View PDF

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I" I  •  1  Collection: Paul A. Volcker Papers Call Number: MC279  Box 11  Preferred Citation: Congressional Correspondence, November-December 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://findingaids.princeton.edu/collections/MC279/c443 and https://fraser.stlouisfed.orearchival/5297 The digitization ofthis collection was made possible by the Federal Reserve Bank of St. Louis. From the collections of the Seeley G. Mudd Manuscript Library, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. They further agree to request permission of the Princeton University Library (and pay any fees, if applicable) if they plan to publish, broadcast, or otherwise disseminate this material. This includes all forms of electronic distribution. Copyright The copyright law of the United States (Tide 17, United States Code) governs the making of photocopies or other reproductions of copyrighted material. Under certain conditions specified in the law, libraries and archives are authorized to furnish a photocopy or other reproduction. One of these specified conditions is that the photocopy or other reproduction is not to be "used for any purpose other than private study, scholarship or research." If a user makes a request for, or later uses, a photocopy or other reproduction for purposes not permitted as fair use under the copyright law of the United States, that user may be liable for copyright infringement. Policy on Digitized Collections Digitized collections are made accessible for research purposes. Princeton University has indicated what it knows about the copyrights and rights of privacy, publicity or trademark in its finding aids. However, due to the nature of archival collections, it is not always possible to identify this information. Princeton University is eager to hear from any rights owners, so that it may provide accurate information. When a rights issue needs to be addressed, upon request Princeton University will remove the material from public view while it reviews the claim. Inquiries about this material can be directed to: Seeley G. Mudd Manuscript Library 65 Olden Street Princeton, NJ 08540 609-258-6345 609-258-3385 (fax) mudd@princeton.edu   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •Action assigned Mr. Bernard.  • WAYNE DOWDY MISSISSIPPI  4TH DIsTRICT,  Congrm of tbe Einiteb etate5 POUgeOt ileprelentatibe0  Massbington,D.C. 20515 November 19, 1981  Honorable Paul A. Volcker, Chairman Depository Institutions Deregulation Committee 20th and Constitution Avenue Room B - 2120 20551 Washington, D. C. Dear Chairman Volcker: I am enclosing correspondence which I have received from my constituents expressing concern over actions taken by the DIDC which will adversely affect the savings and loan industry. I want to express my personal concern over this situation, and respectfully request that you address my constituents' suggestion that the DIDC postpone implementing its final rules on Money Market Certificate ceilings and the IRS/ Keough "wild-card" accounts. I am sure vou share my concern for the plight of savinas and loan institutions, which are facina a tremendous strain at this time. Let me thank vou in advance for your attention to this matter. Sincerely,  Wayne D Member WD:km Enclosures  e. c-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  dy Congress   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  NI  14, '  /  r  ft?  j'),  Natchez First Federal Savings Sz Loan Association  October 29, 1981  The Honorable Wayne Dowdy House of Representatives 1631 Longworth Building Washington, D. C. 20515 Dear sir: On September 22 of this year actions were taken by the DID Committee which we feel will create an additional threat to all savings and loan institutions, a number of which are already in dire circumstances due to the tremendous losses they are sustaining. Actions taken by the committee were to raise the passbook certificate rates by the associations, allow a four-week Money Market Certificate averaging option and to allow "wild -card" 18-month IRA/Keogh accounts, beginning December 1 of this year. Other damaging actions taken by DIDC included the proposed new 3-1/2 year no-ceiling certificate starting in February of 1982, lower the jumbo minimum to $25,000.00 and also creation of two new savings accounts -- one a 91-day account with a $10,000.00 minimum and a ceiling based on 13-week T-bills, and two, a transaction account with a $5,000.00 minimum balance and no rate ceiling. Last summer the DIDC did substantial harm to our business by removing the 12 percent cap on the 2-1/2 year certificate with the result that these deposits now yield 17 to 18 percent. We urge you, as our elected representative in Washington, to demand that the DIDC postpose implementing its final rules on MMC ceilings and the IRS/Keogh wild -card accounts and also to suspend consideration of the other proposals issued for comment. Time is needed by Congress to review the DIDC's performance and to assess the detrimental impact it is having on the financial community and the economy and to develop corrective legislation. Thank you for your consideration of this request. Very truly yours, /) Eugene A. Platte Executive Vice President-Secretary EAP/srb  P. O. Box 888 -:- Natchez, Mississippi 39120-0888 -:- 442-2733  4   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Natchez First Federal 1,1 c3v 3 ItiA  Savings &Loan Association , 41  October 30, 1981  The Honorable Wayne Dowdy House of Representatives 1631 Longworth Building Washington, D.C. 20515 Dear Wayne: As you are well aware, these are very trying times for the savings and loan industry. Last summer the Depository Institutions Deregulation Committee did substantial harm to our business by removing the 12 percent cap on the 2 year certificate with the result that the5e deposits now yield 17 to 18 1 2/ percent instead of 13 percent. I am writing to ask that you consider demanding that the DIDC postpone implementing its final rules on money market certificate ceilings and the IRA/KEOGH wild-card accounts and suspend consideration of the proposals issued for comment. This will provide the needed tirre for Congress to review the DIDC's performance, to assess the impact it is having on the financial community and the economy, and to develop corrective legislation.  Please keep in mind that I realize the present administration's goals to deregulate business in general, and overall I support this theory. However, this industry, due mainly to the fact that it has billions of dollars in fixed law interest rate loans on its books, can ill afford the liability side of our balance sheet to be totally deregulated until we have time to bring our asset side in line. Thank you for your consideration.  Very truly,  James J. Cole Vice President-Treasurer JJC/rrri  P.O. Box 1C48 • Natchez, Mississippi 39120 • 442-2733   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • December 4, 1981  Tne Honorable Charles McC. Mathias, Jr. United States Senate Washington, D.C. 20510 Dear Senator Mathias: I appreciate having the correspondence that you forwarded concerning actions taken by the Depository Institutions Deregulation Committee at its meeting on September 22, and proposed actions that are to be considered at the upcoming meeting on December 16. I want to assure you that I understand the concerns that prompted your constituents to write and will Lear them in mind at our next meeting. Sincerely, S/Paul A. Wicket  NB:pjt (#V-343) bcc: Mr. Bernard Mrs. Mallardi (2)  •  • CHARLES McC. MATHIAS, JR.  REPLY TO: 358 RusSELL. SENATE OFFICE BUILDING  MARYLAND  WASHINGTON, D.C. 20510   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Itnifeb --States Zertate WASHINGTON, D.C. 10510  November 17, 1981  Honorable Paul A. Volcker Chairman - Depository Institutions Deregulations Committee 20th and Constitution Avenue Washington, D.C. 20551  •a  CD  CD  Dear Chairman Volcker: I am writing to bring to your attention several letters from constituents regarding the Depository Institutions Deregulation Committee's final rules on four-week money market certificates and IRA/KEOGH Accounts. I would appreciate consideration of the concerns raised in these letters before the rules are implemented. Thank you for your attention to this matter. With best wishes, Sincerely,  Charles McC. Mathias, Jr. United States Senator CM:rdc Enclosure  •. GD  •  •  BASS & DEN1CK, P.A. ATTORNEYS AT LAW 9 1 es MUNBEY BUILDING BALTIMORE, MARYLAND 21202 LEONARD BASS THEODORE C. DEN1CK STUART L, SAGAL  MULLICHHY 5-740o  November 10, 1981  HOWARD CASS1N LARRY CAPLAN  Senator Charles M. C. Mathias, Jr. 358 Russell Senate Office Building Washington, D.C. 20510  RE: Dear  DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE  Senator Mathias:  The writer.has been a practicing attorney inti mately involved in Savings and Loan Association activities in the Metropolitan Baltimore Area for approximately thirty (30) years. During this period of time, I have had an opportunity to see people of modest means acqui re ownership of real estate, which resulted in the upgrading of neighborhoods and pride of ownership. This was accomplished, to a major extent, by the cooperation of Savings and Loans in our area, who almos t exclusivu advanced the necessary mortgage money for such purp oses. As a result of the depository institutions deregulation laws, I am fearful that these people will not be able to retain their home s, sell the same to people of similar means and that those people of modest means cannot afford to acquire real estate. The deregulation of interest rates has had the effect of driving Savings and Loan Associations out of business, forcing mergers, raising interest rates charged on loans in order to pay savers, such rates that it is maki ng it economically impossible for people to acquire new homes. I, therefore, strongly urge that action be taken to prevent implementation of the September 19O1 action of the DIDC Rules which will increase passbook rates, IRA Accounts and Four Week Money Market Certificates. I seek to avoid further escalation of inte rest rates that must come from the proposed three and half year no inte rest ceiling zartificates due to start in February 1982 and other actio n that. the Deeegulation Committee has proposed. It is sincerely felt that the Deregulation Comm ittee is working against the best interest of the present administration in an attempt to lower interest rates and to start our economy moving upwa rd. I strongly urge you to lend your good offices to opposing depository institutions deregulations at this time. Respectfully yours,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  TCD/sa  ( --(4 IT) k  •  • 3.1  •-•  r  rtf  _  1-r" •  Jefferson FederalSavings  ,  4/II.•••••••••  & Loan Association  • ^we ' re: COAC• ••••  •  ••••••••  •"  .:Trr  1680  K  STREE1  N  W  4a "  WASHINGTON. D. C. 20006 LUCIAN H. VANDOREN  PhiONE  833-3950  PRESIDENT AND CHIEF EXECUTIVE OFFICER   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  November 5, 1981  The Honorable Charles McC. Mathias United States Senate Washington, D. C. 20510 My dear Senator Mathias: The purpose of this letter is to urge you to demand that the Depository Institutions Deregulation Committee (DIDC) postpone implementing its final rules pertaining to its September 22, 1981, actions, including the FourWeek Money Market Certificate averaging option and the "Wild -Card", 18 month IRA/KEOGH Accounts beginning December 1, 1981. Treasury Secretary Regan, Chairman of the DIDC Committee, recently changed his mind concerning another action which would have increased the passbook ceiling rate which financial institutions are permitted to pay. Further, I urge you to demand that the DIDC suspend consideration of proposed actions, including a new 31 / 2 year, no ceiling, certificate starting February, 1982; lowering the Jumbo (certificates of $100,000 or more) minimum to $25,000 (with a one day notice of withdrawal); the creation of two new accounts: A 91 day account with a $10,000 minimum and a ceiling based on 13 week T-Bills, and a transaction with a $5,000 minimum balance with no rate ceiling. It is my opinion that all of the pending actions are totally irresponsible at this time and would be extremely costly to the thrift industry, particularly, which is and has been for some time fighting for survival resulting from the general state of the Nation's economy and exceedingly high interest rates over which our industry has absolutely no control. I would also like to impress upon you that it is absolutely essential that Congress review the performance of the DIDC in order to assess the impact it is having on the financal  •  •  .  The Honorable Charles McC. Mathias November 5, 1981 Page - 2 -  .   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  community and the economy and to develop corrective action. Included in this review should be a reconsideration of the membership of the Committee which is overwhelmingly representative of commercial banks vis-a-vis savings and loans. Thank  you for your support in these all important matters. Very  r  y yours,  ....61......_1_,.._„__________ ____,,.... P si nt and Chie Executive Officer LHV/psp.  • • BALTIMORE COUNTY SAVINGS & LOAN ASSOCIATION  4208 EBENEZER ROAD, BALTIMORE, MARYLAND 21236   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (301) 256-1300  October 27, 1931  Senator Charles McC. Mathias, Jr. 358 Russell Senate Office Building Washington, D.C. 20510 Dear Senator Mathias: I Jrge you to demani that the Depository Institutions Deregulation Committee (DIDC) postpone implementing its final rules on Money Market Certificate ceilings and the IRA/Keogh wild-card account and suspend consideration of the proposals issued for comment. This will provide the needed time for Congress to review the DIDC's performance, to assess the impact it is having on the financial community and the economy and to develop corrective legislation. Very truly yo rs, , Michael J. Dietz Executive Vice-President MJD:dme bc  -41clifionat BEL AIR Bel Air Plaza Bel Air, Md 21014 301/836-7100  DUNDALK 1736 Merritt Blvd Ourv1711k, Md 21222 '4700 3r  TOWSON 6358 York Road Baltimore, Md 21212 301/532-9660  TIMONIUM ..) l 4)., 'f.•' Road ' z;093  SEVERNA PARK 537 Ritch.t KOvvay Cevte,--., l'za',.. Md. 21146 3(,•1,•.,',.:-...:200  •  •  CITIZENS SAVINGS AND LOAN ASSOCIATION, I've. CONVENIENT MARYLAND LOCATIONS  12 71  FRANK L. HEWITT. JR. CHAIRMAN OF THE BOARD  MAIN OFFICE  E485 FENTON ST.. SILVER SPRING 20907  PRESIDENT  565-8909  October 27, 1981  411C ee•;11   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Senator Charles McC. Mathias, Jr. United States Senate 358 Russell Office Building Washington, D. C. 20510 Re: DIDC Regulations and Proposals Dear Senator Mathias: We strongly urge you (1) to demand that the DIDC postpone implementing its final rules on Money Market Certificate ceilings and the IRA/Keogh wild -card account, and (2) to suspend consideration of that Committee's proposed additional regulations. These steps are necessary in order to provide needed time for Congress to review the DIDC's overall performance, to assess the impact it is having on the financial community and economy, and to develop corrective legislation. Sincerely yours,  F ink L. Hewitt, Jr. Chairman and President  •  • BRADFORD FEDERAL SAVINGS AND LOAN ASSOCIATION  Fl i  MAIN OFFICE 6900 YORK ROAD BALTIMORE MD 21212 09 TELEPHONE (301) 377 9600  GENE D KLAUSING Pref..icient  October 29, 1981  Senator Charles M. Mathias, Jr. 358 Russell Building Washington, D.C. 20510 Dear Senator Mathias: We are urgently asking your support to put some immediate restraint on the Depository Institutions Deregulation Committee. Our business will suffer substantial harm if the DIDC does not postpone or cancel implementing the four-week Money Market Certificate averaging option and the "wild-card" 18month IRA/Keogh accounts which are to begin December 1, 1981. Further damage will also occur if the proposed new 3-1/2 year no-ceiling certificate scheduled to start February 1982, the lowering of the minimum on jumbo accounts to $25,000.00, the creation of a 91-day account with a minimum of $10,000.00 and a ceiling based on 13-week T-bills, and a transaction account with a $5,000.00 minimum balance and no rate ceiling are not rescinded. Our country desperately needs help in the housing, automobile, and steel industries. Thrift institutions have always been the greatest provider of mortgage money and we cannot continue to do this if the DIDC's actions continue to increase the cost of our money. Yours truly, BRADFORD FEDERAL SAVINGS AND LOAN ASSOCIATION  .%  _ r t_  -  1_  -  ene -D. 'Klausing President GDK/js  2600 BLOCK E. FAYETTE STREET, COR. LUZERNE  BALTIMORE  JACKSONVILLE OFFICE  14301 JARRETTSVILLE PIKE  PHOENIX, MD 21131  HOWARD COUNTY OFFICE.  10100 BALTIMORE NATIONAL PIKE AT BETHANY LANE  ELLICOTT CI 'V, MD 2IC A3   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  MD  21224  FAYETTE STREET OFFICE  Web  ••  •  •••  •  • 4 I‘V  •.441  •.