Full text of Paul A. Volcker Papers : Congressional Correspondence : July-August 1981, Folder 2, Box 11, Item c439

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Collection: Paul A. Volcker Papers
Call Number: MC279

Box 11

Preferred Citation: Congressional Correspondence,July-August 1981 [Folder 2]; Paul A. Volcker
Papers, Box 11; Public Policy Papers, Department of Rare Books and Special Collections, Princeton
University Library
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Federal Reserve Bank of St. Louis

July 20, 1981

Tne lionorablc; Uoward U. baker, Jr.
Majority Leader
Unitcj Litates Lenate
viashin .;tun, D.C.
20510
Dear „,(Altor baker:
The board of Governors of the Federal Reserve
:31/stel, is pleased to forward to you its Midyear Monetary
Policy Report to the Congress pursuant to the Full
LLiploleht and balanced Growth Act of 1978.
Sincerely,
SiPaul A.Volag

Lnclosure

IDENTICAL LETTERS SENT TO THOSE ON ATTACUED LIST.
DJW:pjt.
bcc: Mrs. Mallardi (2) J

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Senate
Howard H. Baker, Jr.
Majority Leader (S-233 Capitol Bldg.)
Rouert C. Byrd
Minority Leader (6-208 Capitol Bldg.)
Ted Stevens
Majority Whip (S-229 Capitol Bldg.)
Alan Cranston
Democratic Whip (S-148 Capitol Bldg.)
Strom Thurmond
President Pro Tempore (209 RSOB)
Jake Garn, Chairman
Conunittee on 13anking, kiousing
and Urban Affairs (5300 DSOB)
Harrison A. Williams
Ranking Minority Member
Committee on Banking, Housing
and Urban Affairs (5300 DSOB)
Robert Dole, Chairman
Committee on Finance (2227 DS013)
Russell B. Long
Ranking Minority Member
Committee on Finance (2227 DSOB)
Pete V. Domenic', Chairman
Committee on the Budget (208 Carroll Arms Annex)
Ernest F. liollings
RanKing Minority Member
Committee on the Budget (208 Carroll Arms Annex)
Roger\ W. Jepsen, Vice Chairman
Joint Economic Committee (G-133 DSOB)
Lloyd Bentsen
Senate Ranking Minority Member
Joint Economic Committee (G-133 DSOB)

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Federal Reserve Bank of St. Louis

House
Jim Wright
Majority Leader (H-148 Capitol Bldg.)
Robert H. Michel
Minority Leader (H-230 Capitol Bldg.)
Thomas S. Foley
Majority Whip (H-107 Capitol Bldg.)
Trent Lott
Republican Whip (2400 RHOB)
Fernand J. St Germain, Chairman
Corrunittee on Banking, Finance
and Urban Affairs (2129 MOB)
J. William Stanton
Ranking Minority Member
Connittee on Banking, Finance
and Urban Affairs (2129 RHOB)
James R. Jones, Chairman
Committee on the Budget (214 HOB Annex I)
Delbert L. Latta
Ranking Minority Member
Committee on the Budget (214 HOB Annex
I)
Henry S. Reuss, Chairman
Joint Economic Committee (G-133 DSOB)
Clarence J. Brown
House Ranking Minority Member
Joint Economic Conunittee (G-133 DSOB)
Walter E. Fauntroy, Chairman
Subcommittee on Domestic Monetary Policy
of House Banking Committee (H2-179 HOB Annex II)
Dan Rostenkowski, Chairman
Conunittee on Ways and Means (1102 LHOB)
Barber B. Conable
Ranking Minority Member
Committee on Ways and Means (1102 LHOB)
Benjamin S. Rosenthal, Chairman
Subcommittee on Commerce, Consumer
and Monetary Affairs of House Gov't. Opers.

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Federal Reserve Bank of St. Louis

(B-377 RHOB)

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Federal Reserve Bank of St. Louis

July 20, 1981

The honorable George Bush
President of the United States Senate
Washington, D.C.
20510
Dear vir. Vice President:
The I.;oard is pleased to submit its Midyear
Monetary Policy Report to the Congress pursuant to the
Full Efiiployinent and Balunced Growth Act of 1978.
Sincerely,
SZPaMI A.llog

Lnclosure

Identical letter sent to Speaker O'Neill. with 2 copies of the rept.
bcc:

Mrs. Mallardi (2)

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WASHINGTON, D. C. 20551

July 14, 1981

PAUL A. VOLCKER
CHAIRMAN

The Honorable Glenn English
Chairman
Subcommittee on Government Information
and Individual Rights
Committee on Government Operations
House of Representatives
Washington, D.C.
20515
Dear Chairman English:
This is in further response to your letter of
June 3
in which you inquired about film production
by the Federal
Reserve. During 1982, the Federal Reserve Syst
em plans to
produce one 16 mm film, two filmstrips and
several videotapes.
The Federal Reserve Bank of Philadelphia tent
atively
plans to produce a film aimed at high school and
college students,
civic clubs, and other general public audience
s explaining the
causes of inflation. The System has no such
film in its library
at present, and production is budgeted at betw
een $150,000 and
$200,000. A final decision will be made afte
r further preliminary planning. In addition, the Board of Gove
rnors has budgeted
$36,000 to distribute this film, plus two othe
rs in our library,
The Fed: Our Central Bank, a film which
explains the role of
the Federal Reserve System, and EFT: At Your
Service, a film
that describes consumer safeguards and obligati
ons in electronic
fund transfers. Another $4,800 has been budg
eted for distribution of a fourth film, To Your Credit, which deta
ils for consumers
such credit protection regulations as Equal Cred
it Opportunity,
Truth in Lending, Fair Credit Reporting, Fair Cred
it Billing,
and Truth in Leasing. These films are aimed at
the same
audiences.
The Federal Reserve Bank of New York plans producti
on
of two filmstrips, one which is designed to disc
uss what money
is, why it is essential for our economy, and
the role of banks
in our monetary system. Budgeted costs are
$9,000 for design
and $1,600 for production. The filmstrip is
intended for
primary school students. A second filmstrip
will explain
consumer rights and is aimed at secondary scho
ol students.
Budgeted costs are $1,629.

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Federal Reserve Bank of St. Louis

The honorable Glenn English
Page Two

The Federal Reserve Bank of San Francisco has budgeted
$17,000 for production of six videotapes which will cover economic
problems for classroom use, one slide presentation on Federal
Reserve operations, and six 30-second television spot announcements aimed at informing consumers of their credit rights.
I hope this information answers your questions regarding
Federal Reserve System piens for the production and distribution
of audio-visual materials. Please let me know if I can be of
further assistance.
Sincerely,
S/Paul A. VPIGkg_
JSS:vcd (V-157)
bcc:

Mr. Sims
Mr. Coyne
Mrs. Mallardi (2)

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Federal Reserve Bank of St. Louis

July 14, 1981

The honorable Jake earn
Chairman
Committee on banking, housing, and
Urban Affairs
United States Senate
Washine,ton, D. C. 20510
Dear Chairman Garn:
8 requesting my
Thank you for your letter of July
nt to the Full Employment
testimony on monetary policy pursua
and balanced Growth Act of 1973
before your
I am looking forward to appearing
Connittee on Wednesday, July 22
Sincerely,

CO:vcd OV-194)
bcc:

Mr. Axilrod
Mr. Kichline
Mr. Prell
Mrs. Mallardi (2)

.ale

July 16, 1981

The Honorable John Tower
Chairman
Subcommittee on Financial Institutions
Cournittee on Banking, Housing, and
Urban Lffairs
United States Senate
Washington, D. C. 20510
Dear Chairman Tower:
Thank you for your letter of July 11 inviting the
board to appear before your Subcommittee to testify on S. 1406,
the "Credit Deregulation and Availability Act of 1981", and on
S. 963, a bill to authorize loans at interest rates in excess
of certain State usury ceilings.
Governor flancy H. Teeters is looking forward to
appearinL, on behalf of the Board on July 21 at 10:00 a.m.

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Federal Reserve Bank of St. Louis

Sincerely,

Wad \IPlaet

CO:vcd (#V-197)
bcc:

Governor Teeters (w/copy of incoming)
Bob Fisher
Janet Hart
Mrs. Mallardi (2)

.1Arr GARN. VTAII, CHAIRMAPI
40040.4 74.4A•ret. TEX.
,
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1 17. PA.
JOHN )41
wILLIAM L. APIMSTRONO, COLO.
RICHARD O. LUGAR. IND.
AL-FONSII M. D AMATO. N.Y.
JOHN N. CHAYEEHARRISON SCHMITT, N. MEX.

PlARrunoN A. WILLIAMS, JR, NJ.
W/LLIAM PwlxmIRY. WIS.
ALAN CPANSTON. C.AUF.
DONALD W. RIEGLF, JR
MICH.
PALA_ S. SARIBANIA. MD.
C1441 STO.HER J. DODD, CONN.
Jil-AN J. DIXON. ILL.

CLO
do memo to Chairman re Gov. Teeters
testifying; Bob Fisher drafting statement

'ZICnifeb ,...T)tatez -.Senate

M. UP"NY MALL STArF DIRECToR
HOW/ RD A. MEN/CLL. MIPPJRITY s/Arr DiRECTOR mra Coup4IIEL

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COMMITTEE ON BANKING, 1-40USING. AND
URBAN AFFAIRS
WASHINGTON, D.C. 20510

July 11, 1981

The Honorable Paul A. Volcker
Chairman
Federal Reserve Board
Federal Reserve Building
Washington, D.C. 20551
Dear Chairman Volcker:
This letter is to confirm the invitation of the Subcommittee on Financial Institutions for you to appear as a
witness at a hearing to be held on July 21, 1981 at 10:00
a .m.
In recent oversight hearings before the Banking Committee, extensive testimony was given about the general
economic and marketplace problems created by restrictive
usury laws. The purpose of this hearing is to focus
specifically on two bills that have been introduced in the
Senate. Therefore, we request that you appear before the
Subcommittee to present your views on S. 1406, the "Credit
Deregulation and Availability Act of 1981" and on S. 963.
Enclosed is a copy of the Committee's guidelines for
Witnesses. If you should have any questions, please feel
free to contact Beth Climo of the Committee staff at (202)
224-1565.
Sincerely,

John Tower, Chairman
Subcommittee on Financial
Institutions
JT/bce
Enclosure

July 27, 1981

The Honorable rernand J. St Germain
Chairman
CoLuAttee on 13anking, Finance
and Urban Affairs .
House of Representatives
Vashinrjton, D.C.
20510
Dear Chairman St Germain:
In response to your letter of July 10, I am pleased to
enclose responses to the four questions you raisecl regardinq
thrift institutions' access to the discount winclow.
I hope that thecc responses are useful to (:)‘..'r Committee.
Please let me know if I can be of further assistance.
Sinceroly,
Paul fia lotcliej

Enclosure
CO:pjt (#V-193)
bcc:

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Federal Reserve Bank of St. Louis

Nr. Keir
XXXXXXXXX
Nr. Axilrod
Nrs. Nallardi (2)

Responses to Questions Raised in Chairman St Germain's
July 10, 1981 Letter to Chairman Volcker

Question 41.

how many thrifts have established lending agreements
with the District Banks?

Answer:

To date borrowing resolutions with Reserve Banks

have been established by about 270 thrift institutions.

Another

200 have recently been sent forms for filing, but have not yet
returned them.

Question #2.

Whether the relationships between thrifts and the
District Banks and the discount window officers are the
same as those for commercial banks?

Answer:

The general principles governing access to the

Federal Reserve discount window are the same for thrifts and for
commercial banks--namely, that credit is available to assist
borrowers experiencing a squeeze on their liquidity positions.
All potential borrowers are expected to make reasonably full use
of their alternative sources of funds before turning to the
window.
Notwithstanding this application of uniform general
principles to discount window use by different types of eligible
depository institutions, differences in their operations do
sometimes mean that certain aspects of the window appeal to one
type of institution more than another.

For example, commercial

banks generally have more need for short-term discount window
credit than thrifts, because banks place greater emphasis on
transactions type-accounts and short-term loans and hence are more
susceptible to unanticipated short-run fluctuations in fund flows.

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Federal Reserve Bank of St. Louis

Also, the Federal Reserve is the only official institution that
serves as a lender of last resort for banks.
On the other hand, while many thrifts have their own
industry lender of last resort (in the form of the Federal Home
Loan Banks) and are less susceptible than banks to short-term
volatility in their fund flows, they are generally much more
vulnerable than banks to the process of disintermediation.

Con-

sequently, Federal Reserve extended credit is likely to be much
more important for thrifts than for a majority of commercial banks.

Question #3.

How many thrifts have used the window and the terms
and conditions of such use?

Answer:

Thus far, four savings banks, one savings and

loan association and one credit union have used the discount window.
The total amount of credit involved was about $30 million.

All

of these cases involved the use of adjustment credit for brief
periods, when the borrowers in question experienced an uneXpected
depletion of their liquidity.

The loans were short term and

were expected to be repaid within a few days, at which time
each borrower expected a return flow of funds from other sources.
All of these borrowings were at the basic discount rate.

In one

case, however, where the borrowing ran into a second statement week,
the borrower was assessed the discount rate surcharge (because
its deposits exceeded the $500 million cut-off that defines which
institutions are subject to surcharge).

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Federal Reserve Bank of St. Louis

)

The limited volume of adjustment credit borrowing by
thrifts to date reflects the fact that few such institutions need
this kind uf credit.

Their needs are mainly for longer-term

credit related to extended liquidity pressures.

Question #4.

Whether any institutions have qualified for
seasonal or extended credit in exceptional circumstances and the terms and conditions of such
credit if extended?

Answer:

Thus far, no thrifts have sought to arrange

seasonal credit lines at the Fed window.
While some thrifts have indicated that their liquidity
may deteriorate to the point where they may need to seek extended
credit at some point in the future, none have yet developed an
actual need for such assistance.

Savings and loan associations

generally have the option of borrowing extended credit from their
Federal Home Loan Banks.

But with the Federal Home Loan Banks

recently indicating they would like assistance in accommodating
such needs, the Federal Reserve has readied procedures for advancing
extended credit to all types of thrifts and is prepared to provide
a substantial amount, if necessary.

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Federal Reserve Bank of St. Louis

IFERNAN" E. ST GERMAIN, FE.I.. CHAIRMAN
HENRY S. •::ELISS. WIS.
HENRY II GONZALEZ, TEX.
JOSEPH G. MINISH. N.J.
FRANK iNUINZIO. ILL.
PARREN
rci-irt.L. MD.
WALTE" FAWN:TROY. D.C.
)-41,46L. NEAL, N.C.
JERRY N. rATTERSON. CAt IF,,
JAMES J FE _A'ICHARO, MICH.
CARROLL IIIIPEIARD. J:4., KY.
JOHN J. LAFALCE, N.Y.
DAVID Vd.

Action assigned Mr. Axilrod

U.S. HOUSE OF F .-=PRESENTATIVES
COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS

NORMA,
. E. DAMOU11.. N
STANLEY N. LUNDINE. N.Y.
MARY nesr :DAKAR. OHIO

N I N ETY-SEVENT H CONGRESS
2129 RAYBURN HOUSE OFFICE BUILDING

WASHINGTON, D.C. 20515

JIM MATTOX. TEX.
BRUCE F. VENTO. MINN.
DOUG BARNARD, JR.. GA.

July 10, 1981

ROBERT GARCIA, N.Y.
MIKE Lowrve. WASH.

J. WILLIAM STANTON OHIO
CHALMERS P. WYLIE. OHIO
STE1NART B. MCKINNEY. CONN.
GEORGE HANSEN. IDAHO
HENRY J. HYDE. ILI-.
JI M LEACH. IOWA
THOMAS B. EVANS, JR.. DEL.
RON PAUL, TEX.
ED BETHUNE. ARK.
NORMAN D. SHUMWAY. CALIF.
STAN PARRIS. VA.
ED WEBER. OHIO
BILL MCCOLLUM. FLA.
GREGORY W. CARMAN. N.Y.
GEORGE C. WORTLE Y. N.Y.
MARGE ROUKEMA. N.J.
BILL LOWERY, CALIF.
JAMES K. COYNE, PA.
DOUGLAS K. BEREUTER. NEBR.
22S-4247

CHARLES E. SCHUMER. N.Y.
BARNEY FRANK. MASS.
BILL PAT MAN,'TEX.
WILLIAM J. COYNE. PA.
irrEN't H. HOYER. MD.

Honorable Paul Volcker
Chairman, Board of Governors
Federal Reserve System
Washington, D.C.
Dear Mr. Chairman:
As you know, I remain concerned about the condition
of thrift institutions in the current economic climate.
The strains which impact the thrifts continue unabated with
opinion divided on the outlook for the near future. It is
evident that the alternatives available to the thrifts are
narrowino rapidly and that the issue of discount window access
becomes more crucial every day.
In this regard, I request that you provide me with
information on thrift institution access to the discount
window. Specifically, I need to know by Federal Reserve
District the following information:

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Federal Reserve Bank of St. Louis

How many thrifts have established lending
agreements with the District Banks?

Whether the relationships between thrifts and
the District Banks and the discount window
officers are the same as those for commercial
banks?

How many thrifts have used the window and the
terms and conditions of such use?

Whether any institutions have qualified for
seasonal or extended credit in exceptional
circumstances and the terms and conditions of
such credit if extended?

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Federal Reserve Bank of St. Louis

Honorable Paul Volcker
July 10, 1981
Page Two

As you know, you are scheduled to appear before the
Committee on July 21 to provide testimony on monetary policy.
It would be appreciated if you would be prepared to provide the
above information at that time and to discuss this issue.
Thanking you for your consideration in this matter.
Sincerely,

Fesnand J. St Germain
Chairman

•

GEORGE HANSEN. IDAHO
RON PAUL. TEX.
BILL MGCOLLUM, FLA.
BILL LOWERY, CALIF.
ED WEBER, OHIO
JAMES K. COYNE. PA.

WALTER E. FAUNTROY, D.C., CHAIRMAN
PARREN J. MITCHELL, MD.
STEPHEN L. NEAL, N.C.
DOUG BARNARD. JR., GA.
HENRY S. REUSS, WIS.
JAMES J. BLANCHARD, MICH.
CARROLL HUBBARD, JR., KY.
BILL PATMAN, TEX.

U.S. HOUSE OF REPRESENTATIVES
SUBCOMMITTEE ON DOMESTIC MONETARY POLICY

H2-179, ANNEX NO. 2
WASHINGTON, D.C. 20515
(202) 225-7315

OF THE

COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
N INETY-SEVENTH CONGRESS

WASHINGTON. D.C. 20515

As you probably know, my seniority in the Congress has now given me the
opportunity to chair the Subcommittee on Domestic Monetary Policy of the House
Committee on Banking, Finance and Urban Affairs. Even though the District of
Columbia is without a vote on the Floor, our citizens do, through me, have a vote
in committee and a voice on the Floor on some of the most important work in Congress.
Over the past six months, more and more attention has been focused on the
Administration's efforts to stabilize the economy and the problems of inflation,
unemployment, high interest rates, the money supply and the rapidly changing
financial industry. These areas are the primary concerns of my subcommittee and
it has given me the opportunity to know on a very personal basis many of the key
architects of our nation's economic policies.
One of these persons is the Honorable Paul Volcker, Chairman of tne Board of
Governors of the Federal Reserve System, who has deeply impressed me with his
understanding and sensitivity of the concerns that I and so many friends like you
have of our present economic course. He has graciously agreed to join us at
an informal, off-the-record breakfast meeting on Friday, June 26, 1981 at 7:45 A.M.
in Room B-339 of the Rayburn House Office Building to give his views on the short
and long term scenarios. I hope to conclude by 9:00 A.M. although I am sure that
Paul would be willing to extend that time should the questions warrant it.
I know this invitation is extended on a somewhat short notice but I do hope
that you will give this invitation your highest priority because of tne importance
of the work that Paul is trying to do at this most crucial time. If you would call
Miss Jean Thomas or Mrs. Maryse Horblitt at 225-7315 to let them know whether or not
you will be able to join Paul and myself, I would be most appreciative.

