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,; •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  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 Find it online: http://finodingaids.princeton.edu/collections/MC279/c439 and https://fraser.stlouisfed.org/archival/5297 The digitization ofthis collection was made possible by the Federal Reserve Bank of St. Louis. From the collections of the Seeley G. Mudd Manuscript Library, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. 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Mudd Manuscript Library 65 Olden Street Princeton, NJ 08540 609-258-6345 609-258-3385 (fax) mudda,princeton.edu   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Od.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  0  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  •  Mb.  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)   https://fraser.stlouisfed.org 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.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (B-377 RHOB)   https://fraser.stlouisfed.org 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)  ..•• •• GOvt •. • •• 9 -• 1-qo • 0 /-'4 •co  : • -••  ..  BOARD OF GOVERNORS oF TE-  FEDERAL RESERVE SYSTEM  :::::• r r t,  ...It — • •  •  •  • •. •  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.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org 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)   https://fraser.stlouisfed.org 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.   https://fraser.stlouisfed.org 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. , , 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   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  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:   https://fraser.stlouisfed.org 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.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2  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).   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  3  )  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.   https://fraser.stlouisfed.org 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:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1.  How many thrifts have established lending agreements with the District Banks?  2.  Whether the relationships between thrifts and the District Banks and the discount window officers are the same as those for commercial banks?  3.  How many thrifts have used the window and the terms and conditions of such use?  4.  Whether any institutions have qualified for seasonal or extended credit in exceptional circumstances and the terms and conditions of such credit if extended?   https://fraser.stlouisfed.org 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.   https://fraser.stlouisfed.org 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  niteb  tate5  DISTRICT OFFICES:  TRANSPORTATION  FEDERAL BUILDING  LABoR-HEW  78 CENTER STREET ARTERIAL  LEGISLATIVE EX OFFICIO M EMBER 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  C3 PHoNE:tattiB-53140 10 Tr c0 C:: Cr -TI c. , ri ...—.....  MIGRATORY BIRD CONSERVATION COMMISSION  c,  BOARD OF REGENTS SMITHSONIAN INSTITUTION  m  / Pke "Er,. /  Mr. Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Twentieth Street and Constitution Avenue, N.W. Washington, D.C. 20551  n 7) , : -gr. _,,c-)  3C rai  ...< —  . -7.1 •;:.a.  ›. =  r"  53  — c).c) rwl -., i-11 {../1 rn .--4 C3 ;a;  -r-rrl rri.r---  .....  e.:,r-s  =  at C:3 2".  -...ZE  cn  -r. -  CD "  --‹ to') .a -•-• -:::  = L')  TI  a  .7." --...  r\..) INO  a:0  .c:r -,...  rrt " 1 M  cl  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  https://fraser.stlouisfed.org 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  ZZ31,42.47  • /0:73  n < c")rn  Paul Volcker Chairman, Board of Governors Federal Reserve System 20th Street & Constitution Ave., N.W. 20551 Washington, D C.  .D•  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  (:-'   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •••  ,.