••• • •• ••• ••••••• ••••••4•••••4• , •••• ••• ••41•••  •  SAVINGS AND LOAN ASSOCIATION  1:; October 28, 1981  The Honorable Charles McC. Mathias, Jr. The United States Senate Senate Office Building Washington, D.C. 20510 Dear Senator Mathias: I would like to introduce myself, Thomas F. Costantini, Executive Vice President of Augusta Savings and Loan Association, with headquarters in Baltimore and eight other offices through-out Maryland. I am deeply concerned over the recent actions of the Depositnry Institutions Deregulation Committee, relative to the Savings and Loan Industry. As a representative for the citizens of Maryland, I appeal to y,Du to make every effort to postpone the pending actions of this Committee, in order to provide the needed time for Congress to evaluate the Depository Institutions Deregulation Committee's performance, and to assess the impact it is having on the financial community, as well as, the economy in general and to develop corrective legislation. Those actions which concern me and the Industry include the fourweek Money Market Certificate averaging option, and the "wild-card" 18month IRA/Keogh accounts beginning December 1st. In an effort to avoid further damaging actions by the Depository Institutions Deregulation Committee, we ask you to turn back their efforts for a new 3-1/2 year no-ceiling certificate beginning next February, the lowering of the jumbo minimum to $25,000, as well as, the creation of two new accounts - a 91-day account with a $10,000 minimum and a ceiling based on 13-week Treasury Bills, and a transaction account with a $5,000 minimum balance and no rate ceiling. The Committee has already done substantial harm to the business by removing the 12 percent cap on the 2-1/2 year certificates which are now yielding in the neighborhood of 16 to 18 percent. The Committee has acted and is continuing to act in an irresponsible manner, and if allowed by Congress to continue these actions, they will further deteriorate the housing industry in this country. I would greatly appreciate yourconsideration of this matter and  PRINCIPAL OFFICE: 420 N. HOWARD ST /PO. BOX 1256/BALT1MORE, MD. 21203/PHONE(301)244-0500 DUNDALK OFFICE: 9 CENTER PLACE/288-2372 HAVRE DE GRACE OFFICE: 301 ST JOHN STREET/939-3131 ANNAPOUS OFFICE: 217 MAIN ST /263-4343 ;_ic-RA',1%:-., nig SALISI3URY OFFICE: RT. 50 & TILGHMAN RD /742-1534 GOLDEN RING MALL OFFICE: 6400 ROSSVILLE BLVD./574-6160 I-------, —7STMINSTER OFFICE: WESTMINSTER SHOP CTR./848-3700  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  MEmBER FEDERAL SAVINGS ANC _  '5!'RANCE CORPORATION/FE7  'OAN BANK SYSTEM/INCORPORATED 1921  •  •  • The Honorable Charles mcC. Mathias, Jr. Page 2 October 28, 1981  trust that consideration will prompt you to assist in curbing the Committee's activity. Thank you.  Respectively yours,  Thomas F. Costantini Executive Vice President  TFC:jlk   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ' \ { \/% 6  • •  L  -  S)  • GO  •  BOARD OF GOVERNORS  O• • CO •.  FEDERAL RESERVE SYSTEM  •0 • "71  • -A  •  OF THE  F- • , 4 )•  WASHINGTON, D. C. 20561  .  • Ot. • RAL Fit-S • ••..• •  December 3, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable J. William Stanton House of Representatives Washington, D.C. 20515 Dear Bill: Thanks for your letter about possible ways of streamlining the bank merger and holding company application process; this is an area where you and I have similar views and objectives. As you know, as part of the current application process, the Federal Reserve is required to take into consideration both current and potential competitive effects. Recent court decisions have held that if the Federal Reserve is to deny an application on the basis of potential competition such a decision would have to be based on much more extensive information than we now require applicants to submit. In part, to avoid this potential increase in the demands on applicants we are now exploring the possibility of putting out general guidelines for evaluating potential competition. An applicant who met these guidelines could presume that, in the ordinary course of events, potential competition would not weigh against approval. In the likely few cases where the guidelines were not met a much more thorough analysis would be required. I am also interested in exploring the possibility of using the guideline approach for analyses of existing competition. In all cases, the Board would, of course, continue to do a detailed analysis of the financial and safety and soundness considerations involved in an application. I believe this approach would have the possibility of significantly reducing the burden on applying banks and of shortening the time involved in the application process. At any rate, it is something we are working on right now and I hope to have a proposal to put out for comment soon. At this point I don't believe any legislative action is required on this particular issue, but I will keep you informed about our progress. I can appreciate the frustrations expressed in Mr. McCoy's letter, but I am pleased to say that at least in this case the Federal Reserve was not the reason for the delay. Just over two   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  • •  •  The Honorable J. William Stanton Page Two  months elapsed from the time we received the Banc One application to its approval. That doesn't mean we haven't taken far too long to process applications in other cases and a streamlined process for the competitive factors aspect of applications is only one way in which we are trying to make improvements. Sincerely, ^ON  DS:pjt (#V-315) bcc: Mr. Kline Mr. Ryan Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action assigned Mr. Ryan •  •  FERNAND J. ST GERMAIN, R.I., CHAIRMAN HENRY S. REUSS, WIS. HENRY B. GONZALEZ, TEX. JOSEPH G. MINISH, N.J. FRANK ANNUNVO. ILL. PARREN J. MITCHELL, Ivr). 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.  U.S. HOUSE OF REPRESENTATIVES S COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIR N I N ETY-SEV ENT H CONGRESS 21 29 RAYBURN HOUSE OFFICE BUILDING  WASHINGTON, D.C. 20515  October 22, 1981  J. WILLIAM STANTON, OHIO CHALMERS P. WYLIE, OHIO STEWART B. MCKINNEY. CONN. GEORGE HANSEN, IDAHO 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. JAMES K. COYNE, PA. DOUGLAS K. BEREUTER. NEBR. DAVID DREIER, CALIF. 225-4247  Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Chairman Volcker: convention in I read with great interest your statement before the ABA McCoy of Bank One San Francisco. When you read the enclosed letter from John ested in your comment Corporation, you will see that I was particularly inter can be done to reduce that "the Federal Reserve (is) now exploring whether more or new activities the time-consuming process of approving mergers, take-overs for banks and bank holding companies." of all of the I realize that there are legitimate concerns on the part application process regulators of depository institutions with respect to the that waiting for acquisition, mergers or new activities, but it seems to me year is unfor a final approval notice from a regulator for more than one this regulanecessary. It seems to me that much can be done to streamline fashion. I was tory process and act on such applications in a more timely review its own proheartened to learn that the Federal Reserve has begun to thoughts on this cedures, and I would be interested to hear more about your required in these subject to determine what, if any, legislative response is Banking Committee begins matters. I hope we can explore this further when the its comprehensive hearings later this fall. concerns. Thank you for taking the time to consider Mt. McCoy's forward to hearing from you.  I'll look  Sincerely, Qn ct-) C Cs")  iliiam Stanton \J  JWS/gwm Enclosures   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • •  SEV John G. McCoy Vice Chairman  .61  BANC ONE CORPORATION Post Office Box 16654 Columbus, Ohio 43216 614 463-5901  September 17, 1981  Honorable J. William Stanton Congress of the United States House of Representatives 2466 Rayburn Building 20515 Washington, D. C. Dear Bill: It certainly was nice talking to you on the 'phone yesterday and I appreciated not only your interest but the time spent and the opportunity to say hello to you once again. One of the very costly things that occurs in the banking industry is the amount of time and effort in filing an application for either an affiliation or merger with the agencies. Fbr example, fram the time we made the deal with the Directors of Lake National Bank until it was finally consummated and they became a part of the Cbrporation, thirteen months elapsed and we had filed one hundred and thirty-eight pounds of documents with various government agencies. This should be compared with the DuPont acquisition of Ohnoco which was of much greater size and significance and it was completed in six weeks because non-bank businesses such as DuPont are not required to obtain prior regulatory approval. Cbncern for safety and soundness may warrant the position of some limitation on risk-taking by banks and bank holding companies. However, the regulatory people know which banks that would apply to and it is my belief that acquisitions by banks and bank holding companies should not be subject to prior approval requirements which are not imposed on other businesses. It should be noted that even after prior approval were eliminated a bank or bank holding company acquisition would, as in the case of DuPont-Conoco, continue to be subject to review and challenge under the anti-trust laws of the Justice Department. Bill, I certainly will appreciate any thoughts you could interpose on this matter as it seems to me an unbelievable penalty imposed on our industry as opposed to others. Sincerely,  December 3, 1981  The Honorable Ldward 1:adigan House of Representatives Washington, D. C. 20515 Dear Mr. Ladigan: tory Thank you for your letter concerning deregula tion Cormittee actions by the Depository Institutions Deregula pace of deregula(DIDC). I appreciate having your views on the ty and soundness of tion, and I want to assure you that the safe n in ry dedepository institutions is a forel::ost consideratio scheduled for cisions on DIDC matters. Our next meeting is you of the outcone December 16, and I will undertake to inform of the meeting. Sincerely, S/Paul A. Volcker  NB:vcd (V-348) bcc:  Mr. Bernard Mrs. Mallardi (2)  TICKLER:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  SEND PRESS RELEASE AFTER 12/16 MTG.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • December 3, 1981  The honorable Walter E. Fauntroy Chairman Subcormittee on Domestic 1:onetary Policy Coranittee on Banking, Finance and Urban Affairs House of Representatives WashinEton, D. C. 20515 Dear Walter: Thank you for your letter of December 1 inviting the Board to appear before your Subcommittee at hearings on House Joint Resolution 365. Vice Chairman Frpderick H. Schultz is lookinE forward to appearinL; on Wednesday, December 9, at 2:00 p.m. Sincerely,  CO:vcd UV -349) bcc:  Vice Chairman Schultz (with incoming) Mr. Axilrod (with incoming) Mr. Bernard Mrs. Mallardi (2)-  V. C. 8chuttz WALTER E. FAUNTROY. D.C., CHAIRMAN ARREN J. MITCHELL. MD. n. f EPHEN L. NEAL, N.C. DOUG BARNARD, JR.. GA. HENRY S. REUSS, WIS. JAMES J. BLANCHARD, MICH. CARROLL HUBBARD. JR.. KY. BILL PATMAN. TEX.  testif-y;  r od in charge of statement  •  •  GEORGE HANSEN, IDAHO RON PAUL, TEX. BILL MCCOLLUM, FLA. BILL LOWERY. CALIF. ED WEBER, OHIO JAMES K. COYNE, PA.  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  WASH I NGTON. D.C. 20515  December 1, 1981  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System 20th and Constitution Avenue, N.W. Washington, D. C. 20551  t  rn 1  Dear Paul: On December 9, 1981, the Subcommittee on Domestic Monetary Policy will hold hearings on House Joint Resolution 365. This Resolution resolves that the Administration should reconsider its economic policies, that the Administration and the Board of Governors of the Federal Reserve System should take steps to discourage lending for speculative and unproductive activities such as corporate acquisitions, that the Board of Governors of the Federal Reserve System should reconsider its tentative decision in July 1981 to lower its targets for growth of the monetary aggregates in 1981 and that the President should abide by Section 10 of the Federal Reserve Act in making future appointments to the Board of Governors of the Federal Reserve System. Since the Board of Governors of the Federal Reserve System obviously has an interest in this Resolution, I would like to ask you to testify on H.J. Res. 365 at the Subcommittee's hearings on December 9, 1981 at 2:00 p.m. in Room 2222 of the Rayburn House Office Building. You are invited to bring with you such staff as you think may be appropriatei t to assist you in answering technical questions. Committee rules require that 150 copies of your statement be made available to the Subcommittee no later than 48 hours prior to your testimony. You should bring additional copies with you if you wish to assure that the press and others will have your statement. Any questions that you and your staff may have concerning this request should be directed to Howard Lee, Staff Director of the Subcommittee, who may be reached at 202-225-7315. Sincerely your  Walter E. Fauntroy Chairman   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  iv  •  • December 1, 1981  The honorable Paul Simon Chairman Subcommittee on Postsecondary Education Committee on Education and Labor House of Representatives 20515 Washington, D.C. Dear Chairman Simon: It was very helpful to receive your views on the 1981 amendments to tne higher Education Act relating to origination fees charged in federally insured and guaranteed student loans. I was disturbed to learn of the problems and confusion that this issue was causing. We have revised the Regulation Z official staff commentary in a way that we believe more closely reflects the congressional intent and will avoid any disruption to the student loan program. A copy of the Federal Register notice which reflects the change is enclosed. Sincerely, S/Paul A.Volcker  Enclosure (p.r. dtd. 11/27/81) CJY:DS:pjt (#V-330-338 &N628) bcc: Ms. Yarus Mrs. Mallardi (2)/ (Identical ltrs. sent to:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  f  Ranking Minority Member E. Thomas Coleman, Sub. on Postsecondary Education; Cong. Weaver, AuCoin, Wyden, Denny Smith, Sens. Hatfield and Packwood; and Chrmn. Stafford & Ranking Minority Member Pell of Sub. on Education Arts & Humanities of House Comm. on Labor and Human Resources)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  Congre55 of tbe Ziniteb gitate5 )ottz‘e of iiepre5entatibeg Utlastington,/D.C. 20515  November 16, 1981  )C 3' -4( cr)  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Federal Reserve Building Washington, D.C. 20551  r"  CO --a  r•-) •• ••••••  Dear Chairman Volcker: extremely As members of Oregon's Congressional delegation, we are Federal Reserve concerned over recent language appearing as part of the as it relates System's Staff Commentary on the Truth in Lending statute and Federally to loan origination fees for the Guaranteed Student Loan Insured Student Loan programs. ment of In Oregon alone, this language has delayed the disburse education. Unable financial aid checks for over 4,000 students of higher being forced to to find adequate alternative financing, thousands are suspend their education. from the Chairman As has been previously pointed out in letters to you Postsecondary and ranking minority member of the House Subcommittee on rity member of Education, as well as from the Chairman and ranking mino es, Section the Senate Subcommittee on Education, Arts and Humaniti for a blanket 438 (c) (4) of the Higher Education Act of 1981 provides loan origination waiver of the Truth in Lending statute as it relates to Reserve System's fees prior to August 1, 1982. We believe the Federal the October 9, 1981 Staff Commentary on Regulation Z, which appeared in r intent of Congress Federal Register, page 50327, conflicts with the clea in this regard.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  •  The Honorable Paul A. Volcker November 16, 1981 Page Two  We understand that the FRS Board of Governors has set a meeting for ctfully this Thursday, November 19th, to resolve this conflict. We respe by Congress urge you to concur with the intent of the legislation as passed Regulation and signed by the President, and modify the Staff Commentary on Insured Z as it pertains to the Guaranteed Student Loan and the Federally Student Loan programs. We appreciate your cooperation in this important matter. Sincerely,  lEAVER, Wmber of Congress  BOB PACKWOOD, U.S. Senator  RON WYDE  Member of Congress  MARK 0. HATFIELD, U.S. Senator  LES AUCOIN, Member of Congress  Member of Congress  _  •  Action assigned 3anet Hart; info copy- to Governor Teeters  111 ORRIN G. HATCH, UTAH. CHAIRMAN ROBERT T. STAFFORD, VT. DAN QUAYLE. IND. 'ALR_A HAWK INS. FLA. DON NICKLES. OKLA. LOWELL P. WEICKER, JR., CONN. GORDON J. HUMPHREY, N.H. J ER EM I Ali DENTON, Al-A. JOHN P. EAST, N.C.  