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Federal Reserve Bank of St. Louis

Sincerely yours,

Walter E. Fauntroy
Chairman

SILVIO O. CONTE

WASHINGTON ADDRESS:

FIRST DISTRICT, MASSACHUSETTS

2300 RAYBURN OFFICE BUILDING
WASHINGTON, D.C.

RANKING MINORITY MEMBER
SUBCOM MITTEES:

20515

PHONE: 202-225-5335

COMMITTEE ON APPROPRIATIONS

CongreE‘5 of the

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DISTRICT OFFICES:

TRANSPORTATION

FEDERAL BUILDING

LABoR-HEW

78 CENTER STREET ARTERIAL

LEGISLATIVE
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OF ALL SUBCOMMITTEES

jbouot of Atproentatibez

PITTSFIELD, MASSACHUSETTS

Utialsbington, n.C. 20515
RoOm 205

COMMITTEE ON SMALL BUSINESS
SUMCOMMITTEE ON ENERGY,
ENVIRONMENT, SAFETY, AND RESEARCH

01201

PHONE: 413-442-0946

POST OFFICE BUILDING

May 8, 1981

650 DWIGHT STREET
HOLYOKE, M ASSACHUSEXTS

01040

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Mr. Paul A. Volcker
Chairman
Board of Governors of the Federal Reserve System
Twentieth Street and Constitution Avenue, N.W.
Washington, D.C. 20551

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Dear Paul:
I appreciate hearing from you about fiscal 1981 funding for the
National Institute of Arthritis, Diabetes, Digestive, and Kidney
Diseases.
Throughout the Appropriations Committee's deliberations on the
President's proposed rescissions for N.I.H. the House Subcommittee
leaned heavily toward restoring the bulk of the proposed cuts.
Specifically, in NIADDKD the President requested a rescission of
$11,179,000. We opposed that request and ultimately settled on a
rescission of $2,516,000.
I also appreciate your concern that the Arthritis share of research
funds should not be disproportionately effected by any cuts.
As you know the House Committee has completed action on the FY 1981
Supplemental and Rescissions Bill and we do not expect amendments to
be in order during Floor consideration.
However, the Senate is currently in the midst of moving their bill
to Full Committee where report language could easily be added to
reflect your concern for research support. I understand the Arthritis
Foundation is pursuing that course now.
When the matter comes to Conference between the House and Senate,
I will actively support inclusion of the report language you are
seeking. However, in order for it to be a legitimate Conference
item the Senate must include it in their mark-up.
I will keep you posted on the developments.
With best wishes, I am
Cord

yours,

ilvio 0. Conte
Member of Congress
SOC: jf

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Federal Reserve Bank of St. Louis

FERNAND J. ST GERMAIN, R.I., CHAIRMAN
HENRY S. REUSS, WIS.
HENRY B. GONZALEZ. TEX.
JOSEPH G. MINISH, N.J.
FRANK ANNUNZIO. ILL.
PARREN J. MITCHELL, MD.
WALTER E. FAUNTROY, D.C.
STEPHEN L. NEAL, N.C.
JERRY M. PATTERSON, CALIF.
JAMES J. BLANCHARD, MICH.
CARROLL HUBBARD. JR., KY.
JOHN J. LAFALCE, N.Y.
DAVID W. EVANS, IND.
NORMAN E. D'AMOURS, N.H.
STANLEY N. LUNDINE. N.Y.
MARY ROSE OAKAR, OHIO
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. HOYER. MD.

J. WILLIAM STANTON. OHIO
CHALMERS P. WYLIE, OHIO
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
BILL McCOLLUM, FLA.
GREGORY W. CARMAN, N.Y.
GEORGE C. WORTLEY, N.Y.
MARGE ROUKEMA, N.J.
BILL LOWERY. CALIF.
JANIES K. ONNE, PA.
PC.
-3IEREUTER;74EBR.

U.S. HOUSE OF REPRESENTATIVES
COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
N I NETY-SEV ENTH CONGRESS
2129 RAYBURN HOUSE OFFICE BUILDING

WASHINGTON, D.C. 20515

July 13, 1981

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Paul Volcker
Chairman, Board of Governors
Federal Reserve System
20th Street & Constitution Ave., N.W.
20551
Washington, D C.

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Committee staff concerning the financial aspects of the Iranian
hostage settlement agreement.
As is apparent from the study, the complex history of the
Iranian crisis required that we interview a substantial number
of the participants and review many of the documents relating to
We very much appreciate

your personal cooperation during the prep ration of the study.

/1/

Sincere y,

lc ael P. Flaherty
General Counsel
Enclosure

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Federal Reserve Bank of St. Louis

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d is a copy of the study prepared by the Banking

the asset freeze and the settlement.

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Federal Reserve Bank of St. Louis

ERNEST F. HOLLINGS
SOUTH CAROLINA

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WASHINGTON, D.C. 20510

1961 JUL 24 fr110: 34

July 23, 1981

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OFF- lei OF fek

Dear Paul,
Many thanks for the Midyear Monetary Pol
icy
Report which you forwarded to me. I loo
k forward
to having a chance to review it extensive
ly and
appreciate your thoughtfulness.
With warm regards, I am
Sincerely,

Honorable Paul A. Volcker
Chairman-Board of Governors
Federal Reserve System
Washington, DC 20551

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BOARD OF 50VERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551

July 14, 1981
• • • • •

The Honorable Don Fuqua
House of Representatives
Washington, D.C.
20515
Dear Mr. Fuqua:
Thank you for your letter of July 8 requesting comme
nt
on correspondence you received from Mr. Carl C.
Mertins and
Mr. John Milstead, concerning the possible rein::
:tatement of a
1/4 percent thrift differential on 6-month money
market certificates (MMCs). Your constituents also suggested that
a new deposit
instrument be authorized that would allow commercial
banks and
thrift,s to compete more effectively with money marke
t mutual
funds (MMT4Fs).
Both of these issues were discussed by the Depository
Institutions Deregulation Committee (DIDC) at its June
25, 1981
meeting. Several thrift institutions and thrift trade
associations requested that the MMC differential be reins
tated temporarily
at all interest rate levels to improve deposit flows
and to relieve
some of the current pressure on the earnings of savin
gs and loan
associations and mutual savings banks. However, the
DIDC rejected
this requust, partly because it would be contrary
to the Committee's
mandate to deregulate interest rate ceilings and
partly because
smaller conunercial banks would be placed at a disadvanta
ge in
competing for funds.
The DIDC also declined to authorize a new short-term
instrument at this time in view of the fact that such an instr
umetAt
could exacerbate the earnings problems of thrifts. Howev
er, the
Committee did request conunent on a proposal to modify slightly
the method of computing the ceiling rate of interest payable
on
6-month MMCs so as to allow depository institutions to
remain more
competitive with MMMFs throughout an interest rate cycle
.
Specifically, the Committee proposed that the MMC rate be
tied
to the higher of (1) the most recent 6-month Treasury bill aucti
on
rate, or (2) the average of such rates over the eight preceding
auctions.
This proposed revision would help depository institutio
ns
overcome a competitive disadvantage vis-a-vis the money marke
t funds

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Federal Reserve Bank of St. Louis

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c;:11.:Ling assets held Uy 11111I's enal)1. , ;1
shareholders than banks or thrift:3 eJ. ,
i*nc keviscd lacq.hoU of caleulatinri
of Ln6t disauvantacie and thus re,..aice. switchin'
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I hope you find these cora:tents usef- i .
bc of further assistance.
Sincerely,
(Signed) Donald L Wino
Donald J. Winn
Assistant to the Lici-)rt
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Federal Reserve Bank of St. Louis

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DON FUQUA

2269 RATSURN HOG'S OrrICt WILDING
WASHINGTON. D.C. 20515

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CONGRESS OF THE UNITED STATES

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HOUSE OF REPRESENTATIVES
WASHINGTON, D.C. 20515

4,1/1
July 8, 1981

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Paul A. Volcker, Chairman
Federal Reserve System
Washington, D.C. 20551
Dear Mr. Volcker:
Enclosed is a mailgram I have received from my constituents,
Mr. Carl C. Mertins and Mr. John Milstead, regarding the reimposition
of a rate differential by the Depository Institutions Deregulation
Committee (DIDC).
I would appreciate your reviewing this matter and providing me with a
complete report which I may pass along to Mr. Mertins and Mr. Milstead.
Thank you for your time and courteous attention to my request.
• cerely,

DON FUQUA /
Member of 4ngress
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Enclosure

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Federal Reserve Bank of St. Louis

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1-05990551744 Ob/23/81 ICS IPmmTZZ CSP wSHC
3o5b966511 rGH T0mT ORLANDO FL 301 06-23 0435P EST

moNORAbLE DON FUQUA
HOUSE OF REPRESENTATIvES
wASHINGTON DC 20515

THE PURPOSE OF THIS mAILGRAm IS TwOFOLD:
FIRST, kOULD YOU PLEASE CONTACT ALL MEmdERS OF THE DEPOSITORY
INSTITUTIONS OEREGULATION COmmITTEE (D I D C), PARTICULARLY SECRETARY
REGAN, AT THE TREASURY AND CHAIRmAN vOLCKER AT THE FEDERAL RESERVE.
wE wouLD ApPRECIATE YOUR HELP IN CONVINCING THEDIDCTHAT ANY
REImPOSITION OF A RATE DIFFERENTIAL IS NOT ONLY UNFAIR BUT ALSO IS A
STEP BACKwARDS IN AN ENVIORNmENT OF DEREGULATION, THEDIDC IS
CHARGED i%ITH THE TASK OF PHASING OUT RATE CONTROLS kHICH DISCRImINATE
AGAINST BANK sAvINGS CUSTOHEks AND STOcK HOLDERS, RATHER THAN BUILD
ADDITIONAL SPECIAL PRIvILEGES FOR SOmE FINANCIAL INSTITUTIONS AT THE
EXPENSE OF OTHERS, wHAT IS NEEDED IS A NEw, mORE COmPETITIVE DEPOSIT
GATHERING PPCDUCT TO ENABLE "ALL" FINANCIAL INSTITUTIONS TO CUPPETE
ON A FAIR AND EQUAL BAsIS kITH OUR UNREGULATED COmPETITION, ONE SUCH
PRODUCT mIGHT BE A 91 DAY S5,000 CERTIFICATE kITH A RATE TIED TO THE
T -BILL RATE, mAKING THE INTEREST ON SUCH INSTRUmENTS TAx FREE kOULD
FURTHER ENHANCE THEIR mARKETAbILITY, SUCH AN INSTRUmENT kOuLD APPEAL
TO SAVERS AND kOULD HELP ALL FINANCIAL INSTITUTIONS SLOk THE OUTFLop.
OF DEPOSITS TO OUR COmPETITORS kHO ARE OPERATING IN A FREE HARKET.
THE RATE DP.PEHENTIAL IS OBSOLETE, THAT DECISION wAS REACHED BY THE
LAST CONGRESS. IT IS TimE TO mavE FORWARD IN THE INTEREST OF THE
SAVING PUbLIC AND NOT REGRESS.
SECOND, kE oRGE You TO SUPPORT THE BIPARTISAN SudSTITUTE Tu THE HOUSE
BUDGE1 CU ,A mITTLE RESOLUTION. YOU mAY ^ANT TO DISCUSS BOTH SUbJECTS
SIHULTANEOUSLY wHEN COmmUNICATING KITH SECRETAPy kEGAN. THANKS Fuk
CONSIDEkING THIS REQUEST, FLORIDA BANKERS APPkECIATE YOUR HELP.
SIP:ATUkE CARL C HERTINS, PRESIDENT
FLokIDA hANKERS ASsN
PRESIOE 14 1 BAkNETT BANK OF wEST FLoRIDA
PENSACOLA FLORIDA AND
JOHN mILSTEAD, CAE
EXECUTIVE vICE PkEsIDENT
FLORIDA BANKERS ASSN
ORLANDO FL

17:33 EST
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Federal Reserve Bank of St. Louis

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BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551

July 14, 1981

The Honorable Robert W. Kasten, Jr.
United States Senate
Washington, D. C. 20510
Dear Senator Kasten:
Thank you for your letter of July 2 requesting comment
on correspondence you received from Mr. John Czarnecki concerning
the Federal Reserve System.
The Federal Reserve System was established by an Act of
Congress in 1913. It is made up of twelve regional Federal Reserve
Banks which are supervised by the Board of Governors in Washington.
The Reserve Banks are corporate instrumentalities of the United
States, and were established by Congress for public purposes.
The Board is an agency of the Federal Government, and
its seven members are appointed by the President with the advice
and consent of the Senate. The Congress has ultimate authority
over the Federal Reserve. Since Congress created the System by
enacting the Federal Reserve Act, it can modify or abolish it at
any time. The Board is required by law to make an annual report
to the Congress and, through its committees, Congress oversees
the activities of the System. In this year alone, the Chairman
and members of the Board have testified nineteen times before
Congressional committees.
The accounts of the Board of Governors are audited each
year by a firm of certified public accountants. Their audit report is reproduced beginning at page 240 of the enclosed copy of
the Annual Report for 1980.
Also enclosed is a staff memorandum describing the
Federal Reserve's auditing procedures in more detail. In addition, the 95th Congress enacted Public Law 95-320, authorizing
the Comptroller General of the United States to audit the Federal
Reserve System. Pursuant to that statute, the General Accounting
Office has conducted numerous audits of Federal Reserve activities.

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Federal Reserve Bank of St. Louis

IP°

The honorable Kobert U. Kasten, Jr.
Page Two

i;r. Czarnecki ashed about Public Law 9E-221, the Depository Institutions Deregulation and nonetary Control Act of 1930.
For his information, I am pleased to enclose a copy of an article
discussin the Act and its various titles, which appeared in the
June 1980 Federal Reserve Bulletin.
As further background on the System, I am enclosing a
copy of "The Federal Reserve System--Purposes and Functions".
I hope this information is useful.
if I can be of further assistance.

Please let me know

Sincerely,

Donald J. Winn
Assistant to the Board
Lnclosures

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Federal Reserve Bank of St. Louis

Mrs. Mallardi

Congressional Liaison Office will draft response
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WASHINGTON. D.C. 20510

July 2

1981 JUL -7 DPI 9' 55
PECEIVEr,
OFFIC5 OF
1981 THE CH4IR'-!!.!,

Chairman Paul A. Volcker
Federal Reserve System
20th Street and Constitution Avenue N.W.
Washington, D.C. 20551

Dear Mr. Volcker:
P1Pase find enclosed correspondence I received from
Mr. John Czarnecki. Because of my desire to be responsive
to the constituents in my state, I am referring this
matter to you for your review.
I would like to request your assistance in evaluating
the information presented and taking whatever action required to resolve the situation. I would greatly appreciate your forwarding your findings in duplicate form to
Denise McLoud, on my staff, at your earliest convenience.
Again, many thanks for your time and attention to
this matter.

Rest regards,

Robert W. Kasten, Jr.
RwK/dam
Enclosure

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Federal Reserve Bank of St. Louis

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ALLEN-BRADLEY COMPANY
1201 South Second Street
Milv:aukee. Wicor- 7,in 5:4704 ()GA
Telephone 414/671-2000
June 19, 1981

f'wnator Robert Kasten
United States Senate
Washington, D. C. 20510
De,ir Sir:
I thank you for the information pack of background material concerning the Federal Reserve System. There are a few
things I do not understand:
1.

Ts this Federal Reserve :7ystem part of
novc.)nment or is it part of the private
buriness (bankers) section?
Who does it account to?

Who audits this group - and when?

Was P.L. 96-221 which was signed into law on
March 31, 1980 that good, in view of the Oversight
and Legislative activities of the 95th Congress?

I Ynow that you will give me straight answers.
Respectfully,

6/John F.
rnecki
1889 Thooas Drive
East Troy, Wisconsin 53120

Quality industrial coretrols • control systems • electronic components • magnetic
materials

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Federal Reserve Bank of St. Louis

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BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 2055I

July 14, 1981

The Honorable Ken Kramer
House of Representatives
Washington, D. C. 20515
Dear Mr. Kramer:
Thank you for your June 23 letter, sending us copies of
correspondence you have received about the recently revised Regulation Z, implementing amendments under the Truth in Lending
Simplification and Reform Act.
Let me assure you that I share your concern about the
need to simplify federal regulations and to minimize the burden
of complying with them. The two pages of Regulation Z that were
copied and sent to you, as your constituents rightly point out,
are certainly not simple. These pages do not reflect, however,
the portion of the regulation that creditors must deal with
directly in their operations. They are taken from an appendix
of technical information intended for use by commercial calculation tool manufacturers in producing computer programs, calculators
and charts to calculate annual percentage rates. These tools in
turn are used by creditors in their day-to-day operations. The
Board has also produced its own tables, based on the appendix, to
provide creditors with a relatively simple method of making
calculations.
The revised regulation significantly reduces the burden
imposed by Regulation Z, reflecting both the amendments to the
statute and the Board's own commitment to minimizing regulatory
burdens. For example, about half of the 24 disclosures required
under the old regulation for installment loans have been eliminated.
The new regulation also provides model forms and clauses, which
when properly used will protect creditors from civil liability.
The new Act mandates that amendments to the disclosure requirements shall be made only once a year; thus, the problem of monitoring changes to maintain compliance should also be substantially
alleviated. In addition, the enclosed section-by-section commentary,
explaining the regulation, has recently been issued in proposed
form. This commentary is designed to provide general guidance to
creditors in complying with the regulation. While we do not have
a brief, simplified version of Regulation Z, as you requested, the
commentary should give creditors the kind of straightforward,
narrative explanation that you envision.

