green
\-1
President
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PLANT: HERKIMER ROAD • ROUTE 5
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
.41116.
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WASHINGTON, D. C. 20551
„. •
AUgust 5, 1981
• • 1RAL 11E.S . • •
• • •.. • • •
PAUL A. VOLCKER
CHAIRMAN
The Honorable Norman D. Shumway
House of Representatives
Washington, D. C. 20515 .
Dear Mr. Shumway:
I am writing in response to your letter of
June 22, to
further address the concern that you expr
essed regarding the security
of book-entry Treasury securities held
in safekeeping by commercial
banks on behalf of their custoM.ers.
The issues that you have raised concerni
ng the Treasury
regulations have again been considered
in order to determine the
extent to which the book-entry regulati
ons are adequate to protect
customers in the event the depository inst
itution holding such
securities fails. We believe that the
Treasury's regulations,
in conjunction With the procedures empl
oyed by the agencies responsible for supervising these deposito
ries, provide the necessary
degree of control over their record
keeping responsibilities as
custodians of customer-owned Treasury
securities. As these securities are guaranteed by the U.S. Governme
nt, the Treasury Dep4ttment
continues to assure that, in the event
.of a failure by the depository,
its obligations would be fully discharg
ed. , Therefore, it ds our
belief that, in the event of the fail
ure of` depository. institution
the ability of a customer to obtain his
securities is.enst.W.
Wtlile your proposed amendment would
provide an added degree,pf
protection for customers, in view of pres
ent safeguards, tile additional costs associated with implementing
your proposal could
possibly outweigh the benef.its that woul
d be gained.
The Federal Reserve Banks, under regunt
ions issued by
the Treasury, serve as fiscal agent
for the Treasuri, in issuing
and servicing Treasury securities. Acco
rdingly, we have forwarded
your correspondence to the Honorable
H.J. Hintgen, Commissioner of
the Bureau of the Public Debt for any
comment he may wish to provide.
Again, thank you for expressing your view
s on this
matter. Please do not hesitate to cont
act me if I may be of further
assistance.
DJT/GTS:tn (#V-172)
bcc: Ms. Toomer
Mr. Schwartz
Mrs. Mallardi (2)
Sincerely,
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NORMAN D. SHUMWAY
ION DISTRICT. CALM:MN:A
COMMITTril•
DANN ,NG. FINANCE. AND
URBAN AFFAIRS
MERCHANT MARINE AND
FISHERIES
1228 LomcwonTm Housr 0rrIc E BUILDING
WASHINGTON. D.C. 20515
(202) 223-2511
Congro5 of tbe Zlititeb gptateg
SELECT COMMITTEE ON AGING
CHRISTOPHER C. SEEGER
ADM INI STRATI VS A IS i STANT
1045 NootTvi EL Dopt400. Room 5
STOCXTON. CALII
,
ORNI A 95202
PoufSe of Repreisentatibeg
(209) 464-7612
Wassbington, AC. 20515
June 22, 1981
(
Chairman Paul A. Volcker
Board of Governors of the
Federal Reserve System
Federal Reserve Building
Room B2046
20th and Constitution Avenue, NW
Washington, DC 20551
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Dear Chairman Volcker:
I appreciate your letter of May 28, 1981 in response to my inquiry on
safekeeping recuirements for Treasury bill book-entry purchasers. Unfortunately,
the response did not address the concern that has been brought to my attention
regarding the security of the holder of a book-entry Treasury bill in the
event of a failure of a commercial bank holding book-entry Treasury bills
on behalf of the customer.
As your letter pointed out, currert Treasury reculations at 30 CFR 350.6
merely "recommend" that the appropriate safe-keeping procedures be followed;
that compliance is merely "voluntary"; and that the customer "should have
little problem obtaining his holdings from the bank's receivers."
In short, it is precisely this precatory nature of the regulations,
rather than a mandatory requiremert, that is the cause for my concern.
With you, I am pleased that to date ro losses have been incurred by
holders since the initiation of a book-entry system by Treasury. While the
problem fortunately has had no practical application, it nonetheless theoretically exists. My hope is that the Federal Reserve Board would make maximum
effort to ensure the integrity of these Treasury debt instruments, basically
simply paralleling the mandatory safekeeping requirements of the securities
industry.
With my best regards,
Sincerely,
z
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NORMAN D. SHUMWAY
Member of Congress
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Federal Reserve Bank of St. Louis
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BOARD OF 130VERNORS
0
THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
July 30, 1981
PAUL A. VOLCKER
CHAIRMAN
The Honorable Ron Paul
House of Representatives
Washington, D.C.
20515
Dear Mr. Paul:
Thank you for your letter of July 2 conc
erning the
pricing of automated clearing house (ACH
) services.
The ACH has been recognized as having the
potential
to offer significant benefits to the publ
ic in terms of the
decreased cost and increased convenience
and security of transferring certain types of payments. This
is a conclusion agreed
to by the banking industry, the Federal
Government, which has
successfully used the ACH concept in the
Treasury direct deposit
program, and by the National Commission
on Electronic Funds
Transfer (NCEFT), which was established by
Congress in 1974 to
study electronic funds transfers. The
NCEFT further concluded
at the time of its study that Federal
Reserve involvement in the
operation of ACHs was necessary because
the private sector was not
yet able to operate ACH facilities econ
omically without this
assistance. Thus, the Board has stated
that it regards the
Federal Reserve's operation of ACH faciliti
es as a research and
development program that will provide tech
nical data and experience
that it hopes will enable the private sect
or in the future to
operate these facilities in a cost-effecti
ve manner.
The Board is in the process of establishing
and implementing fee schedules for all Federal Rese
rve services pursuant
to the pricing provisions of the Monetary
Control Act of 1980.
For all services other than ACH services
, the fees published by
the Board are based on fully allocated
current costs plus a 16
percent private sector adjustment factor.
ACH prices, in contrast, are based on costs for processing
volumes that are large
enough to realize the economies of scal
e of a mature environment.
Therefore, current prices of 1.0 and 1.5
are lower than the
short run costs of this service, although
prices will cover full
costs eventually. The Board elected
to price on this basis because
it believes that, over the long run,
the ACH will prove to be a
much more efficient means of transfer
ring funds. This approach
should encourage volume growth and, ulti
mately, reduce costs to
the consumer through greater efficien
cy. Although the ACH fee
schedule is the subject of litigation,
the Board believes that
this fee schedule is in accord with prov
isions of the Monetary
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Federal Reserve Bank of St. Louis
"
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41/•
The Honorable Ron Paul
Page T40
Control Act, v,hich provide that over the long run fees shall be
established on the basis of all direct and indirect costs,
except where the Board determines a need to provide an adequate
level of service nationwide. These provisions of the Act indica
te
that Congress intended the Board to have some flexibility in
administering service fee schedules.
The Federal reserve Board will review the fee schedule
for ACH services each year to insure that in a mature environment prices fully cover costs and that the volume growth and other
assumptions involved in setting these prices are reasonable.
The Federal Reserve believes that the paper check will
continue to play a dominant role in the payments systems for
the
indefinite future. For certain types of payments, the ACH
cannot
realistically be expected to displace checks, cash or other forms
of electronic money transfers. But for many types of recurring
payments, such as direct deposit of payroll and social security
payments, the ACII provides a safe, accurate method of payment
that reduces society's risks and costs.
I hope this information proves helpful to you.
let me know if I can be of further assistance.
Sincerely,
VFW A. Volcker
MS:LSA:pjt (V-192)
bcc: Michelle Smalley
Mr. McEntee
Mr. Allison
Gov. Gramley
Mrs. Mallardi (2)
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Federal Reserve Bank of St. Louis
Please
Action assignel Mr. Allison
do"
RON PAUL
.:ND DSTRICT. TEXAS
CONSTITUENT SERVICE CENTERSI
Room 1234
LONGA. sum HOU',E Of EICE DUlt.
(ZO;) 225-5951
Congre5g of tly Uniteb ciotatc5s
CO••••IT TEE ON BANKING
F!NAN'
AND URBAN AFFAIRS
3i)oli5e of ikepre5entatibt5
Zi/lassbington, 13.e. 20515
RANKING REPuill. ICAN
SUSCOMMITI44 ON GENERAL 0,44pis.Grir
July 2, 1981
MEMSER. UNITED STATES Got°
Poocy Comr.41ssloN
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1110 NASA ROAD 1. Sutra 100
HousroN. TrxAs 77058
(7i3) 486-9583
6711 BeLLroorr AVENUE. SUITE 307
Housrom. TEXAS 77087
(713) 226-4636
2116 THomPsoN HIGHWAY. SUITE 105
RICHMOND. TExAs 77469
(713) 226-458
101 OYSTER CREEK DRIVE
LAKE JACKSON. TEXAS 77566
(713) 297-3961
coNIGREsstoroa_92
Housrow(713)237-1550
LAXE JACK SON'(713) 297-0202
Mr. Paul A. Volcker, Chairman
Board of Governors of the Federal
Reserve System
20th Street & Constitution Avenue, N.W.
Washington, D.C. 20551
Dear Chairman Volcker:
It has been called to my attention by a constituent,
Mr. Horace Epperson of Houston, that the schedule of prices
announced by the Federal Reserve under the Monetary Control Act of 1980, indicate that the prices for automated
clearing house services, 1-11
/
2 per item, will cover only
about 1/3 of the cost involved in these services.
I would
like to know whether that figure is in agreement with your
calculations and, if so, your justification for adopting
that price schedule since the Monetary Control Act is quite
clear on this matter.
Thank you very much for replying.
Sincerely,
Ron Paul
Member of Congress
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August 20, 1981
RAUL A. VOLCKER
CHAIRMAN
The Honorable Ted Stevens
Chairman
Subcommittee on Civil Service, Post Office,
and General Services
Committee on Governmental Affairs
United States Senate
Washington, D.C.
20510
Dear Chairman Stevens:
Thank you for your letter on the problem of senior
executives leaving the Federal Government due to inadequate pay.
This is a serious concern for the Federal Reserve, as I am sure
it is for other government agencies, and I appreciate the opportunity to comment.
As you know, the Federal Reserve Board is not part of
the Federal Government's Senior Executive Service (SES); however,
compensation of the Board's official staff parallels very closely
the SES pay structure, including the limitation on pay. Our inability to grant salary increases to our top-level people has had
a harmful effect on morale and has severely distorted pay relationships. As a result of this problem, salary distinctions are
insufficient to reflect accurately differences in levels of
responsibility. Due to the pay cap on executives salaries, the
Board's officer salary structure is so severely compacted that
the salaries of 76 percent of the Board's official staff are
currently frozen; after October 1 of this year, assuming retention
of the pay cap, that figure will increase to 91 percent. Becau
se
of the pay compaction problem, the Board is faced with the probl
em
of promoting employees to higher levels of responsibility with
little or no increase in salary.
Within the past year, a number of key officials have
resigned from the Board, partly or largely for reasons dealing with
inadequate compensation. Most of these employees have accepted
employment offers which exceeded their Board salaries by 70 percent and more. (You may be interested in the enclosed listing of
officers who left the Board in 1981.) Although Federal salaries cannot match those in the private sector, an increase in salary level
s
of modest proportions may have averted the exodus of some of
these
people. Thus far this year, the annualized attrition rate for
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
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Tit(' ihmornhle Ted ;;tev(.1)::
Page 'Iwo
the Board's official staff is exceedi.ng 20 perc
ent, almost double
the rnte experienced in 1980 and nearly trip
le the rate experienced
in 1979.
in the past, when pay 1.1as more competitive
and the attrition rate for our key senior officials
was fairly low and stable,
most of our vacancies were quickly fill
ed. But with the recent
sharp increase in resignations nnong our
key officials, it has
become extremely difficult to find repla'em
ents with the quality
of experience necessary to cover 'critical
areas. Unfortunately,
we can no longer rely as kavily on rec
ruitim, competent replacements from outside of the itederal Rese
rve due to the increased
gap between our salary lelels and thos
e offered in the private
sector.
The Federal Reserve has traditionally been
staffed at
senior levels by people intent on making the
Federal Reserve their
career. However, to an increasing degree., we
now find ourselves
training people who after a number of yearr,
leave for greater
financial rewards. Uhile Many dedicate
d individuals have made
sacrifices in the past, today'S salary rap
is too great for us
to expect to be able to rcLain many of
these individuals. I am
greatly concerned Lhat further erosion
of talent could result in
a decline of overall Board effectivenes
s. I realize that in a
.
period of severe budgetin
g resLraint iL
for pay increases for the highest paid is difficult to argue
government workers. However, I do believe the sitOation has
become sufficiently serious
that the only responsilde course is Lo
take prompt action to lift
the pay cap. Again, thank you for the
opportunity to comment.