EDWARD M. KENNEDY. MA JENNINGS RANDOLPH. W. VA. HARRISON A. WILLIAMS, JR., N.J. CLAIBORNE PELL, R.I. THOMAS F. EAGLETON. MO. DONALD W. RIEGLE, JR., MICH. HOWARD M. METZENBAUM, OHIO  GEORGE W, FRITTS, JR., CHIEF COUNSEL RENN M. PATCH, STAFF DIRECTOR AND GENERAL COUNSEL LAWRENCE C. HOROWITZ. M.D.. MINORITY STAFF DIRECTOR  •  'ZCITifeb ,Stafes „Senate COMMITTEE ON LABOR AND HUMAN RESOURCES  1r, !!r1"  Pr 17'34  WASHINGTON, D.C. 20510  November 10, 1981  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Federal Reserve Building Washington, D.C. 20551 Dear Chairman Volcker: We are writing to reiterate the clear intent of Congress in the enactment of Section 536 of the Omnibus Budget Reconciliation Act of 1981, PL 97-35, relating to origination fees for Federally Insured Student Loans. Section 536 of PL 97-35 amended Section 438 of the Higher Education Act of 1965, which provides for special allowance payments by the Federal government to lenders participating in the program. Under this provision of PL 97-35, Section 438 (c) (4) of the Higher Education Act now provides that, in charging borrowers an origination fee: the lender shall disclose to the borrower the amount and method of calculating the origination fee. For any loan for which the lender is authorized to charge an origination fee and which is made prior to August 1, 1982 (A) this disclosure need not meet the requirements the Truth in Lending Act (15 U.S.C. 1601 et seq.) or the disclosure requirements of any State law; Thus, as conferees on PL 97-35, and as the Chairman and ranking Minority Member of the Subcommittee with jurisdiction over the Federally Insured Student Loan program, it was our intent to provide for a blanket waiver of the Truth in Lending statute prior to August 1, 1982. This was necessary as the imposition of the origination fee was to take effect ten days after the enactment of PL 97-35, and lenders had already begun to process loans for the 1981-82 academic year. If this statute had not been waived, the loan process would have been subject to severe delay, and millions of students would have been unable to finance their higher education through this program. On October 9, 1981, there appeared in the Federal Register on page 50327, as part of the Official Staff Commentary of the Federal Reserve System on Regulation Z, language which would appear to conflict with the clear intent   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • -2  of Congress respecting origination fee disclosure. Commentary 17 (i) (4), by providing for the deduction and disclosure of the origination fee as a prepaid finance charge, allows for only a partial waiver of Truth in Lending and is therefore contrary to Section 438 (c) (4) as cited above. We hope that you will reevaluate and modify the Staff Commentary on Regulation Z as it pertains to the Federally Insured Student Loan program in light of this clarification of Section 438 (c) (4) and Congressional intent in its enactment. We appreciate your cooperation in this matter, and look forward to your response.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  aiborne Pell Ranking Minority Member Subcommittee on Education Arts and Humanities  Aid  Robert T. Stafford Chairman Subcommittee on Educ -t on Arts and Humanities  iiik ction assigned Janet Hart; inf6opy to Gov. Teeters MINORITY MEMBERS:  MAJOIAY MEMBERS:  PAU AIMON, ILL., CHAIRMAN fLLIAM D. FORD. MICH. PETER A. PEYSER, N.Y. JOSEPH M. GAYDOS. PA. TEO WEISS. N.T. IKE ANDREWS. N•C. DENNIS E. ECKART, OHIO CARL D. PERKINS. KY..  4 ts.  •-  orricto  ,(0,731, 0„ ,3  72S-SSSI  E. THOMAS COLEMAN. MO. JOHN N. ERLENOORN, ARUEN ERDAHL, MINN., EX LAWRENCE J. DE NARDIS, CONN. WENDELL &AILEY, MO.  CONGRESS OF THE UNITED STATES r"  HQUSE OF REPRESENTATIVES  COMMITTEE ON EDUCATION AND LABOR SUBCOMMITTEE ON POSTSECONDARY EDUCATION 320 CANNON HOUSE OFFICE BUILDING WASHINGTON. D.C. 20515  November 12, 1981  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Federal Reserve Building Washington, D.C. 20551 Dear Chairman Volcker: We are writing to reiterate the clear intent of Congress in the enactment of Section 536 of the Omnibus Budget Reconciliation Act of 1981, P.L. 9735, relating to origination fees for the Guaranteed Student Loans and Federally Insured Stadent Loans. Section 536 of P.L. 97-35 amended Section 438 of the Higher Education Act of 1965, which provides for special allowance payments by the Federal government to lenders participating in the program. Under this provision of P.L. 97-35, Section 438 (c) (4) of the Higher Education Act now provides that, in charging borrowers an origination fee: the lender shall disclose to the borrower the amount and method of calculating the origination fee. For any loan for which the lender is authorized to charge an origination fee and which is made prior to August 1, 1982 (A) this disclosure need not meet the requirements of the Truth in Lending Act (15 U.S.C. 1601 et seq.) or the disclosure requirements of any State law; Thus, as conferees on P.L. 97-35, and as Chairman and ranking Minority Member of the Subcommittee with jurisdiction over the Guaranteed Student Loan and the Federally Insured Student Loan programs, it was our intent to provide for a blanket waiver of the Truth in Lending statute as it relates to loan origination fees prior to August 1, 1982. This was necessary as the imposition of the origination fee was to take effect ten days after the enactment of P.L. 97-35, and lenders had already begun to process loans for the 1981-82 academic year. If this statute had not been waived, the loan process would have been subject to severe delay, and millions of students would have been unable to finance their higher education through this program.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • s.  •  •  Honorable Paul Volcker Page 2 November 12, 1981 Re ister on page On October 9, 1981, there appeared in the Federal Federa Reserve 50327 as part of the Official Staff Commentary of the to conflict with the System on Regulation Z, language which would appear disclosure. Comclear intent of Congress respecting origination fee and disclosure of the mentary 17 (i) (4), by providing for the deduction for only a partial origination fee as a prepaid finance charge, allows to Section 438 (c) (4) waiver of Truth in Lending and is therefore contrary as cited above. f Commentary on We hope that you will reevaluate and modify the Staf ent Loan and the Federally Regulation Z as it pertains to the Guaranteed Stud ification of Section 438 Insured Student Loan programs in light of this clar We appreciate your (c) (4) and Congressional intent in its enactment. cooperation in this matter.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely, • (2441.014^, PAUL SIMON Chairman Subcommittee on Postsecondary Education  E. T OMAS COLEMAN Ranking Minority Member Subcommittee on Postsecondary Education  1\,\Ao  •  v- 5((4D BOARD OF GOVERNORS OF TH E  •co  FEDERAL RESERVE SYSTEM  •T  ‘..) • L.) .RAL RtS ••• • • •  WASHINGTON, D. C. 20E51  December 1, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable Carroll Hubbard House of Representatives Washington, D.C. 20515 Dear Carroll: Thank you for bringing to my attention the letter from your constituents, Messrs. Anderson, Buchanan, Dawson, and Stacy, who suggest that you introduce legislation to re-implement rate controls on depository institutions. I can easily appreciate the concerns you and they have about the impact of high interest rates on the economy--and on the housing and auto industries, particularly. My colleagues and I indeed share those concerns. As you know, we are attempting to restrain inflationary pressures and thus lay the groundwork for a sustained decline in interest rates by limiting the growth of money and credit. In the current institutional framework, such restraint on money and credit has been reflected in considerable upward pressure on interest rates. As your constituents suggest, in an earlier era when Regulation Q ceilings and other "market imperfections" were more significant, monetary restraint typically resulted in part in rising interest rates but also in credit-availability problems owing, for example, to disintermediation. In effect, a given degree of restriction on inflationary forces in the economy could--all other things equal--be achieved with a smaller rise in interest rates albeit with some sectors being rationed out of the credit markets. Like your constituents, I have sometimes wondered whether the changes in process relying almost entirely on interest rates to control credit expansion is that much of an improvement. It must be recalled that past periods of disintermediation were marked by credit crunches that wreaked considerable havoc; these were, not coincidentally, periods of sharp deterioration in housing. In fact, in large measure, it was concerns for the disintermediation sectors which led to change. Furthermore, it is not clear, as your constituents' letter suggests, that non-price rationing of credit ensures a faster return of the economy to conditions permitting lower interest rates; that interest rates have been high for a considerable period of time may not be due to the lack of creditavailability problems but rather to the fact that inflationary expectations have become so deeply embedded and have made it   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Carroll Hubbard Page Two  difficult to bring about the necessary adjustment of expectations and behavior. I cannot help but note that the prospects for federal fiscal policy are one element in this expectational problem; it is evident that many people, quite clearly-including investors in long-term bonds--a re concerned about the possibility that the government will continue to place large demands on the nation's savings and credit markets in the years ahead. At this juncture, I don't think it is realistic to attempt to turn back the clock and rest ore the financial markets to their past structure. Given the developments of recent years, including the growing importance of non -depository institutions and foreign credit sources, an effort in that direction might prove quite ineffective. But, in any event, the fundamental problem of turning the tide against infl ation would still exist and, in addressing that problem, a cert ain degree of economic distress is unavoidable. I think we are beginning to make progress, and if we apply the tools at our disposal steadfastly, we can look forward to a healthier environment for all sectors of industry. I hope these comments will prove useful to you. Please don't hesitate to contact me again if you' d like to pursue these matters further. Sincerely,  -3 \‹. \occ -i\N\ ( 1 INN- R4iNvi)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  3\L-1  4  lemb  tion assigned Mr. Kichline  o  sis  =Ze.RROLL HUBBARD CONGRESSMAN 1ST DISTRICT, KENTUCKY 2244 RAYBURN HOUSE OFFICE BUILDING WASMNGTON, D.0 20515 (202) 225-3115  •  Congre55 of tbe Eniteb :z)tate5 itioufSe of ileprefSentatibt5  AT LARGE MAJORITY WHIP COMMITTEES: BANKING, FINANCE AND URBAN AFFAIRS MERCHANT MARINE AND FISHERIES CHAIRMAN, SUBCOMMITTEE ON PANAMA CANAL/OUTER CONTINENTAL SHELF  astingtott, /D.C. 20515 October 23, 1981  Hon. Paul Volcker, Chairman Board of Governors The Federal Reserve System 20th Street and Constitution Avenue, N.W. Washington, DC 20551 Dear Paul: I am writing on behalf of my constituents, Mike Anderson, Wally Buchanan, Randell Dawson and Roger Stacy of Paducah, Kentucky, regarding their extreme concern about today's high inflation and interest rates. Enclosed is a copy of their October 10 letter to me for your consideration. During my recent meeting with these individuals, and many others, we discussed at length the need for immediate action regarding interest rates in order to help the housing and automotive industries, which are in severe danger of collapse. Indeed, as you may remember, these are the same issues that we discussed during our meeting in September, Paul. Your consideration of their concerns, as well as mine, will be greatly appreciated. With best wishes for you, I am Sincerely yours, cts,  Carroll Hubbard Member of Congress CH/mms CD   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Enclosure  •  • HOME BUILDERS ASSOCIATION et clit)eqtetal 9<egue129 PHONE 443-4611  Room 14A Guthrie Bldg. - 517 Broadway Paducah, Kentucky 4200]  October 10, 1981  COPY Congresman Hubbard: 1981 OFFICERS Mike Anderson PRESIDENT Joe C. Cates VICE-PRESIDENT Pail Corneal SECRETARY-TREASURER IN. A. Uv anni EXECUTIVE OFFICER STATE DIRECTORS Mike Anderson .I. C. Cates Paul Carneai S. E. Webb BILDOR DIRECTORS G. VV. Crisp Gary Huffine ASSOCIATE DIRECTORS Don Clucas Bill Ragland Phil VVei tl au f NATIONAL DIRECTOR G. VV. Crisp ALT. NATL. DIRECTOR M. H. Conrad   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  In light of the catostrophic effects of high interest epreneur rates on the overall economy, especially the small entr that and specifically the housing industry; we as a group ask Committee) you introduce ( as a ranking member of the House Banking itutions. legislation to reimplement rate controls on financial inst : The justification for this reouest lies in the facts that 1.  with a The financial community has operated profitably and  up great degree of interest rate stability with rate controls ificate. until June of 1978, with the advent of the Money Market Cert 2.  For housing (an American's dream and priviledge) can only  Loan. survive with the continuation of the Fixed Rate Mortgage stay of In todays environment and with deregulation, this main financing for housing will become an extinct item. _,•  tal Volatility in interest rates will always exist in the capi  markets because of the Federal Covernment's direct involvement. raint, Although this administration is committed to budgetary rest a different, Reagonomics will not persist in the eventual change to possibly liberal administration.  JAembek  With deregulati9n and no rate  NATIONAL ASSOCIATION OF HOME BUILDERS . . . .  HOME BUILDERS ASSOCIATION OF KENTUCKY  •  -2-  410  controls the private sector will continue to compete with the government repardless of the effects of the high interest rate COPY  spiral.  b.  Disintermediation is the transfer of funds from financial  institutions to other more lucrative investments.  This phenomenon  occurred periodically in the past because of the inability of financial institutions to pay market rates.  The truth is the  small businessman, homebuilder, realtor, financial institution, etc., can survive an historically short period of no funds  (6  months to 1 year) but cannot stand three (3) years of exorbitantly  high interest rates. Acknowledging the fact that inflation must be brought to a halt, but also appreciating that the elimination of the small, non-corporate entity poses an even worse dilemma, the monopolization of the market place by larpe corporations. To allow the industrious little man to prosper and still achieve the american dream of home ownership we implore you to investigate, plan and strive for the introduction, passage and implementation of rate controls on Depository Institutions in this country.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Awaiting your reply and willing to discuss this issue with you.  Yours truly, 4/  pt;  OCT°  'lake Anderson President Home Builders Association of Western Kentucky 115 Chriswell Cir. Paducah, Ky. 0001 -5238  2)55  \-\  •  40*  t i  v • .. ,  . •'of covi•. R • ...V ••40 • .  4 tr*.  ,t4t4 i 1 • -T, . il,t ..,..,-,i-- •• v A., ..,,,,,,, \''' - -a••••;..-...r----.14:,-'•'  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20SSI  December 1, 1981  RAUL A. VOLCKER CHAIRMAN  The Honorable G. William Whitehurst House of Representatives Washington, D. C. 20515 Dear Mr. Whitehurst: Thank you for your letter enclosing and asking for a reaction to the views of Mr. Frank N. Wood, President of the Chesapeake Savings and Loan Association, concerning recent actions and proposals of the Depository Institutions Deregulation Committee. I want to assure you that I understand and share some of the concerns which prompted him to write to you. The DIDC has been assigned a very difficult task by the Congress: how to remove interest rate ceilings in order to provide a greater return to savers while at the same time not placing so great a burden on depository institutions that it would threaten their viability, The first of Mr. Wood's concerns is the cost impact of the new rule which permits the use of a four-week average of auction results on 26-week Treasury bills in calculating the maximum interest rates payable on Money rarket Certificates (MMCs). Previously, the YNC rate was based on the auction result for the latest weekly auction only. The new rule does raise ceiling rates on MMCs--and hence costs to depository institutions--when Treasury bill rates are in a declining trend. The DIDC felt that the new rule, which went into effect last month, will enable depository institutions to be more competitive with money market mutual funds throughout an interest rate cycle, especially during a period of declining short-term interest rates when money market funds traditionally have been able to pay relatively higher rates. Mr. Wood also expressed concern about the cost implications of the new IRA/Keogh account which depository institutions may begin to offer on December 1, 1981. This newly created account has a minimum maturity of 1-1/2 years and no regulated interest rate ceiling. In establishing the account, the DIDC cited three basic objectives. The first was to reduce the complexities associated with the administration of IRA/Keogh accounts under existing agency regulations. That objective was   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable G. William Whitehurst Page TWO  met uainly by perritting additional deposits to an account without the requirement of an extension in maturity. The second objective was to help fulfill the Congressional intent of the LT:.ployee Retireuent Income Security Act of 1974 (ERISA) to encouraLe qualified individuals to save for their retirement. As you know, a provision of the Econovic Recovery Act of 1981 has 0:eatly enpanded the eligibility and contribution limits for L,A and KeoLh accounts. The third objective was to proceed with the Coml ,ittee's andate to provide for the orderly phaseout and ultimate elimination of deposit ceilinLs. The passage of the Lconontic r_ecovery Act has enlarged the potential pool of IRA/Keogh funds. As you knew, IWKeoLh plans ray be offered by a variety of institutions, includinv, broLeraLre houses and insurance companies, and it is important that depository institutions have full coriTetitive access to such funds. In his letter "-. Wood also referred to a number of proposals for now derosit instruments which the DIDC will consider at its next meeting on Decer-ber 16. These include proposals for short-ten:, time deposit instrup.ents which would pL.7mit Iederally insured depository institutions to compete more effectively short-terr deposits, especially with money market utual funds. The DIDC must, of course, weigh such a co:Apetitive benefit zaainst the possibility that a new shortterm instrument could also result in substantial shifting of dcposit iunds fro!, low-interest deposit accounts and thereby increase the cost:: of depository institutions. L.,s I snid e;rlier, the issues the DIDC has to resolve arc inherently difficult and contentious; ultiTrately all of ti.lese questions come down to matters of judgment and I appreciate having the opportunity to corrent on rr. Wood's points. Please let me Lnow if I can be of further assistance. Sincerely, Saaut A. olckt  IM:nS:vcd (V-322) bee:  Normand Bernard Frs. Nallardi (2)  Action assigned Mr. Bern.  