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Federal Reserve Bank of St. Louis

The honorable Ken Kramer
Page Two

The regulation itself was revised 14ith an eye
not only
toward reducing the requirements it irposes but
also toward setting
out the remaining requirements in simple, nont
echnical language.
I believe that the revised regulation as a whol
e will make compliance with Truth in Lending much easier for cred
itors. At the same
time, I understand the concerns your constituents
express. Regulation Z is not a simple document. It implements
a law that imposes
a wide range of requirements, from disclosures to
billing error
procedures to advertising, and it applies that law
to a varied and
complex industry. I:any creditors need not conc
ern themselves with
certain provisions of the regulation, but those
provisions must be
included in the regulation for other sectors of thc
credit industry.
For example, a creditor that engages only in clos
ed-end credit,
such as retail installment contracts or holoc mort
gage loans, need
not be familiar with a significant portion of tho
regulation that
applies only to open-end credit.
The Loard appreciates your taking the time
constituents' concerns. They raise an important issuto share your
e regarding
the role of federal regulation in business, and we
look forT-ard
to working with Congress in the future to help
resolve that issue.
I hope this information is helpful.
if I can be of further assistance.
Sincerely,
Mined) DoWd J. WirrN
Donald J. Uinta
Assistant to the Board
Enclosure
SW:MAS:CO:vcd (#V-179)
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Federal Reserve Bank of St. Louis

Mrs. Mallardi
Sue Werthan
Margaret Stewart

Please let me know

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J. CHARLES PARTEE
MEMBER OF THE BOAR°

July 13, 1981

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:
Chairman Volcker has asked me to respond to your letter requesting
comments on a number of public policy issues that would be raised by potent
ial
failures of large thrift institutions. We are very concerned about the impact
of inflation and associated high interest rates on the earnings of thrift institutions, and recognize that many face a trying transition period until
their asset portfolios can be rolled over into higher yielding and more rate
sensitive investments. It is for these reasons that we support the so-called
"Regulators Rill" that would give the federal insurance agencies additional
flexibility in dealing with distressed institutions during the difficult
interim period until inflation and interest rates subside.
Despite the serious current problem, we are confident tbat the
thrift industry will remain a viable and vital part of our financial system.
The liquidity of most institutions is ample; they are acquiring new higheryielding assets that will stand them in good stead when rates decline; they
have a wider variety of competitive deposit instruments to offer the public
;
and they are now authorized to invest in a more diversified asset portfolio.
The Federal Reserve does not foresee widespread failures of thrift institutions, but we do recognize the need to consider all possible contingencies,
and it is in that spirit that I address the questions you posed.
The first three questions concern the role of the Federal Reserve
discount mechanism in assisting and supporting the activities of insuring
agencies tbat have the responsibility for dealing with failing thrift situations. The most effective means of assisting the insurers through the discount window, T. believe, is to forestall unnecessary demands on their resources resulting from liquidity squeezes that could precipitate the failure
of otherwise vfahle institutions. Such liquidity shortages might develop
at individual institutions because of particular circumstances facing the
institutions, or they could conceivably be more general in nature and affect
a sizable number of institutions. The more generalized case could develop
in various ways, including situations in which the failure of a large thrift
generated increased liquidity pressures on other parts of the industry--ei
ther

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Federal Reserve Bank of St. Louis

•

The Honorable Benjamin S. Rosenthal
Page Two

by making investors less willing to continue advancing funds through large
deposits and non-deposit instruments or, more remotely, by triggering significant withdrawals of core deposits by the general public.
To deal with these circumstances, the Federal Reserve, as authorized
by the Monetary Control Act, is prepared to advance funds to thrift institutions to accommodate the special needs of individual institutions, or more
generally to assist institutions, including those with longer-term asset portfolios, that may be experiencing difficulties adjusting to changing money market conditions. These advances may be extended over a longer period than
adjustment (short-term) credit arrangements, particularly at times of deposit
disintermediation.
Several important features of this latter program should be noted.
First, it is a logical extension of the Federal Reserve's role as lender of
last resort, and as such, banks and thrift institutions using the discount
window are expected first to use other reasonable alternative sources of
credit. The Reserve Banks will consult with other lending agencies to determine whether funds are available from other sources, and, more generally, will
undertake extended credit loans only after a review of each case with the
appropriate supervisory agency. Second, the interest rate charged on extended
credit typically will be somewhat above the basic discount rate, and controls
and conditions will be imposed on the uses to which such credit can be put.
Thi_rd, the Federal Reserve will require the borrower to establish a plan
that promises repayment in a reasonable period; extended credit is not intended to carry troubled institutions indefinitely and cannot be regarded as
a substitute for capital.
This extended credit facility was put into place last simmer, but
because thrifts and banks have not encountered unmanageable liquidity
problems to date, it has not been used. Over the years, however, a limited
number of banks facing serious individual liquidity shortages have received
credit for extended periods of time. Often the availability of these loans
has allowed time for the banks to return to sound and liquid condition, but
occasionally the hank's liquidity problem has led to--or been associated
with--more fundamental problems of viability that resulted in action by the
FDIC. Federal Reserve credit in these cases aided the insurer by allowing
it time to arrange the most advantageous outcome for the community being
served, the banking system in general, and the insurance agency.
The Federal Reserve is not specifically authorized to make funds
directly available to the insurance agencies through the discount window.
Such specific authorization is confined to depository institutions. However,
in concept, such loans could be arranged under the general emergency lending
paragraphs of the Federal Reserve Act (paragraphs 3 and 13 of Section 13)
applying to individuals, partnerships, and corporations that are not depository institutions. Under the statute and the Board's rules, credits of this
type are limited to "unusual and exigent circumstances" and, if Treasury or
agency securities are not available as collateral, require the affirmative
approval vote of no less than five members of the Board of Governors.

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Federal Reserve Bank of St. Louis

The Honorable Benjamin S. Rosenthal
Page Three

These provisions have always been reserved for emergency use in
extraordinary circumstances and, with a minor exception, no loans have been
made under them since the mid-1930s. Given its responsibilities as the ultimate supplier of essential liquidity to the financial markets, the Board would,
of course, give serious and sympathetic consideration to any request for credit
from a federal insurance corporation. But the Board does not expect that
there will be a call for such loans by these agencies since we do not foresee
an incidence of depository failures sufficient to strain the liquidity of
the funds. Further, we believe that by granting the agencies direct lines of
credit at the Treasury, Congress intended that the insurance funds turn to the
Treasury in the unusual event that additional liquidity needs might develop.
would expect that Congress and the insurance corporations would work together
to make available through the Treasury whatever funds were needed to assure
the public of ample Governmental support for the insurance agencies--this by
itself should be sufficient to obviate any need to arrange for other alternative lines of credit.
The second set of questions you posed deal with the circumstances
under which it would he appropriate to assist a troubled institution so as
to prevent it from failing, and the proper stance toward uninsured creditors
in event of failure. It is my understanding that the Federal Deposit Insurance
Corporation and the Federal Saving and Loan Insurance Corporation operate on
the principle that nonviable institutions not he perpetuated, but rather that
they be eliminated as corporate entities either through merger into a stronger
institution or through outright liquidation. This policy, in mY view, is completely appropriate. The threat of failure is the most powerful disciplinary
force on management practices. Even where institutions are not liquidated,
but are merged into other institutions, management generally is rcplaced and
shareholders usually suffer substantial losses on their investments. In
addition, it is evident that economic efficiency--a critical requisite of a
market economy such as ours--is best served by the disappearance of inefficient or noncompetitive business units.
Banks and thrifts offer credit-granting and deposit-taking facilities without which the modern economic system could not function. Recognizing the extraordinarily important role played by depository institutions
in the entire economic fahric of our communities, the Federal Deposit Insurance Act allows assistance to be granted to a troubled institution when
the insitution is regarded as essential in providing needed banking services
to the community. Applying this standard, the agencies helped to assemble
a combined public and private assistance package for First Pennsylvania Rank
in Philadelphia. Although the bank was supported by federal assistance,
elements of market discipline were present, since management turnover occurred
and shareholders face a substantial dilution of their ownership claims. The
Fnic also provided assistance to the Farmers Rank of Delaware in 1976 and
the Bank of the Commonwealth in Detroit in 1972, among others.
The treatment of the uninsured creditors of a failing Institution
is subject to a number of legal considerations. These issues aside, the

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Federal Reserve Bank of St. Louis

•

The Honorable Benjamin S. Rosenthal
Page Four

Potential for losses by uninsured creditors tends to strengthen the forces of
market discipline by requiring these investors to evaluate the risk of default
on the funds they have advanced. The danger, of course, is that the failure
lignidation of a large institution with substantial nninsured creditors
might severely erode public confidence in the strength and stability of banks
or thrift institutions morP generally. An overreaction to the failure of one
institution could affect other institutions, raising the cost of funds or
reducing their availability for banks and thrifts that otherwise are in sound
condition. Moreover, losses of uninsured creditors might tend to disrupt the
workings of the markets in which the funds were obtained, surh as those for
federal funds, large certificates of deposits, Eurodollars, and bankers accep—
tances, thereby spreading and intensifying tbe extent of the problems. On
balance, the gain to the insuring agency from allowing a loss on uninsured
liabilities could be more than offset if it gave rise to instability in the
financial system that led to the need to support or liquidate additional
institutions.
Should the failure of a larger institution result in liquidity
shortages for other banks or thrifts, the Federal Reserve would certainly
observe its responsibility as n lender of last resort, acting in concert
t.iith other agencies to make credit available to the affected institutions to
nrevent development of secondary liquidity strains and serious disturbances
to the entire financial system.
Confidence of the public in our financial system and the institu—
tions that comprise it are the hedrock of our economy. This fact was illus—
trated only too graphically in the early 1930s, and the lessons from that
experience gave rise to the deposit insurance agencies. These agencies and
the public's confidence in them are vital.
am sure that the Federal
Reserve would support any necessary actions by the Congress to keep the agen—
cies strong and to assure their continued ability to perform their important
function.
Yours very truly,

2:-A21-$2.

DK:gf OV-170)
bcc: Gov. Partee
Mr. Kohn
Mr. Schwartz
Mt. Jorgenson
Mr. Keir
Mt. Spitzer
Mr. Ryan
Mt. Taylor
Mrs. Mallardi

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Federal Reserve Bank of St. Louis

BENJAMIN S. ROSEN1HAL. N.Y., CHAIRMAN
LYLE VVILLIAMS, OHIO
HAL DAUB, NEBR.

JOH ,,CONYERS, JR., MICH.
EUGENE V. ATKINSON, PA.
STEPHEN L. NEAL. N.C.
DOUG BARNARD. JR.. GA.
PETER A. PEYSER. N.Y.

NINETY-SEVENTH CONGRESS

Congre55 of tije Eniteb fitateg

WILLIAM F. CLINGER, JR., PA
JOHN MILER, IND.

MAJORITY-(202) 225-4407

300115e of Ikepreentatibe
COMMERCE, CONSUMER, AND MONETARY AFFAIRS
SUBCOMMITTEE
OF THE

COMMITTEE ON GOVERNMENT OPERATIONS
RAYBURN HOUSE OFFICE BUILDING. ROOM B-377
WASHINGTON, D.C. 20515

June 13, 1981

Hon. Paul A. Volcker
Chairman
Federal Reserve Board
Washington, D.C. 20551
Dear Mr. Chairman:
Because of the current public concern about the potential consequences of
multiple failures of thrift institutions, a thorough review of the adequacy of
FDIC, FSLIC, and Federal Reserve preparations and policies for monitoring and
handling the possible failures of large thrift institutions is especially
important at this time. The Commerce, Consumer, and Monetary Affairs Subcommittee will therefore hold a one-day oversight hearing on this subject on
Wednesday, July 15,— at 9:30 A.M. I am writing to request the testimony of the
Federal Reserve at this hearing on certain aspects of this subject.
The questions of particular interest to the subcommittee on which we request
the Federal Reserve's testimony are:
1.

What statutory powers and authority does the Fed currently possess to assist
or support the activities of .the insuring agencies, through the discount
mechanism or in other ways, in handling the financial stresses of large
thrift failures?

How and in what circumstances is the Federal Reserve prepared to step in to
use these powers?

How has the Fed used these powers within the past five years? Please
identify each such case in which there was a Federal Reserve role, and
please state the dollar amount of any discount loans or other financial
intervention by the Fed.

What, in your judgment, would be the effects on general public confidence in
the banking system if there has to he a straight liquidation and deposit
payoff of a large multi-billion-dollar thrift institution, with attendant
losses to uninsured depositors?

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Federal Reserve Bank of St. Louis

-4

9
t_

When the purchase-and-assumption procedure is used to liquidate a failed
institution, what public policy considerations should determine whether the
uninsured deposits and other liabilities of the failed institution are
assumed in full by the purchasing institution? In cases where excluding the
uninsured liabilities would reduce the cost to the insurance fund, what
other considerations, if any, would justify including them, thereby giving
them de facto insurance protection?

What should be the general policy criteria for providing subsidies or other
financial support to seriously weakened depository institutions before they
fail? Under what circumstances is such financial support consistent with
the objective of preserving, in the banking field, the fundamental market
discipline according to which unsuccessful business enterprises are allowed
to fail?

How were these criteria applied in the First Pennsylvania case in 1980? In
retrospect, does last year's support program for First Pennsylvania still
appear to have been the correct decision?

Please provide 100 copies of the Board's prepared statement at least 24
hours in advance of the hearing.
Sin erely,

Ben'amin S. Rosenthal
Chairman
BSR:tb

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Federal Reserve Bank of St. Louis

July 10, 1981

Congressman Ronald E. Paul
Room 1234
Longworth House Office Building
House of Representatives
Washington, DC 20515
Dear Congressman Paul:
I am writing in reply to your letter of June 25 setting forth
several questions about the Monetary Control Act.
First, I understand that the Federal
Reserve has purchased $1.5 billion of Cermen
government three-month bonds and '100 million
of Swiss government three-month certificates.
Is this true? lihat are the exact figures?
When, where, and why were the purchases made?
Has the debt of any other foreien povernment
or agency, or guaranteed by any other government Agency, been purchased by the ied since
September 1, 1980? It so, when, where, why,
and how much?
Under provisions of the ?ionetary Control Act, the Federal Reserve,
in March of this year, undertook three-month repurchase agreements with the
Deutsche BundesOank in the amount of DM 1.8 billion, using DM 1 billion
owned by the System and DM 800 million warehoused for the Exchange Stabilization Fund (ESF). (Warehoused funds have been purchased spot from the ESF
and simultaneously sold forward to the ESF at the same exchange rates.) The
securities underlying the repurchase agreements are obliations of the
German government. _Im addition, in March the System, using its own holdings
of marks, purchased outrieht Dm 65 million of German izovernment securitiee
maturing in November and December 1981. Using funds warehoused for the ESF,
the System in March purchased DM 1.3 billion of government securities maturing in September 1981, when a U.S. Treasury mark-denominated obligation
comes due. The totel dollar equivalent in March of the outright purchases
and repurchase agreements was $1.5 billion.
On July 1, the Federal Reserve purchased an additional DM 2.6
billion of German government securities using funds warehoused for the ESF.
The maturities of these purchases were tailored to coincide with the due
dates in December 1981 and May 1982 of U.S. Treasury mark-denominated oblieations. The dollar equivalent of the July 1 purchasee was $1.1 billion.

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Federal Reserve Bank of St. Louis

Congressmen Paul

Paee 2

Beginning in October 1980, the Federal Reserve has periodicially
purchased with its own Swiss franc funds claims on the Swiss government.
Such holdings now amount to SF 220 million (S106 million equivalent). Original maturities of the claims have been three and six months.
Purchases of these obligations of foreign governments were all
made throuph the auspices of the foreign central banks involved as a means
of investing at favorable yields the Federal Reserve's own holdings of foreign currencies and those warehoused for the ESF that had been acquired some
time earlier as a by-product of intervention in the exchange markets.
Second, I understand that portions of the
German debt were used as collateral for issuinp Federal Reserve notes by the Reserve Bank
of Moston on five occasions: April 21, 24,
and 28; and May 5 and 7. Is this correct?
What are the exact fiyures involved? Why was
foreign debt used AS collateral? Was foreiRn
debt used as collateral on any other date(s)
besides the five mentioned, for the Boston
Bank or any other Reserve Bank? If so, when,
why, and how many Federal Reserve notes were
collateralized? Which country's debt was so
used?
In regard to the use of foreien currencies as collateral for
Federal Reserve notes, the ettached table pives the dates on which this procedure has been used for the account of the Federal Reserve Bank of Boston
and the amounts involved. Foreien currency was used as collateral because
the total of gold and Special Drawing Rights certificates and U.S. government and agency securities allocated to the Federal Reserve Bank of boston from
the System's portfolio of these instrurents was insufficient to cover the Bank's
notes in circulation on the dates shown. An alternative but unnecessarily
cumbersome procedure would have been to reallocate the System's portfolio of
assets eligible for use as collateral, enlarging the Boston Bank's share in
assets other than foreign currencies and reducing its share in System foreign currency holdings. Foreign currency has not been used as collateral
for Federal Reserve noteP at any other Federal Reserve Bank.
The amounts of the Boston Bank's pledged foreien-currency assets
represent a part of its participation in foreign currencies held by the
System. The participation is not confined to German marks or to claims on
or guaranteed by the German government, hut applies to sll currencies held
by the System in whatever investment form. During the period shown in the
table, Federal Reserve holdinps included marks and Swiss francs held in
various forats, Japanese yen, and small amounts of Belgian. Canadian, U.K.,
Swedish and French currencies. The amounts pledged represented an undivided
interest in each of the currencies.

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Federal Reserve Bank of St. Louis

Congressman Paul

Page 3

Third, has the German and Swiss debt
purchased already been rolled-over? If so,
when and why?
The repurchase aereements entered into with the Bundesbank in March
all matured in June and were rolled over for an additional three months in
order to keep the funds invested. The other C.erman government obligations
have not yet matured. The initial Swiss franc investment, made in October
1980, matured in January 101 and was rolled over in order to maintain the
investment of the funds. Subsequent investments that have matured (at approximately monthly intervals) have also been rolled over.
Fourth, would you explain the statutory
authority for using tne debt of foreign governments and agencies as collateral for issuing
Federal Reserve notes? If thia is an inference
from the language of the Monetary Control Act,
please present the arpument. If there is any
legislative history on the use of foreign debt
as collateral, please cite such history.
The Monetary Control Act of 19dO adds several types of assets to the
list of collateral that can he used to secure Federal Reserve notes. Section 16
of the Federal Reserve Act (12 U.S.C. 412) now provides that the collateral
security that accompanies a Reserve Bank request for Federal Reserve notes may
consist of aasets that fteserve Banks may purchase or hold under section 14 of
the Federal Reserve Act (12 C.S.C. 348s, 353 to 359). Section 14 provides that
Reserve Banks may purchase various types of assets, including obligations of
foreign governments or their agencies, or oblieations that are fully euaranteed
as to principal and interest by foreign governments or their agencies (12 U.S.C.
355). Accordingly, the Federal Reserve Act explicitly provides that Federal
Reserve notes may be collateralized by obligatione such as debt of foreign
governments as well as by other forms of assets.
ln addition, it should be noted that the Conference Report on H.R.
4986 (Senate kept. qb-640) indicates Loneressional awareness of the revised
collateral provision since it states on page 71 that "[title bill expands the
types of Federal aeserve Assets that can be used to collateralize Federal
Reserve notes."
Fifth, is there any legal impediment
which would prevent the Federal Reserve from
purchasiny the debt of foreien governments or
agencies on the open market in this country
with dollars? If so, what is it?