Sincerely,
S/Pagl A, Volcker
cy---(J2Aitraw\ki
ETM:JW:RS:vcd (V-222)
bcc :
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Vice Chairman Schultz
Mr. Mulrenin
Mr. Weis
Mr. Syron
Mr. Salvaggio
Mrs. Mallardi (2)
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Officers Leaving the Board in 1981
(As of 7-28-81)
New
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Officer
Salary
Reason
$ 90,000
61,000
110,000
62,000
125,000
90,000
90,000
75,000
70,000
Retirement
Pay
Pay
Pay
Greater Opportunity
Pay
Pay
Pay
Pay
Pay and Greater Respon.
WILLIAM V. ROTH, JR.. DEL.. CHAIRMAN
SUSCOM 1.11 IrTTEIE t
CHARL.S
PERCY, ILL.
TED SrEvEns, ALASKA
CHARLES MC C. MATHIAS. JR., MD.
JOHN C. DANEORTH. MO.
WILLIAM S. COHEN, MAINE
DAVID DURENSFRGER, M INN.
MACK MATTINGLY. GA.
THOMAS E. EAGLETON, MO.
HENRY M. JACKSON. WASH.
LAWTON cHiurs, ri.A.
TEO STEVENS, ALASKA, CNA I RM AN
CHARLES MC C. MATHIAS, JR., MD.
SAM NUNN, GA.
JOHN GLENN. 04-110
JIM SASSER, TENN.
DAVID PR TOR. ARE.
WAYNE A. SCHLEY. STAFF DIRECTOR
DAVID PRYOR. ARK.
WARREN 111. RUDMAN, N.H.
CARL LEVIN
JOAN M. MC ENT EE,
srArr
MICH.
DIRECTOR
'RICrtiteb Zfalez Zenate
COMMITTEE ON
GOVERNMENTAL AFFAIRS
SUBCOMMITTEE ON
CIVIL SERVICE. POST OFFICE. AND
GENERAL SERVICES
WASHINGTON. D.C. 20510
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July 31, 1981
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Mr. Paul A. Volcker
Chairman
Federal Reserve Board
Washington, D.C. 20551
Dear Mr. Volcker:
Recent press reports have indicated that numerous
senior executives are leaving the federal government due to
inadequate pay.
It is also reported that the government is
experiencing difficulty in recruiting senior executives.
your agency experiencing such problems?
detail examples of such problems.
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Federal Reserve Bank of St. Louis
With best wishes,
Chairman
If so, please
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Federal Reserve Bank of St. Louis
July 30, 1981
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:
During the hearing on July 21, you requested infor
mation concerning a study of the credit needs of small
businesses.
I am pleased to furnish you with a copy of the
insert I provided for the record of the hearing.
Sincerely,
Waul A, Volcker
Enclosure
CO:pjt
bcc:
Eleanor Stockwell
nrs. Mallardi (2)
Insert page 37 (hearing before House Banking July 21, 1981)
Chairman Volcker subsequently submitted the following information
for inclusion in the record of the hearing.
A three-part study is now underway, under the direction of an
Interagency Task Force on Small-Business Finance, in response to the following provision of an act (Public Law 96-302) approved July 2, 1980:
"In consultation with the Administrator of the Small
Business Administration and the Bureau of the Census, the
Board of Governors of the Federal Reserve System, the Comptroller of the Currency and the Federal Deposit Insurance
Corporation shall conduct such studies of the credit needs
of small business as may be appropriate to determine the
extent to which such needs are being met by commercial
banks and shall report the results of such studies to the
Congress by January 1, 1982, together with their views and
recommendations as to the feasibility and cost of conducting periodic sample surveys, by region and nationwide, of
the number and dollar amount of commercial and industrial
loans extended by commercial banks to small business.
Reports shall, when transmitted to the Congress, be referred
to the Senate Select Committee on Small Business and the
Committee on Small Business of the House of Representatives."
The first part of the study comprises a group of background papers
which are now in final draft.
These papers cover a broad range of subjects
related to small-business financing, including sources and characteristics
of small-business credit, the impact of various laws and regulations, the
effect of changes in banking structure, and the relation between firm size
and bank lending terms.
The second phase of the study, subject to approval by the Office
of Management and Budget, will consist of personal interviews in early fall
1981 with lending officers at a national sample of commercial banks.
The
proposed survey questionnaire is designed to provide a profile of commercial
bank practices and experience with respect to their lending to small business.
It asks for information about availability of small-business credit at the
bank and in its market area, and about the nonprice characteristics of the
bank's small-business loans.
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Federal Reserve Bank of St. Louis
It also includes detailed questions about the
-2-
way the bank prices its loans to small business and how this varies with
changes in interest rates generally and how it compares with pricing of
loans to large business.
The third part of the study will be the recommendations requested
by the Congress with respect to future collection of data on bank loans to
small business.
They will take into consideration the data needs revealed
by the background studies and the information obtained in the survey of commercial banks.
In drafting these recommendations, the interagency task
force will be examining a variety of options with respect to their feasibility, cost and usefulness.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
July 27, 1981
The Honorable Bill Bradley
United States Senate
Washington, D. C. 20510
Dear Senator Bradley:
endorsing
Thank you for your letter of July 20
serve on the Board's
the nomination of Hr. David B. Ward to
Consumer Advisory Council.
lifications
I can assure you that Hr. Ward's qua
the Board makes the
will receive full consideration when
1981 appointments to the Council.
Al;ain, thank you for your interest.
Sincerely,
CO:vcd (#V-207)
bcc:
Mrs. Bray (w/copy 91 incoming)
Mrs. Mallardi (2)k-/
DILL DRADLEY
.:r-lov JERSEY
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Federal Reserve Bank of St. Louis
'ZICnitcb Zlafez Zenale
WASHINGTON, D.C. 20510
July 20, 1981
Honorable Paul A. Volcker
Chairman
Board of Governors of the Federal
Reserve System
Federal Reserve Building
Washington, D. C. 20551
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Dear Mr. Volcker:
It has been brought to my attention that the Board of
Governors of the Federal Reserve System is seeking
nominations to the Consumer Advisory Council.
I have
been advised that the Beneficial Corporation, headquartered in New Jersey, has recommended David B. Ward,
Senior Vice President of Government Relations of the
Beneficial Management Corporation, to serve on the
Advisory Council.
7NJ
While I am not personally acquainted with Mr. Ward he
has an impressive background.
In addition, the Beneficial
Corporation, led by Mr. Finn Caspersen, has an outstanding
record of responsible corporate leadership in our state.
I hope that you will give their nomination of David Ward
careful consideration.
ncere
Bill Bradley
United States Senator
BB/mae
July 17, 1981
The Honorable Fernand J. St Germain
Chairman
Committee on Banking, Finance
and Urban Affairs
House of Representatives
Wasnington, D.C.
20515
Dear Chairman St Germain:
I wanted to thank you for sending me in advance of
release a copy of the Committee report, "Iran: The Financial
Aspects of the hostage Settlement Agreement."
sor.
I want to compliment the House Banking Committee and
you on tne thoroughness nf your investigation and the exten
t to
which you examined the many rumors and accusations which surrounded this very complex undertaking.
I believe that the Banking Committee staff effort,
led oy your General Counsel, Mr. Flaherty, not only serves the
Couunittee well but will prove a valuable tool to those seeking
insight into this dramatic episode in our nation's history.
Sincerely,
S
iNRM:pjt
bcc: Mrs. Mallardi (2)
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Federal Reserve Bank of St. Louis
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August 19, 1981
The honorable Charles E. Bennett
House of Representatives
Washington, D. C. 20515
Dear Mr. Bennett:
Thank you for yollir letter requesting comment on correspondence you received from your constituent, Mr. Arthur T. Boone,
enclosing an article concerning the authority of the Federal Reserve
to purchase obligations of foreign governments. This authority was
conferred on the Federal Reserve as part of the Monetary Control
Act of 1980 (P.L. 96-221).
I regret the delay in responding to your inquiry and hope
the following information will be useful.
The sole purpose of the provision is to facilitate the
foreign exchange operations of the Federal Reserve. As part of
the Federal Reserve's responsibility to help maintain orderly
market conditions, the System has entered into arrangements with
several foreign countries to purchase foreign currencies that
can be used to defend the dollar. These agreements are called
"swap" arrangements. When these swaps take place, the Federal
Reserve then owns foreign currencies. Until passage of the
Monetary Control Act, the Federal Reserve did not have any way
to invest these holdings in order to obtain a return. Since
1914, the Federal Reserve has possessed authority to invest its
funds in certain types of securities. For example, the System
is empowered to purchase U. S. government and agency securities,
certain short-term obligations of State and local governments,
bankers' acceptances, and bills of exchange. However, with the
passage of the Monetary Control Act, the Federal Reserve can
now invest foreign currencies it holds as a result of its swap
arrangements in interest bearing obligations. This will result
in an increase in Federal Reserve earnings, almost all of which
are turned over to the U. S. Treasury. (In 1980, the Board paid
the U. S. Treasury $11.7 billion.)
Since the new authority is to be used only in conjunction
with foreign exchange operations, the provision does not permit
the Federal Reserve to "monetize" (i.e., provide Federal Reserve
credit in return for a debt obligation of the borrower) the debt
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
.10
•
The Honorable Charles E. Bennett
Page Two
of private persons or foreign countries. Indeed, there is
nothing
in the Monetary Control Act that touches upon the ability
of the
Federal Reserve to purchase private debt obligations
whatsoever.
Use of the authority to invest in )foreign obligations merely
provides the System with the opportunity to earn interest
on
foreign currencies which are needeid to conduct foreign exch
ange
operations and which otherwise would constitute noninterest
bearing assets. When the authority is use,d, all that is provided is foreign currency, which constitutles a debt of another
country, and not Federal Reserve credit.
Please let me knqr if I can be of further assistance.
Sincerely,
(Signed) Anthony F.
Anthony F. Cole
Special Assistant to the Board
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bcc:
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Federal Reserve Bank of St. Louis
Mrs. Mallardi 1//
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CHARLES E. BENNETT
MEMDER
rt; DISTRICT. FLORIDA
,
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JOHN W. FARLEY
I
SERVICES COMMITTEE
CHAIRMAN OF SEAPOWER
SUBCOMMITTEE
Coitgre5 of the Zilitital
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JAcKsoNvILLr OFFICE
352 FrornAt. BUILDING 32202
TELEPMNE 1/04-791-2587
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Ulastington,;le. 20515
August 10, 1981
JOHN W. POLLARD. JR.
BRENDA DONALDSON
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
,
ADMINISTRATIVE ASSISTANT
I
ARMED
e •
Office of the Chairman
Federal Reserve System
Federal Reserve Ruildinn
Constitution Avenue Between 20th and 21st Streets
Washington, D.C. 20551
THOMAS J. MILLER
LEGISLATIVE ASSISTANT
SHARON H. SIEGEL
LAURA M. COWAN
PATRICIA A. GODDING
BARBARA L_ FETHEROLF
DARLA E. SMALLWOOD
VIRGINIA J FERGUSON
WENDY S. LEAVITT
SECRETARIES
Gentlemen:
I am writing to you again regarding the matter my constituent,
Arthur T. Boone, an attorney in Jacksonville, Florida brought to my
attention. Have you had an opportunity to review this matter? I
will appreciate hearing from you as soon as possible so I may be back
in touch with Mr. Boone. May I please have your advices?
With kindest regards, I am
Since ely,
Charles
Bennett
CEB:lm
cc: Arthur T. Boone, Esquire
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THIS STATIONERY PRINTED ON PAPER MADE WITH
Rrcycurr) FITIERS
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June 19, 1981
Office of the Chai
rman
Federal Reserve Syst
em
Washington, D. C.
20551
Gentlemen:
I 'wire received the
enclosed letter fr
I have reproduced th
om allawyer in Jack
sonville and
e page of the book
that he referred to
tnowledur of these
. I have no
mcnetary matters my
self. Apparently
sentiment in the
, there in a strong
country to repeal th
is bill, the Mone
1960, or at leust
ta
ry Control Act of
certain portionn of
it. Could you gi
that would be help
ve me any Wormatio
ful so that I may
n
thoughtfully adviae
my constituent?
With kindest rega
rds, I am
Sincerely,
CM:des
Enclosures
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Charles E. Bennett
•
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PRTHUR T. B0011E, P.
AND COUNSEL
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40.4 CLORIDA
THEATRE
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JACKS011VILLE.
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
it
3P4:4
Honorable Charles E. 1P-.11nett
United States Congressman
2107 iayburn Building
Washington, D. C. 20515
IN RE:
THE DUCK BOOK
Dear Charlie:
I hand you herewith a copy of Bob White's "Durk Book". On page 20,
you will find an article concerning the Monetary Control Act of 1980
and its potential for disaster.
I am deeply concerned regarding same and would like to know your
position as to its passage and its repeal. Aq T mesnt-ionod before,
.0-1Q ..i.115.0Q1;*-,ir.1...