C. WILLIAM WHITEHURST 2D DISTRICT, VIRGINIA  WASHINGTON OFFICE: 2469 RAYBURN BUILDING WASHINGTON, D.C. 20515 (202) 225-4215  COMMITTEES:  JOHN P. MAGILL ADMINISTRATIVE ASSISTANT  Congre5cSoftbetiniteb tate5 3bous5e of ilepresSentatibui  ARMED SERVICES SUBCOMMITTEES, READINESS RANKING MINORITY MEMBER  CONSTITUENT SERVICE OFFICES. 815 FEDERAL BUILDING NORFOLK. VIRGINIA 23510 (804) 441-3340  Warsbington, ri.st. 20515  MILITARY INSTALLATIONS AND FACILITIES  VERENA C. WASSERMAN OFFICE MANAGER  PER M ANENT SELECT COM M ITTEE ON INTELLIGENCE  Room 601. PEMBROKE ONE VIRGINIA BEACH. VIRGINIA 23462 (804) 490-2393  SUBCOMMITTEES: PROGRAM AND BUDGET AUTHORIZATION  BLANCHE M. BOYLES OFFICE MANAGER  U.S. DELEGATE TO NORTH ATLANTIC ASSEMBLY   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  November 2, 1981  CD  1  The Honorable Paul A. Volcker, Chairman Depository Institutions Deregulation Committee 20th and Constitution Avenue, NW Room B-2120 Washington, D. C. 20551 Dear Chairman Volcker: Attached is a copy of a letter which I have received from Mr. Frank N. Wood, President of the Chesapeake Savings and Loan Association, concerning actions taken by the DIDC. I would appreciate it if his comments could receive every consideration. A report from you would also be appreciated. Thank you for your assistance. Sincerely,  G. WILLIAM WHITEHURST GWW:RL Attachment  ••••  7_7  P /O. i.\• •I.S',‘11)(7,-‘110.1.  64.  •'4;  MAIN ()f  1,  - P,PAMISI  I  ;  1C)N AN!) .1 i1 4.ANlis! • r1(1111 ()I I' VIRGINIA 23510  October 29, 1981 4  The Honorable C. William Whitehurst U. S. House of Representatives Washington, D. C. 20515 Dear Bill: I am writing to you protesting the decisions of the Depository Institutions Deregulation Committee (DIDC) which are having an adverse reaction on the Savings and Loan industry. The Committee is heavily weighted in favor of the commercial banks, and the Savings and Loans are left with only the Federal Home Loan Bank Board Chairman and at times the Federal Reserve Bank Board Chairman to lookout for our interest. The majority of its decisions or proposals do nothing but increase the cost of obtaining and retaining funds. When the 12 percent cap on the 2% Year Certificate was removed in August of this year the cost of these deposits moved to between 161 / 2 and 17 percent instead of 13 percent. Most of the Savings and Loans in the nation are operating in the red and with the proposals of the DIDC to increase the cost of funds even more, the future of our business is indeed bleak. Proposals now pending before the Committee which will ever increase our cost will include: the 4-Week Money Market Certificate averaging option; the "Wild-Card" 1 2 Year No Ceiling Certifi(no interest ceiling) 18-Month IRA/Keogh Accounts; the 3/ cate Account; lowering the Jumbo minimum from $100,000.00 to $25,000.00 with a 1 day notice for withdrawal; the creation of the new 91-Day Account with a $10,000.00 minimum and a ceiling based on 13-Week Treasury Bills; and a transaction account with a $5,000.00 minimum balance and no rate ceiling. It is therefore advisable that some action be taken by Congress urging the DIDC to postpone implementing these final rules on Money Market Certificate ceilings and the IRA/Keogh "Wild-Card" accounts, and suspend the other proposals issued for comment. This will provide the needed time for Congress to review the DIDC's performance, to assess the impact it is having on the financial community and the economy, and to develope corrective legislation. I would appreciate any assistance you could give our industry.  Sincerely,  Frank N. Wood President  041, C:Zo Lad  • FNW:lwp  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  fr FsLi r  -  -   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  4'  November 30, 1931  The lionorable John C. Stennis United States Senate Washington, D. C. 20510 Dear Senator Stennis: I am happy to respond to your letter of November 17 enclosing correspondence from rr. E. B. Robinson, Jr., President of Deposit Guaranty National Bank. 1.:r. Robinson eNpressed strong concern that the Depository Institutions Deregulation Comrittee night rescind its decision to authorize a new IRA/Keogh account. Thc Cormittee recently reaffirred the decision authorizing depository institutions to offer the new account starting December 1, 1981. Sincerely,  1.1B:RS:vcd ("V-342) bcc:  Normand Bernard Nrs. Nallardi (2)  Action assigned Mr. Anard sisw."'""7 l•ft  MAN JOHN TOWER, TEX., CHAIR  STROM THURMOND, S.C. ARIZ. BARRY GOLDWATER, VA. JOHN W. WARNER, N.H. GORDON J. HUMPHREY, WILLIAM S. COHEN, MAINE ROGER W. JEPSEN, IOWA DAN QUAYLE, IND. JEREMIAH DENTON, ALA.  JOHN C. STENNIS, MISS. HENRY M. JACKSON, WASH. HOWARD W. CANNON, NEV. HARRY F. BYRD, JR., VA. SAM NUNN, GA GARY HART, COLO. J. JAMES EXON, NEBR. CARL LEVIN, MICH.  EL DIRECTOR AND CHIEF COUNS RHETT B. DAWSON, STAFF   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  'AJCIliteb ,ta.fez ,Sertate SERVICES COMMITTEE ON ARMED  WASHINGTON. D.C. 20510  November 17, 1981  7/' an Honorable Paul A. Volcker, Chairm ion Committee Depository Institutions Deregulat m B-2120 20th and Constitution Avenue, Roo Washington, D. C. 20551  .E")  CO  Dear Mr. Chairman: have received from Mr. E. B. I enclose herewith a letter which I ranty National Bank, Jackson, MisRobinson, Jr., President, Deposit Gua osition to a reversal by the sissippi, in which he expresses his opp mittee of its rule eliminating Depository Institutions Deregulation Com 2-year time deposit allowed for / interest rate restrictions on the new 11 IRA/Keogh accounts. your consideration and I will appreciate your giving this letter t to it at your earliest convenience. letting me hear from you with respec Sin4rely,  r-  iftv‘%—'  A John C. Stennis United States Senator JCS/kbc Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  One Deposit Guaranty PIO Jackson, Mississippi 39205 Phone 601 354-8283 Telecopier 601 354-8408  r  • E. B. Robinson, Jr. Plesident  DEPOSIT GUARANTY NATIONAL BANK  : y  cf: :  ‘," "j_  6- • • • •  November 13, 1981  Senator John C. Stennis 205 Russell Senate Office Building Washington, D. C. 20510  Dear Senator Stennis: Institution Deregulatory We have learned that the Depository ing its rule eliminating Committee (DIDC) is considering revers 2 year time deposit allowed / 11 interest rate restrictions on the new osed to such a move. for IRA/KEOGH deposits. We are opp 's economic recovery program We feel that the intent of the President e sector. This is apparent is to encourage savings in the privat nomic Recovery Tax Act of 1981 from Congress' enactment of the Eco ty for IRA/KEOGH accounts. The which greatly expanded the eligibili deposit free of interest rate DIDC's action to create a new time method to accomplish that purpose. le sib pos t bes the was ons cti tri res IRA time deposit is a logical It is also our opinion that the new 's legislative mandate "to provide tee mit com the ing ent lem imp in p ste te elimination of deposit rate ima ult and out se pha y erl ord the for ition for these funds from ceilings." Banks face stiff compet to such regulations, thus leaving organizations that are not subject age in attracting these funds, which ant adv dis a at ry ust ind g kin ban the $80 billion dollars. have been projected to be at least ment to deregulation and solicit We urge you to continue your commit t te schedule of deregulation consisten your help in proposing a defini essary for prudent planning purposes nec is t tha e tut sta l era fed with the and operations. Sincerely,  E. B. Robinson President EBRjr/hn Grow With Us  Jr.  •  • November 30, 1981  The Honorable Robin Beard house of Representatives Washington, D. C. 20515 Dear lir. Beard: Thank you for your recent letter calling for a further 1 percentage point reduction in the discount rate. As you know, in the last 60 days the surcharge rate levied on large, frequent borrowers has been, in a series of steps, reduced from 4 percentage points to zero, and early this month the basic discount rate was reduced from 14 to 13 percent. It has been our objective to keep the discount rate close to market interest rates and these reductions were consistent with declines in short-term rates of 5 to 6-1/2 percentage points and in long-term rates of 1-1/2 to 3 percentage points over the last two or three months. I can assure you that the Board reviews the discount rate frequently in light of the general objectives of monetary pollcy and econoric developments. If the economy continues to weaKen, particularly in an environment of slowing inflation and weaker money and credit demands, the Board will give serious consideration to further changes in the discount rate. I should note that the discount rate applies to borrowings by all eligible depository institutions--not just member banks--and is initiated by the Boards of Directors of the Federal Reserve Banks with approval by the Board of Governors. Sincerely,  Sgaul A. Volcker  ECE:RS:vcd (V-339) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Ettin Mrs. Mallardi (2)  ROBIN BEARD 6TH DISTRICT, TENNESSEE  •  Action assignei Mr. Kiiiine  msrmcr0rrpcEs. 6584 POPLAR Surrt 400 MEMPHIS, TENNESSEE 38138 (9o0 767-4652  WASH I NGTON OFFICE: 229 CANNON HOUSE OFFICE BUILDING WAsHINGToN. D.C. 20515 (202) 225-2811  Congre55 of tfic Eniteb tateZ 3ipua of iktprelentatibel  22 PUBLIC SQUARE COLUMBIA. TENNESSEE 38401 (615) 388-2133  Utintington,/D.C. 20515  November 16, 1981  0')  Honorable Paul A. Volcker Chairman Federal Reserve Board of Governors 20th Street and Constitution Avenue NW Washington, D. C. 20551 Dear Chainman Volcker:  cn  CO  •P•••  I am calling upon you and the other members of the Open Market al Committee to immediately lower the discount rates that the Feder Reserve is charging its member banks by at least a full percentage point. I believe this action is justified and necessary since the money ng its supply figures released last week showed that the FED is not mooti own minimum growth targets for this year. Your imnediate consideration on this critical matter is most appreciated.  RLB:rrn   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • .•••Z3vGovt./i•. .. .co 4,-, -4,...  .0 .i, ., ..., IA   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ...s..e,„.Ilgu .  BOARD OF GOVERNORS OF THE  :  ,. ‘..,„: .. it•  • ••• ••  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  PAUL A. VOLCKER  NOV 3  1981  CHAIRMAN  The Honorable Bill McCollum House of Representatives Washington, D.C. 20515 Dear Mr. McCollum: I am pleased to respond to your request for comment on H.R. 4826, the bill you recently introduced "to bring interest rates down." The bill would impose a legal ceiling on interest rates the U.S. Treasury would be able to pay on its debt and a higher but closely tied, nationwide ceiling on the interest rates that lenders would be able to charge on loans to private borrowers. More specifically, after a phase-in period, the Treasury, in issuing new debt, would be forbidden to pay a rate in excess of a basic "real" rate of interest of 4 percent and an additional percentage amount equal to the rate of inflation experienced over the preceding year. Interest rates on loans to private borrowers would not be allowed to exceed the rate permissible on Treasury securities by more than 6 percentage points. While I believe any attempt to legislate interest rates cannot ultimately be successful, let me say that your bill takes a decidely more enlightened approach to setting ceilings on interest rates than is generally true of such proposals. In particular, by building in a mechanism to adjust the ceiling for inflationary conditions, your proposal takes into account the major role played by inflation in causing our current high interest rates and recognizes that lenders require compensation for the eroding effects that inflation has on the real value of fixed income assets. Moreover, the bill implicitly recognizes that positive real interest rates on loans are needed to encourage thrift and to see that the resources thus saved are allocated to efficient investment uses. Finally, the proposal would permit interest rates on loans with different borrowers to vary, thus giving lenders the opportunity to gain compensation for differences in default risk exposure. Despite these features, however, I believe it would be unwise to adopt the bill. First, the proposed constraints could prove highly disruptive to the Treasury's ability to manage the nation's debt. Even given the broadly based demands for Treasury debt, the Treasury is not in a position to dictate to the market. Rather, as is true of other borrowers, it must be willing and able to pay interest rates on its debt that are high enough to attract funds in sufficient volume to meet its   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  The Honorable Bill McCollum Page Two  financing needs. To place a constraint on this capability would create the great risk that Treasury would find itself with ance insufficient funds to finance a current deficit and to refin nment's maturing debt. I see no advantage to placing the gover financial integrity in this type of jeopardy. Second, with respect to the proposed usury ceiling on private lending rates, it seems to me that, even in times of extremely tight credit conditions, our economic and financial system will be better served if credit markets are able to Governrespond freely to changing supply and demand conditions. disment regulation here as in other areas will tend to cause ts. locations and distortions in the allocative role of the marke Moreover, circumvention of the proposed ceilings by private lenders and borrowers would be a major potential problem. Financial markets are worldwide in scope. Thus, many of our more sophisticated lenders will be inclined to transfer funds to markets abroad if they are constrained from receiving a competitive rate at home. And, even within our borders, there reach would be the potential for some lenders and borrowers to agreements in which interest rates exceeded the legal ceilings. Considering the size and complexity of our financial markets, arrangements to hold down the extent of such circumvention could prove quite costly. Third, if past experience serves as a guide, the legal ly and ceilings would serve as effective constraints only infrequent the then for relatively short periods of time. For example, past proposed legal ceilings would have constrained rates this ne summer but would not be effective now, given the sharp decli in interest rates that has occurred in recent months. Thus, rate one might well ask whether it makes sense to set up an elabo rage legal framework--which must include arrangements to encou quent compliance--that more than likely will have only infre applicability. To sum up, I believe there are good and sound reasons --on to rely--even under exceptionally tight credit conditions est competitive market forces to determine the levels of inter ver, in rates borrowers must pay and lenders may charge. Moreo the addition to the inefficiencies inherent in interdicting would free play of such forces, imposing legal rate ceilings that would create the potential for significant circumvention be quite costly to prevent. Let me close by emphasizing that I fully share your having concern about the effects that high interest rates are tion on our economy today. As you so clearly recognize, infla is the prime cause for these rate levels, and thus, for interest rates to return and then remain at more acceptable levels,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • The Honorable Bill McCollum Page Three  inflation must be purged from our economy. As you know, to achieve this goal, the Federal Reserve is following a strong anti-inflation policy, one which is moderating growth in money and credit to a pace necessary to restrain inflationary pressures. Let me assure you that we intend to carry this policy to successful conclusion. however, given the necessity for restrained monetary policy, it is of utmost importance that federal budget deficits be reduced. Heavy borrowing by the federal government tends to both crowd out private borrowers and to push up interest rates. Expectations of continued large deficit financing by the federal government, moreover, add to these pressures because they generate fears that the Treasury will persist in crowding out private borrowers over the future and because they reduce public confidence that inflation will be successfully brought under control. Thus, let me take this opportunity to urge you to support measures--whether on the outlay or tax side--to bring down federal budget deficits. Thank you for giving me the opportunity to comment on your proposal. Sincerely,  GX FS:JLK:DS:pjt (#V-325) bcc: Mr. Struble Mr. Kichline Mrs. Mallardi (2)  Action assigned Mr. Kickline BILL McCOLLUM 5TH DISTRICT, FiatIDA .  