Congressman Paul

Page 4

The legislntive hietory of the Monetary Control Act indicates
Congressional intent that the Federal Reserve's authority to purchase
oblipations of foreign governments and their aFencies is to be used only in
conjunction with the Federal Reserve's normal activities in the foreign
exchange market. As indicated by Senator Proxmire on March 27, 1940, durinR
the Senate's consideration of the Monetary Control Act, the purpose of the
authority to purchase obligations of foreign governments is "to provide a
vehicle whereby ouch foreign currency holdings could be invested in obligations of foreign governments and thereby earn interest. This authority
would he used only to purchase such obligations with foreign currencies
balances acquired by the Federal Reserve in the normal course of business."
(126 Cong. Rec. S 3168). Furthermore, in testimony before the Senate Banking Committee on September 26, 1979, I indicated that the purpose of the
provision was to enable the Federal Reserve to invest its holdings of noninterest earning foreign currencies in interest bearine oblip,ations. Accordingly, the Federal Reserve's authority to purchase foreivn government
obligations is limited by Congressional intent to the purchase of obligations in connection with foreign currency operations.
Sixth, please furnish what is, in your
opinion, the complete legiolative history of
Section 105(b) (2) concerning the purchase of
ahlipations of foreign governments or their
agencies.
Regarding the leeislative history concerning the Federal Reserve's
authority to purchase foreign obligations, the relevant passages consist of
a statement contained in my testimony before the Senate Eanking Committee in
September 1979 and Senator Proxmire's statement on the Senate floor on March 27,
1980 during the Senate's consideration of the Monetary Control Act. Copies
of these passages are attached for your information. I am not aware of any
other statements that are in conflict with these.
Seventh, does the Federal Reserve intend
to publish on a regular basis such information
reparding foreign obligations and their use as
collateral as I have requested here?
The iloard of Governors of the Federal Reserve Systca publishes
regularly in the Eulletin (rahle 1.18) the System's aggregate holdings of
foreign currencies. In the same place, data on collateral for outstanding
Federal Reserve notes are published. Federal Reserve weekly release
contains more detailed and up-to-date information about collateral. Any
foreign-currency holdings posted as collateral are shown under "other
eligible assets." For your convenience I have enclosed a (corrected) copy
of the table published in the June aulletin ane the release dated July 2,
1981. Essentially, this covers the-17177,7717ition you requested; we do not

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Federal Reserve Bank of St. Louis

Page 5

Congressman Paul

regularly publish information about the detailed composition of our foreign
currency holdings and the precise form in which they are held.
Finally, what are the Federal Reserve's
current holdings of foreign currencies? Why
have such holdings been accumulated? By buying foreign oblipations rather than dollars,
are not hurting the dollar in foreign exchange
markets?
As of July 9, 1981, the Federal Reserve held foreign currencies
valued at $6.4 billion at current exchange rates. These were primarily
warks, Swiss francs and yen. Of the total, the System owned $2.8 billion
equivalent; funds warehoused for the ESF and the U.S. Treasury amounted to
$3.6 billion equivalent.
Foreign currencies owned by the System have been accumulated
through intervention purchases during periods of upward pressure on the
dollar's value in foreign exchange markets. Intervention is undertaken by
the Federal Reserve in consultation with the U.S. Treasury when needed to
counter disorderly market conditions and in keeping with obligations of the
United States under the Articles of Agreement of the International Monetary
Fund. Sales as well as purchases of foreign currency may be made, and
System holdings of foreign currency balances augment the swap lines
established with certain foreign central banks to provide resources for such
needs. The preponderance of the System's $2.8 billion equivalent of holdings was accumulated during the period between October 1980 and February
In this period the dollar's international value rose by more than 12
1981—
percent, and the System's purchases of foreign currencies did not -- and
were not intended to -- reverse that trend. During much of this period,
Federal Reserve purchases helped to balance foreign currency obligations of
the U.S. Treasury.
System holdings of foreign currencies warehoused for the ESE and
U.S. Treasury include funds accumulated by those institutions through market
purchases for similar purposes and proceeds from the U.S. Treasury's sale of
securities denominated in foreign currencies.
I hope this information will he useful to you.
Sincerely,
3/Paul A.

Attachments
Ltr. no. 181
DBA/EMT/CTS:pa
bcc:

Mrs. Mallardi (2)
Mr. Truman
Mr. Adams
Mr. Smith

Mr. Schwartz
Mr. Ring
Ms. Brown (IF files)

Action assigned to Messrs. Ring &
Schwartz.

CONSTITUENT SERVICE

RON PAUL

001\RD OF fp'./ERNCR ,

.22ND DISTRICT, TEXAS

1110

NASA ROAD

1. SUITE 100

HOUSTON, TEXAS

LONGWORTH

Room1234
HOUSE Orr ILE

BUILDING

(202) 225-5951

COMMITTEE ON BANKING.
FINANCE. AND URBAN AFFAIRS

Congre55 of flit

BELLFORT AVENUE, SUITE

9: 5511

RANKING RirueLKAm
SUBCOMMITTEE ON

GENCRAL

307

HousToN. TEXAS 77087
(713) 226-4636
THomrsoN HIGHwAy. SUITE 105
R:cHmoNo, TEXAS 77469
(713) 226-4568

OVERSIGHT

June 25, 1981
MEmera,Um -rcoSTA-TrsGoLo
POLICY COMMISSION

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Federal Reserve Bank of St. Louis

77058

(713) 486-8583

-7--,tatecs

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ifiarsbinaton, 3D.C. 205pFic E j`rt

CENTERS:

101

OYSTER CREEK DRIVE

LAKE JACKSON, TEXAS

77566

(713) 297-3961
CONGRESSIONAL HaruNES:
HOUSTON:(713) 237-1550

Mr. Paul A. Volcker, Chairman
Board of Governors of the Federal
Reserve System
20th Street & Constitution Avenue, N.W.
Washington, D.C. 20551

LAKE JACKSON'(713) 297-0202

Dear Mr. Volcker:
As a follow-up to the hearing this morning, I have
several questions concerning the Monetary Control Act
that I would like answered in detail for the hearing
record, if you would be so kind.
First, I understand that the Federal Reserve has
h
purchased $1.5 billion of German government three-mont
bonds and $100 million of Swiss government three-month
certificates. Is this true? What are the exact figures?
When, where, and why were the purchases made? Has the
debt of any other foreign government or agency, or guar
ased
anteed by any other government or agency, been purch
e,
by the Fed since September 1, 1980? If so, when, wher
why, and how much?
Second, I understand that portions of the German
ve
debt were used as collateral for issuing Federal Reser
notes by the Reserve Bank of Boston on five occasions:
April 21, 24, and 28; and May 5 and 7. Is this correct?
What are the exact figures involved? Why was foreign
debt used as collateral? Was foreign debt used as cold,
lateral on any other date(s) besides the five mentione
for the Boston Bank or any other Reserve Bank? If so,
colwhen, why, and how many Federal Reserve notes were
lateralized? Which country's debt was so used?
Third, has the German and Swiss debt purchased
why?
already been rolled-over? If so, when and
Fourth, would you explain the statutory authority
agencies
for using the debt of foreign governments and
notes? If
as collateral for issuing Federal Reserve
Monetary
this is an inference from the language of the
there is
Control Act, please present the argument. If
debt as
any legislative history on the use of foreign
collateral, please cite such history.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Mr. Paul A. Volcker
Page 2
June 25, 1981

Fifth, is there any legal impediment which would
prevent the Federal Reserve from purchasing the debt of
foreign governments or agencies on the open market in
this country with dollars? If so, what is it?
Sixth, please furnish what is, in your opinion, the
complete legislative history of Section 105(b)(2) concerning the purchase of obligations of foreign governments
or their agencies.
Seventh, does the Federal Reserve intend to publish
on a regular basis such information reyarding foreign
obligations and their use as collateral as I have requested here?
Finally, what are the Federal Reserve's current
holdings of foreign currencies? Why have such holdings
been accumulated? By buying foreign obligations rather
than dollars, are we not hurting the dollar in foreign
exchange markets?
Thank you for your time and attention to these
questions.
Sincerely,

ea44L
Ron Paul
Member of Congress
RP/jr

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Federal Reserve Bank of St. Louis

July 10, 1981

The Honorable Benjamin S. Rosenthal
Chairman
Subcommittee on Commerce, Consumer
and nonetary Affairs
Committee on Government Operations
Louse of Representatives
Washington, D. C. 20515
Dear Chairman Rosenthal:
Following up lely letter of July 1, I am herewith
transmitting to you the data on the liabilities to niddle
Last oil-exportinE, countries of both the domestic offices
and the foreign branches of three groups of large U. S.
banks. lhe latest data, which are for narch 31, 1981, arc
shown below, together with the earlier data for 'larch 31,
1979, that were transmitted to you by Governor Coldwell in
August 1979. The figures are as follows (in billions of
dollars):
3/31/79

3/31/81

19.4

19.8

Second largest six

2.1

3.0

ilext nine banks

0.8

1.2

Six largest U. S. banks

The information on the liabilities of the domestic
offices has been supplied by the U. S. Treasury and include
ries
the liabilities of all Edge Act and other domestic subsidia
as well as those of thc parent bank itself.
Sincerely,
Sgaul A. Volcker
RHM:vcd (#V-168)
bcc:

Mr. Mills
Mr. Truman
Mrs. Mallardi (2)

RENJAMIN S. ROSENTHAL. N y.. CHAIRMAN

/
4 .1'4"61444
°
LYLE WILLIAMS, OHIO

JOHN CONYERS, JR.. MICH,
IELOFNE I, ATKINSON. PA.
Tr ..-1.4rm L,..,NEAL, N.C.
DOUG BARNARD. JR.. GA.
..ICTCR A. PEYSER. N.Y

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HAL (Moll NEBR.
WILLIAM r. wrorirre.

MAJORITY— 002) 225-4407

COMMERCE, CONSUMER, AND MONETARY AFFAIRS
SUBCOMMITTEE
OF THE

COMMITTEE ON GOVERNMENT OPERATIONS
RAYBURN HOUSE OFFICE BUILDING. ROOM B-377
WASHINGTON. D.C. 20315

June 16, 1981

Hon. Paul A. Volcker, Chairman
Board of Governors of
the Federal Reserve System
Washington, D. C. 20551
Dear Mr. Chairman:
In July 1979, the Subcommittee on Commerce, Consumer, and Monetary Affairs
held five days of hearings on the adequacy of Federal agency efforts to monitor,
analyze, and report on foreign, including OPEC country, investments in the United
States. Our investigation is continuing, with hearings scheduled for late July.
We require that certain data on OPEC holdings, reserves, and deposits, furnished
by the Federal Reserve to the subcommittee on July 19, 1979, be updated. (I am
attaching copies of the data tables involved, taken from the hearing transcript.)
I request that the data be updated as follows, utilizing the same formats:
(1) Table 1 should be updated for 1979, 1980 and 1981 to the present; (2) Table 2
should be updated by including data as of January (a) 1980 and (b) 1981; (3)
Table 3 should be updated including the most recently available data and revising
the listing of banks, as necessary; (4) Table 4 should be updated by dropping
March 1979 and substituting, instead, data for December (a) 1979 and (b) 1980,
and (5) the August 21, 1979, follow-up letter from Governor Coldwell to the
subcommittee should be updated, including the most recently available data.
We would like this information by July 2, 1981. If your staff have any
questions, they should contact subcommittee counsel, Stephen R. McSpadden.
Sincerely,

Ben am
Cha man
Enclosure
BSR:mb

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Federal Reserve Bank of St. Louis

Rosenthal

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281.)

298.0

45.4

122.4
12.6
8.5
1.1
2.6

67.9
52.4
5.)
9.6

I/
5).0I/
41.73.2
8.1

I/
51.2A2.21/
3 4
7.6

41.14

10.1.8

17: I

230.3

244.13

23.6

66.9

131.1

162.4

11 4
___:.

)1 5

47.a

67.7

59.7

ti.•.

n a.
n.a.

4.2
43.6

LI
64.4

::
:
3:
'30.5

0 1
n.a.
n.a.

5.7
n.a.
n.a.

_12.t
11.0
:1.2

35.9
9.0
26.9

36.0
6.0
26.0

20 4

21.0

20.5

other 0.S. se.urirstris

0.7

I 7

12 7

14 7
---:.-

14.9

7/
Nankin' and mi. ne: 'barbel metaI. b-Ptc countries

1.9
n.a.
0.111.

12.4
n.a.
n.a.

16.0
4.6
8.4

2): I
10.:
12.8

2).2
9,1i
1).4

4 2

10.1

211 1

31.9

34.1

n.a

19.1
9.0

20.1
11.8

23.1
11.0

OLt.tr

COunffifill

Purtlin

Branches

ot v S. lirirdis

2/
1!
4'

march
1979

15.5

41,
.
!
HnIdtel

1978

1973

I 4

A.
6.

December
1977

1970

1.6
2.5
0.1
0.7

FOREIGN OFFICIAL HOLDINGS OF MARKETABLE
U.S. TREASURY SECURITIES, SELECTED DATES

MonisarlietalT Treasury bonds
and notes-

TABLE 2

5/8/
OPEC countries- Other courtrres

n.a.
n.a.

n.a.

Beginning Apfll 197b data eaclode Saudt Arahian foreign eaihanse cover against
the note issue 1arsountin4 to about $5.3 billion in Matat. IvIri
Iran. Irsq, Kuwait. Libya. Qatar, Saud; Aisbaa, United Arab testate,.
Algeria, Cabot.. Nigeria
fioadnr, Veneruela. Indonesia.
Slid includes Bahrarn and Oman.
hone held by oric.
mnd
p,10.1pally bank deposits. cDs. frpuTCh441. SgterStnIS, hankers mcceptames,
...amercial papal.
1,:loding soave private holdings.

Soui.ea

I.:
II.:
111.:

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

liAernstional Monetary Fund. International finar.ial blatiati.s.
I S. Treasury.
tracts! Reserve System.

Amount

Percentage of

(S billions)
bonds

total outstanding

Bills

4 Notes

Total

Bills

Bonds
& Notes

Total

1968 - November

6.5

7.0

8.9

0.3

3.0

1969 - June

3.8

4.3

5.6

0.3

1.9

1973 - March

37.6

6.9

44.5

35.8

4.2

16.5

1974 - January

29.2

5.2

34.4

27.1

3.2

12.7

1979 - January

68.4

36.0

104.4

42.1

10.8

21.0

51.3

36.3

87.6

31.3

10.7

17.4

- April

34U

341

TABLE
TABLE 4
DEPOSITS OF MIDDLE EAST OIL PRODUCINC COUNTRIES
kANRS
IN FOREIGN BRANCHES OF LARGE U.S
(billiona of dollars)

December 1975
Second
Sia
Largest
tants

Largest
Sia Banks

Neat
Nine
hanks

Ski

Largest
Banks

M/MBFR OP U.S.-

CHARTERED BANES REPORTING
LIABILITIES TO
OPEC COUNTRIES
AT FOREICN DRANCHFS

March 1979
Neat
Second
Nine
Largest
Sis Bar.lis Banks

Dec.

1975

1976

Dec.
1978

Mar.

1977
46

31
e tir z ue 1•

T-tal Jep,sits
tcons.ilidated)

117.5

2,
bep.sits .t Middle fast
9.11
Piodo.ing Countries
%

121 sa percent ut
Line (1)

76.3

1 .2

44.9

0 7

I/
273.8—

1/
99.9—

15.3

I/
68.4Indonesia

0. 5

1979

Ecuador

Iran
40
Iraq
11

'5 0

1 6

1 4

6.0

1. 7

O. 7
Kuwait

Qatar
w ie

Deposits in fore's', trsnOieli repiesent sure ti.st, 70 percent of total depusits ut Middle
test nil producers in all U.S banks.
10111
l.epuilits es uf Dec
Emiratos.
Iniiudes Ilan. Iraq. [...wait. Liman. Qat/it, 5a,di Atabia and the United Arab

17
Saudi Arabia
United Arab
Emirates
Algeria

.`.s 'attest Geniis
!Ana. nt AftelklAk
manLiiitian
•
rank
Citibank
Mak,..fectuttio

•

klanuvef

Guarauty

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Siri- ul.d tartest

18
19

8
30
24

Neat nine
Libya

Bankers ifUlle
Continental Illinnis
Crciclier National Batik
/list Rational Bank of Chicago
Security Pacific
wells Fargo

Eoropean American Bank L Trust
First National Bank of Boston
First National Bank of Dallas
Pilot National Bank of betroit
Irving Trust
Marine Midland
Mellon
Republic National Bank. Dallas
United California Bank

9
Nigeria

15
14

4401111101104.....

41,30.40
• 14,,,,,t.f

,•
,

..m...1114i4.441.444.44

331
FIDARD ;DS SCVE

dopo:;its from Middle
in foreign branches?
the total for foreign

FEDERAL PESERVE SYSTEM

•••

'
AA. It."'

7 [7

40 0
...I...1 4 C. '0.4 01
,

,ony has that in their

AuFust 21, 1979

Chairman. My as_
;:l

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

The P.uaorable Beriamin S. Rosenthal
Chairman
Subcommittee on Cor..merce, Consumer
and Monetarv Affairs
Committee on Government Operations
House of Representatives
Washington, D.C.
20515
Dear Chairman Rosenthal:
During my testimony on July 1F, you asked me to provide
information on the total deposits of Middle East oil producing
countries in the U.S. offices and foreign branches of 21 large
U.S. banks. The figures as of March 1979 are as follows:
Six larFest U.S. banks
Second largest six
Next nine banks

$19.6 billion
2.1
0.8

These figures include the deposits in foroign !ranches as reported
in Tahle 3 of mN testimony. The estimate supplied during the
hearing of the share of total deposits represented by depos,its in
foreign branches wat based on data that inadvertentl!: included some
U.S. government securities that banks were holding in custody for
customers. These custody holdings are not liabilities of the banks
themselves, and counting only deposits, foreign branch figures
represent more than BO percent of the total.
Sincexel- vor

P. E. Coldwell

AJP*Y4.s.

.4
.
111011.
.4•4.%‘4.1t
,

flue). 1A0E4,4444.