.havQ...Luct.n. cqnned .
I ti
promoting expendi.tures_whic are JeOing ourAreat repub.lic_toyards__
7.TATion and into a colleFtivist .9overnment. and society..
You will find other parts of Bob White's book entertaining and
informative. He certainly has generated and reflects an evergrowing
swell of public Awareness to the disasterous consequerv:es of our
govermnent's deliberate inflation of the money supply.
With best personal regards.
Sincerely,
-
9
ARTHUR T. BOONE
ATB:sea
Enclosure
32202
Removal Notice
The item(s) identified below have been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.
Citation Information
Document Type: Newsletter
Citations:
Number of Pages Removed: 1
Sibbet, James. "Let's Talk About...Silver and Gold." Pasadena, CA: Sibbet Publications, April
9, 1981.
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
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BOARD OF 130VERNORS
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FEDERAL RESERVE SYSTEM
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WASHINGTON, D. C. 20551
'
August 14, 1981
The honorable Eugene Johnston
House of Representatives
Washington, D. C. 20515
Dear Ur. Johnston:
This is in further response to your letter to
Chairman Volcker concerning the ability of nonprofit hospitals to maintain NOW accounts.
As you are aware, in April the Board sought public
comment on a proposed interpretation to Regulation Q concerning
NOW account eligibility. After consideration of over 800 comments received, the Board, effective September 1, 1981, adopted
the enclosed interpretation. Under the interpretation, the
class of depositors eligible to maintain NOW accounts at member
banks will include, among others, all nonprofit organizations
that are described in sections 501(c)(3) through (13) and (19)
of the Internal Revenue Code. Pursuant to this interpretation,
it is likely that all nonprofit hospitals will be permitted to
maintain NOW accounts at member banks since such organizations
L,enerally qualify for an exemption from Federal income taxation
under section 501(c)(3) of the Internal Revenue Code.
I hope this information is useful. Please do not
hesitate to contact me if I can be of further assistance.
Sincerely,
(Signod) Anthony F. Cole
Anthony F. Colo
Special Assistant to the Board
Enclosure
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
(8/14/81 P.R.)
AFC:vcd (V-180)
bcc: Mrs. Mallardi./
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WASHINGTON. D.C.
20510
July 29, 1981
Mr. Paul A. Volcker
Chairman
Board of Governors of the Federal Reserve System
Twentieth Street and Constitution Avenue, NW
Washington, DC 20551
Dear Mr. Volcker:
We would like to thank you for addressing the Republican
Senate Intern Program. Your presentation received many positi
ve
comments from our interns which proved that it was well receiv
ed.
We hope that next year you will again be able to meet with
our interns. Once again thank you for your time and effort.
Sincerely,
aZILS )k,(
Margo
rlisle
Staff Director
Senate Republican Conference
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
E.YAJ--ef)
ichard K. Thompso
Staff Director
Republican Policy Committee
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WASH INGTON, D.C. 20510
:",'r", July 29,
Mr. Paul A. Volcker
Chairman
Board of Governors of the Federal Reserve System
Twentieth Street and Constitution Avenue, NW
Washington, DC 20551
3 I 1111 10: 08
OFFItLE Or ILI::
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Dear Mr. Volcker:
We would like to thank you for your presentation to
the Senate Republican Interns. We hope that you enjoyed
meeting with the young people who have volunteered to help
out in our offices.
The opportunity for interns to hear members of the
administration in person is invaluable and we hope that next
year you will again be able to find the time to meet with the
Republican interns.
Again, we appreciate your time spent with us.
Sincerely,
g. 6144.4ames A. McClure
hairman
Senate Republican Conference
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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Chairman
Republican Policy Committee
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rEOEPAL: RESERVE
June 30,
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OFFICE OF THE CHAIRMAN
Mr. Paul A. Volcker
Chairman
Federal Reserve Board
20th and Constitution, NW
Washington, DC 20551
Dear Mr. Chairman:
We would like to thank you for accepting our invitation to
speak to the Senate Republican Intern Program on July 28 from
3:30 p.m. to 4:30 p.m. in Room 318 Russell Senate Office Building. We are sure that your presentation will be well received
and we look forward to it.
Once again, thank you for your time and effort.
Sin
li,
If
f
, ohn Tower
hairman
Republican Policy Committee
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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Jame
McClure
Chairman
Senate Republican Conference
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WASHINGTON. D.G
20510
June 17, 1981
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Paul A. Volcker
Chairman, Board of Governors
of the Federal Reserve System
20th and Constitution Avenue, NW
Washington, DC 20551
Dear Mr. Volcker,
The Senate Republican Conference and the Republican Policy
Committee are jointly sponsoring a Republican Intern Program
designed to broaden the participation of college students in the
political and legislative process.
We would be honored to have you speak to the approximately
250 interns anytime between the present date and August 1. The
meeting would be held in a Senate office building and preferably
in the afternoon. Our program can certainly be organized around
your schedule, if you can in fact afford us a one hour meeting.
We believe the benefits of this program will prove to be
very worthwhile. Over the long-run, we feel the program will
stimulate the interns' future in the Republican Party and in
the political process.
Please contact a staff member of the Policy Committee,
Raleigh Kraft, at 224-6-417 to coordinate a convenient time.
Thank you for your consideration.
s•
If
John Tower
Chairman
Republican Policy Committee
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
2/vi et.(4
Jame A. McClure
Chairman
Senate Republican Conference
1
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August 5, 1981
1981 RUG -6
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OrFIGE 01. 1
Dear Bennett:
The President was pleased to receive your July 24 letter,
cosigned by Senators Nunn, Chiles, Boren, and Exon, recommending a "domestic economic summit" to discuss the question
of interest rates and the current fiscal and monetary policies
of our Nation.
time to assure you that the concerns you
I wanted to take
have outlined on these matters are appreciated and shared by
President Reagan. The President's advisory staff has been made
aware of your assessment, and I have transmitted your request
for the "summit meeting" to the appropriate offices. I have
asked that your suggestion receive prompt and serious attention.
Thank you very much for sharing your concerns with us and, also,
for conveying your statement of bipartisan support in the current
endeavor to achieve economic revitalization for this country.
With cordial regard, I am
Sincerely,
Max L. Friedersdorf
Assistant to the President
The Honorable J. Bennett Johnston
United States Senate
Washington, D.C. 20510
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INCOMING
RETAINED ORIGINAL
HAS
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
WIL LIAge
V. ROTH, JR., DE L , CHAIRMAN
HARLES H. PERCY, ILL .
D STEVENS. ALASKA
'THOMAS F. EAGLETON, MO.
HENRY M. JACKSON, WASH.
RARLES MC C. MATHIAS. JR., MD.
JOHN C. DANFORTH, MO.
LAWTON CHILES, FLA.
WILLIAM
JOHN GLENN, OHIO
S. COHEN, MAINE
SAM
NUNN, GA.
DAVID DURFNBERGF It, MINN.
MACK MATTINGLY, GA.
I/AVID PRYOR, ARK.
WARREN B. RUDMAN, N.H.
CAUL LI VIN, MICH.
JIM
SASSER, TENN.
9.1Cnitcb Zfatez;
Li34623
JOAN M. MC 1.I/fTEE, STAFF DIRECTOR
COM M ITT EE ON
GOVERNMENTAL AFFAIRS
WASHINGTON, D.C.
20510
July 24, 1981
The President
The White House
Washington, D.C.
20500
Dear Mr. President:
We have given support to the general direction of the Administration's economic program here in the Senate. We share your belief
that a reduction of federal spending, federal taxes, and the federal
regulatory burden is essential for increased productivity, reduced
inflation, and economic revitalization.
We are vitally concerned, however, with the apparent absence
of coordination between the fiscal and monetary policies of our
government. The current fiscal and monetary policies of our
nation appear to be on a path where significant conflict, if not
a head-on collision, is imminent.
The continuation of the high interest rate pattern of the past
few months, if allowed to persist, will cause irreparable damage to
our economy. We are beginning to have a dual economic policy -- a
boom to those with available capital -- a depression for those who
must borrow and for businesses depending on long-term credit.
When giant corporations borrow tens oi billions of dollars
for corporate takeover purposes that make no contribution to job
creation and productivity, and potential home buyers cannot find
affordable mortgage money, it is time for a reexamination of national
economic and anti-trust policy. We also think it would be appropriate
in this context for the Administration to re-examine recent policy
statements which may have encouraged massive borrowing for merger
purposes.
Officials of the Administration and the Federal Reserve have
repeatedly said that once inflation abates and the public is shown
that federal spending will be cut, interest rates would begin to
decline. Just recently on May 8, Federal Reserve Board Chairman
Paul Volcker said, "interest rates will come down and stay down
as we make progress on inflation."
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-The -President
July 24, 1981
Page 2
are
Today inflation is declining but mortgage interest rates
percent in
not. While consumer price increases declined from 9.6
most rethe first three months of this year to 7.4 percent in the
nched
cent three months, the mortgage interest rates remain entre
est
at 16 percent. Historically the spread between mortgage inter
Now,
rates and the rate of inflation has been about 2 percent.
to.
however, the interest rate/inflation rate spread has ballooned
a
6 to 7 percentage points which implies to many that this is
planned and deliberate policy.
The Administration's economic advisers, according to Mr.
ers,
William Niskanen, a member of the Council of Economic Advis
high
are currently both "confused" and "puzzled" by continuing
t ininterest rates. Yet reports from the recent Ottawa summi
interest
dicated you endorsed and vigorously defended the high
rate policy of the Federal Reserve.
Just today the Washington Post reported that Treasury Under
House Comsecretary for Monetary Affairs Beryl Sprinkel told the
is no
mittee on Banking, Finance and Urban Affairs that there
deficits
technical, and no necessary, connection between budget
and money growth, or between deficits and inflation.
We could not disagree more. Either the government finances
ing
a deficit by printing money or by competing with and crowd
ce
business out of the credit markets. Printing money to finan
al
deficits results directly in more inflation. Increasing feder
and
borrowing affects inflation by forcing up interest rates,
and
increasing business costs. Eliminating federal deficits
both
reducing federal borrowing requirments are pecessary for
psychological and substantive economic reasons, and must be
accomplished at the earliest possible time.
If the high interest rates continue, the Administration's
supply side economics cannot work. The survival of our small
business and farming community is threatened, many thrift institutions are in serious financial trouble, and the housing
industry is near collapse. The majority of businesses, particularly small businesses, will not be able to finance inventories, let alone capital improvements. A tax cut will
mean little to small businessmen and farmers who make no profit to be taxed because of exorbitant interest rates.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
se
,•
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The President
July 24, 1981
Page 3
ious
urge you to address these ser
we
,
ent
sid
Pre
Mr.
y,
mar
sum
In
te the Administration's
era
mod
to
e
lat
too
is
it
ore
ed
problems bef
stion is whether the anticipat
que
the
it,
see
we
As
m.
gra
fiscal pro
s fiscal program has so
on'
ati
str
ini
Adm
the
of
ect
eff
stimulative
g-term high interest rates
lon
ued
tin
con
t
tha
tem
sys
the
overloaded
stration does not advocate
ini
Adm
r
you
If
.
ult
res
e
abl
vit
are the ine
we hope that it will let its
,
icy
pol
e
rat
st
ere
int
h
hig
a continued
and persuade them to take
ity
mun
com
ial
anc
fin
the
to
wn
views be kno
es.
action to moderate interest rat
suggest a "domestic economic
lly
tfu
pec
res
we
,
ard
reg
s
In thi
,
logue between you as President
summit" meeting with a full dia
Congressional leadership.
and
e
erv
Res
l
era
Fed
the
of
r
Chairman Volcke
would emerge a coordinated
re
the
g
tin
mee
t
tha
of
out
e
We would hop
be clearly understood by
can
ch
whi
icy
pol
ary
net
-mo
cal
cohesive fis
the American people.
but we do believe it is
e,
cur
t
tan
ins
an
ect
exp
not
We do
interest rates and avoid major
of
n
tio
era
mod
a
e
iev
ach
to
possible
fiscal and monetary policies
credit shortages if our nation's
are coordinated.
port in this effort.
We offer you our bipartisan sup
Sincerely,
1
p-ec
Sam Nunn
Lawton Chiles
Benne
cc:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Chairman Paul Volcker
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Johnston
LARRY P. McDONALD
DISTRICT OFFICES:
7TH DISTRICT, GEORGIA
Room 580, 1sT NATIONAL BANK BUILDING
100 CHEROKEE STREET
IYIARI ETTA, GEORGIA
WASHINGTON OFFICE:
Congro of Me Einittb
504 CANNON HOUSE OFFICE BUILDING
WASHINGTON, D.C.