datgre  COM M ITTEE ON BA•.NIKING. FINANCE AND URBAN AFFAIRS  of tbe Einiteb *talk  1313  HOUSE OFFICE BUILDING D.C. 20515 (202) 225-2176  LONGWORTH  WASHINGTON,  PoufSe of 3aepresSentatibe5  DISTRICT OFFICES:  tliadington, ri.C. 20515  SUITE  701  COMMITTEE ON  204  EAST ALTAMONTE DRIVE  ALTAMONTE SPRINGS, FLORIDA  THE JUDICIARY FROM  e• c  November 4, 1981  SurrE 224 5800 U.S. HIGHwAy 19 NORTI4 HOLIDAY, FLORIDA 33590 (813) 937-4231 FROM N. PASCO COUNTY. TOLL FREE:  ( 7/  Hon. Paul Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551  845-0846  Dear Mr. Chairman: Recently I introduced a bill in the House of Representatives, H.R. 4826, as a measure designed to bring interest rates down and tie them in the future to the rate of inflation by limiting the interest (yield) which the federal government can pay on newly issued bills, notes and bonds and setting a national usury ceiling indexed to the rate of inflation. I believe H.R. 4826 contains a relatively novel concept which will complement the President's economic recovery plan by indirectly influencing rates of interest to come down sooner than they otherwise would and may provide the basis for assuring a lasting definitive relationship between the rate of inflation and interest rates. I have enclosed a copy of my bill and my Congressional Record statement for your consideration and comments. Your attention is directed to Section Two of the bill which is the central part of H.R. 4826 and describes the details on the concept. After you have had time to review the bill, I would like to know your thoughts concerning the concepts embodied in the bill and how it might be improved if the basic concepts are worth pursuing. Your consideration of this matter is greatly appreciated. Since ely,  BILL McCOLLUM Member of Congress BMcC/law Enclosures   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  32701  (305) 830-6655 LAKE COUNTY, TOLL FREE: 383-2323  October 22, 19S1  •  •  CONGRESSIONAL RECORD—Emens io  ns of Remarks maglc—called for an iner E 4911 ettae of 1.1 percent in real economie acti PARAQUAT BAN vity In the current cal Uni ted States seizures and etitiar year. soaring to a 4.2 percent gain in seizures only totals 501,183 Mexican 1984 followed by a 5 per kiloa marihuana. Therefore, one Stich rose-colored expcent gain in 1983. ectations have not can easily GrOi tC11A yet officially been see that this program has cilacarded, toil they can prenen to be IN THE HOUSE OF REPHESENI be junked. Yet Weiden cost-effective. Between the A JIVES baum lh still insisting MeXiCall that "the forces are alr SCiZil, CS and the Mexica Thvrsday, Oolober 22, 1981 eady In motion to ren eradication verse current downwa rd tendeneles, even • Mr. EVAN S of tleorgia. Mr. Speak- program, rriy estimation shows tbat though several more mon ths of poor eco- er, tcday nomic statistics are a I am pleased to join wit:i lily eraclicatian is responsible for 94 perlikely probahility." col cent of the marlheana Lak Those "forces" are the lea gues frien tine. neiehborine Sta en off the firs te dividual and business tax t stare of Oh in- of Florida. Mi. iltCLAND, k et. One cannot eraph"eize ent cuts Mr. . soei and oncl Sf:" a tVii, and the ine (from high ;teaks> in shor potential iirpact that seeli a 1-Ithutie to introduee lt eih tand long ter pro• m lat ion interest rates. hieh already rsecei‘e•I over- erain tan have if other source C0f:111-311: dual make any bets i I A• t*:; 1:../ thio this predle• whelmiog support from all tion is any better tha. incoatera 111));:a TIC il the saint. atiaele on Mil ri n othcrs the wallahs- of the Poose Foreie . Mt!::;420 tiaS gone from the n Affz- irs Committration has rnaoe so far. Tha No. inclivideiti tax tee. Tlos till will 1 sooreo country for 85 percen CUL 011 Ott.. 1 IS Of pidd all oe• the ust of Ur t of Vic ling (Emensiou. and herbic MR: ide, paraquat. in overseas mar the burine-s cuta—even though retsoactive i- State:. to les COMitig 1111.0 tlic United to Jan. 1, teal—won't, hua na eraOice ion progi anis. s than 10 percent. hel until next year. More sign p the economy I look at this bill as the sin As wit h Flo rida, my home ific per ant, nap s, is gle rno;t the new unce-tainty Goorgia, beeauae of its pro State of over Ilt'XL yiar's tea important legislation that we cou ximity to cuts. ld th enact this ea.r to he:p stem South American source cou And as for interest rate the tid ntries, e is inundated with marihu tion co iginally far uncieresa. the administra- of druers flov:ing into this country. ana. The tiniteed hoxa high The controversy over per readily available amounts they would go and hence aquat are so great that it is forC.ng the dist real ecrolomic giowth as the diimpeoing of stems from an amendment to the .ributors of 196 %%ell as the drain on 1 Foreign A.ssistance Art which the budget to service the the drug into a younrer national debt. pro and hib ityounger Now, there has been a modest reduction ed U.S. financial assistance to any for- market every year. According to NIDA trom the peaks, but nothin g yet to reduce eign country that WEIS using a 'herbi- studies some 16 million Americans the crunch on boldness expi are now regular users; and amo re:Ion. or te ease cide on marihuana that mig the real depression in housing ht be ng high and cars. fou nd sch ool seniors, about 1 in 10 harmful by the Secretary Treaaury Secretary Donald are daily of T. Regan, in a Health and Hu smo kers averaging 31 ma moment of candor last Fri n Ser vic / 2 joints a day. I es (HHS) to day, admitted smokers. that in the case of the admini Former Secretary Joseph have calls coming into my office stration's efdaily Cal forts to prevent disaster in lfa from concerned parents and no then determined that the the savings and tea re che rs loan industry "we actually was a possibility of harm about the harmful effect thi don 't whi kno ch w s redru g is what's going on." quired the State Depa.rtment to with- having on our young people. I know One a oodera whether that can' this is a matter of national t he said of draw any support to Mexico in the the adminoaration's anproa ir concern, ch to other marihuana eradication pro and no doubt similar feelings gra problems in the nation's eco m. have nomy. For exAs a member of the Select ample. President Reagan did Commit- been expressed from parents in every not oppose the tee on Narcot ics Abuse and Control, I State. -Ail Savers" Certificate pro posed bv the chaire d hearings in the 96th Congre savinga industry as a ba.il-ou I will not sit on the sidelines t for their sickss on the health consequences ness—although he had plenty con tinue to see this massive influxand of oi warning par aof that it Mt.'. Lad legislation of quat•contarninated marihuana cluh on pos- drugs corning into our country affectto the S&Ls. and a postitive stid lous mlue sible smokers of the drug In I hie collo- ing more 1111(i more Children l'N ery o ional bo'1411.7D for upeer-bracket ear year try. My conelusion n.nd the con ners. ultn ion and destroying more and mure faintNow the administration is disc nvering that of the Other members of the Treasury will Lake a the commit- lies. We know we have an effective terrible bath tee at the termin ati throug!? the tax-free status on of those hear- program tnat can destroy this menace . Savers. Moreover. according '0,8 of toe ALI ings was that HHS had overextrapo- This eranication program is 0111e the bei t !fil ed its fieurea hi its deternuna inaiyats. so much money has been Moo , led tion thing we ha-a got goinr, and I intend into the All Silvers that the tha t par aot iet was !Ir aqqui eaonola has letmans, to light to the finish to see that this suffered directly: economist s report that consideritir ?he level of contamination bill pas ;er, te,e House cf Repres entamoney that mieht have gone int tives and is sirned by the Pre o dim it eae- found. nients for cars W 11S tucked inst fed ent . We det utd in ermined that. eiven the neer. all Members to join in AllSavera. the battle amo unt of eontamirated mei ilinana aaain,t dree use and ofeer It would be hard to exaggerat their supe the extent on the U.S. in: rket, to whIch the cruchtl error arid the peraisi.- port, for this vital legislation• of Reaaitii's ap- ence and ara mir Is of exposure, it is e\proach to ecoronnic prohlerr; lies h. 'it.. hoi • tre ?Oita laftl tax iegf !anon. rne ly Unl ike ly if not impossible that Nobel uti,:•nnir`,: THE INTER;ST RATE REP laureate James Tobin put RI* serious !,ealtri ronseo oence would exa it '01:34 cta the rigla way the other day res ult to srn ois ACT ers alien he &Jai :nat. in the: I7n ite d St t !be "dkgraeeful" bill "really made a sham- from a fOreii,II, national parnot ial. bles of tho AniAlcan tax eradieation prorrani. ln My 0[11 system." 110r) it Congress and the presid ent toeether, is clear that IIHS was pas ealding to almost every sing judgOF FLORIDA greedy pressure. ment given wor -gave up all pretense se-caa;e assumptions, that this country far IN THE HOUSE OF RETI2ESEN7 ATIVES beyond reality, and clef/ rmined (should] make any att empt to check the aePos comelation of dynastic sib le lia. rm rat her than probable Thursday, October 22, 1981 wealtia or try to render things more equ al in the next gen- harm. • Mr. McCOLLUM. Mr. Speaker, erat iOn." Tobin said. To sum up the Importance of the today I have introduce There is a certain immora d the Intereet lity to the tax paraaniat program and the potential bill, as Tobin suggests. Rat e Ref orm Act of 198 1. The purpose But let's put that impact it has on the ilow of marihua- of this bill is to bri oueation aside and dea l for the moment na, allow me to point ng down the intolercnly with the macro-ec out some basic able onomic effect: v.1th a facts about the Mexican program—a cou rates of interest existitig in this recession a certainty, the economic growth pro ntry; provide a fixed a.nd logical ven effective program. According prospects that might hav ree generated extta lat ion ship between the rate of inflatax revenue are not to a Dru g Enf orc eme nt In view. Therefore, it is Adniinistra- tion, the interest rat time for reality to rep e paid by the U.S. lace the supplyaiders' tion study, the Mexicans eradicated Govern men t on mumbo-itimbo (call it voo deb t is.sues, and interapp rox imately 7.2 miPion kilos of est charged on loans in the you willa and Rini poli doo economics, if marihu cy toward a partial marketana in 1976. The Mexicans, place; assure that the public is ithdrawal of the tax cut. how eve Thi pro s r, tectin turn can were only able to confiscate ed encourage the Federal in the future from unreasona ble enforcement means, profitmak on Its drastic monetary Reserve to ease up through law ing through interest. rat policy.• 403,930 kilos. My research further ines dicates that the combined effort of by those v.tio mieht be tempted to take advantage of changi ng econornie  HON. BILLY LEE EVANS  4   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  HON. BILL McCOLLUM  a'd-12  CONGROSIONAL RECORD—Exlensions of lifirki  October 22, 1981  t's This provides ior high enough real inclimates and attending uncertainties; est in order to meet the Governmen above the rate of inflation for redid provide a uniformity of interest cash flow obligations. Under the pres- terest ent conditions the Treresury debt obli- lender% to be able to make higher teak rate ceilings thoughout the Nation. who are High interest rates have placed loans gation rates are the central force most loa.ns to the less creditworthy, who public general the rates often most interest of any sort out of reach for all but the directly influencing the the when of suffering markets greatest the financial have wealthiest. of Americans and the larg- of the underlying is choked rate money available of interest amount the both est of besinesaes. No longer can young the country, American families afford to buy paid to depositors and investors and off. The market forces would compel single-family dwellings. Small busi- interest ratcs charred to borrowers, the prime rate to be considerably :leases cannot borrow money and are since in the money business one is a lower. Further. thei e is an exemption hating difficulty paying baek loans direct function of the other. Conse- provided from the usury ceiling for total of quently, any realistic control 0‘%1- in- loans v..hich 00 not exceed they already have with meny public exceed must do which the those charged and $2.500 rates the terest in y bankruptc of possibility the on controls $500,000 made to any persen or birsicoming months if high interest rates bc aecOMpaniPd by related Federal the by ness entity within a 130-day pereal persest. The entire economic recotery the interest rate pale debt Federal selb it TlOs camp;ion should allow the n pile of President Ronan is in jeop Government when iondle at I the comes Hence ability of reeees to the cenetliaer and a.rdy without ft having the time neces- oblieations. A:I Reform Rale the Interent the small loam high-risk person where sary to work. It Ls an understatement behind of Dal. must might not otherwise b.! se ailabie it to say that high interest rates a for calls irtroduced have v:ell RI fro bill The an iritereSt ceiline, market. frei under come down, and sinc:e the the in ion redoel eek %%We-by-w leans. large of very the melting eradual not are cilhate prefer, forces, which I much the which yield or interest of amount assure to act. working, Conaes.s must The Interest Rate Reform Act of that these interest, re.tes do eterne Treassory Lc allowed to pay on bills or 1981 is besiered to be a workable piece noter—or any otner debt obligation of legislation that fits together with down. Why do we have continued high in issued by any agency or instrument a.ii- the other portions of the President's terest rates when the rate of inflation ty—until such point as tile rate of in- economic recovery plan. It provides a is considerably below where it was a terest or yield is equal to sa amoont 4 missing link. the need for which was few months ago and the prospects of percent greater than the percentage obscured by historic economic essiimpkeeping it down are brighter than increase in the consumer priee index' dons about the relationship of interest they have been in reties? The answer over the preceding 12 months—the rates and inflation in the marketplace. lies in the law of supply and demand most widely accepted measure of the I believe that it is innovative and will in the merketplace. Fince interest rates rate of inflation. At this point the work. I urge my colleagues, the adminare nothing more than the price of Treasury is locked into maintaining a istration, and.Lhose in the business, ftmoney. The forces at play have been ceiling on the amount of interst it is na.ncial, and academic community to difficult to analyee and are even mom able to pay on the sale of any such ob- analyze it carefully and criteca/ly. I elusive of control, even in our highly ligations at the constant level of 4 per- have high hope.s that the reasonints I regulated banking system. In order to cent above the current 12 month CPI he.ve presented is sufficiently clear eentrel inflation it has been and con- increase. using the latest figures avail- that many of my fellow Members in tinues to be necessary for t.he Federal able from the Department of Labor at Coneress w:11 join in cosponsoring this Reserve to maintain a tight monetary the time of each auction or salt of critical piece of legislation and that it reapolicy and avoid the creation of dol- debt. This differential provides will move swiftly through the Halls of lars while laws which will reduce sonable profit rate for those who deal both bodies and onto the President's budget deficits and stimulate savings in Government obligations end alto desk so that we may have relief from and investment take effect. At the