•
•
•
•• of GOV/ * •
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••
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qux
BOARD OF riOVERNORS
OFTHE

FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551

•

July 9, 1981

The Honorable Harry F. Byrd, Jr.
United States Senate
Washington, D.C.
20510
Dear Senator Byrd:
The correspondence that you forwarded on June 4 from
Capitain Edward Durell of Berryville, Virginia, sugge
sts that
the Federal Reserve System should order an audit of the
Treasury's
gold stock by outside, independent auditors. Capta
in Durell
believes that the gold certificate account gives the Feder
al
Reserve a claim to the gold and hence authority to order
the
audit.
The Gold Reserve Act of 1934 vested in the United State
s
all right, title, and interest, and every claim of
the Federal
Reserve System to gold. Under the terms of that Act
the Treasury
is authorized to issue gold certificates to the Feder
al Reserve
for the purpose of monetizing the gold. This, howev
er, does not
give the Federal Reserve System any claim or interest
in the gold.
The gold certificate account is merely an asset account
on our books that serves to record the amount of
dollars that the
Federal Reserve Banks have credited to the Treasury in
exchange for
the certificates. An issuance of certificates is accom
plished
through increases in the gold certificate account and
in the
Treasury's general account, the deposit liability representi
ng
the Treasury's checking account balance. A reduction
in certificates is effected through a decrease in Treasury's gener
al account.
All entries to the gold certificate account are initiated by
Treasury, as required by law.
A statement showing the gold certificate account in
the

assets of the Federal Reserve Bank is given on page 246
of the
enclosed Annual Report of the Board for 1980. The gold
stock, an
asset of the Treasury, is shown on pages 274 through 276
in
connection with a listing of factors supplying funds to
bank
reserves.
The gold stock is stored at locations determined by
Treasury. This includes Fort Knox, the Philadelphia
and Denver
Mints, the New York and San Francisco assay offices, and
the
Federal Reserve Bank of New York. The accounting procedures

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Federal Reserve Bank of St. Louis

40
•

Ihe nonoraole Liarry F. Byrd, Jr.
Page Two

ior
golu are under tne control of Treasury, and the gold is
auuited oy Treasury under a continuing program established by
tne Secretary of tne Treasury.
Sincerely,

(Signed) Donald J. Winn
Donald J. Winn
Assistant to the Board
Lnclosure
PDR:DJW:pjt (#V-162)
occ: Don Ring
Mrs. Mallarui

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Federal Reserve Bank of St. Louis

•
•
HARRY F. BYRD, JR.
viRGINIA

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

/Z1Crtifeb Zfafes Zenate
WASHINGTON, D.C. 20510

June 4, 198.1

DOARD OF C;3vrilNORS
1Hi.
ELLI1P,..IZE:ERVE

19131 JUM 15 VI 10: 04
RECEIVED
OFFICE OF

„I'6;2
.;"%i'
My dear Mr. Chairman:
I am enclosing copies of correspondence
between my constituent Captain Edward Durell, and
Messrs. Timlen, Ring and others relative to the
"gold certificate account" and other questions.
Captain Duren raises several interesting questions about the physical location of
U. S. gold stocks, the accounting procedures used
by both the Federal Reserve and the Treasury, and
the question of "ownership" of the gold as between
the Federal Reserve and the Treasury Department.
It is my hope that you will be able to
respond to the many questions raised by Captain
Durell.
Cordially,

The Honorable Paul A. Volcker
Chairman
Board of Governors
Federal Reserve System
Washington, D. C. 20551
Enclosures: s

MILTON V,I.LEY FARM
P. O. W)X 586
BERRYVILLE, VIRGINIA
22611

May 29, 1981

The Honorable Harry F. Byrd, Jr.
U. S. Senate
Washington, DC 20510
Dear Harry:
I have sent Col. Curtis Dall the material enclosed with my letter
of May 8th to the directors of the 12 regional Federal Reserve Banks
(some 108+ in number) and a copy is enclosed for your files.
I urge you to at least read my letter of May 8th to these directors.
The research which I have done indicates beyond any reasonable doubt
that whatever gold is found by an independent inventory and assay
does belong to the Federal Reserve System, and not the U. S. Treasury.
This research of over seven years I believe qualifies me to became a
mrAber of the Gold Policy Commission and I would appreciate it if
you would send the enclosed material to Dr. Beryl Sprinkel (at Treasury)
with your recommendation that he recxxatund me as one of the four
mcolbers chosen from the private sector to the Gold Policy Commission.

Edward Durell
ED/ks
Encl.
cc:

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Federal Reserve Bank of St. Louis

Col. Curtis Dall Wo enclosures)

---.\
.

n
ik_

r3
Ifil

‘-

THE UNION FORK AND HOE COMPANY
' P O. BOX 1940 500 DUBLIN AVENUE. COLUMBUS. OHIO 43216

.._. .....,
,-]

LI N.1 i r_.] NI

NDTE:

Please address correspondence to:

PHONE (614) 228-1791

P. 0. Box 586
Berryville, VA 22611

(DO.ARC ()UAW
CINAIPMAN

THI

IOARD

May 8, 1981

Directors of the 12 regional Federal Reserve Banks

TO:

For your ready reference I am enclosing a copy of my letter to the
ly,ad of your regional bank dated 5/7/81 along with the enclosures
referred to therein.
I believe this matnrial will help convince you that in order to
protect the Federal Reserve System and yourself, you should insist
on an inrlependent, indisputable inventory and assay of the alleged
gold belonging to the Federal Reserve System and held in storage by
the U. S. Treasury as collateral for the gold certificates listed
on the asset side of your bank's balance sheet.
Based on over 7 years of research and investigation:

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Federal Reserve Bank of St. Louis

It would appear that the Federal Reserve System and
the U. S. Treasury

II.

(a)

agree that thnre is only one horde of gold.
stored under the custody of the U. S. Treasury;
and

(b)

agree that the alleged horde Of gold is worth
$11.2 billion, figured at the offiCial gold price
of $42.22 per Troy ounce of "fine gold."

The Federal Reserve System and the U. S. Treasury do
not agree on
(a)

which entity, the Federal Reserve System or the
U. S. Treasury, has exclusive title to the alleged
gold horde; and

(b)

which entity is responsible for the indisputable
accuracy of the count, weight and fineness of such
horde.

•
•

Directors of the 12 regional
Fcd•-r al Reserve Banks

1II.

-2-

May 8, 1981

Both the Federal Reserve Systm and the U. S. Treasury
seem to lay claim to the horde (see current balance
sheets of the regional Federal Reserve Banks under
the heading "Gold certificate account").

In view of the above, I again suggest that it would be to the best
interest of your country, your bank and yourself to find out why
(a) the four Rost recent Secretaries of the Treasury (Simon, Blumenthal,
Miller and Regan) and (b) the three ncGt recent Chainion of the Federal
Reserve System (Burns, Miller and Volcker) have not taken steps to obtain
a complete, indisputable physical inventory and assay of the alloyed gold
reserves by an agency or organization not connected in any wuy with the
governnvnt.
If this is not done, the dark cloud of oonspiracy will continue to hover
over the Fuderal Reserve System, the U. S. Treasury and you; and the credibility of these parties will continue to suffer in the eyes of the public.
Sincerely,

Dlot

As al-Vindi
i6icf&
ID/ks
Encl.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

"••••••

IIE UNION I:OR IC
PO HOY, irJ40

I i0E COMPANY

()OMAN AVINUE, COI

cii10 43216

PHONE IC 1 4) 2;.8

-';132`‘,1
N(7!1::

ICMAPP

500

AND

Nease addres corr(.sp,x1(!ence to:

P. 0. Box 586
nerryville, VA

22E01

I
Di

CP•iF

APO

May 7, 1981

Pr. Thomas M. Timlen
lst Vice Fresident
Federal Fe..erve Rank of New York
nost Office Station
10045
New York, New York
Dear Mr. Timlen:
I encice.e the following:
(1)

Copy of a letter from Mr. P. D. Ring, Assistant Director, Foard of
Governors, Federal Reserve System to me dated 3/25/81.

(2)

Copy of my letter to Mr. Ring dated 5/5/81.

I sineerely hope that Mr. Ring's response will clear up once and for all
(a)

.,old alle:jedly a7..ounting to $11.2 billion (figured
WIlere the (
at the official gold price of $42.22 per Troy ounce) is located.

(b)

Whether the (jeld certificates allegedly held by the Federal Reserve
F.ank of Naw York are enforceable certificates uppn the Treasury for
enough gold (at $42.22 per Troy ounce) to cover the total of the sums
listed as an arset by the 12 regional Federal Reserve Banks on
their balance sheets under the heading "C;old certificate account."

(c)

When and by whom did the Board of Governors check the existence by
physical inventory and assay of the gold allegedly held by the Treasury
as Lacking for said gold certificates.

If you have any correspondence with Mr. Ring, I suggest you ask the following questions:
(1)

Did the Federal Reserve System give the U. S. Treasury autIority to
sell, during the operation of the so-called London Gold Fool, large
sums of the System's gold at $35 per Troy ounce?

(2)

Did the Federal Reserve System give the U. S. Treasury the authority
to sell partoof the System's gold at public auction beginning 1/6/75?

(3)

In a letter to then Congreesman John B. Conlan (R-Az) dated 5/4/76
then Secretary of the Treasury William Simon stated, "...the U. S.
had eile net sales to the pool during its period of operation
totaling*45.2 million ounces." During the same period, however,

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

'•

Mr. TI:(_,3s M. Timlen

Xay 7, 1981

-2-

1961over 200 million ounces of gold left Fort Ynox Jilone from
19(.8 allegedly destined for Lhii,ment to the N,?w York AEsay
Office and the Fe,_leral Reserve Pank of New York for reshipment
Fool
to the Eank of England acting as dgent for the London Gold
's
for sale to private persons and corporations abroad. If Simon
used
st_atement is correct that only 45.2 million ounces were
of the
in the operation of the Lorrion Gold Pool, what bi,came
-455-+ million ounces of gold?
/('S
fulkx aodited by outside,
Is it not time for the Federal Reserve System to be
im:ependent auditors?
ed gnld claiu.yd by the Fedr!r:il
Ts it not time to verifi tile existence of the alleg

and asGay?
Reserve SysteA, by an indepn3ent physical true inventory

spondrznce along with this
After you .have had time t,o donsider the enclosed corre
you will recommend
letter, I would appreciate hearing from you as to what steps
to clarify the many questions raised.
Sin—rely,

rat4e,

As an individual

ED/smc
Encl.
cc:

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

All Directors of the 12 regional Federal Reserve nanks

%WA

•
ROARD
••
.
,

••
r.t , •
t

1;f3VERNIJR5
CJ

1 4E

•
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FEDERAL

FRVE 5Y5 I EM
D. C.

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of

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Or(

rarch 25, 1981

rir. Edward Durell
P. O. .Box 586
Terryville, Virginia

22611

Gear Mr. Durell:
I appreciate your letter of March 20 and apologize for any
inrcnvenience the typewritten copy of the 1934 series gold certificate
15ay have caused you. I wish to confirm, heaever, that this particular
jold certificate is the one that you have asked about.
By the tiule the Federal Reserve Banks opened their doors for
business on November 16, 1914, eleven series of gold certificates had
Leen prin!_ed, dating from the first issues in 1870 and 1871 to the issue
in 1913. For all of those certificates and for all of the three series
that teere issued in the following nineteen years (i.e., the 1922, 1928
and 1928A series) the Treasury simply held the gold in trust until
dcr.anded by the owner of the certificate. At all times, then, the gold
cerLifica'es were truly warehouse receipts for gold in the Treasury.
Vhoever had such certificates -- whether an individual, a business, or
a Federal reserve Eank -- was the actual owner of a corresponding
awount of gold stored in the Treasury.
This entire arrangement was changed by the Congress in response
to the national er.ergency of the 1930's. Through the Er.ergency Banking
Act of rarch 9, 1933, Congress authorized the Treasury to redeem gold
certificates with paper money, and in legislation enacted on June 5, 1933,
ebrocated in respect to all obligations any provision purporting to give
the obligee a right to require payment in gold. This was folle....ed by
the Gold reserve Act on January 30, 1934, which vested in the United
States all right, title and interest and every claim of the Federal Reserve
System to all gold coin and bullion, and in payment therefor established
credits in the Treasury in equivalent amounts in dollars, these credits
being peyable in gold certificates. On the date of that Act we transferred
all of our gold to the United States Treasury in exchange for credits at
S20.67 an ounce. These credits, includina all other anounts of gold that
were due us from Treasury, were made payable to us in 1934 series gold
certificates.
In Adition to eliwinating any claim against gold, the Gold
Pcserve Act er.:cnded the Federal Reserve Act so as to eliminate the authority
for the use of gold (but not gold certificates) as collateral for Federal

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

•411

•

1;r. Fr"..ord Pure]]

- 2

r's, rye nc,t-s; to )cluire that the r.dr2loption fund for Weral Reserve
n():,s of ich P(.5. -ve rank raintained on dc.posit at the Tleasury be in
(221d
s :Nctcad of in gold; and to rale d‘pusits of federal
Eml's and L:eral R(_serve Agclits with the Trcosury of the United
States repayable in gold certificates only and not in gold coin. In
<um, the Gold Rcserve Act completely abolished any and all claims by the
Federal Reserve to gold.
ihe 1934 series certificate, a copy of which I sent to you on
ralch 4, is the gold certificate that the Treasury printed and issued to
the Federal Reserve ranks under the terms of the Gold Reserve Act. This
is the only series of oold certificates that under the law may be attributed
to the gold stock. The older certificates that we held ceased to have any
status and were therefore returned to the Treasury.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Sinci_rely yours,
/
.41/
P. D. Ring
Assistant Director

ur\ ION
P a FiCx 1940

NOTE:
A;A'r t.,,t,4

FORK AND HOF. COMPANY
SOO D'JPLIN AVENUE. CO1 LP.!SUS. OHIO <3216

Please addrer,s correspondence to:

rhOI:E (6,4) ;';.f

P. O. Bc,x 536
Berryville, VA ;

I LI

t
CI

1P4(

PC APO

May

5, 1981

CRTIFJJ.:D MAIL
RTURN
REOUESTED
Mr. P. D. Ring,
Assistant Director
Board of Governors
Federal Roserve System
WashintLton, DC 20551
Dear Mr. Ring:
Thank you for your letter of 3/25/81 in response to wy letter of 3/20/81.
For your inforr,ation, on 12/3/74 then Secretary of the Treasury William
Sion stated in his testimony before Congress that the title to the
alle6ed gold was in the Federal Reserve System while possession was in
the Trr.-risury. He said the transfer of the gold to the Treasury constituted a "Diec]L;e." In addition, the current consolidated statements of
condition of the Fcieral Reserve System published in TliE NEW YORK TIMES
and THE WALL SCREET JOURNAL, among others, carrie-s as an asset "L;old
stock" of $11.2 billion (figured at the official gold price of $42.22
per Troy ounce). The consolidated balance sheet of the U. S. Treasury
carries as a -1_iabilitv an equal amount of $11.2 billion. Each of the
12 reEional Ferieral Reserve Banks Lists on the asset side of its
current balance sheet a large sum of money under the 1-Jc:riding "Gold
certificte account"; and the total of these 12 private banks'
certifica'c,e accounts" matches the consolidated balance sheet ofTile
'd
•
Federal Reserve System as an asset, and further, it matches the Inlance
sheet of the U. S. Treasury as a liability. This confirrs the stat-z—r-nt
of Secretary Simon that the transfer of gold to the Treasury constituted
a "pledge."
In view"of the then Treasury Secretary's statement, the Gold Reserve
Act of 1934 which you cite was only a pretended transfer of title.
You say that on 1/3/14, the date of the Gold Reserve Act, the Federal
Reserve "transferred" all of its gold to the Treasury "in exchange
for dollar credits at $20.67 per ourice of fine gold." You go on to
r,ay that "these credits, including all other amounts of void that wc:re
due us from Treasury, were made payable to us in 1934 series gold
certificates." What you say is precisely what I contend: The Gold
Reserve Act of 1934 only pretended to transfer title to Treasury because the issuance by Treasury of the 1914. series gold certificates
only ratified, copfirmed, and condoned the situation as it existed

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

- •

P. D. R:ng

-e -

Ilay

of the Gold Re::,:vve Act of 1/30/34.
rior to the
-1e.dge was constituted in place.

5, 1981 •

Thus, a

of 1914 does not preclude the
I un,!ersrind it, the Gold Reserve Act
dged gold it "transferred" to the
Federal Reerve from demanding the ple
in addition to what
fact, Treasury statements confirm this
71-easury;
gress
npid alJout the pledge of the alleged t;old. Con
'ecretery
jurisdiction over the Federal
- 11egelly (becanse it hed no authority or
to teRe dollar payments from
Rserve System) gave Treasury authority
d. However, Conress had no
'he Fe,-!eral Reseive.System for its gol
tem on this, and you cite
iuthority to bind the Federal Reserv'e Sys
abreFeted 01's rf-Tht of redeu!Dlion t.-;y the
hes
s
res
Con
_ _ _
to do is pay over -elle
c'derel 'Ll.eserve. All the Fedel.al acerve :- .7ts
ry of the gold, if it
lollar funcs of :,11.2 billion for the delive
xists.
of the Secretary of the
- n addition, Note 5 of the 1979 Annual Report
327A states that
Treesury, 7Depertcnt of che Trcasury, Document No.
"payable to the Board
-old cer.tj -ricets leld by the Federal Reserve and
are obligations "fully
r)f. Governors of the Federal Reserve System"
gold is held as
';ecured by Fold in the Treasury." Therefore, the
icates." How can
:-curitv or rolle.teral for the "bearer gold certif
financial
0T_fiC'=ii--of— the Federal Reserve go against the
arer gold certificates"
.Aatements of the Treasury? Where are these "be
loday?
l" on your hands, I would
if you do not want another "snlad oil scanda
ity to go behind these
5tronrly recomTend th.at you do have the author
ify the existence of
gold certificates issued by the Treasury to ver
the alleged gold stock.
quoted in the news media
Also, why do you allow the Federal Reserve to be
yeur weekly stater;ents
.s owning ";-zold stock" referred to as an esset in
the eyisLence of such
when the Federal Reserve itself has not verified
al Reserve Banks are
1;old? It would seem that the 12 regional FejerFederal Reserve
impression that the gold certificates the
under
t the Federal Reserve
System holds are redeemable in gold. The fact tha
aier evidenced by a
System is the holder of these certificates is fur
s of the regional Federal
letter dated 1/20/81 from one of the president
certificates are held
Reserve _:Tren'es in which he states, "Those (Eold)
at the Federal Reserve Bank of New York..."
led to believe that the
Further, I believe the general public is being
currently published
,;old certificates are redeemable in gold by the
:
the U. S. Treasury. I
state- ents of tYle Federal Reserve System
blerice sheet an aset
re?eat, the Federal Reserve System carries on its
price of V42.22 per Troy
of $11.2 billion (figured at the official gold
Treasury carries the
owice)- opposite the heading "Gold Stock" and the.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

P. D. Ring

-3-

r,ly

5, 1981.

'int on its balance sheet as a liability undr-r the heading "Gold
c(rtificilte accolint." Thus, the general public is led to believe that
the Fe(:c,ral Rerve System has an enforceable claim on gold held by
the Trc;_lsury as custodian.
Again, I contend that based on the available facts, the Federal Reserve
System does have the authority to go behind these "bearer gold certificates" to derand an indisputable, indeendent physical inventory of
the nation's allcged gold, or to r_edr_c_m the pledEed &lid by paying
Tresul'y 511.2 billion in paper money ror the alleged gold stock. It
is r,ubmitt.2d that if you do neither, then you have allowed the Federal
Reserve to become a party to the Trcasury's possible crime of embezzle-ent of the allet=ed gold. Trcasuvy c;Ilinot now contend that it W2S
the gold and give the
ConL;ress which gave it the E-uthority to
Federal Reserve System pripc:r money. The Federal Reserve System is an
independent, private corporation.
To sum this all up:
(a)

The Federal Reserve System lists as an asset on its
currently published balance sheet $11.2 billion (fi red
at the official gold price of $42.22 per Troy ounce
under the heading "Gold Stock." The U. S. Treasury
lists as a li.abilitv on its currently publ5shed balance
rTheet $11.2 billion (figured at the official gold price
of V12.22 per Troy ounce) under the heading "Gold certificate account."

Then Chairman of the Federal Reserve System, Arthur alrns,
staled in his letter to then Congressman Joiln Rarick (D-La)
dated 6/28/74 that "I am confident that our system of
audits and examinations would quickly discloe any un-'
authorized transactions in System assets, which, I repeat,
do not include gold." Yet the Federal Rc,serve System on
its consolidated balance sheet at that time listed an
asset of $11.4 billion under the heading "Gold certificate
account."

(c)

Then Secretary of the Treasury William Simon listed in a
letter to Congressman J. Kenneth Robinson (R-Va) dated
11/4/74, 276.0 million Troy ounces of gold as belonging to
the United States stored at nine different locations.
Figured at the official *gold price of Sh2.22 per Troy
ounce, this amounts to $11.6 billion.