20515
TELEPHONE:(202) 225-2931
301 FEDERAL BUILDING
Powse of AeprOentatibaS
COMMITTEE:
ARMED SERVICES
trilattington, )113.C. 20515
suEscommiTTEEs:
ROM E, GEORGIA
30161
TELEPHONE:(404) 291-7777
POST OFFICE BUILDING
ROSSVILLE, GEORGIA
RESEARCH AND DEVELOPMENT
30741
TELEPHONE: (404) 866-2222
SPECIAL SUBCOMMITTEE ON
NATO STANDARDIZATION.
INTEROPERABILITY AND
READINESS
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
30060
TELEPHoNE:(400422-4480
July 29, 1981
Mr. Paul Volker, Chairman
Board of Governors of the Federal
Reserve System
20th and Constitution Avenue, NW
Washington, D. C.
20551
Dear Mr. Chairman:
It would be greatly appreciated if you would furnish me
with an autographed photo of yourself.
Best regards.
-ri
Sincerely,
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Larry
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July 31, 1981
The honorable Bill Nichols
house of Representatives
Washington, D. C. 20515
Dear 1Lr. jichols:
I am pleased to acknowlede receipt of your
letter to Chairman Volcker dated July 28 enclosing correspondence from your constituent, Vr. W. DouLlas Amos, and
requestin& that his letter and resolution be made a part
of the official comment record before the Depository
institutions Deregulation Committee ("DIDC").
At its meetin6 on narch 26, 1931, the Secretary
of the Treasury was elected Chairman of the DIDC. I have,
therefore, torwarded your letter to lir. Gordon Eastburn,
Actin& Executive Secretary of the DIDC, Department of the
Treasury. I expect you will be hearinL from Mr. Eastburn
in the near future.
Sin.cerely,
(S'ignekl) Uonald
Willa
Donald J. Winn
Assistant to the Board
cc:
Mr. Gordon Eastburn
CO:vcd (V-212)
bcc:
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Nrs.
Will be referred to Gordon Eastburn per Ed Ettin
BILL NICHOLS
3RD DISTRICT. AL_ARAMA
COMM ITTEE Ot,
ARMED srrivicf
DI STit CT Of•ICFS
2A.7 RAYBURN 111),LOING
WASHIAVITON. D C.
20515
Congrciics of iljc Elititeb
FHor+r: (202) 225-2261
Lfr.
LnANI-4:11
MACVN
RANDOLPH
Rot,SSrLL
AAAAA DI(IA
T A 11.A.A•OlOSA
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
tate5s
ANNISTON, ALARAA.
PHoo,
st: 236-5655
jipti5e of ikrprefSentatibr5
COUNT'!"S •
Al/TAW:A
CAL-NOON
CliAPAISEPS
CLAY
Ct., wit NNE
COOSA
ELMORE
F 10fPAL DUILDIN
FIEDIERAL
DIPA1
OPCLIKA. ALABAMA
PoioNes: 745-6222
Ula5bington, D.C. 20315
115 EAST NORTH SI:
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Poioris : 727-4,
190
/
July 28,1981
-"1
Mr. Paul A. Volcker
Chairman
Depository Institution Deregulation
Committee
20th and Constitution Avenue
Room B-2120
Washington, D.C. 20551
C—
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Dear Mr. Volcker:
Attached is a copy of a letter I have received from the Alabama
League of Savings Associations, as well as a resolution passed
"vigorously opposing D1DC's proposal to raise passbook savings
rates to 10.5 percent". It is the position of the Alabama League
of Savings Associations that such action would increase the cost
of doing business a minimum of $33 Million annually in the State
of Alabama along which would further compound the trem
us financial
problems of the thrift industry.
I would respectfully request that this letter and esolution be made
a part of the official comment
or
ation.
Bill Nichols, M.C.
BN:cm
Enclosure
cc:
Mr. W. Douglas Amos
Executive Vice President
Alabama League of Savings Associations
818 South Perry Street
Montgomery, Alabama 36104
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Federal Reserve Bank of St. Louis
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Tlie SOUTH riF.-
MONTC•Cmt NY
ALATI•mA
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•
•
•
W. DOUGLAS AmOS
rxrcuTiva
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PRISIDENT
The Honorable B 11 Nichols
U. S. House of epresentatives
2417 Rayburn noise Office Buildi ng
Washington, D.
20515
Dear Bill:
1.
7
to call your attent ion to the enclos .d copies of
tted bv the Alaba aa League of Savi tgL: Associations
;' in cony .ntion in Mobile, Alabama, July 17
1981.
You will note t tat the resolutiot pertaining to t e "All Savers
Act of 1981" ex )resses the Leagt ''s grateful appr .ciation to members of the Sen ite Finance and liouse Ways and Mea ts Committees for
their recogniti In of the import )f this legislati n and their
action in advan ing it toward ettletment into law. Savings and
loan leaders in Alabama are vigorously united in heir position
rhat this legis ation is essentiil in any program ministering to
the afflictions of the savings au! loan business. At the Mobile
convention, dis :tissions in the wneral sessions, able talk at
breakfast, lune and dinner, and deliberations bv the League's
officers and di ectors underscomd the urgency of the legislation
and the concern of the delegate- in obtaining its early passage.
As savin;;,-, and oan people in Altbama view the st nation, thc
sue no longer
a matter for st tdv and deliberat on. TI1E TIME
FOR MIMITMENT \ND ACTION IS LW), OVERDUE! Accorlingly, we are
delighted that he Senate last wek included a mo ified version
of the act in tie 1981 tax bill.
Bill, the ho,11
of directors of the Alabama Leagu . meeting during
the convontion lirected this office to inform all members of the
ALaba:-.71 con
;ional delegation of its concern f )r expeditious
action on the 1 .gislation and to solicit aain fr )rtt each member
his intention
in pursuing the 1 Tislation. This action is initiated not ontv in accord with
sentiments of .he savings and
loan business b it also in respon;e to the persuas on of its thousands of savers who are awaitimi the enactment of this legislation
It is the . dispo ;ition of the board of directors aid the membership
of the League t tat this expressin of interest anl request for
action are both reasonable and p -oper at this tim'. We shall appreciate very r ich your special :onsideration of his matter and
your response :1 t your earliest clonvenience. 'NUT, WE ARE HOPEFUL THAT THE AI \BAMA HOUSE DEED \ITON WILI EXERT IS INFLUENCE IN
EVERY POSSTP,1E :AY 10 EXPEDITE 1 :NAL PASSACE
1IS VITAL LEJ;IS-
rATto!:.
16104
263 1604
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Ihe Honorable Bill Nichols
July 22, 1981
Page "Iwo
In reference to.the resolution opposing the proposal of the Depository Institutiom; Deregulation Committee to raise passbook savings
rates to. 10.5 percent, please note that such action would arbitrarily
increase the cosi of doing business bv Alabama savings and loan associations a minimum of $33 million the first year. Needless to sav,
such rash and contemptible action by the DIDC would further compound
the financial disorders of the thrift industry in a most invidious
and alarming manner. It is inconceivable to us that any responsible,
informed group of regulators would resort to such pernicious action.
Any assistance you may render in contravening this proposed DIDC
action will be greatly appreciated. Congressional interest in this
proposition may prove to be a determining factor in the committee's
action.
If you should conclude that the language of the D1DC resolution is
harsh and severe, you will he totally correct in reflecting the intentions of the membership in adopting the resolution. 1 cannot
overestimate the depth and breadth of the furv of Alabama savings
and loan personnel in respect to thi,; proposed action by the DIDC.
When this office may be of service in any capacity, please let me
know. ft is always a personal pleasure to hear from you and to use
the facilities of this office to serve you.
My very best wishes.
Sincerely,
W. Dougli/
a)Amos
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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July 17, 1981
WHEREAS the
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Savers Act of 1981" should provide urgently
needed tax incentives for savings; and
WHEREAS :-:uch legislation should contribute substantially to
the improvement:of savings flows in thrift institutions and thereby facilitate the recovery of these
institutions from serious financial disorders; and
WHEREAS the United States Senate Finance Committee and the
Unid Statys House Ways and Means Committee have,
recognized the import of Ihis legislation and have
moved toward its successful enactment into law;
THEREFORE, BE IT RESOLVED:
That the Alabama League of Sav-
ings' Associations meeting in convevtion in Mobile,
Alabama, July 17, 1981, expresses its grateful
appreciation to all members of the Senate Finance
and House Ways and Means Committees; and
BE TT FURTHER RESOLVED:
That a copy of this resolution be
forwarded to all members of the above-cited committees.
I certify that. the above is a true and accucate copy of a
resolution adopted by the delegates attending the 57th annual
convention of th-e Alabama League of Savings Associations.
C/
Do glas Amos
EN(,cutive Vice President
'AlaUama Lyague or Savings Associations
•1.
•
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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WHEREAS the Depository Institutions Deregulation Committee
has agreed to issue for public comment an informal
proposal to raise savings passbook rates to 10.5
'percent for thrift institutions; and
WHEREAS such action would arbitrarily increase the cost of
doing business by Alabama savings and loan associations a minimum of $33 million annually; and
WHEREAS such rash and contemptible action by the DIDC would
further compound the financial problem:-; of the
thrift industry in a most invidious and alarming
manner; and
WHFREAS it is inconceivable that any responsible, informed
group of government regulators would rf.sort to such
pernicious action at
THEREFORE, BE IT RESOLVED:
this tirm ,;
That the Alabama League of Sav-
ings Associations meeting in convention in Mobile,
Alabama, July 17, 1981posal to raise passbook sa
.
.
yl.s rates to 10.5 percent and appeals to the better sense of the committee to strike down such a preposterous p
ion;
and
HF IT FURTHER RESOLVED:
That a copy of this resolution be
forwarded to each member of the DIDC, each member
.of Alabama's congressional delegation, President
Reagan,U. S. and. National Leagues, and other key
coHgro.ssional committee numbers.
I certify that the above is a true and accurate copy of a
resolution adopted by the delegates attending the 57th
annual convontion of.the Alabama League of Savings ASsociations.
•
,
July 29, 1981
••••
•
•• •
. •
The Honorable Frank Annunzio
House of Representatives
Washington, D. C.
.4
'
Dear Congressman Annunzio:
'
Thought you might be interested in the
attached press clippings concerning a meeting
of Federal Reserve officials with the National
People's Action group in Chicago. We do try to
get around a little to hear from
all sides.
• ••
Best regards.
Sincerely,
'
Attachment
B
,
JC:PAV:ccm
7c •
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•••..
"
FEDERAL REERVE SYSTEM
-
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July 29, 1981
r`
11
A. N.'"JLCKEI7
The Eonorable Jake Garn
Chailman
Committee on Banking, Ho
using
and Urban Affairs
Unite,: States Senate
Washington, D.C.
20510
Dear Chairman Garn:
During my testimony be
fore the Banking Committe
Wily 22, I was asked if
e on
the Federal Reserve co
uld prepare a
stuy within 30 days
on the impact of credit
restraint on four
:;ectors of the economy:
agriculture, constructi
on and real
estate, .1_1tos and relate
d industries, and small
business. I
believe t:lere was genera
l agreement that within
such a short
time period it would no
t be possible or desir,-I
ble to attempt
to undertake any origin
al research. The impa
ct of conditions
in credit markets on di
fferent industries is a
complex issue
and involves a number
of analytical diffftulti
es. However,
the Federal reserve ha
s examined this issue in
the past, particularly for small busine
ss.
Accordingly, I have inst
ructed the staff to brin
together all the inform
g
ation that is available
wi
th
whatever
analyses are possible in
such a short time peri
od
. I would
anticipate transmitting
this information to th
e
Co
mmittee in
early September, abou
t the time Congress re
convenes.
Sincerely,
•,
• ,
41 ii•
RS:pjt
bcc: Mrs. Mallardi (2)
Identical letter also sent to Se
nator Riegle.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
July 28, 19R1
The flonorable Paul Tsone,as
Senate
washineton, n.C. 2^C15
npAr Senntnr Tannpn,:
you mi7,ht be interested in ny reply to a
1Ptter fron your constituent, Willinn H. 7rock, Vice Presiden
t
an4 Treasurer nf !lemintuck Savinrs nanle of 1,1orthampton,
Y'TASS.
!(r. nrock hip! sent re a copy of his letter
you of July 22.
I
thoorbt.
Sincerely,
St Paul
Endosures.
ECEttin:kt
ref: # 2164
$.4
•
July 22, 1981
Mrs. beulah B. Watson
Dear Mrs. Watson:
Senator Garn has asked us to respond to your request for
Series E savings bonds information.
We have contacted an official at the Treasury Department
regarding this matter and understand that the May-October 1981
redemption tables for Series E savings bonds were not made available for public distribution in Seattle until the first week in
July. For your convenience, I am providing the following listing
of the cash surrender value for your Series E bonds for the months
of June and July 1981.