<61/ r-0/1 •  CJ1  LO  d is a copy of the study prepared by the Banking  the asset freeze and the settlement.  r—  r-  Dear Mr. V Encl  C.--   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ERNEST F. HOLLINGS SOUTH CAROLINA  eLvrn 11Cniteb Zfates ,...TEttf;y0a. WASHINGTON, D.C. 20510  1961 JUL 24 fr110: 34  July 23, 1981  1,L4 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  ....... •.oft,`),44:•. '.,:tP,------.--, .'61^/ ,..,;, ,,,, 7 -%,1' ••  k,., .,• ;?:,44......:, .....• .-.-zik. - -,... .i.,.,,,e\-; , ),.; •; • -• 4 rfr—ir-, it.  vAft.. tlftetA4A', v- /9 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   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1  ,  I ,f  '1.  L.;(,1.1  Fuqua  c..A.,crience,.1 tiLlen -1 • . , rates. During .-Aach periods 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' '  LO  theil  knov. ii.  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 (\f-191)  bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  T  , uring periods natively higli tO raY inore c..,r on new erase most -en VIICs and  rlease let  -  Cong. Liaison Office will respond DON FUQUA  2269 RATSURN HOG'S OrrICt WILDING WASHINGTON. D.C. 20515  2DDISTRICT A 1 r-1-01.)  —.7 .....1' cr.:  c--• r..: ,.  L.:a I,  ___, • :  ..rt  '7, al  =L. 0._  ::: -: , ....• '...7. .....,.) :'-' e/ . . ....  CT) i  t,.!-(....)/—  : C••••.:  , . 3 . 1 i -- .,,I : 'c i ..._•  , i , ..; i/4  7),  .  :Lii,.  ----......)  Lai  CC1  crs  CONGRESS OF THE UNITED STATES  CL.: CI  HOUSE OF REPRESENTATIVES WASHINGTON, D.C. 20515  4,1/1 July 8, 1981  (-)  La_ L.  CI  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 (,// DF/fmc Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  t55(1,  .  Po HOx OPLANOU iL .)c"53 AP 4  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 mGmCOmP mG'."   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Oviakv, V  1.6  9  A  .• • oGovt--R'• 4,.. o •  , zw. . /-- •  C .•, '-4 .1',el,  h. h k,.  .RALRt  • •..• •  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.   https://fraser.stlouisfed.org 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  CO:vcd 0V-189) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi  Congressional Liaison Office will draft response 33% RD CF :-/F ht. r ,.,I,„., Z.LL • ;•s L,  0  L:1/4 1:.  'Unita)Zfcifez -.Senate 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  1  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   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  `7'  A  of ,  VAV cs.)  Li\  I ,! ,r-13 E.I.A1Mili]Y  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?  3.  Who audits this group - and when?  4.  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   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  s 4 ••• of GOv •'. .0  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.   https://fraser.stlouisfed.org 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) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi Sue Werthan Margaret Stewart  Please let me know  9  /14-N-5 1\i\L - 110 ........ •  of GOlit ••  ••• 0 , 4, 1 1,•.  :co .:.,.<-1:,? ;52'; • •0  .•'''' :.< ejZ::. j : ; ,T: . 1. _ :, , , ,r1:i 4; : • , :i:  BOARD OF GOVERNORS nr THE  FEDERAL RESERVE SYSTEM  41rrtrr i.i-i3/1,--, • ..3,,,\-II Hi ,t: .•,.0 ,4,-. ,;, . . . ,.• ,. , , , .• - • Rot••ePAL • • • •.• ••.•  : :••4  WASHINGTON  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   https://fraser.stlouisfed.org 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.   https://fraser.stlouisfed.org 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   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  z  •  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   https://fraser.stlouisfed.org 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?  2.  How and in what circumstances is the Federal Reserve prepared to step in to use these powers?  3.  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.  4.  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?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -4  9 t_  5.  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?  6.  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?  