(d)

Four Secretaries of the Treasury hve refused to take a
complete, independent physical inventory and assay of the
nation's.allged gold reserves (A report to Congress by

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

•

,•

P. D. Ring

-41

Nay

5, 198r

1;e Ckp;':1)troller General, FOD 75-10, B87620 ciated 2/10/75,
'
Uri the _50 day exercise at Fort.Knox beginn'ng 9/23/74
leaves much to be desired from an accounting point of view).
e)

The balance sheets of the 12 regional Federal Reserve Barks
carry 1Lrge sums of money on the erset side under the heading "Gold certificate account" which certainly indicates
to the general public that there is gold behind the gold
certificates.
Current correspondence with the heads of the 12 regional
F(.,1c,,ral Reserve Banlis indicates that they believe 'there is
sold held as collateral for the Eold certificates.

(g)

The Board of Governors of the Fedoral Rcseive Systcm have
not veFified the existence of Eold coin or bullion by an
indepndent physical inventory and assay.

believc you will do our country a great good turn by commenting on each
r7bove st7-ents. Please send copies of your response to the heads
of
)f each of the 12 rep-Ional Federal Reserve Banks and their directors as
I am sending tl-m copies of your letter of 3/25/81 and this letter.
-heir corr - si)orce with me Indicates they would welcome some clarifiGati(Al fvom you.
Respectfully submitted,

Z
/W1J
As an individual
D ks

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

•.•of Govt.

BOARD OF GOVERNORS

4*12 .4L
;Nft.) welt.tr„, AttA„,A)

nr 'THE

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FEDERAL RESERVE SYSTEM

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WASHINGTON, 0. C. 20551

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July 8, 1981

PAUL A. VOLCKER
CHAIRMAN

The Honorable Alfonse M. D'A
mato
Chairman
Subcommittee on Securities
Committee on Banking, Housing
and Urban Affairs
United States Senate
Washington, D.C.
20510
Dear Chairman D'Amato:
This is in response to your req
uest for the Board's
views on S. 1429 and S. 1436,
both of which would provide uni
form
margin requirements to the acq
uisition of securities of U.S
.
corporations by foreign person
s using credit obtained from
foreign lenders.
S. 1429 would amend section
7(f) of the Securities
Exchange Act to extend the
margin requirements to foreig
n borrowers who are borrowing to
purchase securities in a transa
ction
that is subject to sections
13(d) or 14(d) of the Exchange
Act,
regardless of whether the cre
dit is obtained from a foreig
n
or U.S. lender. In additi
on, the bill would require tha
t statements filed under sections 13(
d) or 14(d) of the Exchange Act
include information as to whe
ther the margin requirements
are
applicable and not being vio
lated. It would also provid
e an
express private right of act
ion to any person injured or
threatened with injury by a
violation of any of the margin
provisions.
S. 1436 is analogous to S.
1429 except that it would
apply to any purchases by for
eign borrowers of U.S. securi
ties
that are subject to the margin
requirements, and not only to
large blocks of securities pur
chased in section 13(d) or 14(
d)
transactions. S. 1436 would
not require information as to
compliance with margin requir
ements in statements that mus
t be
filed under the Exchange Act
and would provide private rig
hts of
action only to persons who
may be injured by violations
of the
margin requirements by foreig
n borrowers. Private rights
of
action would not be provided
to persons injured by actions
of
domef;tie borrowers.
Both bills are designed to
remedy a perceived inequity
between domestic and foreign
borrowers who purchase U.S.
securities.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

1111P

The Honorable Alfonse M. D'Amato
Page Two

To the extent that foreign purchasers are borrowing funds from foreign banks or other foreign lenders to finance corporate takeovers,
or purchase substantial amounts of U.S. securities, both bills
would apply to foreign purchasers the margin requirements that
presently apply to U.S. borrowers. We believe it is important
to point out, however, that even if applicable, the Board's
margin requirements would probably not have reached many of the
corporate takeovers which have given rise to these bills and
similar bills in the House. Most importantly, the proposed legislation would not reach corporate takeovers in which credit is not
used. Acquisitions financed with corporate earnings or through
an exchange of shares are not subject to the margin requirements
and would, therefore, remain unaffected. Also, if a foreign firm
is large enough, it could probably provide sufficient other
collateral or borrow on an unsecured basis to avoid application
of the margin requirements, at least for the time it would take
to file and process the required 13(d) or 14(d) statement and for
the acquisition to be consummated. The Board does not believe
margin requirements, in general, present a significant obstacle
to corporate takeovers.
In reviewing the two bills, we believe that S. 1429 is
administratively more workable. In our opinion, it would be
unrealistic to assume that the Board's margin regulations could
be applied to every security transaction occurring abroad that
involves a purchase of U.S. securities as the provisions of
S. 1436 would require. For example, in the usual situation it
is doubtful that we would even know if a foreign national borrowed
from a foreign bank to purchase a nominal amount of securities
of a U.S. corporation. In the Board's opinion, a significant
U.S. nexus must be present in order to apply its regulations.
In this respect, S. 1429 would specifically provide such a
nexus--that is, the Board's credit limitations would only apply
where a section 13(d) or 14(d) statement is required to be filed.
If S. 1436 is enacted in its present form, of course, the Board
could consider using its exemptive authority to adopt the same
or a similar test.
In addition, the provision in S. 1429 requiring information as to margin requirement observance would provide an
evidentiary trail for investors, target companies and regulatory
agencies, alike, in determining whether a violation has occurred.
This could be a very important enforcement tool.
We hope the above comments will be helpful to you in
your consideration of these bills.
Sincerely,

Sgaul A. Volcker
Cf
l )4

R:it
oi
`11

\ock:

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

-0A/N

ANC\41-1Y

July 8, 1981

Mu Honorable Al Swift
house of Representatives
Washington, D.C.
20515
Dcar Mr. itwift:
I am keenly aware of the difficulties faced
by the
nation's housing industry and related activiti
es, sc graphically
spelled out in the correspondence from your
constituent,
Mr. Anthony C. DiPangrazio.
The hien interest rates that are adversely affe
cting
the business of Nr. DiPangrazio an(1 many othe
rs can be traced
to tne stubbornly high rate of inflation that
has persisted for
some time. Only by containing this inflatio
nary spiral can we
low. forward to a sustained reduction in the
cost of credit for
housing
other uses.
The Fe6cral Reserve, in combating inflation,
is committed to a role of curbing excessive growth
in the aggregate
amounts of money and credit. From the fiscal
side, the Congress
and the Administration, as you know, are in the
process of
realigning economic policy insofar as tax cuts
, spending reductions, and regulatory reiorms are concerned.
I believe that
the combined impact of these corqllementary mone
tary and fiscal
6ctions will soon reduce the inflationary pres
sures bearing on
the economy. That, in turn, should provide the
basis for assuring
lower rates of interest and healthier markets
for housing and
other coml,todities.
Sincerely,

(Signed) Donald L Who
RMF:JLK:CO:pjt (4V-177)

bcc:

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Mr. Kichline
Mr. Fisher
Mrs. Mallardi (2)

17,2i/L,

AL SWIFT
. • DISTRIC.7. WASHINr.TON

COMMITTEE ON
INTERSTAT E AND FOREIGN
COMMERCE

1
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\
EterovrrrOrrmr
?I-11 FEDERAL BUILDING

Congre55 of fly Ziniteb

(200 252-3188
BEL; :NGHANI OFFICE
309 FEDENAL BUoLDING

SUBCOMMITTEE ON
ENERGY AND POWER

tinaitington, Z.C. 20515

EPFF

1-800-562- I 48S

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

SUBCOMMITTEE ON
COMMUNICATIONS

jDousSe of ArprefSentatibt5

(208) 733-4500
Tc..

tataS

1511 Lop-xs woorrm Ficus( Orrtcc MILD iikto
WASHINGTON. ID C. 20515

COMMITTEE ON
HOUSE ADMINISTRATIONS

(202) 225-2605

/pi
June 17, 1981
Paul Volcker, Chairman
Federal Reserve System
20th & Constitution, N.W.
Washington, D.C. 20551
Dear Mr. Volcker:
Enclosed you will find a series of letters from a small
businessman
in my district. As you can see, he knows firsthand the
problems caused
by high interest rates.
I strongly urge you to carefully evaluate his comments.
I've
heard that you do not have a policy of high interest rates
but I ask you
to listen anyway in light of the fact he is about to lose everyt
hing
he's worked for primarily because of high interest rates.
The policy
simply has to change.

A S
Member of C ngress
AS:sfj
enclosure

1"lite.• er-rn -rtr.•“-ny Ft f",

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Anidon .Inc.
Suniset Construction Inc.
Sunset Manufacturing Inc.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

AN1•11)-()1••215N9
St!-NS F.(.- • 461)1

23607 Ifighway 99 North, Suitc 1•C • Edmonds, Washington 98020
(206) 778-1149

November 1P, 1980

Congressmsn Al Swift
201 Federal Building
Everett, Wa. 98201
Dear Congressman ;IgIft:
I am a realtor/builder/developer and it has berm stated.
by leners that 85% of the people do not qualify to buy
a
middle quality homes. Pleaue consider this --- that
a
person earning $35,000 per year without any debts,
can no
longer qualify to buy a lower medium priced hous
e of $75,000.
Yes, it is true. How many people even earn
$35.000 per
year? What are those who earn $24,000
per year going to
buy?
Where are the people going to live? If
the people
can not afford to buy they will have to
rent. If they
have to rent, the shortage of rental
units will continue
to go up.
If people can not buy homes, then the peop
le who make furniture, stoves, toilets, appliances, etc.
, will not have any
homeowners who need them. When interest
rates stop the
very purchase of homes the rest of the
economy must follow.
The time is too late for mahy, and almost
too late for
many others.
Unlesc some emergency measure is put Into
effect immediately
to lower the interest rate many people will
go bankrupt,and
leave many others holding the bag, which
in turn will worsen
the economy.
Please consider this proposal: if governme
nt subsidized
interest loans at 2/3 of the going rate until
the interest
rate dropped to 10% and in return it took an
assignment of
interest for 1/3 of the profit or gain the resa
le of the
house on which the loan was made.
Therefore If inflation continues the governme
nt regains the
difference at the time of sale and If infl
ation were to stop
or lessen to where interest rates were runn
ing at 10% or less
then the cost would have been well worth the
investment. Plus
the fact that people who work pay taxes and thos
e who don't
work can not.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

. Congre9sman Al ::,wift
November 18, 198o
Page Two

A2or..7 with this, myself and many others believe that Interest
on pas3book savings should be tax free. This would encourage
savings and the Keough Acts should be increased to $5,000
yearly so that people would also save more. More money in
savings would be more money to reinvest in our economy which
in turn would strengthen our dollar.
Finally, If those in government who create the problem were
put in the peoples' position and they too lost everything
that they had worked all their life to gain, then perhaps
better solutions to the problems would be thought.out.
We would appreciate your comments.
Sincerely,
1
.1
/
1

• /7;

Anthony
President
SUNSET CONSTRUCTION 1NC.

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Anidon
Sunset Construction Inc.
Sunset Manufacturing Inc.

AN•11)-01-• 215N9
NS-F.C.• ;461)1.

23607 ilighwAy 99 North, Stilt('

I -C, •

Edmunds, W2shington 98020
(206) 778-1149

December

3, 198o

C
Congressman Al Swift
Congress of the United States
i:ouse of Representatives
Washington, D.C. 2051S

/9%

Dear Congressman Swift:
I agree with everything you say In
your letter and I am
glad we voted for you. Everythin
g you say is good for
later, but what about real soon?
Some of us do not have
the luxury of time. Isn't there
something you can do to
help us withlng 45 to 60 or 90
days? If nothing else,
how abont low intcrest short ter
m loans? Or low cost
three year buy downs on interest
rate?
We are not askinw, for charit
y, but an opportunity to sel
l
to those who want to buy so tha
t we can pay our present
loans.
Thank you for caring.
Sincerely,
)
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Anthony C. DiPangrazio
President
(

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SUNSET CONSTRUCTION INC.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

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Dear Mr. DiPangrazio:

words.

Thank you for your letter
and, especially, for your
kind

I understand what you're
saying. We're facing mu
ltiple
;,roblems rir,ht now, many of
them years in the making
an
d many that
have been compounded in th
e past by quick fixes. Th
ey can be solved,
but it will take time.
ThRt's not easy to take fo
r a person like yourself
personally facing the pr
who is
oblems and who knows how re
al they can be.
They aren't problems! we
can solve
oursel;es and it 1.7111
:
tNke time.
T
care and hope you
continue '-.() Hiare your
cor
p.:ern with me any
time.
Best regards.
ely ,

'
it'.
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2, ,1 3 7;•.r..

Al 1
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Member of cbngress

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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

December 18, 1980
Mr. Al Swift
Congress of the United States
House of Representatives
Washington, D.C. 20515

23601 Filghway 99 — Edmonds, VVA 98020 —
RP23 Bergreen Way -- Everett, WA 98204 --

(.1

778-0163
353-0163

..t;711:4%

When Mr. Volker advocates that high interest rates is the way to
correct inflation, I cannot understand how hurting so many businessmen financially is the answer.
This method of fighting inflation has to be wrong because the first
people hurt are the producers of jobs, goods and taxes.
How much will it hurt Mr. Volker and the other Economists who think
that a depression is the cure. They are not affected because they
do not invest every dime they own plus every dime they can borrow.
The economist did nOt borrow many thousands of dollars at
above
prime, paying 14'' to the bank and now paying 2n interest. The
sales have stopped because of the interest rates, but we must continue to pay the bank. How can we do this if there are no sales to
pay off the loans?
How much does high interest rates affect the Senators, Congressmen
and those in Government who have a regular paycheck coming in? It
does not affect any of the people who have a salary or wages until
the boss goes broke.
The hureaucricy has beco-lc so big and top heavy that it wOuld take
years to remove all the fat out of Government. In the meantime, the
Government's high cost of doing business is built in at $951,000.00
per minute. How in the hell are you going to collect the money to
run the Government? Who are you going to tax for it? For years
our representatives have been making bad laws against business, taxing the producers in order to give it to the drones. The drones won't
work and produce and our government has made it impossible for us to
work and produce the moeny to run the bureaucracy. Will you then
start the printing presses up again and put 1.0.U.'s in the box?
Then we have runaway inflation worse than now.
Please lower the interest rates. Let us work and pay taxes. Do not
lower taxes, instead place a surtax on wages. Full employment is the
only way to balance the budget and strengthen our dollar. Removing
people off of welfare and giving them jobs makes a profit out of a
deficit.

•

gc,

211

• ...
•

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

December 18, 1980
Page two

Our government has hurt the real estate and construction industries
the worst and I have a thought on this matter that I would like
to discuss with you in person. I think the real estate and related
field-, could be helped, plus many of our citizens, while making more
tax dollars for our government to balance the budget.
May I hear from you?

Respectfully yours,
'

Anthony C. DiPangrazio

ACD/lk

—

Aerijdon Inc.
Sunset Construction Inc.
Sunset Manufactui ing Inc.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

—sima.a•

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‘N•11).01-•215N9
41.Ns•11:•• WOE

23607 IlighwAy 99 North,

1-(' • Ft'mom's, WAchingtoil 98020
(206) 778-1149

April 21, 1981

Honorable Al Swift
Congress of the United States
House of Representatives
Washington, D.C. 20515

Dear Congressman Swift,
Wnile I agree that your Bill giving first time buyers a $4,000.00
per year tax free break, is a step in the right direction and in
a previous letter you stated that the votes are not in Congress to
strip the Federal Reserve of some of its awesome power.
But there is not anyone, to my knowledge, who agrees that the financial destruction of so many business and j'flps is the only way to
control inflation.
It seems to me that either the Unions should get tonether and stop
production of everything, nothing should move. ThP Nation should
be brought down to its knees if necessary, at least long enough
tr) stop the people in Congress who are owned by the Intfrnational
Financiers.
Why this does not happen, I do not understand? Who do the Unions
represen._? Why does General Motors, Ford and Amorican Motors continue to lose money due to the high interest policy?
It seems to me that if they would all shut down as of a given day
and put all of their people out of work, then would we not have
the votes in Congress to do something.
At this point, I must sound like a radical ready to embrace Communisum. I am by nature a republican. I voted for you because I
believe that you are against giving everything to the free loaders
and drones. That you believe in free enterprise. I ask for no
gifts. I ask only that our Government, thru the Federal Reserve,
please stop destroying us financially. Please do not give us further sympathy and understanding, but instead, do something to remove the burden of the Federal Reserve before it is too late.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

April 21, 1981
Congressman Al Swift
Page two

Regarding the economists who advocate high interest
rates. Do any
of those jerks own any factories or firms that provide
jobs, goods
and taxes? Just what is it that they contribute to
our society
other than heartache and despair?
Please telp now.

Very truly yours,

Anthony. C. DiPangrazio'
President
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WASHINGTON, O. C. 205SI

July 7, 1981

PAUL A. VOLCKER
CHAIRMAN

Thc Honorable Jake Garn
Chairman
Committee on Banking, Housing
and Urban Affairs
United States Senate
Washington, D.C.
20510
Dear Chairman Garn:
Thank you for your letter of June 10, regarding the
Federal Reserve System's policy on replacement of unfi
t currency.
The Federal Reserve is aware that there has been
a
general deterioration in the quality of circulatin
g currency due
to previous processing methods and is actively
taking steps to
resolve the situation. The focus of this effo
rt has been twofold.
First, we have continued the conversion of
manual currency processing equipment to high-speed equipment that
performs a
comprehensive fitness inspection of each note that
is processed
and automatically destroys all unfit notes.
Since first generation
equipment deliveries will not be completed
until mid-1983, however,
most Federal Reserve offices are not yet able
to process all
deposits on the high-speed equipment. To compl
ement this equipment conversion, the Conference of First Vice
Presidents of the
Federal Reserve Banks has approved quality guid
elines that
establish minimum acceptable fitness levels
for all currency
that is recirculated. These guidelines were appro
ved in October
1980, and all Reserve Banks and Branches must
be in full compliance no later than 1984.
The New York and Philadelphia Reserve Banks, which
serve
New Jersey, where Mr. Stewart resides, presently
have a combined
total of six high-speed machines in operation. Altho
ugh the focus
of these Banks has been on the higher denominations,
in order to
provide notes of acceptable quality for automated tell
er machine
usage, there should begin to be a noticeable improvem
ent in the
overall quality of lower denomination notes recirculat
ed by the
New York and Philadelphia Reserve Banks. However,
it must be
noted that a large amount of currency circulates
for some period
before it is deposited and processed at the Reserve
Banks. This
situation exacerbates the quality problem and makes
it much more
difficult to control the fitness level of all
circulating currency
in a particular area.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

401111

ihe honoraule Jaku Garn
Page Two

-It:. respect to your request that the; Federal Reserve
sLnu
,,Lewdrt d new "crisp bill" in exchange for the mutilated
$1 bill :ie.- sent to you, I am pleased to furnish the enclosed $1
uill tnat one of my staff members exchanged at a local depository
institution ior the mutilated bill. As you are aware, the Federal
Reserve does not proviue currency and coin services directly to
the public but, rather, serves the needs of the commercial banking
community. These commercial banks, savings and loans, and credit
unions, in turn, provide a broad range of currency and coin
services to the puulic. To provide such services directly to
the public could entail substantial administrative difficulties
and additional expense whicn would ultimately be borne by the
public. In thu future, should Mr. Stewart receive unfit currency,
he may wish to exchange it for fit currency at a depository institution in his area.
Thank you again for bringing Mr. Stewart's concerns to
my attention and for giving me the opportunity to clarify the
Federdl Reserve's position on unfit currency.
L)incerely,

Lnclosurc
60A:CO:pjt (4V-17o)
bcc: Steve App

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

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JAKE DARN. UTAH. CHAIRMAN
JOHN TOWTP. TEX.
JOHN HEINZ. PA.
WILLIAM L. ARM STRONG. COLO.
RICHARr
LUGAR. IND.
AI FON' • 0.4 OAMATO, N.Y.
JOHN H 4.1.AFEE R.I.
HARRiSoN SCHMITT. N

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HARRISON A. wiLLIAMS. JR.. NJ.
wILLsAm PROXMIR, WIS.
ALAN cRANSTON. CALIF.
DONALD W. RIEGLE. JR.. MICH.
rAuL s. AAAAA NES. MD.
CHRISTOPHER J. DODD. CONN.
ALAN J. DIXON. ILL.