Denomination
$500
$1000
$500
$500
$1000
$1000
$500
$1000
Serial Number
D-205
M-204
D-102
D-102
M-202
M-202
D-200
M-210
414
301
039
110
142
142
668
281
417E
481E
839E
172E
832E
834E
073E
296E
CASH VALUE
June
July
Date of Issue
June
June
June
June
Dec.
Dec.
Dec.
Dec.
1976
1979
1975
1978
1976
1976
1979
1979
$511.20
$828.00
$542.40
$436.40
$951.20
$951.20
$404.00
$808.00
$511.20
$832.40
$542.40
$436.40
$951.20
$951.20
$405.80
$811.60
The serial numbers listed on each of your bonds are uniquely assigned
numbers that allow the Treasury Department to maintain records of
outstanding bonds by series, denomination, and owner. In the event
that you have other Series E bonds which you are considering
redeeming, I have requested that the Seattle Branch mail you a
copy of tne most recent redemption table. We regret any inconvenience associated with your not being provided this information
earlier.
Please let me know if I can be of further service.
MLB:CO:pjL (v-198)
Sincerely,
bcc: Mr. Gerald R. Kelly,
f",
:
FRBranch, Seattle
Mike Bermudez
Mrs. Mallardi-'
Donald J. Winn
Assistant to the Board
cc: The Honorable Jake Garn
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
JAKE GNAW. UTAH
JOHN TOWC PP TEX.
_KAN HE iNZ PA.
WILLIAM L. ARMSTRONG. COLO.
pitcHAREI G. LUGAR. IND.
Al IONS!' M. Cl'AMATO, N Y.
JOHN H CHArEr. R.I.
HARRISON SCHMITT, N MEX.
CliAIPIMAN
HARRISON A. WILLIAMS
AI AN CRANSTON, CAL If.
nONAL0 W. RIEGLE. IR
salc.t4
pAtn.. s. s AAAA NES. MO.
CHPHSTOPHER J. DOOD. CONN.
AL AN
DIXON. ILL.
IRECTOR
M. DANNY WALL.
HOWARD A. MENELL. MINORITY STAIR DIRECTOR ANO COUNSEL
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
BOARD OF 07'..*!.:RrRly
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SYST!':
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COMMIT!' I ON BANKING. HOUSING. AND
URBAN AFFAIRS
WASHINGTON. D.C.
20510
1981 JUL 1 4 (Ifi 11: 51
FECEIVEU
OFFICE OF THE CH,AAIRMAN
July 6, 1981
The Honorable Paul A. Volcker, Chairman
Board of Governors of the Federal
Reserve System
Washington, D. C. 20551
Dear Mr. Chairman:
I have recently received the enclosed correspondence
from Mr. H. F. Davis, Spokane, Washington, in behalf of
Mrs. B. B. Watson who was unsuccessful in her attempt to
obtain information concerning her savings bonds.
I would appreciate your providing the information
requested by writing directly to either Mr. Davis or
Mrs. Watson.
Your assistance is greatly appreciated.
Sincerel
Jake Garn
Chairman
JG:dtr
A
enclosure
yours,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
July 27, 1981
The Honorable Howell Heflin
United States Senate
Washington, D.C.
20510
Dear Howell:
Thank you for your letter of July 17 recommending nr. Charles S. (Re(1) Dlachledge to serv
e on the
Board's Consumer Advisory Council.
I can assure you that Vr. Dlackledge's qualifications will receive full consideration when the
Board
makes the 1981 appointments to the Council.
I appreciate your taking the time to bring him
to our attention.
Sincerely,
SZPaul A. Yolcket
CO:pjt (#V-206)
nrs. Bray (w/copy of incoming)
nrs. nallardi (2) v/
DOB PACKWOOD.
mu-a . rf•A ,Proas.N
MARRY GOLDWATER. ARIZ.
HARRISON
SCHMITT. N. Mt K.
JOHN C. VANI OR TH. MO.
HOWARD W. EANIWIN,
NANCY LANDoN r ASst BAUM. IYANS
LARRY
roviss
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GORTON
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.
J. JAMIE.% EXON. NraR.
HOW1LL HEFLIN. ALA.
WILLIAM M. DIETENDERrFIK. CHIrr COUNSEL
AUBREY L. SARVIS. MINORITY CHirr C.XXINSFL.
IrDW N K HAL L. MIWYRITY GrNIRAL COUNSEL
•
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DONAI" W. RIEGLE. JR.. MiCH.
TrD STY WHS. ALASKA
SOS IlitierTrN WIS.
-t.r ,
.•.
COMMITTEE ON COMMERCE, SCIENCE,
AND TRANSPORTATION
MI JUL 22 R11 9' 05
ILE f:HAiRohm
PECF.VIED
WASHINGTON. D.C. 20510
Cril7a 07
July 17, 1981
The Honorable Paul A. Volcker
Chairman
Federal Reserve Board of Governors
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551
4f11 (1)2
Dear Paul:
It has come to my attention that Mr. Charles S. (Red) Blackledge,
who is the Supervisor of the Bureau of Loans at the Alabama State
Banking Department, is being nominated for an appointment to the Federal
Reserve Board's Consumer Advisory Council.
Red Blackledge is a long-time resident of Montgomery, Alabama,
having graduated from Sidney Lanier High School, Auburn University,
and the Jones Law School at Montgomery. During the Second World War
and the Korean conflict, Red served as a counter-intelligence officer
in the Army and served in the South Pacific.
Since 1976 Red has been the Supervisor of Loans at the State Banking Department and has been responsible for the administration of the
Alabama Small Loan Act and has been designated the Deputy Administrator
for purposes of enforcing the provisions of the Alabama Consumer Credit
Act as to licensees under the act. I think that Red's experiences as a
creditor representative, as a regulator, and his continuing experience
as a consumer qualify him to deal with issues in the area of consumer
credit and other financial services. As a regulator, he is in contact
with daily credit transactions and problems which arise between
consumers and creditors.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
I take note also that no present member of the Council represents
state regulators and, with the two Georgia members leaving the Council
at this time, the southeastern part of the United States will not be
represented.
I strongly endorse Red's nomination to the Board's Consumer Advisory
Council, and I know that he will do a splendid job if he is selected.
Thank you very much for your consideration.
Very truly yours,
ref.)
Howell Heflin
HH/adt
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
July 27, 1931
The honorable Bill Bradley
United States Senate
Washington, D. C. 20510
Dear Senator Bradley:
orsing
Thank you for your letter of July 20 end
serve on the Board's
the nomination of Hr. David E. Ward to
Consumer Advisory Council.
ications
I can assure you that nr. Ward's qualif
Board makes the
will receive full consideration when the
1981 appointments to the Council.
Af;ain, thank you for your interest.
Sincerely,
SAN
CO:vcd (#V-207)
bcc:
Mrs. Bray (w/copy of incoming)
Mrs. Mallardi
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F1OARD
OF GOVERNOPS
Or THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 205Si
PAu'.. A. VOLCKEP
CHAIRMAN
July 22, 1981
The Honorable William Proxmire
United States Senate
Washington, D. C. 20510
Dear Senator Proxmire:
In your letter of July 9, you requested a summary of the public
response to the Board's invitation for comment on possible modifications
of the present system of monetary data publication. You also asked for
an outline of the Board's current thinking on the matter.
Enclosed is a simple tabulation of the letters we have received,
as well as a copy of the original press release listing the proposed
changes. While some responses could not be unambiguously classified,
most could, and the summary table is a reasonable characterization of
the returns. (Some responses communicated the collective views of
groups, and no attempt has been made to assign weights in accordance
with the numbers of people or institutions represented.)
As you can see from the first column of the table, about half
of the responses supported retention of the current approach to publishing
the monetary aggregates. A few of the responses in the "other" category
shown in the last column supported the release of more frequent or additional data, while two respondents preferred that the data not be
seasonally adjusted. About one-fourth of the responses suggested that
we publish only monthly data.
As might be expected, respondents most actively involved in
money markets felt most strongly about maintaining the current publication schedule. In general, those less directly involved in money markets
on a day-to-day basis were more favorable to some change. I think it
fair to say that comments given us orally in various forums were along
the same lines.
The most frequently cited argument for retaining the current
approach to publication was that, the more ample the data flow, the less
likely it is that release of any single number will have large market
impacts. It also was noted frequently that, in the absence of our publication of the data, private analysts would fill the void with their
estimates and that the situation might prove no better--or perhaps
worse--than that now existing.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The Honorable William Proxmire
Page 2
I expect that the Board will shortly consider the various
questions raised in connection with weekly publication of the money
supply. It is our objective to provide the public with meaningful,
timely information in a manner that avoids undue disruption of the
financial markets. This requires an assessment not only of the market's
use of the information, but of the internal problems of producing high
quality data on a regular schedule. We shall, of course, communicate
to you promptly the outcome of our deliberations.
Sincerely,
Enclosures
JAKE GANN. UTAI4. CHAIRMAN
JOHN TOWER. TEX.
JOHN HEINT. PA.
WILLIAM t •RMSTRONO. COLO
1.1.1G•la. *an.
ALFONS, M. LI AMATO. N Y
JOHN H. CHAFEF
R
HARRISON SCHMITT. N
MEX.
14AieIII,SON A. W'LLIAMS. JR.. N J.
WILL IAM PROXmloit
AL AN CRANSTON. CAI it
ooN&L.n W. RITGLIF.
. MICH.
PA/IL S. SARSANES. Mt).
CHR,STOPHER J. DODO. CONN.
•LAN /. Dixom, ILL.
M. MANNY WALL, ST At F DIRECTOR
HOWARD A. MENELL. MINORITY STAFF DIRECTOR AND COUNSEL
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
RoARDCrl".'"FrIlinRI,
:17
'ZiCnifeb Zfafez Zenaie
COMMITTEE ON BANKING. HOUSING. AND
URBAN AFFAIRS
WASHINGTON. D.C. 20510
- •
11: 25
19B1 J111. 16 r\A
?FCEIvED
OrfiS.CE
Honorable Paul A. Volcker
Chairman
Federal Reserve Board
Constitution Avenue, N.W.
Washington, D.C. 20551
Eear Mr. Chairman:
In your letter of March 24, 1981, you indicated
that the Board of Governors planned to ask for public
comment on the desirability of continuing the present
system of public releases of M-1 monetary data.
Our understanding is that such a request for
comment indeed has been issued and that numerous comments
have been received.
When you appear before the Banking Committee on
July 22, would you please summarize the comments which
you have received and outline the Board's current
thinking on this topic.
Sincere
cluv(-)
Jake Garn
Chairman
/
•
USS.
JG:lsp
••
7 ;'./.1.
July 9, 1981
?7Willi
i
1\
July 16, 1981
The honorable G. William Whitehurst
house of Representatives
Washingtpn, D. C. 20515
Dear ILr. Whitehurst:
Thank you for your letter of July 2 forwarding a copy
of a letter addressed to Chairman Volcker that you received from
employees of Realty World - Waddell Realty concerning the burden
high interest rates have placed on the housing industry.
As you requested, I am pleased to enclose a copy of
Chairman Volcker's response to Realty World - Waddell Realty.
Please let me know if I can be of further assistance.
Sincerely,
(Signed) Donald I.
Ilnti
Donald J. Winn
Assistant to t-he Board
linclosure (Chairman's letter
dated 7/14/81)
CO:vcd (#V-188)
bcc:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Mrs. Mallardi
Cong. Liaison Office checking on status of response to
WASHINGTON OFFICE,
Mr. Waddell; if not answered this will be assigned2469 RAYBURN BUILDING
WASHINGTON. D C. 20515
to Mr. Kichline
G. WILLIAM WHITEHURST
2o DISTRICT. VIRGINIA
•
OP
COMmiTTEES:
(202) 225-4215
ARMED SERVICES
JOHN P. MAGILL
ADMINISTRATIVE ASSIST/UVT
Congre55 of tile Zfriniteb 5;)tatt5
sueopmul
3t)ou5e of 3Arprefsentatibeg
READiNESS
RANK1,40 MINoniTy MEmBER
CONSTITUENT SERVICE
815
reorkAL
BUILDING
NORFOLK. VIRCUNiA
Ulagbington, D.C. 20515
MILITARY INS'At LATIONS
II AtPERMANENT SELECT COM m
ON INTELLIGENCE
orricEs,
21510
(804) 441-3140
VERENA C. WASSERMAN
OFFICE MANAGER
T TEE
ROOIN 601. Plr 1.4'ROA E ONE
23462
suscomMITTEESI
VIRGINIA BEACH. VIRGINIA
(804) 490-2193
PROGRAM AND BUDGET AUTHORIZATION
BLANCHE M. BOYLES
U S. DELEGATE TO
NORTH ATLANTIC ASSEMBLY
OFF/CC MANAGER
July 2, 1981
The Honorable Paul A. Volcker, Chairman
Federal Reserve Board
21st and Constitution Avenue, NW
Washington, D. C. 20551
Dear Mr. Chairman:
You have recently received the attached
letter from employees of Realty World - Waddell Realty,
Virginia Beach, Virginia, concerning interest rates
and the effect they are having on the housing industry.