7.  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   https://fraser.stlouisfed.org 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.   https://fraser.stlouisfed.org 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.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org 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   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org 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   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  77058  (713) 486-8583  -7--,tatecs  30ou5e of ikepregentatiiiii4JUI429 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   https://fraser.stlouisfed.org 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)  1  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  N4-Y-SFTe "Nt .. / FC 9 ONFA4111bIlionano  ongre55 of tbe Unita'gptatec 3i)oufse of ileprefientatibt5  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   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Rosenthal  PA,  JOHN MILER. INO.  • '  •-  •11,  404F4i2.4oft%•••ex.4  ....  4414442tht1/  1?' L*10.0:&40 '  40 4 1**Slialifii; 0 440 ‘.°Ualkb  •••  " ' - 4"`""  , ihtttla, ...-  ..  .4.  41•••  -'414••••4110•AiltY4••••••4144414J:•1••••••••••• ••••14•••••••••••••••••• ••• •••...:••4•• ••••IL • • V' • • • '4•4 • ,•..• 1 .. • .-4 • .• • ' 1 4 4 . a 4 ' . • - '• ' ; n .? . ‘ 4 • l :,, . • '• . li ' , .. . i •A  •.••• ••••• •  4,•••••••••••4••••• 4.4010 dab •  t  k  .  1171  ••• I  THE OPERATIONS OF FEDERAL AGENCIES IN MONITORING, REPORTING ON, AND ANALYZING FOREIGN INVESTMENTS IN THE UNITED STATES (Part 2 OPEC Investment in the United States)  ,  ,.•/:, '''t. a_.  .•  ir  o  ''f. ''''' "  ' ..1"0 1........:1 - ...,,"4'.. a ""  n4.  ,•  6 " "W  •"1"' . ia,••11r1..  1..Wegh‘  A . • a  P•:1: r4  IfEARINGS  • AN „• " .‘4414, i  A  '''... ir '''7% e. t• .•  SUBCOMMITTEE OF THE  1  COMMITTEE ON GOVERNMENT OPERATIONS HOUSE OF REPRESENTATIVES  a "4-1f  "41  4 ' 11 •C  ,  -  ,1  BEFORE A  .40  .  NINETY-SIXTII CONGKESS  -‘• 1,  . • I ". tat. s'r• •  . •  .  t  I -.  •  r  FIRST SESSION '  4 r's  .  :.  .";•'  Z.„ 4 .° 4:4.11 ,  JULY 16, 17, 1S, AND 26, 19:9  ,r •r •  1..4 ;  ..  • ...„1  r  V4.11.  1..  , . *•'.ty • sj/Iii ".^ '  Printed for the use of the  .1‘  . • !,  `  a  Committee on Government Operations **'  P.  .•  .,7;* '  : E' ' AA*.  ••:`• ". -t  •  —  ,Par t  ' •‘• •  •  i • •1  •• •:;•-•;.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  'r • •!,‘  I  •  -  L. •  TAIL, 1 t'OltEhAr  I  mrsems or_roaricw EXCHANGE (billions of dollars)  Total Holden/2 A.  R.  OPIIi countries 1/ I. Middle i'stertt/. stricor 3. OtLet!! All other countries  Holdinfs in the Vabted States Ts  A  I. 2.  y  bills and ;;rtificates  OPEC Countries Other coutorieri  Marbetable Treasiaz 0.nda and notes I. 0-PEC countsiesNatiprnaissate/ 2. Other COullitifil  I  L.  5/ 6' ,/ a/  24).0  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  MA  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  n  a  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  1/  1978  1973  I 4  2.  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-  t  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  .5  7.0  8.9  0.3  3.0  1969 - June  3.8  .5  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.  Dec.  Dec.  1975  1976  Dec. 1978  Mar.  1977 46  45  39  89  81  88  52  50  43  45  50  53  50  49  23  24  13  13  30  33  29  32  15  17  16  31  33  34  34  38  37  31 e tir z ue 1•  LI  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  .7  36  ao  82  I/ 68.4Indonesia  0. 5  1979  Ecuador  48  Iran 40 Iraq 11  '5 0  1 6  1 4  6.0  1. 7  O. 7 Kuwait  28  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  36  44  45  16  19  26  19  19  14  12  11  13  19  19  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  11  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."'  