M. DANNY WALL. STAFF DIRECTOR
on A . mrNELL. MINORITY sTAFF DIRECTOR AND COUNSEL

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

90ARD OF Cr)VIRNORS
OF i ht.

'Unit

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COMMITTEE ON BANKING/9-8:1UOIA
URBAN AFFAIRS

/HI pp. 3! 03

FircrivE
CFFICE. OF
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WASHINGTON. D.C.

20510

June 10, 1981

The Honorable Paul A. Volcker, Chairman
Board of Governors of the
Federal Reserve System
Federal Reserve Building
Washington, D. C. 20551
Dear Mr. Chairman:
The enclosed letter and dollar bill raise an interesting point -- what is the Federal Reserve's policy
regarding replacement of mutilated or old currency?
I would appreciate your sending me information
regarding the Fed's policy, and I will pass it on to
Mr. Stewart. I would also appreciate it if you would
have someone within the Federal Reserve System send
Mr. Stewart a new "crisp bill" in exchange for the
one which is enclosed.
Your continued assistance in helping to ensure a
clean banking system is appreciated.
Sincerely your -

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3 June 1981

The Honorable Jake Garn
Chairman, Senate Banking and
Finance Committee
Room 4203
Dirksen Senate Office Building
Washington, D.C. 20510
Uear—Tenator Garn:
Assuming your workdays go something like mine, it's nice when you get a simple,
cleancut issue to deal with. I believe this is one of that kind.
Enclosed is a bill that I received from a local market yesterday. It's a
bit of an extreme case, but is evidence of the issue: dirty money.
I can still recall the simple pride I felt when I opened my first pay envelope and counted the crisp bills on the kitchen table. At the urging of my
mother, I put some of them in my bureau for a "rainy day" -- ana shortly
thereafter opened a savings account at the local bank.
Times are more complex than then but, I suspect, there are lots of kids who
would enjoy looking at their pay, thinking about the work they did to earn
it and -- prompted by the portraits of the presidents -- musing about the
country.
Clean money is not, by itself, going to damp inflation or redress the balance
of payments -- but filthy money is bad psychology, I'm sure you'll agree.
Will you do something about it?
Sincerely yours,

MGS/bc
Enclosure

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

July 6, 1981

The Honorable Barney Frank
House of Representatives
Washington, D. C. 20515
Dear Mr. Frank:
Thank you for your letter of June 23 regarding the Board's
proposed interpretation concerning NOW accounts. The Board's proposal
was intended to clarify the types of depositors that are eligible to
maintain NOW accounts and to make the eligibility criteria more consistent and equitable.
t- 4.
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

During the last year, the Board had received numerous
inquiries from the public requesting rulings on NOW account eligibility. Many of these requests expe-essed a desire for a comprehensive
review by the Board of the eligibility criteria. In the course of
considering these requests, the Board concluded that sole proprietorships may have been provided with what could be regarded as an unfair
competitive advantage over similar businesses that are incorporated.
Since the NOW account statute does not permit business organizations
to maintain NOW accounts, it seemed appropriate to propose permitting
individuals to maintain NOW accounts only for funds used primarily for
personal rather than business purposes. This approach was viewed as
consistent with the Congressional intent to provide consumers with a
return on their transaction balances.
We have received several hundred comments on this proposal
to date. Many of the comments from banks and thrifts echo your concerns with the possible restriction of NOW accounts to individuals
in their personal capacity. The comment period has just ended and
a summary of the views expressed by the public is being prepared.
It is anticipated that the Board will review the public comments
and will be considering this matter in the near future. I can assure
you that your views on this matt6r will prove useful to the Board and
will be given careful consideration when it takes up the issue of
NOW
account eligibility.
Thanks again for providing me with your insight and views
on this proposal.
Sincerely,
(GTS):AFC:vcd OV-174)
bcc: Mrs. Mallardi (2)

S/Paul Voiaet

BARNEY FRANK

WASHINGTON OFFICE:
1609 LONGWORTH BUILDING

4TH DISTRICT, MASSACHUSETTS

WASHINGTON, D.C. 20515

COMM ITTF.F S:

202-225-5931

BANKING. FINANCE AND
URBAN AFFAIRS
GOVERNMENT OPERATIONS

Congre55 of the Winiteb iptateg

DISTRICT OFFICES:
400 TOTTEN POND ROAD
WALTHAM, M kSSACHUSETTS 02154

31)otuse of ikepreentatibeg

JUDICIARY

617-890-9455

AGING
PHILIP PHILBIN FEDERAL BUILDING
881 MAIN STREET

Magbington, :).(C. 20515

FITCHBURG MASSACHUSETTS

01420

617-342-87P:a
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June 23, 1981

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Paul Volcker
Chairman
Federal Reserve Board
Federal Reserve System
Washington, D.C. 20551

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Dear Mr. Chairman:
I wish to
to you by
Committee
in Docket

add my strong objection to those already cogently made
Chairman Fernand St. Germain of the liouse Banking
to the proposed restriction on NOW accounts contained
R-3056.

The proposal to prevent sole proprietors from maintaining NOW
accounts is unneeded, economically unjustified, and a sharp step
back from the sensible deregulatory policies we should be following.
With high interest rates, new forms of competition for saving,
and other factors creating grave difficulties for many depository
institutions, particularly thrift institutions, it would be a
very serious mistake to adopt a regulation such as this which can
only hinder their ability to attract funds by meeting depositors'
needs.
While I was not a Member of Congress when the NOW legislation was
adopted, I am now a member of the Committee on Banking and I
cannot believe that any significant number of my colleagues wish
to see so retrogressive a regulation adopted. I urge you as
strongly as I can to withdraw this proposed regulation.
In closing, I apologize for this delayed comment which comes
after the proposed cutoff date. I did not see the regulation
proposal until recently as I was occupied on the House Floor all
last week.

\
BARNEY FRANK
BF/pam

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

•

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BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551

July 2,, 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:
Thank you for your letter of June 5, 1981, in which you
requested a detailed analysis of the Federal Reserve's pricing
policy for automated clearinghouse (ACH) services, including
a
review of existing systems, the derivation of the mature
volume
assumptions, the costs to the Federal Reserve for the ACH
service
now as well as in the future, and the role of the ACH in the
nation's payments mechanism.
As you know, the Board is in the process of implementing
fee schedules for all Federal Reserve services pursuant to
the
pricing provisions of the Monetary Control Act of 1980. The
Act
requires that fees be developed for Federal Reserve Bank
services
according to a set of pricing principles established by the
Board.
The Board is required to begin putting into effect a schedule
of
fees not later than September 1, 1981, and services covered
by the
fee schedules are to be made available to all depository instit
utions. In August 1980, the Board, in accordance with the requir
ements of the Act, published for comment proposed pricing princi
ples
and fee schedules for services, including ACH services. One of
the pricing principles required by the Act provides that over
the
long run fees shall be based upon all direct and indirect costs,
except that due regard shall be given to competitive factors and
the provision of an adequate level of services nationwide. In
this connection, in December the Board adopted the principle
that
if in the interest of providing an adequate level of services
nationwide, the Board determines to authorize a fee schedule
for
a service below cost, it will publicly announce its decision.
On December 30, 1980, after considering the more than
230 comments received from the public, the Board announced a
number
of actions, among which were the adoption of revised pricing
principles and the adoption of a fee schedule for ACH services
to be effective August 1, 1981. While ACH fees will cover full
costs eventually, this will not be true initially in order to

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

The Honorable Fernand J. St Germain
Page Two

encourage continued development of electronic funds transfer.
The ACH, we believe, has the potential to offer significant
benefits to the public in terms of decreased cost, increased
convenience, and greater security for certain types of payments.
This judgment is shared by the financial industry, the Federal
Government, which has successfully used ACH services in the Treasury
direct deposit program, and by the National Commission on Electronic
Fund Transfers (NCEFT), established by the Congress in 1974. The
NCEFT further concluded that Federal Reserve involvement in the
operation of ACHs was necessary because the private sector was
not yet able to operate ACH facilities economically without this
assistance. The Board has stated that it regards the Federal
Reserve's operation of ACH facilities as analogous to a research
and development program that will provide technical data and
experience that will enable the private sector in the future to
compete in the operation of these facilities in a cost-effective
manner.
ACH has been in existence in the United States only since
the early 1970's, and over that period has achieved significant
growth. Participating in the ACH mechanism are the privately
incorporated regional ACH associations and the National Automated
Clearing House Association; the originating and receiving financial
depository institutions; corporations, governments, and consumers
that use the system; and the Federal Reserve. The 40 regional
ACH facilities that were in operation during 1980 processed an
annual volume of approximately 227 million payments on behalf of
over 23,000 depository institutions and 6,800 corporations. The
Federal Reserve operates all of the clearing and settlement
facilities for ACH associations, except for the New York Automated
Clearing House Association. While the New York association uses
Federal Reserve delivery and settlement facilities, it provides
its own computer operations.
Currently, the Federal Government is the major user of
the ACH, accounting for 75 percent of total volume. Because of
increased resort to ACH transfers, the number of Federal checks
has been declining for some time--in 1980, there were 20 percent
fewer than in 1975. While commercial ACH volume has grown more
slowly, recent volume growth has been impressive in relative
terms--nearly a 90 percent increase last year.
Recently, some innovative uses of the ACH have been
adopted that may result in increased volume. For example, while
the ACH was originally intended to handle a narrow range of payments

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

The Honorable Fernand J. St Germotn
Page Three

.jvnt:rally low-value recurring payments, the Treasury
Department has demonstrated the versatility of the ACH by using
it to make large-value deposit transfers to State and local
governments participating in the Federal Revenue Sharing Program.
A more recent demonstration of the versatility of the ACH is the
program that began several months ago with the banking industry's
selection of the ACH as the mechanism for clearing truncated
checks in the ABA's check safekeeping test.
The decision taken by the Board in adopting the schedule
for ACH services reflects the environment described above. For
all services, the fees are based on fully allocated current costs
plus a 16 percent private sector adjustment factor. ACH prices,
in contrast, are based on an estimate of what costs would be for
processing an annual volume of approximately two billion items
per year. The Board expects such a volume to be reached in 5 years
which will imply an average rate of increase of about 50 percent
a year. Such a volume, it is believed, would be large enough to
realize the economies of scale of a mature environment. The Board
elected to price on this basis because it believes that, over the
long run, for many types of payments the ACH will prove to be a
more efficient and secure means of transferring funds than checks.
The pricing policy we have adopted should allow ACH to assume its
appropriate role in the payments system, ultimately reducing costs
to the consumer. Enclosed with this letter is a more detailed
staff study discussing the derivation of the mature volume assumption and the costs associated with the ACH program.
The Board believes that the ACH fee schedule it has
adopted is in accord with provisions of the Act. We believe that
Congress intended the Board to have some flexibility in administering service fee schedules; we also believe that the clear
intent of Congress in requiring explicit prices for services was
to promote greater efficiency in the payments mechanism. I would
note in this respect, however, that the Federal Reserve Board will
review the fee schedule for ACH services on an annual basis to
ensure that in a mature environment prices will fully cover costs
and that the volume growth and other assumptions used to develop
these prices are reasonable. To assist the Board in making this
decision, the staff recently began a comprehensive study of the
issues associated with how long the policy should be continued.
We expect this study to be completed by the end of this year.
Finally, I would like to stress that the Federal Reserve
believes that the paper check will continue to play an important
role in the payments system for the indefinite future. For certain

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

•

The Honorable Fernand J. 6t Germain
Page Four

types of payments, the ACli cannot realistically be expected to
displace checks, use of cash, or other forms of electronic money
transfers. 12Alt for rany types of recurrina payments, such as
direct deposit of payroll and social security payments, the ACH
provides a safe, accurate method of payment that reduces society's
risks and costs.
I hope this inforatien proves helpful to you. In
addition to the staff paper on volume and cost data mentioned
earlier, I have also included two articles from the Federal
Reserve Bulletin that you may find useful in your consideration
of this matter. Please let me know if I can be of further
assistance.
Sincerely,

Acitu

12.nclesures

("Federal Reserve Operations in Payment nechanisms:
A Summary", reprinted from the FR Bulletin; June 1976;
and "An Update on the Automated Clearinghouse, by
Earl IlarAlton, dtd.from July 1979 Bulletin, also
"Federal. Reserve Board staff paper on ACE Costs and
Volumes.)

Ell'eLSA:pjt (#V-154)
bec: Mr. Hamilton
Mr. Adams
Mrs. Mallardi (a)
Gov. Gramley

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

•

J. WILLIAM STANTON. OHIO
cHALmrRs P. WYLIE. 01-410
STEWART B. MCKINNEY, CONN.

FERNA>0 J. ST GFRMAIN, R.I„ CHAIRMAN
HENRI S. PFUSS, WIS.
HENRY"B. GONZALEZ. TEX.

GEORGE HANSEN. IDAHO
HENRY J. HYDE, ILL.

4VOST rti G. MINISH. N
FRANK ANNUNZIO. IL.L.

U.S. HOUSE OF PEPRESENTATIVES

JIM LEACH, IOWA

L. NEAL, N.C.
jrnny M. PATTERSON. CALIF.

COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS

ED BETHUNE, ARK.

JAMES J. BLANCHARD, MICH.
CARROLL HUBBARD. JR.. KY.

NINETY-SEVENTH CONGRESS

PARREN J. MITCHiLL. MD.
WALTE

E. FAUNTROY, D.C.

sTrrvot N

NORMAN D. SHUMWAY. CALIF.
STAN PARRIS VA.

JOHN J. LArALcr. N.Y.

EC WEBER. OHIO

DA,vir) w rvA.m. tNo
NortmA..
I,
STANLk r

THOMAS B. EVANS. JR.. DEL.
RON PAUL. TEX.

2129 RAYBURN HOUSE OFFICE BUILDING

BILL MCCOLLUM FLA.
GREGORY W. CARMAN

N
N.V

WASHINGTON, D.C. 20515

MARY ROSE OA KAR. OHIO
JIM MATTOX, TE X.
BRUCE F. VENT°. MINN.
DOUG BARNARD, JR., GA.

N.Y.

GEORGE C. WORTLEY. N.Y.
MARGE ROUKEMA. N.J.
BILL LOWERY. CALIF.

June 5, 1981

JAMES K. COYNE. PA.

ROBERT GARCIA. N.Y.

VS-41247

MIKE LOWRY. WASH.
CHARLES E SCHUMER. N.Y.
BARNEY FRANK. MASS.
BILL PATMAN TEX.
WILLIAM J. COYNE. PA.

CID
CJZ)

Honorable Paul Volcker
Chairman, Board of Governors
Federal Reserve System
Washington, D.C.
20551

Dear Chairman Volcker:
C.13

As you know, there is concern being expressed over the
pricing schedule that the Board has developed for automated
clearinghouse (ACH) services. The schedule is based on an
assumed mature volume of transactions which produces prices
that do not cover costs in the early years. It is recognized
that the Board developed these fees to assure continuOg
provision of this form of payment and clearing.

4"'

It would be appreciated if you and your staff would provide
at the earliest possible time a detailed analysis of the ACH
pricing issue including a review of existing systems, the
derivation of the mature volume assumption, the costs to the
Federal Reserve for the ACH service now as well as in the
future, and the role of ACH in the nation's payments mechanism.
This analysis will allow the Congress to be fully aware of the
factors considered by the Board in this matter and to review the
role of ACH services in the future.
Thanking you for your consideration in this matter.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Sinerely,

Fernand J.
Ch4rman

t Germain

ir•.1

r".R ROLL HUBBARD

AT LARGE MAJORITY WHIP

CONGRESSMAN
cob.d i4=its

1ST DISTRICT, KENTUCKY

BANK ING. FINANCE AND
URBAN AFFAIRS
2244 RAYBURN Housc Orricr BuiLniNo
W43•41,
4GToN. D C

20515

(202) 225-3115

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Congre55 of tlic Elniteb 5;)tatc5
jitmuise of tripalantatitle5
agbinaton, ;D.C. 20515

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AND FISHERIES
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Honorable Paul A. Volcker, Chairman
Board of Governors
Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Dear Mr. Chairman:
I am writing on behalf of one of my constituents,
Dr. Jerry B. McKinney of Sturgis, Kentucky. Dr. McKinney
has requested my assistance with obtaining an answer to
questions regarding interest rates and inflation.
Enclosed is a copy of his letter to me, for your
information and review. I would be most appreciative if
you would provide me with information, so that I may
properly respond to Dr. McKinney's quite timely and complex
questions.
Thank you for your assistance with this matter.
forward to hearing from you soon.
With best wishes for you, I am
Sincerely yours,

Carroll Hubbard
Member of Congress
Cri/nuns
Enclosure

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JERRY B. Mt KENNEY. M.D.
HUMF,I-4RE
STURGIS

BUILDING

KE1.TUCKY

42450

C7OP Y
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TILEPHOPor 333-5521

I'laY 7)
Carroll Hubbard

1981
rilW

.1 5

`\;(ir,

Yember of Concress
ii23 Cannon Building
Washincton, r.c. 2o515

Dear Sir:
I need your help in sc.curing ar answer tothe followir.; fcl-ly sirple question.
If increases in the price of coNmodities, for instance oil, which 11;s a broad
impact on various sectors of our economy, seriously worsen inflation; how can
increasino interest, which is increasing the cost of the ccmmodity, money, which
touchps every faret and sector of our econrm:,- do anything other than also severely
increase inflation?
We hear frrm all levels of qovernment, that the Federal
Reserve increases in interest cost is a painfla step necessary to reduce inflation.
I feel that simple common sense indicates that these steps to increase interest
have the opposite effect.
It seems obvious that these steps increase, not decrEase,
inflation and at theame time punish the eccromy further by producing recession.
...v)u)..d appreciate it, if you ask your staff to slirly me with the r.amec and addr7Jases of responsible individuals in the Federll Reserve, in the Conuress, or in any
sectpr cf our -,overnment or people responsible for economic policy.
It is my intentior to write these individuals asking for an answer to the question I outlined
above.
I would also appreciate it if yDu personally would ask these individuals the same
question, and exercise the influence of your office in urging these people to
give you, themselves, and the country an honest answer to the question.
Your coDr.eration and assistance in this matter will be greatly appreciated.
Sincerely0,

McKenney,
.
Ja.'CK/mcw

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

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CHIIRMAN

JAN/ES M. JCIEORDS.
RANKING MINOKITy 1.110411E

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TOM DACCHLE

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WINCH L._ DORG A/4 N. DAK.
DAVID R. !BOWEN 1.01Sit.
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GLENN ENGLISH OKLA.