I would appreciate it if the views expressed in the
letter could receive every consideration. A copy of
your response to Mr. C. J. Waddell and his employees
would also be appreciated.
Thank you for your consideration in this
matter.
With all best wishes, I remain
Sincerely,
CD
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G. WILLIAM WHITEHURST
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Attachment
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
REA ni WORLD
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
REALTY WORLD• — WADDELL REALTY
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June 16, 1981
ihe honorable P:u1 A. Volcker, Chairman
Board of Governors Federal Reserve System
Washington, D. C. 20551
Dc:Ar
Titan Volcker:
We ,1:1«t this lett,2r to vou on behalf ot tip - not fhousands,
hut
- of lives affected by the policies of flur Fcderal
Resc.rve Syrtem. 1Afilders . . . Rnaltorq
Subcontractors . .
Homebuyers and sellers . . . Mortgage Pankers . . . in other words,
the An.erican Public suffers at the whim of an unfair and discriminatory system.
The Federal Reserve System's control of the interest rite has once
'otain caused havoc in the American housing industr,'.
When
speak of the populace affected, we often rPicy to active,
political and professional, individuals. It is our b( lief that
thesr individuals will raise a cry and hue heard from
, end of
nation to another. Already, it is happening.
We speak as a group of Tidewater Virginia Residents (Noultdk, Virginia Beach, Portsmouth, Chesapeake). If the city-ol. Virginia Beach
alone sealed its borders and didn't allow another person to enter our
population structure, we would still require over 3,000 new units of
housing per year just to meet our needs! Already, we cannot supply
throu:W apartments and below production new construction the needs of
:hi, city. In addition, the critical and crucial ti3e oC the interest
iS thru.
,in millions of families out of necs.:ary
family living situotions have become eNtie,Ilel‘ prevalonf ad strain to the American family and legal biftli!. .)ver livision
to eqnit:y.
1;hy - we question - must. housing tor America be the %,Ictim of Federal
money manipulation?
Can we as a group change a drastic trend that threatens co endanger
ihe entire country. We would like to believe that the individual
still counts.
And. what lies ahead?
We hope that it is not utter disaster.
We'll Cover It All FOI You
'A WORLD ol Ditierence.
.
r-lic)fl•CP inrlepentlpritly Ownef I Am! 1,0".Iltarl
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Honoralele Paul A Volkk-r, (liairman
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":;.:(2king to have our voices heard, we remain,
'Sincerel ,
REA1TY WORLD-WADDELL
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Owner/Broker
Mel ssa Burdette
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Beth Clugston
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Edith White
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The Honorable Ronald Reagan, President
United States of America
The WL,e House
Washington, D. C. 20000
t rcssman William 14hitehurst, 2nd. Dist. of Virginia
.Con s.;
Congressman Bob Daniel, 4th. Dist. of Virginia
Virginian Pilot/Ledger Star - Editor
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BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
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July 15, 1981
The honorable Mark 0. Hatfield
United States Senator
Room 104
Pioneer Courthouse
Portland, Oregon 97204
Dear Senator Hatfield:
Thank you for your letter of June 30, enclosing correspondence you received from Mrs. A. I. Prugh concerning the debiting of
her checking account for a social security check payable to her
husband (and received after her husband's death) which she deposited.
The Treasury Department has informed us that social security
payments received during the current month are for benefits accrued
during the previous month. For example, the social security check
which Mrs. Prugh received dated January 2, 1981, represented benefits accrued during December 1980. Moreover, under the statutory
provisions governing social security benefits, an individual or
that individual's estate is not entitled to benefits accrued during
the month in which the individual dies. Thus, since Mr. Prugh died
during the month of December 1980, he or his estate was not entitled
to benefits for the month of December. Apparently, because of the
time of notification of Mr. Prugh's death, the Social Security
Administration was unable to prevent the issuance of December benefits which were paid by check dated January 2, 1981.
In cases such as Mrs. Prugh's, the Social Security Administration sends a stop payment request to the Treasury. Upon receipt
of this request, the Treasury determines if the check in question
has been processed and paid by the Federal Reserve, which serves as
the paying agent for the Treasury. If the check has been paid, the
Treasury locates a microfilm copy of the check and attempts to determine the name and address of the depository institution which
originally deposited the check with the Federal Reserve. The
Treasury then prepares a reclamation request (i.e., a request for
a refund of the payment) which is sent to the depository institution. If the Treasury is unable to determine the bank which
originally deposited the check, it sends the reclamation request
to the Federal Reserve Bank which processed the check. The Federal
Reserve Bank determines the name and address of the depositing
bank and, acting as Treasury's agent, forwards the reclamation
request.
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Federal Reserve Bank of St. Louis
•
The honorable Eark 0. iiatfield
Page Two
Upon receipt of the reclamation request, the depositing
bank is expected to recover the funds from the account of its customer. In the interest of good customer relations, a bank should
provide reasonable notice to its customer prior to debiting his or
her account. Upon recovering the funds requested by the Treasury,
the depository institution deposits these funds with a Federal
Reserve bank which in turn credits the account of the Treasury
for the amount of the original payment.
Although this explanation offers little consolation to
Mrs. Prugh, I hope that it provides a better understanding of the
reasons for her experience. If nrs. Prugh has additional questions
about this matter, her nearest Social Security Service Center is
prepared to assist her. The address and telephone number of the
Service Center is:
The Western Program Service Center
P. O. Lox 2000
Lichmond, California 94802
(415) 469-5000
I hope that this information is helpful to you.
let me know II I can be of further assistance.
Sincerely,
..Winti
(Signed) Donald .1.
Donald J. Winn
Assistant to the Board
MJh:AFC:vcd (V-186)
bcc:
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Federal Reserve Bank of St. Louis
N. J. Hallmon
Mrs. Mallardi
Please
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ROTH. J R., DEL., CHAIRmAN
cmAwLrA u.'ri.mcv. it L.
TED slt vrp4s. ALASKA
THOMAS F. EAGLETON. MO.
HENRy M, JACKSON. WASH.
CHARLES mC C. MATHIAS. JR • MD.
JOHN C. DANFORTH. MO.
WILLIAM S. COHEN, MAINE
SAM
DAVID DURENRIRGCR, MINN.
MACK mATTINGLy. GA.
WARREN B. RI/OMAN. N.H.
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AWTON CHILES, FLA.
NuNN, GA.
Jim
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JOHN GLENN, OHIO
SASSER. TENN.
DAVID FRYOR. ARK.
CARL LEVIN, micH.
9.1Cnifeb ZIalcz Zen
JOAN M. MC ENTEE, STAFF DIRE_CTOR
COMMITTEE ON
GOVERNMENTAL AFFAIRS
WASHINGTON. D.C.
20510
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July 24, 1981
The President
The White House
Washington, D.C.
20500
Dear Mr. President:
We have given support to the general direction of the Administration's economic program here in the Senate. We share your belief
that a reduction of federal spending, federal taxes, and the federal
regulatory burden is essential for increased productivity, reduced
inflation, and economic revitalization.
We are vitally concerned, however, with the apparent absence
of coordination between the fiscal and monetary policies of our
government. The current fiscal and monetary policies of our
nation appear to be on a path where significant conflict, if not
a head-on collision, is imminent.
The continuation of the high interest rate pattern of the past
few months, if allowed to persist, will cause irreparable damage to
our economy. We are beginning to have a dual economic policy -- a
boom to those with available capital -- a depression for those who
must borrow and for businesses depending on long-term credit.
When giant corporations borrow tens of billions of dollars
for corporate takeover purposes that make no contribution to job
creation and productivity, and potential home buyers cannot find
affordable mortgage money, it is time for a reexamination of national
economic and anti-trust policy. We also think it would be appropriate
in this context for the Administration to re-examine recent policy
statements which may have encouraged massive borrowing for merger
purposes.
Officials of the Administration and the Federal Reserve have
repeatedly said that once inflation abates and the public is shown
that federal spending will be cut, interest rates would begin to
decline. Just recently on May 8, Federal Reserve Board Chairman
Paul Volcker said, "interest rates will come down and stay down
as we make progress on inflation."
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Federal Reserve Bank of St. Louis
*•
•
The President
July 24, 1981
Page 2
Today inflation is declining but mortgage interest rates are
not. While consumer price increases declined from 9.6 percent in
the first three months of this year to 7.4 percent in the most recent three months, the mortgage interest rates remain entrenched
at 16 percent. Historically the spread between mortgage interest
rates and the rate of inflation has been about 2 percent. Now,
however, the interest rate/inflation rate spread has ballooned to
6 to 7 percentage points which implies to many that this is a
planned and deliberate policy.
The Administration's economic advisers, according to Mr.
William Niskanen, a member of the Council of Economic Advisers,
are currently both "confused" and "puzzled" by continuing high
interest rates. Yet reports from the recent Ottawa summit indicated you endorsed and vigorously defended the high interest
rate policy of the Federal Reserve.
Just today the Washington Post reported that Treasury Undersecretary for Monetary Affairs Beryl Sprinkel told the House Committee on Banking, Finance and Urban Affairs that there is no
technical, and no necessary, connection between budget deficits
and money growth, or between deficits and inflation.
We could not disagree more. Either the government finances
a deficit by printing money or by competing with and crowding
business out of the credit markets. Printing money to finance
deficits results directly in more inflation. Increasing federal
borrowing affects inflation by forcing up interest rates, and
increasing business costs. Eliminating federal deficits and
reducing federal borrowing requirments are necessary for both
psychological and substantive economic reasons, and must be
accomplished at the earliest possible time.
If the high interest rates continue, the Administration's
supply side economics cannot work. The survival of our small
business and farming community is threatened, many thrift institutions are in serious financial trouble, and the housing
industry is near collapse. The majority of businesses, particularly small businesses, will not be able to finance inventories, let alone capital improvements.
A tax cut will
mean little to small businessmen and farmers who make no profit to be taxed because of exorbitant interest rates.
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Federal Reserve Bank of St. Louis
The President
July 24, 1981
Page 3
ess these serious
In summary, Mr. President, we urge you to addr
Administration's
problems before it is too late to moderate the
is whether the anticipated
fiscal program. As we see it, the question
fiscal program has so
stimulative effect of the Administration's
m high interest rates
overloaded the system that continued long-ter
on does not advocate
are the inevitable result. If your Administrati
that it will let its
a continued high interest rate policy, we hope
persuade them to take
views be known to the financial community and
action to moderate interest rates.
estic economic
In this regard, we respectfully suggest a "dom
you as President,
summit" meeting with a full dialogue between
Congressional leadership.
Chairman Volcker of the Federal Reserve and
ge a coordinated
We would hope out of that meeting there would emer
rly understood by
cohesive fiscal-monetary policy which can be clea
the American people.
believe it is
We do not expect an instant cure, but we do
rates and avoid major
possible to achieve a moderation of interest
monetary policies
credit shortages if our nation's fiscal and
are coordinated.
We offer you our bipartisan support in this effort.
Sincerely,
__
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Chairman Paul Volcker
Benne
Johnston
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
July 15, 1981
The honorable Joseph G. ninish
Chairman
Subcommittee on General Oversight and
Renegotiation
Committee on Banking, Finance and
Urban Affairs
House of Representatives
Washington, D. C. 20515
Dear Chairman ninish:
Thank you for your letter of July 13 inviting the
Board to appear before your Subcommittee on the General
Accounting Office's report on the Bank Secrecy Act.
I am pleased to inform you that John E. Ryan,
Director, Division of Banking Supervision and Regulation,
will appear on behalf of the Board on July 23 at 10:00 a.m.
Sincerely,
CO:vcd (#V-196)
bcc:
Jack Ryan
Mrs. Mallardi (2)
JOWH G. MINISH, N J.. CHAIR mAN
HENRY r GONZALEZ. TEX.
FRANK ANNUNZIO, ILL.
PARtrFN J. MITCHELL. MD.
DOUG B‘RNARD, JR , GA.
WALTER E FAUNTROY. D.C.
MAR f ROSE /DAKAR. OHIO
JIM MATTOX, TEX.
.10,...RNEV
.
FRANK. MASS.
RON PAUL. TEX.
BILL McCOLLUM, I '.A
ED WEBER, OHIO
MARGE ROUKEMA. N J.
GREGORY W. CAR.AAN.
U.S. HOUSE OF REPRESENTATIVFF;
SUBCOMMITTEE ON GENERAL OVERSIGHT
AND RENEGOTIATION
BOB LOF TUS, STAFF DIRECTOR
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Federal Reserve Bank of St. Louis
GEORGE C. WORTLEY, N.Y.
DOUGLAS K. BEREUTER, NEBR.