g  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/ * • •• 0 •• '  • co  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   https://fraser.stlouisfed.org 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   https://fraser.stlouisfed.org 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  s  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:   https://fraser.stlouisfed.org 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  OF  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:   https://fraser.stlouisfed.org 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  "••••••  p  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  do  '•  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  • •  FEDERAL  FRVE 5Y5 I EM D. C.  0 5 51  Olvir.0 01V of  •  f  •  avr  Or rl  oat.  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  e  /0  - •  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  1  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."  (b  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  •• •c top'', 4.  .-:, -::,[111ff  7;.; •  FEDERAL RESERVE SYSTEM  L.1 •  WASHINGTON, 0. C. 20551  • ''',"` -I -  )„,:' 1 ..'11,`---T__:-...r• *  * •`N, ILItr • • •..• •  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 " \ 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",  t  F-  •••1.- r, 14 A 1.-N  1-•  • •-•  r-  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;  r  Anthony President SUNSET CONSTRUCTION 1NC.  4 .0 II  ) I  i t  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, ) V j7  -.  I'  ( ' 7.' ' X I r' : /4<. r7  •  ,  • i Z •  ./ Anthony C. DiPangrazio President (  1  ...I/  SUNSET CONSTRUCTION INC.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  IOW  •  40. A  .0  •  t%  ' r•  ql  I  • ••  .1  .  r  • '1  • r A  •  •  9  :1  7  r. •••• •  ,•  •  r  • ' .1.  I •  •  • • . I  l. r  1" ' (... .f,  r-  1  i •  . r  1  .1  • : .  .  r r • C  s-  ,• 1  .co  r r  ,  r C  r•  . CN  •  •  .•••••••••••••••••••  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'. .. el  /t./ 2, ,1 3 7;•.r..  Al 1 .1Virt ; c._  A  :  Member of cbngress  ASIhjj  r • 2{ ,-ete  .  • "L.:  .  eel  444  cle7 .  .-P.P1--1  /-  )-(  75/6-1.y.yt..414,1:  4?• 1, / e  1,4  PC,  7 4  ; 1*.  41.-11r14   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  — 7 ‘ . /  /Z: 46 14.4.  .  al  t4  citor  ..  4 4- -1.,• 19/fr*  A/1"46.-•-  I / 1 41 A•17 /-72/  a4A  •-Cl%-r,te  74".  "ft-e, 3 Cf • Ve(1  • 17, (-4 •  •••  ) r s  c."---/ /  • I f  4  ( e<ec.t.  .•.4 CI e  7/•<  *gni  ev<4  --,7ret-  cirf GL-t,  4. 1 0 C  /  --Are ir•d":  4  ( 7_  r  7-1 ee  .1-•"? 11.  (71  -1  . / As/  /././  z At: e/  _e /7 C  le/  /2/1;4:I I/  •  -  C  - Cr"iv, . Cr  /et.  ,/ c  1/%1.1..417/,‘"  4. (.7'7/ c c  _  .- 1.c 7 Z.:  •  /7:-/ A  -  __ ---el ill f.„ 1  t_  14'  c  •:j  f  /  z cr-a •  -Ldf / --2 ( 2"I-  7:le/dele:4-11e  1L  •  4-')   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2 .C-} 7 : d /  ‘C (  / / " ..;# ( f 1 .. Nt  ir  5.----  •/'  ./ C c `._! 7'z / -.,----------..---  6„.• c / • •e•?  , .v--' /  — ,.../  _,.....—  .  .:._- - -"-7-1P  r  y4 ") ••• „. 1 e d e-i ,-. , ,-/ ., r / ,  i  It SUNSET RE.-2ALTY   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%  10  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,  k  /  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, '  /.  4  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•  r-. • •,  i‘-!) ‘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 ACD/lk Encl.  Dvw 6146%4 v- ma,  111P0  .•° *.ofGot7. 4,*•.  -1.* • • • '• ./i; •  BOARD OF 50VERNORS 0 THE  FEDERAL RESERVE SYSTEM  p-t • •  '•••..•••  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  (r\J  MQ-4,-/-8.A., Cal)  ad •  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  HOW  MEX.  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  Ztafes  r''  COMMITTEE ON BANKING/9-8:1UOIA URBAN AFFAIRS  /HI pp. 3! 03  FircrivE CFFICE. OF (:!1:  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 -  CAL.X. Ja Ch enclosures JG:jcr  Garn man  CitS‘Ar'i  )1  1 7 Try 61i  92b  :1;1e ---kr lAlES  A11)71110 C  STEWARTASSOCIATES INCORPORATEI)• :40 Hull Mat' RipceiELAV,EID. A i  INALLOINIG Prvitdrou  New Jersey 0770l • OW) 90-0880  SENATR GARN  jus 8  181  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. ors  f•  •   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 --r-1 ... INGHA ri/I. R_EA 456 7LE,Pt , ........NE  June 23, 1981  wow  —ri  617 ,,,,  Cl  ri n: -... -1 -T1 rn c--) " -1 rn< '7")"*; ::: r--1  Paul Volcker Chairman Federal Reserve Board Federal Reserve System Washington, D.C. 20551  , 1  c___ T> 7.) C: r- c.7 -,-, c-)2 = rl -n •. INJ -P-' f--12A .7.