must take into account inflation. those exorbitant interest rates before NOw the Treasury may not like thie things get completely out of hand. same time, the huge borrowing by the Treasury necessitated by the runaway proposal at first bluall, but I suspect The Interest Rate Reform Act of deficits created by the follies of prv;t upon study and reflection the first- 1931 which I have proposed today may alit Congresses and administrations re- thought argumenLs agairst the meke it sound to some as thoue,h I am facter, phaseln tile duces the supply of available money to fade. Assuming abandoning the principles of free enconsumers and busineases even more. weekly reduction of one-fourth of 1 terprise which I have long advocated. On the other hand, the demand for Percent. Ls appropriate, and data un- This is not so. In nly judgment there money at any rate of intereet by those available to me may show some other are very few areas where Federal iniese who can afford the high rate re- factor more aprropriate the Treesury tervention and regulation are justified mains substantially greater than the should be able to sustain r. week or and wherever possible they should be sepply and will for the forseeable LWO Cl here all of the bills and notes it eliminated. Howes er, there will always future unless there Ls a major reces- would like to have sold are not conl• be some area.s where the Government sion or econonns collapse, which none plelely sold because the buyers ant a must step in and restrict those who of us want. With these conditions. greater return of their money. Witi. would obetrusit the benefita of tile free market forces alone are not going to the appropriate reduction factor. the enterpriee system to the vaet nailoritY demand forces of the mai ketplace ing interest rates down. of Areerieans for their own personal On a more specific level there are a shonld level off any initial distortion grs ed and benehit. Such has historicalnumber of forces at work in keeping and result in the sale of virtually all ly been the case with banks and week the interest rates high. One of these is obligations offered the following money markets. for allsee the greed of ehe money' market center at the next redueee level and We have always had State usury banks and other huge financial inter- ans.lost sales to be made up in a relain this country and usury laws Jews tne ests which are simply making a big tively short period of time. Once been a deep part of the entire have between profit and appear unwilling to sa.cii- constant relationehip factor eulture. Historically, they Western ceilflee these profits at the moment even the Federal debt ebligation rate healthy necessary for been have estabis though they should know that their ing and the rate of inflation although and. some economy have difficulty ereed will cost them in the long run. lished, there should be no against strongly them, argued it is my Another significant factor is simply whatsoever makine market. the public that juelement a for interest is provides bill this of rest The the high rate of interest the Departthe by correcting served best Federal the t,o defects tied lav: usury ment of the Treasury is willing to pay national on bills and notes it sells to finance debt obligation rate ceiling. It provides pointed out by the critic,s, but mainthe debt presumably under the as- that the ma.ximum legal rate of inter- taining the basic concept. So it is. I besumption that it must make all of est which may be charged cannot be lieve. with the bill I have introducecL these sales planned each week no greater than 6 percent rnore than the It supersedes many diverse State laws in many cases matter what the market rate of inter- current Federal debt obligation rate. which over the years   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4  3  •  October 22, 1981  CONGRESSIONAL RECORD—E xteniionc of Re ma  rkc have become srchrtic 14: 4943 anyway and in (d al ) No per son ma y her eafter plead or of the current ec•onorni No set w c uph up the the eav Northwest is takittg of more tha al might RS well not be rat of intere:,t as a defense to n the, leeal large nuclear plants tha stuck with two any t are 22 and 13 With the interstate nat on the books. broeugh act ion t. against /turn person to recover ure of the flow purcent, ns.pectively, da m of money and comm com plete. ages on, or to enforce paymen erce t of or other rem esent investments ot $2.25 They r.ational usury law is ess . s unifoun remedy cri any mortga billion ent ac. bond, ra and wouid require hun tainly this is the approp ial and cer- Whir obligation excented or dred.s of roilriate time to suc assineed bY lions of additional dolars h person, except Ina! LI:is seetii enact it. fo7 complete not app ly to any action whleh is nok. n shall cancellation 'The text of the bill is rts v follows: The outlook fur finish Mg or to are or a,n Ion In. titun d rW);F: H.R. 48213 quite b'cak. 1,VPIISS an ing thcm is quent to the -late of the enactm d the regacn's A bill to reduce interest ret uron any rlorleaine honn. notent of this eicntrir_• uti ;ty incins es le: limiting e. or :ry oth the rete of interest whi:fi er ign ored critics ob!,gatior xetuted or a:ennn of the plants for too lon ed States Government may pay the Unita d person pri sur h g. In February gat ions issued by the United on debt eb:i- this Act or te the date of the enevarnelit or 191)I st riousiy questioned the . wisdem of pressing ahead with establishing a national ind t::ates and to• (2) This Act shall not prevent the entire fiveexe usu d ry ceil eny pla no nt ate ing. or progrs:n. Had my adv ttrritory of the United SOites ice been from a!lov.ing celc Be ft enacted by the Se-nat d then. termination of suc h d. fl:1 15, .'S or lin e and por Ing the Hou se tv.. se of tions wit Rerresentatives of the Uni h regard to rentraets Or a:.ent snoc- plants would have saved the reg o ted Sta les of ael io, ees America in Congress ass emb.N.d, That this bearing interest or yleldinft a rate of return most of a $3 billion debt—savings : Act may be cited as the to gre ate r the tha n tak rat e the legal epayers or money whi "Interest Rate intertst Reform Act of 1981". ch cou calculated under section 2 as tate ld toe effective be supporting energy conservat Sec. 2. (a)( 1) No ()Meer or emplc: date of such eontract or as:aliof ion programs, renewable ee , en ( of the ,e United Stater may sell any deb ene rgy See . 4. res All our ref ce ere nce t obligation s to int( of the United States, or of yields in sections 2 and 3 meanr(e,t rates arid tievelooinent and other cost-effective age any ncy or insin.pie inter- aotions to address the strumf ntality of the Uniteci Stares reg , be aring est annualized over a one-year period. needs. Instead, that inv ion's energy Jet erest at a rate. or at a discou Sec . 5. rea A son nt fro abl estment is site m cherge for origination ting face value. yielding a rate of return gr, idle. fees. finder's fees, (Winquene ter r tha n y fees and fifteen percent or one-fourt of one The Northwest must pereent commissions, and attual costs of recording now be on less than the average auchtiu and filing fecs. and of doeurnentery gua rd to avoid a repeat of n pri ce for And Treasury bills at the auction hel inthis tragic tangibl€ taxes prior to the date of the enactm d the week est under thir shall not be considered Inter- fiasco. The entities and individuals ent of this Acne who decide to build big Act. a hichever is greater. arid who oversee their powerplants (2) After such date, surh maximo must be held rr.ore accounconstruction est rate or yield shall be reduced m inter- WPPSS TO CLOS table to the by E one TW O NUCLEAR ratepayers who fourth of one percent per wee must foot the bills. PR k mei OJ ! EC suc TS h TH IS WEEK maximum interest rate or yie Initiative 394, which is fuur perbe on the cent greater than the increreseld Wa,shington State ballot , exp res sed as on a percentage. in the Consumer November HO N. DON BONKER 3, is orie option. It would Price Index doring the most recent twelve mon req uir e voter or WASHINcloil th period approval of public utilit preceding the sale of the debt y bon ds for IN THE HOUSL OF REPRES major power projects; it volved for which figures are avaobligation inF:NTATIVES wou ld ila ble . not create the electric power (be After reaching the poi 77zursday, October 22. 198 doomsday in 1 maxitnem rate or yield is nt v.ltere such the State tha.t some four percent • Mr. BONI-CER greater than the increase in the . Mr. Speaker. the ere fond of predictin of its opponents Con g. sum er Washington Public Price Index during the period Power Supply Although the initiative des cri bed in S.ystein is deciding this wet% st,bseetion (3)(2), all such off is not likely icers and emhow best tO make big powcrplant ployees shall maintain such max to shu con t do Ltruction wn two of its fia: partially any easi-r, It should make It bet est rive or yield at such level. imilm inter- built nuclear ter power plants in Washing- ctilialieing bee. 3.(a) Notwithstanding any accountability. If Wathinby other pro- ton Stat e. gton votins give therme vision of law. the maximum leg lves this task, The Suppiy System wil terest ehall be not greater tha al rale of inthe l el; lier y undoubtedly vvill not have much above the currently effective- n six peleent mothball t'.‘• projects to permit, it will patience with rat e construction misinarn pi uvicled be said, studies of in section 2. their futtre to pro- nes writ and needless cost overruns. ceed in an °reit rly manner, or (ball All contracts and assura bet I think they can nce the s for the pro jbe trunted to reCloan or forbearance in money ects will be canceled. her e are many ognize legitimate powe ol value at more than the legalor other thing who feel that the r neecis slid to rate of intery will never he cora- authorize exeent est are Wild :V; to the excess of int lit ure s to mcct those ple ted in ere eit her st ever case. riried:n the leeal rate of interest. Nor the ast utilit (.`: The principal, with he r•71 ort hwest has entere tr:: al We of inter- consumers. and ies. nisjor d an cia of est. tray be. recovered on leg WP PS S tin unn ned rcc edented power cost to any o. assurance. but not the exc such contract these ontion:: after the latest est increa Elect less of inte utility accountability ses. rest .. ms Such excces of interest, If ahead( tes of the costs of COIT:1)ii has tho never been nio:t imp paid. may it\ o be. reroverec: from the lender ort ant : pia it nts des --a sta erv gge es rin g $1.1.3 tilliono- thoughtful deL or forbearer CVell though paymen ate and reasoned analyt wag made to an a.s- shlwed that they had outss.rippod sis. Everycne v.ssilid be signee. If the lender or for better sersed if beare r refuses, financing cs- pacify of thc: renion an critics of the loitiativ before ruit Is brought. a tender d e the wor ld take that patience of Wall Street analys cipal woh legal rate of intere of the prinIF. approach and drop st or Th ref the e ies region's raiepavers es a misleading demand by the borrower for f t rnty rhetoric' that has bee the ri.ftrod ot enormous cons'. we n all any exce.se interest already con t ion bil ls lent in their cat-Iva:7n thu too prevaIronically. tlio two pland, s far. lencler or forbearer shall pay e( ted, such s • ile painful sessions at V.it • ,Oreeyr fete. incurred by the the eosts and factors in the'r own dem!. , 'P.f.,'S this lerok show that tiv. eeb!or lo the • asecution or defense of tht ir 4-year construction rns , issues at stake are any stil l tor,, costs miich too i.n brought • h regard to the COntri portarit to eu otherwise.. skyrocketoci, la te:sur.ince. more Ono: 500 per(31 A court. having jurisd cen t ict sin ion may erant ce tilt N. were first an., cella:0.0e or declaratory ted ef for or stifle and 300 per-. et, after con wit excess of interest and reli uet HUNUARI AN FREEDOM ,ti ton to that en0 commenced. Retail ele compil the necessary dis rti .1; :i FIGHTERS cov ery nee; the proiection. ros lend(r or forbearer. e. too, and enerky for ecasters knew that higher i et Subsections (a) and (b) n!n:Scii OF prices v. ould with respect to any one or shall not arply make enert;y conser mor vat con ion n-iore attracts or tra assurances which do not exc e HON. BILL EMERSON ctive. They gradually lowered their $2.500 or which do exc eed a tc tra of projections of the Northwest's po OF' llissoUgI $500.1.)00 made to any pereed a total of needs. wer son an d or IN bus TH ine mu E ss ch HOT JSE of OF REPRESENTATIVES the entity. includIng related or aff justification iliated per- for building, the two sons or busines.s entities. wit pla nts, which Wednesday October 14, 198 hin any 180 day have a combined 1 period. capacity, ot nearly • Mr. EMFRSON. Mr. 2.500 megawatts. simply Speaker, tomevaporated. morrow, October 23. ma rks the 25th anniversary of the Hungar ian Freedom  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  97TH CONGRESS ST SESSION  H.R.4826  To reduce interest rates by limiting the rate of interest which the United States Government may pay on debt obligations issued by the United States and by establishing a national indexed usury ceiling.  IN THE HOUSE OF REPRESENTATIVES OCTOBER 22, 1981 Mr. McCOLLum introduced the following bill; which was referred jointly to the Committees on Banking, Finance and Urban Affairs and Ways and Means  A BILL To reauce interest rates by limiting the rate of interest which the United States Government may pay on debt obligations issued by the United States and by establishing a national indexed usury ceiling. 1  Be it enacted by the Senate and House of Representa-  2 tives of the United States of America in Congress assembled, 3 That this Act may be cited as the "Interest Rate Reform Act 4 of 1981". 5  SEC. 2. (a)(1) No officer or employee of the United  6 States may sell any debt obligation of the United States, or 7 of any agency or instrumentality of the United States, bear-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2 1 ing interest at a rate, or at a discount from face value, yield2 ing a rate of return greater than 15 per centum or one-fourth 3 of 1 per centum less than the average auction price for 4 Treasury bills at the auction held the week prior to the date 5 of the enactment of this Act, whichever is greater. 6  (2) After such date, such maximum interest rate or yield  7 shall be reduced by one-fourth of 1 per centum per week until 8 such maximum interest rate or yield is 4 per centum greater 9 than the increase, expressed as a percentage, in the Consum10 er Price Index during the most recent twelve-month period 11 preceding the sale of the debt obligation involved for which 12 figures are available. 13  (b) After reaching the point where such maximum rate  14 or yield is 4 per centum greater than the increase in the 15 Consumer Price Index during the period described in subsec16 tion (a)(2), all such officers and employees shall maintain 17 such maximum interest rate or yield at such level. 18  SEC. 3. (a) Notwithstanding any other provision of law,  19 the maximum legal rate of interest shall be not greater than 20 6 per centum above the currently effective rate provided in 21 section 2. 22  (b)(1) All contracts and assurances for the loan or for-  23 bearance in money or other thing of value at more than the 24 legal rate of interest are void as to the excess of interest over 25 the legal rate of interest.  H.R. 4826-ih  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  4  3 1  (2) The principal, with legal rate of interest, may be  2 recovered on any such contract or assurance, but not the 3 excess of interest. Such excess of interest, if already paid, 4 may be recovered from the lender or forbearer even though 5 payment was made to an assignee. If the lender or forbearer 6 refuses, before suit is brought, a tender of the principal with 7 legal rate of interest or refuses a demand by the borrower for 8 the refund of any excess interest already collected, such 9 lender or forbearer shall pay the Costs and attorneys fees 10 incurred by the debtor in the prosecution or defense of any 11 suit brought with regard to the contract or assurance. 12  (3) A court having jurisdiction may grant equitable or  13 declaratory relief for any such excess of interest and to that 14 end may compel the necessary discovery from the lender or 15 forbearer. 16  (c) Subsections (a) and (b) shall not apply with respect to  17 any one or more contracts or assurances which do not exceed 18 a total of $2,500 or which do exceed a total of $500,000 19 made to any person or business entity, including related or 20 affiliated persons or business entities, within any one-hun21 dred-and-eighty-day period. 22  (d)(1) No person may hereafter plead or set up the  23 taking of more than the legal rate of interest as a defense to 24 any action brought against such person to recover damages 25 on, or to enforce payment of or other remedy' on any mort-  H.R. 4826-ih  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  4  4  1 gage, bond, note, or other obligation executed or assumed by 2 such person, except that this section shall not apply to any 3 action which is now pending or to any suit or action institut4 ed subsequent to the date of the enactment of this Act upon 5 any mortgage, bond, note, or other obligation executed or 6 assumed by such person prior to the date of the enactment of 7 this Act. 8  (2) This Act shall not prevent any State or territory of  9 the United States from allowing such defenses or imposing 10 criminal sanctions with regard to contracts or assurances 11 bearing interest or yielding a rate of return greater than 12 twice the legal rate of interest calculated under section 2 as 13 of the effective date of such contract or assurance. 