OF THE
C01,1MITTEE ON BANKING, FINANCE AND URBAN AFF P\Icr;
225 2828
NINETY-SEVENTH CONGRESS
WASHINGTON, D.C. 20515
LC)
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July 13, 1981
The Hon. Paul A. Volcker, Chairman,
Board of Governors of the
Federal Reserve System,
Federal Reserve Building,
Constitution Avenue bet.20th
and 21st Streets,
Washington, D.C. 20551.
Dear Chairman Volcker:
On July 23, 1981, the Subcommittee on General
Oversight and Renegotiation will hold a hearing at
which the General Accounting Office will present the
final report on its study of the enforcement of the
Bank Secrecy Act. We would like to invite you to
testify in response to the G.A.O.'s findings.
The hearing will be at 10:00 a.m. on Thursday,
luly 23rd in Room 2128 of the Rayburn House Office
Building.
Sincerely yours,
oseph G. Minish,
Chairman.
.C"""
JOSE, '1
MINISH.
EtiAIRMAN
°W.NRY D. GONZALEZ. TEX.
ERANK A,..4'/NZIO. ILL.
DARREN I. MrtCHELL. MD.
DOUG nAnNArm. JR . GA.
WALTER E rAtiNTROY. 0 C.
MARY ROSE °AKAR. OHIO
JIM MATIOX, TEX.
DARNEY FRANK. MASS.
11.41.
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b0B LOF1 US. STAFF DIRECTOR
U.S. HOUSE OF REPRESENTATIVES
PON PAUL TEX.
BILL McCOLLUM. rt.‘
ED WEBER. OHIO
MARGE ROUKE\TA. N J.
GREGORY W. CAT/MAN. N.Y.
GEORGE C. WOTITt.EY. N.Y.
DOUGLA$ K. BEREUTER. NEBR.
SUBCOMMITTEE ON ',ENERAL OVERSIGHT
AND RENEGOTIATION
OF THE
COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
Tri..Trtlyvvr 225-2828
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
NINETY-SEVENTH CONGRESS
WASHINGTON, D.C. 20515
RULES FOR WITNESSES TESTIFYING BEFORE THE SLIIICOMITTEE
To ensure informative and orderly hearings, the Subcommittee requests that its witnesses follow the procedure
outlined below:
30 copies of your written testimony should be sent to
the Subcommittee office (B-303 Rayburn Housr. Office
Building) three days before you are scheduled to appear,
if at all possible. In no event should your testimony be
delivered to the Subcommittee office later than 24 hours
before your scheduled appearance.
You may wish to limit your oral presentation to a summary
of your written testimony.
In that event, your written
statement will be entered in the hearing record in full.
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FEDERAL REL;ERVE SYSTEM
r4G -fo,i,o. C. 20551
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PAUL A.
vOLCKE
ColAIPMAN
July 22, 1981
The Honorable Jake Garn
Chairman
Committee on Banking, Housing
and Urban Affairs
United States Senate
Washington, D. C. 20510
Dear Chairman Garn:
In your letter of July 9, you requested a summary of the public
response to the Board's invitation for comment on possible modifications
of the present system of monetary data publication. You also asked for
an outline of the Board's current thinking on the matter.
Enclosed is a simple tabulation of the letters we have received,
as well as a copy of the original press release listing the proposed
changes. While some responses could not be unambiguously classified,
most could, and the summary table is a reasonable characterization of
the returns. (Some responses communicated the collective views of
groups, and no attempt has been made to assign weights in accordance
with the numbers of people or institutions represented.)
As you can see from the first column of the table, about half
of the responses supported retention of the current approach to publishing
the monetary aggregates. A few of the responses in the "other" category
shown in the last column supported the release of more frequent or additional data, while two respondents preferred that the data not be
seasonally adjusted. About one-fourth of the responses suggested that
we publish only monthly data.
As might be expected, respondents most actively involved in
money markets felt most strongly about maintaining the current publication schedule. In general, those less directly involved in money markets
on a day-to-day basis were more favorable to some change. I think it
fair to say that comments given us orally in various forums were along
the same lines.
The most frequently cited argument for retaining the current
approach to publication was that, the more ample the data flow, the less
likely it is that release of any single number will have large market
impacts. It also was noted frequently that, in the absence of our publication of the data, private analysts would fill the void with their
estimates and that the situation might prove no better--or perhaps
worse--than that now existing.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The Honorable Jake Gam
Page 2
I expect that the Board will shortly consider the various
questions raised in connection with weekly publication of the money
supply. It is our objective to provide the public with meaningful,
timely information in a manner that avoids undue disruption of the
financial markets. This requires an assessment not only of the market's
use of the information, but of the internal problems of producing high
quality data on a regular schedule. We shall, of course, communicate
to you promptly the outcome of our deliberations.
Sincerely,
S/Paul
Enclosures
Vol_cisec
(p.r. dtd. 4/2/81)
SHA:pd (#V-202)
bcc: Mr. Axilrod
Mrs. Mallarda (2)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
identical letter also sent to Senator Proxmare.
.:Y CF PUBLIC C.-1.7.'1.-NT
PUB LIC.ATICN Oi
t%:"I'CILEC:,7;I ES
July 20, 1981
'Type of
resrencnt
Carr.rcial
Fotain
Currcnt
Schedule
1 I.k.ek
13
Barking Organizations
4
'thrift Institutiors
1
Securities Pr!aler:_-;
C4J-lor
Irsti tuticrs
5
EQ0scr.,111y
i•.:.-3justed
Data
Only
Monthly
1
7
4
1
2
4
4
1
1
1
1
Other Corperzaticrs
3
2
Acacerric
2
1
Other Individuals
'Ibtal:
Total Pesponses:
6
34
•
1
4•1.11•1
1
Oth.3r1
17
66
Incluchs a wic12 variety of res
p-)r-ses rangir.q frcn
rrore.y stock
data cr. a &lily basis to discontin
uing tne ptblimtion of rz-ori2tar
y statistics
altocether.
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Federal Reserve Bank of St. Louis
•
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
July 14, 1931
The honorable Nichael D. Barnes
•
house of Representatives
1;ashinLton, D. C. 20515
bear Ur. Lames:
I was pleased to read of the recent recipients
of the GonLressional Excalibur Award. I share your belief
that this award will make the public more aware of the fine
contributions federal employees make, as well as encourage
federal uorkers to continue to strive for outstanding
accomplishments.
The 1;oard of Governors of the Federal Reserve
System is indeed honored to participate in the program,
but at the present time we do not have any nominations
for the award.
lany thanks for providing thc opportunity for
us to participate in your excellent program.
Sinccrely,
S/Paul A. VgickeL
TD:BAP:vcd W-187)
bcc:
A. V. Digioia
Barbara Pilla
Mrs. Mallardi (2)
0
Action assigned. Mr. Denkler
•.. .
MICHAEL D. BARNEq
Ein-4 rj SI PICT, MARYL. Arg.
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MI I 111. ON FOREAGN AFFAIRS
r)NIMITTF1- 5
t),F0PF AND THE MIDDLE' F AST
!NTT RNA It ,NAL ECONOMIC
POLICY AND TRADE.
w*SHINGToN
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COM IM I TTE E ON TI-IE
JUDICIARY
1:.')21 225-5341
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(301) SIN-4SY%
SPECIAL PHONE_ FOR rt.,
ETEARING IMPAIRED
TTY-224-2793
T3.C. 20313
June 18, 1981
IMMIGR'ATION. REFUGEES AND
INTERNATIONAL LAW
ADMINISTRATIVE LAW AND
GrWERNMENTAL RELATIONS
CON1N11 T TEE- ON THE DISTRICT
OF COLUMBIA
SUBCOMMITTEE
JUDICIARY. MANPOWE R
AND EDUCATION
TTY-224-3997
Honorable Paul A. Volcker
Chairman
Board of Governors of the
Federal Reserve System
20551
Washington, D.C.
Dear Mr. Volcker:
I continue to welcome nominations from your Agency for
upcoming Congressional Excalibur Award presentations to honor
excellence in public service.
Award ceremonies are expected to take place on Capitol
Hill in September and later this year to cite outstanding
special
federal workers in 1981 and to recognize their
acnievements in serving their country and their tellow citizens.
Recently honored in April at the tourth presentation of
the ExcaliOur Award was a seven-member team of the Chicagobased Environmental Protection Agency for environmental and
cost-savings contrioutions to rural lakes' projects in five
Great Lake States.
This Environmental Review Group, which sought a simpler
and cheaper solution to conserving clean water, included:
Eugene Wocjik, chief; Alfred E. Krause; Theodore L. Rockwell,
Jr.; Kathleen Schaub; Gregory A. Vanderlaan; Catherine Grissom
Garra; and Cynthia Wakat. Using innovative technology such as
laser beams, satellites, infrared lights, and ultravioletc,
cc)
fluorescence, the team effort is resulting in the rebuild4Mg c.J.0
-le,c_
and maintenance of local, on-site sewage systems. Meanwh;*t
local and federal governments are being saved some $51 mid4miop
And taxpayers could be saved an astounding $1 billion or 24ke,
if the same methods were used on all of the 171 rural lakes of their region, these EPA workers estimate.
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Federal Reserve Bank of St. Louis
Nom
Honorable Paul A. Volcker
PagP 2
Jum. 18, 1981
In my home district just outside the nation's capital and
as Chairman of the Federal Government Service Task Force, I am
well acquainted with other hard-working, dedicated and creative
individuals who are highly productive and cost-conscious.
Outstanding nominations from your Agency can help tell
their story to the American people in order to encourage
leadership, initiative, efficiency, and over-all achievement in
government service. Together, we can focus on the positive
aspects of good government in order to counter the negative
image of "bureaucracy" and to attract talented people into
meaningful public service.
I look forward to hearing from you about future Excalibur
Award candidates. Please send nominations as soon as possible
for consideration for the 1981 presentations to my new office,
401 Cannon House Office Building, Washington, D.C., 20515, Attn:
Linda Katz. A fact sheet and other information is enclosed for
your interest.
Sincerely,
Michael D.
MDB/lk
Enclosures
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Federal Reserve Bank of St. Louis
arne
MICHAEL D. BARNES
aTH DISTRI
1. MARYLAND
ASSISTANT MAJORITY WHIP
COMMITTEE ON FOREIGN AFFAIRS
CHAIRMAN,
WASHINGTON OFFICF
1607 LONGWORTH HOUSE OFFICE BUILDING
WASHINGTON, D C. 20515
(202) 225-5341
INTER-AMERICAN AFFAIRS
MEMBER. HUMAN RIGHTS AND
INTERNATIONAL ORGANIZATIONS
SPECIAL PHONE Fon THE
HEARING IMPAIRED
COMMITTEE ON THE DISTRICT
OF COLUMBIA
TTY-22S-5384
MONTGOMERY COUNTY OFFICE:
SUITE 302
Congre51 of tbe Zlititeb OtateiS
MEMBER GOVERNMENT OPERATIONS
AND METROPOLITAN AFFAIRS
jijouSe of iltprtgentatiing
11141 GEORGIA AVENUE
WHEAToN, MARYLAND 20902
asbington,;D.C. 20515
(301) 946-6801
CHAIRMAN.
FEDERAL GOVERNMENT SERVICE
TASK FORCE
EXCALIBUR AWARD
FACT SHEET
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WHAT ARE ITS OBJECTIVES?
•
To recognize and honor outstanding contributions made by federal
civilian and military personnel
•
To publicize such achievements and thereby enhance public appreciation
of the merit and performance of government employees
•
To help counter the negative views and erroneous criticism of
government commonly voiced today
•
To encourage initiative and excellence in performance by government
employees
•
To help attract talented persons to the federal service
WHAT ARE THE CRITERIA FOR THE SELECTION OF NOMINEES?
On a regular basis, candidates for the Excalibur Award will be sought
who exemplify:
•
Unusual efforts or leadership in solving problems at local, national,
or international levels
*
Outstanding scientific, technical, or administrative achievements
•
Superior service to the public, such as the .improvement of efficiency
including simplification of government regulations
•
Ability to overcome obstacles to organizational objectives, such as
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Federal Reserve Bank of St. Louis
,EXCALIBUR AWARD
2
FACT SHEET
making substantial savings in expenditures
High personal integrity and moral character and courage in dealing
with difficult or sensitive problems
The degree of individual effort, imagination and initiative involved
in a specific achievement and the impact of the contribution on the
agency and the public
WHO IS ELIGIBLE AND HOW ARE NOMINATIONS MADE?
All federal career civilian and military employees are eligible.
Normally, each award will go to one individual, but a small team
of persons who have worked jointly on a project may also be considered.
Nominations are invited on a continuing basis from heads and other
officials of federal departments and agencies, from other organizations
and from the general public.
Nominations summarizing the individual's achievement should not exceed
one page in length. These persons should advise Rep. Michael D. Barnes,
Room 401 Cannon House Office Building, Washington, D.C. 20515
(202-225-5341) of their nominees.