-', _, -,-;.;--c1 ... -10 ! ' 71 . " r 13 ..7r. t r) 7!  :--7N..) —4C. I7. ne ...••••.  -< (,1 -4  -P".  rri .":..  CO  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  •  C-) 70 (f)  r)\A- , (V-IG<1 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  •  z  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  CZ  73  00  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  MERCHANT MARINE AND FISHERIES CPRP.4 AN ;711:31BCOLEMITTEE ON --PANAmANAW9Urellt CONTiNENTAU_VIELg, C— fT1 4 •b  mp  r""  -.1"1  June 4, 1981  CO  fn  . --•  c zr:  < 1=1  r •;  a  LO  Cr)  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  I look  r-.)  1 •  ' ••  JERRY B. Mt KENNEY. M.D. HUMF,I-4RE STURGIS  BUILDING  KE1.TUCKY  1  42450  C7OP Y .  ^  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  • Tr  N14., ED , JONES, CHIIRMAN  JAN/ES M. JCIEORDS. RANKING MINOKITy 1.110411E  ISFKKLIFY SIDELL, tOWA DAN GL'CKMAN. KANS. TOM DACCHLE  IL THONIAS COLEMAN, IMO. PAT PIOSERTS KANs.  111. OAK.  WINCH L._ DORG A/4 N. DAK. DAVID R. !BOWEN 1.01Sit. IONI HARKIN. lowA GLENN ENGLISH OKLA.  3Pott5e of lkepressentatibeg  rm.  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 uo up  C.) C.)  (-1 ,5 rn  C3C 00  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Federal Reserve Building Washington, D. C. 20551  rT1 <  0 LD  1-•• --• C:: C-3 Cf> Uri GO ./ri< rn r  (-1 :e  C7')  —7  .  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  CI ;Jzi "  • OL_ETPF ENGLISH. OKLA.. CNAIRMO.N THOM 101 P4 pw.roNrss. ouio JOHN M. [AL/HOORN. ILL.  TFO WEISS. N.Y. A[Nlory A. ofAxMAN, CALIF. 0  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  f• 1 C. n 741 c) ry)  C— r:  rn  co  ri < c--)rn  7=1  C" ,  Mr. Paul Volcker, Chairman Board of Governors The Federal Reserve System Federal Reserve Buliding Washington, D. C. 20551  ri r)  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.  CX:cv:bm   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Cle  t C.) ••11.1.1 (f) .•% 71=C:„, ar" t  (.0  Cordially,  C.D  C:) ;,;.)  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   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  01,4 r`k46/tek& (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 N IVANt.  2129 RAYBURN HOUSE  D •‘4101,/• • - N 01. 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. "T1 "T1  L.C) r2:1 ("1  C_. r— r.„  Honorable Paul Volcker Chairman, Board of Governors Federal Reserve System 20551 Washington, D.C.  ••••• LT' r" 1  CO  fn. t  r , ,r."  Fri <  C—P  r  izo :11C  : r: r_r)  CAD ()",  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  MID  (-) "..X; Lon  • JOIMES H. QUILLEN FIRST DISTRICT. ENNICSSEC  WASHINGTON Orr CIL: R oper 1 02 CAraioa Nous c Orric  ' cc  "rrmas:  RULES R Am( ma M aa ac •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ' 41"a TOPS. D C. W 41  Congre55 of tfjc 3T)ou5e  a)tatc5  of itprefSentatibefS  Buot...D.Poo 20S 1 S  DISTRICT OrVICE• R ooa4 1  I firST F L-000 FEDERAL (Posy Orricc)Ifkult_Dtwo K sma*parr. T cramssac  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  OF  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, // a7 -.% - -' /-7 Colin Aldworth Web Div. Operations Manager CA/nlb   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   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  f  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 :  EJ/ne Enclosure  27260  4 - 60.014TH SPRING STREET  BURLINGTON, NORTH CAROLINA COMMITTEE ON  27402  „.  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.  (I  •RF SIDENT POARD OF  1 .1"./  t•  t  MARVIN E  IRUSTEES  YOUNT. JR.  AOkliNISTRATOR  WARREN E. TAYLOR ASSISTANT ADiAiNiSTRATOR  June E  1981  C  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  1
Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102