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Committee on :agriculture

FLOYD J.
AN. IND.
LEON C. FANETTA. CALiF.
BERYL ANTHOPey JR., ARK.

rotrorpoupc w. R ICH MOND.

N.Y.

▪ (KIKA) De LA GARZA, TEC..
OFF1C10 MEMBER

JOHN L. NAPIER. S.C.
/OS SK EID4.
M X.
SID MORRISON. WASH.
CLThrT KOSERTS S. OAK.
STEY1 OUNDER1OH. WIS.
coontn SVAIKS. IOWA

tibubcommittre on Conserbation, Cubit, anb
Rural 13rbelopment

WILLIAM O. WAMPLER, VA.,
0/7100
(MOIR

ROGER ALLBEL
MINORITY CONIPA.TAHT

lloom 1301, longthortb Rnuse effict Akin:dna

ROSIERT A. C.A SHOOLLA
STAFF DIRECTOR

Magbington, ri.C. 20515
June 4, 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

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Dear Mr. Chairman:
The House Subcommittee on Conservation, Credit, and Rural
Development will hold public hearings on June 23, 1981, at 9:30 A.M.
in Room 1301, Longworth House Office Building, on the topic of the
impact of credit policies on American agriculture.
We very much
would appreciate your appearance as our leadoff witness for those
hearings.
Generally, we would like you to explain current Federal Reserve
credit and monetary policies, advise us of Federal Reserve projections on interest rates and credit availability for the agriculture
sector and respond to questions of the Subcommittee Members.
Robert Cashdollar, Subcommittee Staff Director, will work with
your staff on further arrangements.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

With kindest regards and best wishes, I am
Sincerely,

James M.
Ranking M

Member

Ed Jones
Chairman

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JOHN M. [AL/HOORN. ILL.

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A[Nlory A. ofAxMAN, CALIF.
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WENDELL SMILEY, MO.

JOHN L. MURTON. CALIF.
JOHN COMYERS. JR.. MICH.

NINETY-SEVENTH CONGRESS

Congrefscs of the ainiteb

22S-3741

tate5

Pouge of teprefientatibei5
GOVERNMENT INFORMATION AND INDIVIDUAL RIGHTS
SUBCOMMITTEE
OF THE
COMMITTEE ON GOVERNMENT OPERATIONS
RAYBURN HOUSE OFFICE BUILDING, ROOM B-349-B-C
WASHINGTON. D.C. 20515

June 3, 1981

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Mr. Paul Volcker, Chairman
Board of Governors
The Federal Reserve System
Federal Reserve Buliding
Washington, D. C. 20551

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Dear Mr. Volcker:
As part of its oversight of the information activities of the Federal
government, the Government Information and Individual Rights Subcommittee
is initiating an inquiry into the production and distribution of audiovisual materials by Federal agencies. We request a detailed list of the
budgeted or intended production and distribution of audio-visual materials
(including motion pictures, video tapes, film strips, slide shows, or any
related materials) by your agency or any of its components in Fiscal 1982.
For each project, please supply a description of the production, its
intended audience and use, its total cost, and a list of any previous
production on the same or a directly related topic. Also, please provide
a breakdown of the portion of total cost for each project allocated to
agency expenses, contract payments, or grants. Finally, the budget item
under which funds were appropriated for each project should be identified.
The Subcommittee would appreciate your response before July 15.
Should you decide to add, delete, or modify projects after you forward
your list to the Subcommittee, please inform us at the time of your decision.
If you have any questions, contact Christopher Vizas, Subcommittee counsel,
at 225-3741.

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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

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July 2, 1981

The honorable vialter . Fauntroy
Chairman
bconimittee on Domestic Monetary
Policy
Committee on Lanking, Finance
and Urban Affairs
house of Representatives
hashington, D.C.
20515
Dear Walter:
Thanks for your nice note. I was hap
py to meet
witn your group last week; like you
rself, I believe that
it is important that there be broade
r public understanding
of what we at the Federal Reserve are
trying to accomplish.
I also enjoyed reading your very tho
ughtful letter to
Lon Regan; you raiseu a number of
good points and I'll be
interested in seeing the response.
I unuerstand that our staffs have
been talking
about my upcomihg testimony on moneta
ry policy, and I'd
be more than williny to discuss it wit
h you directly.
Perhaps we could talk on the phone
sometime in the next
few days at your convenience.
Sincerely,

RF6:pjt (4V-184)
bcc; Mrs. Mallarui (2)

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

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(V-15'3)

July 2, 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:
Thank you for your letter of June 4 requesting comment on
correspondence from the Honorable James H. Quillen concerning the fee
schedule for automated clearinghouse QicH) services provided by the
Federal Reserve.
The ACH has been recognized as having the potential to offer
significant benefits to the public 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 Fund Transfers ("NCEFT"), which was established by
Congress in 1974 to study electronic fund transfers. The NCEFT further
concluded at the time of its study that Federal Reserve involvement in
the operation of ACH's was necessary because the private sector was
not yet able to operate ACH facilities economically without this
assistance. Thus, the Board has stated that it regards the Federal
Reserve's operation of ACH facilities as a research and development
program that will provide technizal data and experience that it hopes
will enable the private sector in the future to operate these facilities in a cost-effective manner.
The Board is in the process of establishing and implementing
fee schedules for all Federal Reserve 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 scale of a
mature environment. While prices will cover full costs eventually,
this will not be true initially. The Board elected to price on this

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

The Honorable Fernand J. St Germain
Page Two

basis because it believes that, over the long run, the ACH
will prove
to be a much more efficient means of transferring funds. This
approach
should encourage volume growth and, ultimately, reduce costs
to the
consumer through greater efficiency. Further, the Board belie
ves that
the ACH fee schedule is in accord with provisions of the
Monetary Control
Act, which provide that over the long run fees shall be estab
lished on
the basis of all direct and indirect costs, except where the
Board
determines a need to provide an adequate level of service
natioowide.
These provisions of the Act indicate that Congress inten
ded the Board
to have some flexibility in administering service fee
schedules.
The Federal Reserve Board will review the fee schedule
for
ACH services on an annual basis to insure that in a matur
e environment
prices fully cover costs and that the volume growth and
other assumptions
involved in setting these prices are reasonable. Because
this pricing
policy should promote increased volume, the Board belie
ves that in the
long run it will encourage the development of private
sector alternatives.
The Federal Reserve believes thnt the paper check
will continue
to play a dominant role in the payments system for the
indefinite future.
For certain types of payments, the ACH cannot realistica
lly be expected
to displace checks, use of cash, or other forms of elect
ronic money
transfers. But for many types of recurring payments, such
as direct
deposit of payroll and social security payments, the
ACH provides a
safe, accurate method of payment that reduces socie
ty's risks and
costs.
I hope this information proves helpful to you.
me know if I can be of further assistance.
Sincerely,
3,1P3 •4

LSM:EES:LSA:AFC:avcd (V-153)
bcc: Mr. Meeder
Mr. Snyder
Mr. Adams
Mrs. Mallardi (2)

6 1.0:14

Please let

FE'NAND J. ST GERMAIN, R.I., CHAIRMAN
HENR`v S. REUSS. WIS.
kr- NRY B. QONZAt CZ. TEX.
JOSEv“
MINISH. N.J.
rnitnric-XIIKITAtz10. ILL.
PA RREN J. MITCHEL
MD.
WALTER E. FAUNTROY, D.C.
STEPHI.:4 L. NEAL, N C.
nn y M. PATTERSON. CALIF.
iAmrs J. BLANCHARD. MICI-4.
cArmot.t.. HUBBARD. JR.. KY.

Chrmn.
Action assigned to Mr. Farnsworth

U.S. HOUSE OF UEPRESENTATIVES
COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
NINETY-SEVENTH CONGRESS

LLIA m STANTON. OHIO
J.
CHALMERS P. wyLit. ovuo
STEWART 13. McKINNEY. CONN.
GEORGE HANSEN, IDAHO
HENRY J. HYDE. ILL.
JIM LEACH, IOWA
THOMAS B. EVANS JR.. DE1....
RON PAUL. TEX.
ED BETHUNE. ARK.
NORMAN D. SHUMWAY. CALIF.
STAN PARRIS. VA.
ED WEEVER. OHIO

JOHN J I Ar- ALcc. N.Y.
DA
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2129 RAYBURN HOUSE

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STANLEY N. LUNDINL N Y.
MARY RoSE OAKAR. OHIO
JIM MATTOX. TEX.
BRUCE F. VENTO. M:NN.
DOUG BARNARD. JR., GA.
ROBERT GARCIA, N.Y.
MIKE LOWRY. YVASH

OFFICE

BUILDING

NORMAN E

WASHINGTON. D.C. 20515

June 4, 1981

BILL MCCOLLUM. FLA.
GREGORY W. CARMAN. N.Y.
GEORGE C. WORTLEY. N.Y.
MARGE ROUKEMA. N.J.
DILL LOWERY, CALIF.
JAMES K. COYNE. PA.

42.47

CHARLES E SCHUMER. N.Y.
BARNEY FRANK, MASS.
BILL PA TMAN TEX.
WILLIAM J COYNE. PA.
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Honorable Paul Volcker
Chairman, Board of Governors
Federal Reserve System
20551
Washington, D.C.

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Dear Chairman Volcker:
Enclosed for your attention is correspondence from
the Honorable James H. Quillen. As you will note, he
sent along a letter from Mr. Colin Aldworth who is concerned about the pricing of automated clearinghouse services
offered by the Federal Reserve. In particular, Mr. Aldworth
is concerned that the fee schedule will result in movement
away from the use of paper in our payments system. Your
analysis of these issues will be appreciated.
Thank you for your consideration in this matter.

F rn nd . St Germain
man
Enclosure

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

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JOIMES H. QUILLEN
FIRST DISTRICT. ENNICSSEC

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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

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FEDERAL (Posy Orricc)Ifkult_Dtwo
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Egasbington, Ile. 20515
May 7, 1981

MAY 1 3 1981

Dear Mr. Chairman:
Re:

Mr. Colin Aldworth
Web Div. Operations Manager
Falconer Security Printers
Post Office Box 3999
Stephen Holston Station
Bristol, Tennessee 37620

The attached, self-explanatory letter from Mr. Colin Aldworth
is for your ready reference.
I will appreciate your allowing me information on which to base
a reply.
Sincerely,

Honorable Fernand J. St Germain
Chairman
Committee on Banking, Finance and Urban Affairs
U. S. House of Representatives
2129 Rayburn House Office Building
Washington, D. C. 20515

37442

m corquodale
OROUP

COMPANIES

falconer security printers

Post Office Box 3999
Stephen Holston Station
Bristol. Tennessee 37620
Phone:(815) 538-7181

April 30, 1981

The Honorable James Quillen
P. 0. Building
Kingsport, Tennessee
37660

Dear

Congressman Quillen,

We wish to bring to your attention our Company's
concern over an issue that has arisen out of the passing of the Monetary Control Act of 1980. The issue concerns the Federal Reserve
Board subsidized fees for its Automated Clearinghouse Services.
This act as you are aware, required the Federal Reserve to begin
charging a price for its services based on its true costs, together
with return on capital invested. These prices were published in January, 1981, and conflicted with the law, with we believe, one exception. The exception being that the prices set by the Federal Reserve
for payments that are cleared through its Automated Clearinghouse, or
"ACH" are much less than its true cost. The Federal Reserve will charge
only
or 1.5(depending on whether the payments clear between one or
two districts) for each payment that clears through the ACH, compared
with a cost to the Federal Reserve Board of each ACH item in 1980 of
approximately 5.2). This, we believe violates the Monetary Control
Act and will firmly place the Federal Reserve as the operator of the
ACH system with little or no opportunity for private sector participation, and flatly contradicts the plain words of the, Monetary Control
Act and the intent of Congress.
We as bank stationersand more specifically, check printers, are
concerned that the Federal Reserve by subsidizing the price of ACH
payments will reduce the use of paper checks as a form of payment,
with serious repercussions to our company, its employees and to the
check industries as a whole.
The true cost to the Federal Reserve of clearing a paper check
and so paper checks are at present much less expensis only about
ive to the Federal Reserve than ACH payments. The Federal Reserve
Board hopes that as the volume of ACH items increases, its cost per
ACH item will decrease.

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

fatoner security printers

The Honorable James Quillen
P. 0. Building
Kingsport, Tennessee
37660

Page 2
April 30, 1981

We believe the facts speak differently, as between 1977
and 1980
ACH volume more than doubled, but the cost to the Federal Reserv
e Board
per item increased from 4.9 in 1977 to approximately 5.2C
in 1980.
As
a comparison the cost to the Federal Reserve Board per paper
check remained stable at approximately 1.
In conclusion therefore, we respectfully request that the
congressional Banking Committee holds legislative oversight hearin
gs on the fees
set by the Federal Reserve Board for Automated Clearinghouse
Services
under the Monetary Control Act of 1980.

Yours Respectfully,
//
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Colin Aldworth
Web Div. Operations Manager
CA/nlb

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

•

July 1, 1981

The Honorable Fernand J. St Germain
Cnairman
Committee on banking, Finance
and Urban Affairs
house of Representatives
Washington, D.C.
20515
Dear Chairman St Germain:
Thank you for your letter of June 26 requesting my
testimony on monetary policy pursuant to the Full Emplo
yment
and 'balanced Growth Act of 1978.
I look forward to appearing before your Committee
on Tuesday, July 21.
Sincerely,

V th WWI

PJT (V/-185)
bcc:

Mr. Axilrod
Mr. Kichline
Mr. Prell
Mrs. Mallardi (2)

July 1, 1981

The HonoraLde Eugene Johnston
Liouse of Aepresentatives
ifiashingtwl, D.C.
20515
Dear Mr. Johnston;
Thank you for your recent letter concerning the ability
of nonprofit hospitals to maintain NOY accounts. As you are
aware, the Consumer Checking Account Equity Act of 1980 (Title III
uf P.L. 96-221) provides that depository institutions may offer
NoW accounts only to individuals and nonprofit organizations that
are organized primarily for religious, philanthropic, charitable,
educational or other similar purposes.
From a reading of the Act and from itz; legislative history,
it
uncluar whether nonprofit hospitals should be regarded as
(ivalifyin(j for NU'i accounts since nut all of these hospitals are
operated fur philanthropic or charitable purposes. Consequently,
in order to clarify the NOW account eligibility list, in April the
board sou(jht public comment on a proposed interpretation to Regulation Q that would permit all nonprofit organizations that qualify
for an exmption from Fecieral income taxation under section
501(c)(3)-(13) and (19) of the internal Revenue Code to maintain
NOV4 accouhts. If this aiTroach is adopted by the board, it is
likely
all nonprofit hospitals woulL1 be peri.litted to maintain
ZiOki accounts since such organizations qualify under section 501(c)(3).
Altitough the comment period for this proposal ended on June 15, I
will ric clad to bring your views on this matter to the Board's
attc!ntion.
Thanks again for providing me with your insight and views
on this proposal.
Sincerely,

GTS:pjt (rtV-180)
bcc: Gil ochwartz
Legal Records (2)
G.C. Log (#210)
Mrs. Mallardi

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Action assigned to Mr. Mannion.
1
rUGENE JOHNSTON
•
6TH DISTRICT, NORTH CAROLINA

DISTRICT OFFICES,
324 WEST MARKET STREET
ROA RD

128 CANNON BUILDING
WASHINGTON, D.C. 20515

•

WASHINGTON OFFICE:

• .:

175 NORTHPOINT AVENUE
SUITE 105

(202) 225-3065

HIGH POINT, NORTH CAROLINA

31)aufSe of ilepreiSentatibei5 1991 JR!29 r! (-1 c.-./

BUDGET

?..iilassijington, ;D.C. 20515

COMMITTEE ON

RtibsviLLti. Norrni CAROLIIVA

EDUCATION AND LABOR

June 25, 1981

/Pr
The Honorable Paul A. Volcker
Chairman
Federal Reserve Board
Twentieth and Constitution Avenue, N.W.
20551
Washington, D.C.
Dear Chairman Volcker:
The enclosed letter from my constituent expresses his concern
that nonprofit hospitals are not permitted to partici-pate in NOW
checking accounts.
I can see no justifiable reason for prohibiting nonprofit
hospitals from participating in NOW accounts, and it is my hope
that the Federal Reserve Board, in conjunction with the FDIC, will
act soon to reverse this policy. I have also contacted Chairman
Fernand St. Germain of the House Banking Subcommittee on Financial
Institutions, to let him know of my communication with you and with
Chairman Volcker of the Federal Reserve Board, with respect to this
matter. Should an administrative solution not be forthcoming, I
have asked Chairman St. Germain to consider mandating statutorily
that hospitals be allowed to participate in NOW checking accounts.
I would appreciate your letting me know what actions you may
he taking in this direction in the future. Thank you for your attention
to this matter.
Very truly yours,

;

1
1
7.44,414
EUGINE JOH'STON
ongress
Mertiber

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

27215

205 MUNICIPAL BUILDING
OFFICE CI
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Enclosure

27260

4
- 60.014TH SPRING STREET

BURLINGTON, NORTH CAROLINA
COMMITTEE ON

27402

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Congre55 of tbe Ziniteb *tatesril

MEMBER:

P.O. E3ox 210

.C1WeiN48640, NORTH CAROLINA

27320

•

MEMORIAL HOSPITAL OF ALAMANCE COUNTY, INC.
P.O. BOX 4006
730 HERMITAGE ROAD
BURLINGTON. NORTH CAROLINA 27215
TELEPHONE (9191 229-2600

RALPH M. HOLT. JR.

•RF SIDENT POARD OF

1
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MARVIN E

IRUSTEES

YOUNT. JR.

AOkliNISTRATOR

WARREN E. TAYLOR
ASSISTANT ADiAiNiSTRATOR

June
E

1981

ROBERT E. BYRD
ASSISTANT ADmiNISTRATOR

BOB E. DUNCAN
CONTROLLER

Congressman Eugene Johnston
430 South Spring Street
Burlington, North Carolina 27215
Dear Representative Johnston:
As you are aware, hospitals are not eligible to participate in NOW
checking accounts whereas interest would be paid on daily balances.
For some reason, the Consumer Checking Account Equity Act of 1980
(F.L. 96-221,94 Stat. 132) excludes hospitals from participating
in this type of account even thour7h similar categories of depositors
are eligible, such as trade associations, pension funds, labor unions,
and independent school districts. I feel that the non-profit hospitals
should be just as eligible as these other categories and would like
to solicit your help in seeing that hospitals are included when proposed
amendments are discussed around June 15, 1981. As I understand it,
the Board of Governors of the Federal Reserve Board is soliciting
comments on amendments to the statute.
I think that this is one way to offset some of the budget cuts that are
being proposed for hospitals and would probably mean that our hospital
would receive in the neighborhood of $5,000 yearly from this type of
opportunity. Again, I would appreciate anything that you can do for
us and should you have any questions please feel free to give me a call.
Sin

_ly,

Bob E. Duncan
Controller
BED/dw

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

cc:

Mr. Marvin E. Yount, Jr., Administrator - r,cmorial Hospital
Mr. Ralph M. Holt, Jr., President, Board of Trustees - Ne:Norial Hospital

Full text of Paul A. Volcker Papers : Congressional Correspondence : July-August 1981, Folder 2, Box 11, Item c439

FRASER