14  SEC. 4. All references to interest rates and yields in  15. sections 2 and 3 mean simple interest annualized over a one16 year period. 17  SEC. 5. A reasonable charge for origination fees, find-  18 er's fees, delinquency fees and commissions, and actual costs 19 of recording and filing fees and of documentary and intangible 20 taxes shall not be considered interest under this Act. 0  II.R. 1826-ih   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The honorable G. William Whitehurst House of Representatives 20515 Washington, D.C. Dear Mr. Whitehurst; I am happy to respond to your letter of er N. NovemLer 17 enclosing correspondence from Mr. Warn ion. Dalhouse, Presiaent of Dominion Bankshares Corporat siHr. Dalhouse expressed strong concern that the Depo ind tory Institutions Deregulation Committee might resc unt. The its decision to authorize a new IRA/Keogh acco ing Committee recently reaffirmed the decision authoriz starting depository institutions to offer the new account December 1, 1981. Sincerely,  NB:DS:pjt (#V-340) bcc: Mr. Bernard (2) , Mrs. Mallardi!  me G. WILLIAM WHITEHURST 2D DISTRICT. VIRGINIA  •  Action assigned Mripernard  WASHINGTON OFFICE: 2469 RAYBURN BUILDING WASHINGTON, D.C. 20515 (202) 225-4215  COMMITTEES:  SUBCOMMITTEES,  Congre55 of tbe Viniteb *tate5  READINESS RANKING MINORITY MEMBER  Poul5e of ikepresSentatibet4  ARMED SERVICES  JOHN P. MAGILL ADMINISTRATIVE ASSISTANT CONSTITUENT SERVICE OFFICES. 815 FEDERAL BUILDING 23510  NORFOLK, VIRGINIA MILITARY INSTALLATIONS AND FACILITIES  EitiaobingtottAD.C. 20515  (804) 441-3340 VERENA C. WASSERMAN OFFICE MANAGER  PERMANENT SELECT COM MITTEE ON INTELLIGENCE  Room 601. PEMBROKE ONE VIRGINIA BEACH, VIRGINIA  SUBCOMMITTEES:  23462  (804) 490-2393  PROGRAM AND BUDGET AUTHORIZATION  BLANCHE M. BOYLES OFFICE MANAGER  U.S. DELEGATE TO NORTH ATLANTIC ASSEMBLY   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  November 17, 1981  f  c:D  The Honorable Paul A. Volcker, Chairman Depository Institutions Deregulation Committee 20th and Constitution Avenue, NW Washington, D. C. 20551  -J  Dear Chairman Volcker: I am enclosing a copy of a letter which I recently received from Mr. Warner N. Dalhouse, President of Dominion Bankshares Corporation, in Roanoke, Virginia. I would appreciate it if the views expressed in his letter on the subject IRA and Keogh plans could receive every consideration. With best wishes, I remain Sincerely,  G. WILLIAM WHITEHURST GWW:RL Enclosure  v  •  •  Dominion Bankshares (2c)ripc)mtiOri Post Office Box 13327  Roanoke, Virginia 24040  Telephone 703/362-7646  November 10, 1981  Warner N. Dalhouse President   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Honorable G. William Whitehurst House of Representatives 2438 Rayburn Building Independence and S. Capitol St., S.W. Washington, D.C. 20515 Dear Mr. Whitehurst: Great pressures have been placed on the DIDC to suspend or modify the recently approved rules for IRA and Keogh instruments. We strongly object to such action and have urged the DIDC to implement retirement account deregulation as approved at the last meeting. Depository institutions must have the capability to be fully competitive from the very start in the new IRA market place. Due to the longterm nature of retirement accounts, initial account openings will determine these growing customer relationships for many years. Brokerage houses, money funds and insurance companies are developing aggressive IRA and Keogh programs. If we are not allowed the same flexibility, a profitable source of stable funds will he permanently lost. Banks and thrifts have already invested millions of dollars in computer operations, legal preparation, employee training and marketing programs to offer attractive, new retirement account services to better serve our customers. Any change to the currently approved regulations would not only be extremely wasteful, but would also result in a chaotic effort to revamp policies, procedures, operating documents, customer communications and employee training. Furthermore, implementation of the IRA and Keogh accounts as approved will provide an excellent opportunity for the DIDC to evaluate industry reaction to other deregulated services. Since the immediate earnings impact of these retirement account instruments will be limited, the utilization and effectiveness of a deregulated deposit service can be gauged without the risks associated with more mature deposit services. The DIDC should not give up this valuable opportunity. In our opinion, thrifts who oppose this deregulation are extremely naive and do not adequately understand the competitive forces now at play in the retirement account market. The attached article from Business Week magazine poignantly describes the retirement account environment; hopefully you will have a moment to read it. All depository institutions, including thrifts, would be best served by having the approved regulations fully implemented.  VIOL   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Honorable G. William Whitehurst  -2-  •November 10, 1981  We urge you to extend your support to the DIDC in reconfirming its intention to deregulate retirement accounts starting December 1, 1981. Limiting our ability to compete for this extremely stable source of funds will permanently shrink our deposit potential and our capacity to fully serve our customers. Sincerely,  a-,44e/atte..„_ Warner N. Dalhouse President WND:rlw Attachment  •  die   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  The Honorable Hank Brown house of Representatives Washington, D.C. 20515 Dear Mr. Brown: I want to thank you for your thoughtful letter concerning the new IRA/Keogh account created by the Depository Institutions Deregulation Committee at its meeting on September 22.  Over the past few days the  Committee reaffirmed the decision authorizing depository institutions to offer the new account starting December 1, 1981. Sincerely,  NB:DS:pjt (#V-334) bcc: Mr. Bernard Mrs. Mallardi (2) ,7  AkAction assignel Mr. Bernard OFFICE ADDRESS:  HANK BROWN ATH DISTRICT, COLORADO  41111/  1319 LONGWORTH BUILDING WASHINGTON, D.C. 20515 (202) 225-4676  commmtEs:  INTERIOR AND INSULAR AFFAIRS  Congro5 of the tinittb tata  STANDARDS OF OFFICIAL CONDUCT  Pooe of teprelentatibe5   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Eletzbington,ae. 20515 November 16, 1981  Cr)  DISTRICT OFFICES: 1015 37TH AvrNuE Cowl' SuITE 10IA GREELEY, COLORADO 80631 (303) 352-4112 203 FEDERAL BUILDING FORT COLLJNS, COLORADO 00521 (303)493-9132 FEDERAL BUILDING GRAND JUNCTION, COLORADO 81501 (303) 243-1736 Room 9, 230 MAIN STREET FORT MORGAN, COLORA.D0 80701 (303)867-8909  ADAMS ComiTY (303)466-3443  .;  The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th and Constitution Avenue, N.W. Washington, D. C. 20552 Dear Mr. Volcker: It has been brought to my attention, by several of my constituents, that the DIDC may be considering a reversal of a ruling adopted by the Committee on September 22. The ruling created, effective December 1st, a new 18month IRA/Keogh account which will carry no ceiling for interest rates. I would hope that you would not reverse the ruling. My appeal is based on the merits of such an account, as well as the fact that this is an inappropriate time to make such a decision. The Committee provided an extensive comment period prior to making its unanimous decision in September, reviewing carefully all comments received at that time. To reverse the decision now, so near to its effective date, would not be equitable to those institutions who have already spent time and money in preparing employees and informing consumers of the advent of this new investing tool. The banking industry needs to be assured that when it acts in good faith on a ruling of the DIDC, that that ruling will not be capriciously altered or revoked. Thank you for your consideration of this matter. Sincerely,  ,te,e0,/  Hank Brown Member of Congress HB/j  sic  The Honorable Ted Stevens Assistant Najority Leader United States Senate Waphington, D. C. 20510 Dear Senator Stcvms: Thant, you for your lctter of ;Tovcrber 10 requestinr coll.ent the ne-7 ILA/KeoLh account which depository irstitutions are authoried to offer startinr Pecorber 1, 1981. You eyiressed concern about Cle tirinF_ of the account and erclosed correspon6ence frov L. C. Coffnan, PresiCent of Alasla Federal Savings, urijn,7 postponeinent of the account in light of its potential cost it.pct on depositcry institutions, particularly AlasLay institutions. The nepcsitory Institutions i:ereF,ulation Col Littee recently recolisidered and reaffiried its earlier decision to authorize the new ILAreotl' account. rowever, the Copri ttee diC rescinc: its carlier decision -1-Lici) would hPvc permi tted waiver of early withCrpl'al renalties or trnnsfrrs to the new account fro' icccunts p.t the SflTe institution. The Corvittee believer Lhat the rew account will help to adfill thc ConLressiorn1 intent of the Y:ployee Petirment FA'curity ef 1976 (Li ri-.'A) to encourage qualified indivi(uals to save For their retirer(mt. As you t_now, for ILA/neo01 acc,,untr, Dreatly eypanded by the Feonoric ilecovery Act ef 19n, ard Lc: efully the recounts ray prove to 1-0 Lajor sourens of funCs for depository institutions which will now be able to colypete on a rate Lasis with other institutions--such as insurarce col prnies and LroLerare firms--thnt offer ILA/KeoLL r( tirei NIL plans. While the CoLrittee roaffilned its decision not to iLpose an interest_ rate ceiling on the new lccount, the Connittoe also ine.icated thvt the supervisory arencics will carefully roni to/ IPA/F.000 accounts to deterrine iC rates are 1,eing offered which would adverfr,Jy affect the financial staldlity of fina ncial institutionr. Sincerely, NB:RS:vcd (V-341) bcc: Norwand Bernard ,,,// Uallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  M4.04.&sit  Action assigned Mr. Bernardi. • ( STIVENS .41.11   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  .  Zenate  'Unita)  19N NOV 19  OFFICE OF  rr  9' 05  THE ASSISTANT MAJORITY LEADER WAsHiNGT0N. D.C. 20510  r"  '"  45ti1 November 10, 1981  The Honorable Paul Volcker Chairman Board of Governors Federal Reserve Board 20th and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Chairman: I am writing you on a matter related to your duties as Chairman of the DIDC. Attached is a letter from one of Alaska's leading financial institutions outlining what surely must be the feeling of savings institutions nationwide. Considering that the DIDC recently reversed its position on raising the rate for passbook savings accounts, it is surprising to see the IRA/KEOGH "wild card" being considered by the DIDC. The same "timing" reasons applicable to setting new passbook rates are also relevent to the "wild card" proposal. It is my hope that the DIDC will delay the implementation of this proposal until sufficient time is allowed for financial institutions to modify their investments to accomodate the higher cost of these funds. With best wishes,  ENS ssistant Majority Leader Enclosure  '  1•••••••••"7...." -  •  •  tr  :1:gasi1e  Ba i n 0EIEE r  _  'VP  ADMINISTRATIVE OFFICES (907) 586-1015 586-1017 311 NORTH FRANKLIN ST. JUNEAU, ALASKA 99801  tg—ra,••  -%411.••••••  November 6, 1981  Honorable Ted Stevens United States Senator 411 Russell Office Building Washington, D.C. 20510 Dear Senator Stevens: The Depository Institution Deregulation Committee (DIDC), in their meeting of September 22, 1981 passed actions that would create a "wild card" 18-month IRA/KEOGH savings account with no limit on the rates that may be paid to the account holders. In addition they are also considering other regulations which will further increase the cost of funds for the Savings and Loan industry, and particularly the Alaskan institutions. The "All Savers" account that we were authorized to issue the first of October has not had the positive effect on earnings that we anticipated. However, the "All Savers" account will be attractive in time, especially as other investment opportunities diminish when interest rates decline. The investment opportunities in Alaska are very limited, due to the low rate State loan programs. At the present time our cost of funds is 1% higher than that available for investments in our local loan markets. The actions of the DIDC will only further increase our industry's cost of funds and produce no additional revenue, as we do not have investments available for these high cost funds. I would appreciate your support by contacting the DIDC and urging them to postpone implementing the final rule on the IRA/KEOGH "wild card" accounts and postpone consideration of the other proposals that are pending, until such time as the financial industry has had an opportunity to adjust their investments to accomodate this higher   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .41M1111 ,  FSLIC ......•••• C••• , ••••r to...•I.ft. ••., Sawn, bow. le  Is= SO  ALASKA'S PIONEER  • •.  11  Honorable Ted Stevens  • -2-  November 6, 1981  cost of money. The DIDC's continued race to deregulate the rates paid for savings deposits is way ahead of the public's acceptance of the new investment requirements and cost. The loser in this race can only be the financial community. Thus it is. extremely important that the DIDC's actions be slowed to the ability of the borrowing public's acceptance of the price they must pay for deregulation. Your assistance is sincerely appreciated in this most urgent matter. Yours tru17, // L.C. Cof man President LCC:ss   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .,....• FSLIC •awl Soow,lorand le I NO 0111  ALASKA'S PIONEER  •  •  .11Po•  ..',0 *.ofGovt,i•. **0 'co  tr . i. .  *0 e-ri ...A .2 .,1 ‘ ...„  54 ( V 3a,)  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  i--(.., (-) / 1 4,.  .RAL RES „ •...• •  WASHINGTON, D. C. 20551  November 25, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable Edward Zorinsky United States Senate 20510 Washington, D.C. Dear Senator Zorinsky: Thank you for forwarding the letter you received from your constituent, Mr. Arnold Legband, describing the current financial problems of his farm supply business in rural Nebraska. As a supplier to the farm sector, Mr. Legband's firms certainly appear to have been adversely affected by the relatively low farm earnings of 1980 and 1981. The enclosed study by our staff, "The Impact of High Interest Rates on the Housing, Automobile, Agriculture, and Small Business Sectors," summarizes the farm income situation as it appeared to be in late summer. More recently, the downward pressures on farm prices and farm incomes have been reinforced by large grain crops here and abroad. High interest rates have no doubt further aggravated the financial problems that poor sales to farmers have caused for farm supply firms, large and small, even if it does not generally appear to be the principal factor. In addition, Mr. Legband's letter vividly reflects the financial surprises and shocks that borrowers from rural banks have experienced since late 1979. Before then, interest rates on farm and business loans at most rural banks were relatively stable, even during periods when market interest rates and loan rates at most large and urban banks rose sharply. Loan rates at rural banks did not fluctuate much because the interest rates paid by these banks to local depositors--their main source of funds--were relatively stable. As late as 1978, therefore, credit terms and practices at rural banks resembled those that had last prevailed nationally in the 1950's. Beginning in 1979, however, the cost of a major portion of deposits at rural banks began to reflect national market interest rates, as rural depositors moved their funds into the newly authorized money market certificates. Quite suddenly, therefore, rural bankers and borrowers were faced with changed credit conditions to which their urban counterparts had been adjusting more gradually, over a period spanning about two decades. From very little interest rate volatility and,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  The Honorable Edward Zorinsky Page Two  consequently, low risk of significant rate changes, borrowers from rural banks were plunged into a diametrically opposite rate environment. Inevitably, some borrowers would find it difficult or impossible to adjust to the changed conditions and costs and, as Mr. Legband's letter indicates, rural bankers necessarily have been actively involved in determining and tracking the financial condition of their borrowers. Those borrowers who coincidentally were encountering problems with their selling prices or volume, such as farmers and farm suppliers, obviously were in greater financial jeopardy and thus have been attracting greater attention and concern from their lenders. I can readily sympathize with the problems that rural firms are having in coping with the changed borrowing conditions during generally difficult economic times. In the short run, lower interest rates during a period of weakness in economic activity may help the financial situation of these firms to some extent; however, longer-term improvement appears to require a return to sustained economic growth and the recovery in farm income that this growth would foster. Such growth, I am convinced, is contingent on our further success in reducing the rate of inflation in prices and wages generally, which should also result in a substantial period of lower interest rate levels. Sincerely, Sdaul A. Volcket  Enclosure  Eti:JZ:JLK:vcd (V-323) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ms. Zickler Mr. Melichar Ms. Wing Mrs. Mallardi (2)  EDWARD ZORINSKY NEBRASKA  •  FOREIGN RELATIONS COMMITTEE SUBCOM M ITTE ES RANKING MINOR!TY MEMBER  431 RUSSELL SENATE OFFICE BUILDING  WESTERN HEMISPHERE AFFAIRS  (202) 224-6551 COM M ITTEE:  9.Jenifeb ,Sfafez Zenate  AGRICULTURE. NUTRITION. AND FORESTRY  WASHINGTON. 