WHO WILL SELECT THE AWARD RECIPIENT?
Final selections are to be made by an impartial committee, appointed by
Rep. Barnes, composed of eight distinguished citizens drawn from a wide
variety of professions and experiences. The Chairman of the Excalibur
Award Selection Committee is Mr. Harry McPherson, attorney and former
White House Counsel to President Lyndon Johnson. Other Selection Committee
members include: Hon. Joseph D. Tydings, attorney and former U.S. Senator
from Maryland; Mr. Nicholas Nolan, Secretary-Treasurer of the American
Federation of Government Employees; Dr. Estelle Ramey, professor of
Physiology and Biochemistry at Georgetown University and selected to the
President's Advisory Commission on Women; Mr. John Heller, Assistant to
the Comptroller General of the United States; Mr. Robert R. Nathan,
economic consultant; Mr. Gary Hymel, Administrative Assistant to House
Speaker Tip O'Neill; and Dr. Douglas Labier, psychoanalyst and researcher
for the Washington-based project on technology, work and character.
HOW IS THE AWARD GIVEN?
The award will be granted periodically in the form of an honary citation.
It will be presented by Rep. Barnes at a ceremony held at the U.S. Capitol,
in the presence of other members of Congress, officials of the executive
branch, members of the Excalibur Award Selection Committee, and representatives of the media.
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Federal Reserve Bank of St. Louis
0f.• GOvt •.
PC-JAPE) OF GOVERNORS
OF THE
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Federal Reserve Bank of St. Louis
..•
FEDERAL RESERVE SYSTEM
'Fit':
V.'ASHINOTON, D. C. 2055 1
PAuL A. vOL EKE P
CHAIRMAN
July 22, 1981
The Honorable William Proxmire
United States Senate
Washington, D. C. 20510
Dear Senator Proxmire:
In your letter of July 9, you requested a summary of the public
response to the Board's invitation for comment on possible modifications
of the present system of monetary data publication. You also asked for
an outline of the Board's current thinking on the matter.
Enclosed is a simple tabulation of the letters we have received,
as well as a copy of the original press release listing the proposed
changes. While some responses could not be unambiguously classified,
most could, and the summary table is a reasonable characterization of
the returns. (Some responses communicated the collective views of
groups, and no attempt has been made to assign weights in accordance
with the numbers of people or institutions represented.)
As you can see from the first column of the table, about half
of the responses supported retention of the current approach to publishing
the monetary aggregates. A few of the responses in the "other" category
shown in the last column supported the release of more frequent or additional data, while two respondents preferred that the data not be
seasonally adjusted. About one-fourth of the responses suggested that
we publish only monthly data.
As might be expected, respondents most actively involved in
money markets felt most strongly about maintaining the current publication schedule. In general, those less directly involved in money markets
on a day-to-day basis were more favorable to some change. I think it
fair to say that comments given us orally in various forums were along
the same lines.
The most frequently cited argument for retaining the current
approach to publication was that, the more ample the data flow, the less
likely it is that release of any single number will have large market
impacts. It also was noted frequently that, in the absence of our publication of the data, private analysts would fill the void with their
estimates and that the situation might prove no better--or perhaps
worse --than that now existing.
z
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a.
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Federal Reserve Bank of St. Louis
The Honorable William Proxmire
Page 2
I expect that the Board will shortly consider the various
questions raised in connection with weekly publication of the money
supply. It is our objective to provide the public with meaningful,
timely information in a manner that avoids undue disruption of the
financial markets. This requires an assessment not only of the market's
use of the information, but of the internal problems of producing high
quality data on a regular schedule. We shall, of course, communicate
to you promptly the outcome of our deliberations.
Sincerely,
Enclosures
PRELP.1-21;IN
CF PUBLIC Crt.T.T2IT
PUBLICATICN OF METARY AOGRECA7F-S
July 20, 1981
114..=1144111.111.01.
Publish t;ot
Seasonally
Plype of
Petain
Current
Responnt
Schedule
CQui,ercial 13ar.ks
Delay
1 Week
13
jested
Data
1
Only
Monthly
Othe.r
7
4
1
2
4
4
1
1
Be.r.king Organizatiors
4
Thrift Irstitutiors
1
Securities Eealers
& Other Financial
Irsti tutiors
5
Other Corporaticrs
3
2
Acaclerric
2
1
Other Ir.dividuals
Tbtal:
6
34
Total Pesponses:
66
1
1
•
1
2-
17
12
4
_V Includes a wide variety of resyx)n.ses ronc:Ting frcri publ
ishinc money stock
data on a Om ly basis to discontinuing the inblication
of roretary statistics
altocpther.
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Federal Reserve Bank of St. Louis
1
04“:"AnitiMINIVIWPWCIVIVIIANNOOSIWIMIabw.
16.41.
FEDERAL RESERVE press re ease
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•••.•••
For immediate release
April 2, 1981
The Federal Reserve Board today invited public comment on
the desirability of continuing to report money supply data on a weekly
basis, or whether another reporting procedure should be used.
Weekly money supply statistics are erratic and often poor
indicators of underlying trends, Board Chairman Paul A. Volcker said
in a recent letter to Senators Jake Garn and William Proxmire, the
chairman and former chairman respectively of the Senate Banking
Committee.
The Board has not concluded that the present procedure should
be changed and will continue to publish money supply data each Friday,
as it has in the past.
In his letter, the Chairman said:
"There is considerable merit to the'view that weekly data as
such convey little information and that weekly seasonal adjustments
are subject to substantial uncertainty.
However, the Board is not
certain at present that the public interest would necessarily be
better served if any of the alternatives noted (in the letter) were
adopted."
As possible alternatives to the present procedure, the
following options are being considered:
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Federal Reserve Bank of St. Louis
(OVER)
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Federal Reserve Bank of St. Louis
•
-2-
1.
To delay weekly publication an additional seven
days to incorporate more data.
2.
To publish only data that are not seasonally adjusted.
3.
To publish data only monthly--as is now the case with
the broader definitions of money--or use moving
average data.
To assist in the assessment of the publication schedule, the
Board requested comment on the desirability of continuing .the present
procedure or of shifting to another option.
Comments, which need not
be limited to the options above, should be sent to Thomas D. Simpson,
chief of the Banking Section, Division of Research and Statistics,
Federal Reserve Board, Washington, D. C. 20551.
A copy of the Chairman's.letter is attached
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neAPO OF GIWERNORS
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FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
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PAin, A. VOLCKER
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CHAIRMAN
March 24, 1981
The Honorable Jake Gam
Chairman
Committee on Banking, Housing
and Urban Affairs
United States Senate
Washington, D. C. 20510
Dear Chairman Garn:
The concerns and questions raised in the recent letter from
you and Senator Proxmire about weekly money supply data have been discussed and debated by the Federal Reserve Board, the Federal Open Market
Committee, and the staff for some time. The issues are extremely
important and strong arguments--other than Freedom of Information Act
implications--can be made for and against publication of weekly data.
There is nearly unanimous agreement by all observers that
weekly money statistics are extremely erratic and therefore poor indicators of underlying trends. Mille monthly data can often deviate
considerably from such trends, the weekly observations are particularly
"noisy". Week-to-week changes are quite large and recent estimates
indicate that the "noise" element—attributable to the random nature
of money flows and difficulties in seasonal adjustment--accounts for plus
or minus $3.3 billion in weekly change two-thirds of the time. Such a
large erratic element appears intrinsic to money behavior, rather than
implying poor underlying statistics. In 1980, weekly M-1A and M-1B
statistics revised on average only about $300 million between the first
published and "final" data several weeks later, though in twelve weeks,
revisions were larger than $500 million, and the largest single revision
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Federal Reserve Bank of St. Louis
was $1.6 billion.
The great preponderance of active market participants are by
now aware of the highly volatile nature of the weekly series. Publication has had that educational advantage, and the data to be used with
a certain caution. However, from time to time overreactions have
occurred.
•
•
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Federal Reserve Bank of St. Louis
The Honorable Jake Carn
Page 2
As a result of concerns about the reaction to and significance
of weekly figures, the Federal Reserve has considered possible revisions
LA iS ,rreut pui)lication schedule or to its method of presentation.
(ne option might be tO delay weekly publication an additional seven days
to incorporate more data--an important issue with additional reporters
under the Monetary Control Act. This could reduce revisions to the
weekly statistics. On the other hand, this option would increase the
risk of inadvertent leaks and would increase the interval over which
market participants might react to guesses and rumors of money stock
changes, based in part on fragmentary data such as .may be available in
the weekly figures from large banks on deposits and loans. Even if no
greater volatility in interest rates occurred over the unpublished
interval, lagged publication of a more accurate, but still different
than expected, change in weekly money might simply postpone the market
reaction. In anv event, weekly revisions are usually small, as noted
above, relative to the underlying volatility of the series.
Another option might be to publish seasonally unadjusted money
data in order to reduce the "importance" of the statistics. Our concern
here is that market participants would then create their own seasonally
adjusted series. The availability of a large number of conflicting
series would only heighten market confusion, and might inevitably lead
to questions to the Federal Reserve about what it considers to be the
- normal seasonal- change in a particular week if what might seem to be
an unusual change occurs in a seasonally unadjusted figure.
Another approach might be to puhlish data only monthly--as is
now done, because of data reporting problems, with M-2 and M-3--and/or to
publish weekly, but only a moving average series of weeks. Under the
monthly approach, market participants would still try to estimate weekly
series from bank balance sheets and clearing house data, and the market
could be swept by rumors and guesses on movements in the money supply.
And they would also probably attempt. to glean the weekly number from a
moving average series. In any event when a monthly figure was finally
published, deviations from market expectations could cause yet further
changes in .interest rates as the new information was incorporated into
market expectations.
I might note that this has not been a significant
problem with monthly publication of N-2 and M-3. A relatively small
portion of these aggregates are supported by reserves, and they have
played a less important role in the day-to-day targeting process than
M-l.
In general, there is considerable merit to the view that
weekly data as such convey little information and that weekly seasonal
adjustments are subject to substantial uncertainty. However, the Board
is not certain at present that the public interest would necessarily
be better served if any of the alternatives noted above were adopted.
While no one can be sure of their judgment in this respect, it does
•
•
The i!onorable Ji,e Garn
Page 3
seem possible that volatility of money market conditions Could be encouraged
by misinterpretation of fragmentary data as well as by the continued availa—
bility of the present weekly data.
We will, of course, continue to review the money supply publication
schedule, taking account of the constraints imposed by the Freedom of Infor—
mation Act. To aid in our assessment of the value of weekly money supply
data, we plan to ask for public comment on the desirability of continuing
the weekly series, or of shifting to the options noted above. Our decision
will be taken in the light of those comments. Should Freedom of Information
Act requirements present difficulties in the light of the appropriate course,
we will consult with you further.
I appreciate your interest in these questions.
to all of us.
4,0?
Identical letter also sent to Senator Proxmire.
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Federal Reserve Bank of St. Louis
They are of concern
Mike Pre11 and Dick Syron are aware of request
JAKE GARN. UTAH, CHA'RMAN
JOHN.T0iNE
TEX.
*OHM HEiNE, PA.
WILLIAM L. ARMSTRONG. COLO.
RICHARD G. LUGAR. IND.
Al FONSF M. D AMATO. N.Y.
JOHN H CHArrE NA.
HARRISON SCHMITT, N. ME*
HARRISON A
WII LIAM, JR.. N.J.
WILl IAM prpoychount WIS.
ALAN CRANSTON. CALIF.
DONALD VV. RIEGLE, JR., MICH.
PAUL S. SARRANES.
(vow STOPHIrn J. DODO CONN.
ALAN J. DIXON. ILL.
M. DANFIV WALL. STAFF DIRECTOR
HOWARD A. ME14ELL. MINORITY STAFF DIRECTOR ANO COUNSEL
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Federal Reserve Bank of St. Louis
FIOARt Cr
!"1-
/Z1Crtifeb ,..T3talc15Zellafe
COMMITTEE ON BANKING. HOUSING. AND
URBAN AFFAIRS
WASHINGTON. D.C. 20510
July 9, 1981
4,1.91-1m.
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PECEIVED
C,IV-IAMAkl
OFFICE OF la.
t
(,
Honorable Paul A. Volcker
Chairman
Federal Reserve Board
Constitution Avenue, N.W.
Washington, D.C. 20551
Dear Mr. Chairman:
In your letter of March 24, 1981, you indicated
that the Board of Governors planned to ask for public
comment on the desirability of continuing the present
system of public releases of M-1 monetary data.
Our understanding is that such a request for
connent indeed has been issued and that numerous comments
have been received.
When you appear before the Banking Committee on
July 22, would you please summarize the comments which
you have received and outline the Board's current
thinking on this topic.
Jake Garn
Chairman
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Willi
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