111cr 12t?l  ARMS CONTROL. AND INTERNATIONAL OPERATIONS EUROPEAN AFFAIRS I  •  I 6  •  I !•  SUBCOM M ITTEES: RANKING MINORITY MEMBER AGRICULTURAL CREDIT AND RURAL ELECTRIFICATION AGRICULTURAL PRODUCTION. MARKETING AND STABILIZATION OF PRICES  C2 DISTRICT OFFICES. 8311 FEDERAL BUILDING 215 NORTH i 7TH STREET OMAHA. NEBR. 68102 (402) 221-4381 100 CENTENNIAL MALL, NORTH LINCOLN. NEBR. 68508 (402) 471-5246  FOREIGN AGRICULTURAL POLICY   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1811 WEST 2ND STREET GRAND ISLAND, NEBR. 68801 (308) 381-7251  November 2, 1981  Hon. Paul A,. Volcker Chairman, Board of Governors Federal Reserve System 20th St. and Constitution Ave., N.W. Washington, D.C. 20551 Dear Mr. Chairman: Recently I received a letter fram a constituent, Mr. Arnold Legband, who informed me that his agricultural products and services business is today near bankruptcy. The tight monetary policy pursued by the Federal Reserve Board and the reduoed price support legislation plunoted by the Reagan Administration are crippling his business. Enclosed is a copy of the letter for your review. I would greatly appreciate a response fram you. With best wishes,  EZ/rlj/am  enclosure  •  •  • AG-LAND PRODUCTS 1525  Box MX Fremont, Nebr. 68025 Phone (402) 727-4141 Arnold Legband and Sons  110-26-81 The Honorable Edward Zorinsky U S Senate Nashington, D C. 20510 Please be alvised that we are praying for a decrea-e in interest noney. We don,t know how long we can survive under the pret7ent economic condition:Our company is agriculturally oriented and to say it simply- We are hurtir 7 money The farmers are not doing any buying as the banl:s are not loaning any We have notes due and are not able to pay on the principal because all we have been able to afford to pay thus far is the interest.It is abuilt in hi overhead expense that is slowly killing us. Our operating costs are co that our profit margin is nil. co:% Ne operate our company as efficient as possible. Its a family owned to sati:-fy and our employees received higher wages then we did in order work or their necessitiesaly wife does all the sales, collecting and book_. an au-gratis salary. e have put in more time and effort than ever befon to pay All of us can't go broke or there wnn't be any money or collateral anybody's salaries. we hay, Ale have attempted to run a fair and honorable business. In the past carried our full time employees through the winter months because it is costly to re-train new people and we value them as worthipemployees. WP will not be able to do so as the banks are not loaning any money in this area. spring The future agricultural economy looks bleak in this area and the dealers is not very optimistic at this writing. All of our customers and - low and depressed agriculare in a depressed mood due to the tirht money f tural market. and use our In the past we were able to borrow money on anoopen note bacis tutions want equipment and inventory for collateral. The financial insti notes paid. neither- they are running scaird and they want the money or T r4 iling yo pay the hipt cent of internt- In can't ret the Even if we are , untilthis inflation economy ]evels ou.. money to stair   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • AG-LAND PRODUCTS  _ •••.• /525  Box Yigh. Fremont, Nebr. 68025 Phone (402) 727-4141 Arnold Legband and Sons  Cont.  •••••••••••  deflated that we won't br, able to If we sell out now the prices are so buying or has the sell our eouipment for its real value as no one is pny tvv, notes. money to buy. It wouill't bring sufficient dollars to s and we arc, nhe financial institutions dispute all the financial :'ip:ure proof of spending more time of varifications of figures and furnishinc and not such. They are only interested in figure factn of value solri now in actual value. When and where can we get financial assistance to continue our growth and existance. We can't all throw in the towell and fr,o on welfare. Lowering the taxes won't help if we don't have any taxes to pay. Cone and visit cut in the mid-went with farmers, builders, -:m-icultural oriented companiew and financial institutionn nnd you will fLn1 the contents of thi. wTiting to be valid. We are putting our trust in your vocal authority to give us some hope of encouragement. Signed in good faith but in desperation, Respectfully,  14'77=0 ; d'  •  Arnold Legband Mgr. Ag-hand Farm Products, Inc.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • November 23, 1981  The honorable Carroll A. Campbell, Jr. house of Representatives 20515 Wasnington, D.C. Dear Mr. Campbell: 1 recomThank you for your letter of November on the Board's mending Mrs. Nell W. Stewart to serve Consumer Advisory Council. t's qualificaI can assure you that Mrs. Stewar when the Board makes tions will receive full consideration tne appointments to the Council. Again, thank you for your interest. Sincerely, Wall  Volcker  CO:pjt (#V-330) bcc: Mrs. Bray (w/copy of incoming) Mrs. Mallardi (2)  •  ,ARR..p.LL A. CAMPBELL, JR.  i  4TH DISTRICT, SOUTH CAROLINA  COMMITTEE ON APPROPRIATIONS  BUXOM,MTTEES: COMMERCE, JUSTICE, AND STATE, THE JUDICIARY AND RELATED AGENCIES  WASHINGTON OFFICE: Room 408 CANNON HOUSE OFFICE BUILDING 202-225-6030  TREASURY, POSTAL SERVICE, GENERAL GOVERNMENT  isr:1 !!nv 1 3"9 36  CongrelE; of tbe Elniteb  DISTRICT OFFICES: P.O. Box 10183. FEDERAL STATION GREENVILLE, SOUTH CAROLINA 29603 803-232-1141  LEGISLATIVE BRANCH  tatt5  PowSe of ilepresSentatibe0 Eticusbingtott, 3111.e. 20515  P.O. Box 1330 SPARTANBURG, SOUTH CAROLINA 803-582-6422   https://fraser.stlouisfed.org Mir Federal Reserve Bank of St. Louis  29304  November 1, 1981  Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Constitution between 20th & 21st Washington, D.C. 20551 Dear Mr. Chairman: I am pleased to take this opportunity to recommend highly the selection of Mrs. Nell W. Stewart for a position on the Consumer Advisory Council of the Federal Reserve Board. Mrs. Stewart has been nominated by the South Carolina Department of Consumer Affairs, and I believe she would be an excellent choice. The Director of Consumer Affairs at Texize Corporation in Greenville, South Carolina, Mrs. Stewart has an exemplary record in looking after the well-being of consumers. Further, she has a knowledge of the business world that would help her to interpret the impact of Federal Reserve Board actions on individual consumers. I sincerely hope that you will be able to give Mrs. Stewart favorable consideration, and would welcome the opportunity to talk with you about her qualifications if that would be helpful. With kindest regards,  0.„g, Carroll A. Campbell, Jr. Member of Congress CACJr/nm  —"wow   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 PAUL A. VOLCKER CHAIRMAN  November 20, 1981  The Honorable Fred Richmond House of Representatives Washington, D. C. 20220 Dear Fred: k bank notes I've had a chance to look into the Tyve which you gave to me the other night. Printing As I suspected, the Bureau of Engraving and r "substrates" has been considering Tyvek as well as othe as well as to for use in U.S. currency to enhance its life decisions have accommodate security features. While no alternative substrates been made, the obvious cost benefits of iving -- careful like Tyvek deserve -- and I believe are rece evaluation. dinner -Barbara and I greatly appreciated the opera and nd a most pleasant the first was quite a spectacle and the seco aftermath. Thanks again. Sin  ely,  ail ./ /(<7  P.S.  t get lost! I am enclosing the bank notes, so they don'   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • 0‘ (al./  .  -to. • 6' -•. •  •  •  rinARE)  5OVERN[Ii.,  0 ni  FEDERAL RESERVE SYSTE ,v,^•,31-iINLTON, U. C. 20Hr  •  November 19, 1981  t  •  PAUL A. VOLCKE R EHAIRMAt.1  The Honorable Sid l:orrison House of 1:epresentatives Washington, D. C. 20515 Dear nr. florrison: Thank you for giving me the opportunity to look o\Ter the recor.rendntion of your constituent, Archie G. reardin n chamw in the structure of reserve requirements. 11r. nil recommends that banks be permitted to hold low -rate Treasury securities in lieu of non -earning reserves. lie indicates that this would he n way of alleYi_atin the burden ol interest payr:ents in Lhe feder al hudy,et. There l i n sorry to sav, a flay in this argu, 1 11V. ',oder the current syster-,, the non-e;Irni ng reserve 1),11nnees that haul- s hold ;It the Federal Reserve rener ally ;Ire nlrendy invested by the Federal Reserve in uvernment securifics, with the vast majority of the interest earned returned to the U. S. Treasury. Consequently, the system Hill proposes would prove ineffectivc in solving the problem he is addressin{.„ The mechmics or bank reseive accounting are not \ unCierstoml ,11.1. and Fr. MIA's ovelsiht is cow,plotetv undcrstrindz‘ble. flill is to be cor.,mended for his ;L:tic.,\T or On serious national proLlem. or large budt,:r7 (111(: his effort to offer helpful advice. JLrJid. heliey(:1, that the answer lies only in the .ore realil of tmc and e;:penditurc policy, where Conress ;Ind the 'Cluii;istrntion are lahorini, today. Sincerely,  Si.P4411 A. V** MJP:JLK:RS:vcd (V-333) bcc:  Mr. Prell Ms. Wing Mrs. Mallardi (2)LZ  Action assigned Mr. Kichline SID MORRISON 4TH DISTRICT, WASHINGTON  DISTRICT OFFICES: 212 EAsT "E" STREET YAKIMA, WASHINGTON 98901  •  (509) 575-5891  COMMITTEE ON AGRICULTURE  SUBCOMMITTEES: FORESTS, FAMILY FARMS AND ENERGY  ROOM 177—FEDERAL BUILDING RICHLAND, WASHINGTON 99352  CONSERVATION, CREDIT AND RURAL DEVELOPMENT  (509) 376-9702  COTTON, RICE AND SUGAR  CongraZ of tbe Unita'  WASHINGToN OFFICE: 1330 LomowourrH kousE OFFICE DuiLoma 20515 WASHINGTON,  31)otuse of tepresSentatibesS  (202) 225-5816  lEassbington,0.C. 20515  tatess ROOM 314— ARTS BUILDING 1104 MAIN STREET  o.c.  VANCOUVER, WASHINGTON 98660 (206)696-7838  3  November 11, 1981  The Honorable Paul Volcker Chairman Federal Reserve System 20th and Constitution Avenue, NW Washington, D.C. 20551 Dear Mr. Volcker: Enclosed is a letter from one of my constituents. I believe that he has brought forward some workable ideas concerning the Federal Reserve System. I would appreciate your comments on his ideas and any suggestions you may have that would make them better. We must do everything we can to lower interest rates in a responsible fashion while at the same time reducing the federal debt. I hope Mr. Hill's suggestions are helpful. I look forward to hearing from you. In the meantime, if there is anything I can do from this end, please let me know. With kind regards, Sin  rely,  Sid Morrison SM:kwb   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •-tt  WEL_  COMMERCIAL CONTROLLED ATMOSPHERE  I  ,  _ niss - emm-  INDUSTRIAL METAL BUILDINGS  HILL'S CONSTRUCTION C 98907 PH.509/248-6990 1702 ENGLEWOOD, Mailing Address: P.O. BOX 47, YAKIMA, WASHINGTON  Congressman Sid Morrison Washington, D. C. Dear Sid: icit this year It appears that holding the Federal budget defis partly conin 1984 (1982) to S43,000,000,000 and balancing it e to sell its bondstingent on the Federal Government being abl notes at a lower interest rate than 15%. of the total The Federal Reserve requires approximately 14% reserve (can't be loaned, deposit in each bank to be held in cash s reserve). I am told therefore no interest is derived from thi discretion of the this varies normally from 12 to 17% at the Federal Reserve Board. gested new CongresLet me run the following by you in a sug erve: sional Bill in regard to the Federal Res this reserve in bonds1. Allow the banks to use 50% of vided the Federal notes sold by the Federal Government pro that bank for not more than Government sold the bonds direct to interest than the inflation 6% interest or not over 1 point more purchase, adjusted to a yearly was the previous quarter before the the less interest. average - whichever of the two would be rd from requiring the 2. Prohibit the Federal Reserve Boa e, including the h reserv banks to carry a larger rate of cas e during the part ten government bonds, than it has at any tim years. ds any bank needs more 3. If the Federal Reserve Board fin e Board must accept the Federal erv Res l era Fed the es, erv res h cas for the principal cash value Government bonds-notes as security ds or notes from any Federal d bon of the Federal Government's sai Federal Reserve system, the inBank. While in escrow with the drawn to the Federal Reserve terest on the bonds-notes would be no claim on any interest until system and the bank would have erve is satisfactory to redeem res h cas k's ban the as e tim h suc ds or notes to again be used per bon t's men ern Gov l era Fed the Paragraph One. the Federal Reserve Board is holding iod per the ing Dur 4. ernment bonds-notes from any bank, that Gov l era Fed ty uri sec as Government bonds-notes for use as albank cannot buy Federal lowed in Paragraph One.  OVER 30 YEARS HELPING BUILD WASHINGTON STATE WASHINGTON STATE CONTRACTORS REGISTRATION  https://fraser.stlouisfed.org SI-•220 BF Federal Reserve Bank of St. Louis  KI  ARCHIE G. HILL HERBERT H. HILL MEMBERS AMERICAN INSTITUTE OF CONSTRUCTORS  •#'  ,` • 'S•  ioatmetoy( . s,00   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  Congressman Sid Morrison  -2-  October 28, 1981  (a) The above is not mandatory to the banks. In other words, the purchase by the banks would be voluntary. (b) The Federal Government's interest rate on its outstanding bonds-notes might be cut up to 40% after a period of time. This would cut the taxpayers' Federal taxes necessary to finance the National Debt approximately $40,000,000,000 per year. (c) The Federal Government's bonds and notes would have a cash value equal to the U. S. dollar in exchange between the Federal Reserve system and the original purchaser bank. Sid, if you find merit in the above, use it as you see fit; if you see holes in it, repair it or drop it in File 13. Sincerely,  Archie G. Hill AGH:mmw P. S.  Herb is the only one I have discussed this with.  •  • .•• • ••. ' •• .• 00 GOvtR4,% • Q-  BOARO OF GOVERNORS OF THE  'co •0  FEDERAL RESERVE SYSTEM  ‘>:  WASHINGTON, D. C. 20SSI  •  ece;14  , 11 • L') CV.•  RAL '• •..• • •  November 19, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable Phil Sharp House of Representatives Washington, D. C. 20515 Dear Mr. Sharp: Thank you for your recent letter regarding Federal Reserve policy and the impact of high interest rates. I want to assure you that I and the other members of the Federal Reserve Board share your concern about the stresses being created in the economy by high interest rates. While some sectors of the economy have seemed to be quite resistant to the prevailing financial pressures, others clearly have been hit hard by the high cost of credit. It is important to note that Federal Reserve policy is not directed toward maintaining any particular level of interest rates but rather to promoting a rate of growth of money and credit that is consistent with reducing inflation and improving our longterm economic prospects. The current level of interest rates is a result of stubbornly high inflationary expectations and the application of the monetary restraint needed to reduce inflation in the face of continued strong private credit demands and the need to finance the large federal deficit. As you know, there has been a considerable reduction .in interest rates since this summer in connection with a weakening of demands for money and credit as economic activity has declined. Short-tem Treasury bill rates have dropped 3-1/2 to 4 percentage points from the average level prevailing in August, bank prime rates have been reduced to 16-1/2 percent--from more than 20 percent in August--and some short-term market rates have fallen even more. Long-term interest rates also have declined, but by much less, which in part reflects the continued skepticism about future price developments I referred to earlier. These developments point out the limits of the Federal Reserve's influence on market interest rates. If the Federal Reserve were to attempt to artificially reduce interest rates by pouring reserves into the banking system, such a shift in the direction of policy would serve only to heighten the already deep-seated fears--reflected in the very depressed bond markets--that the government   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Phil Sharp Page Two  •  is in fact not committed to seeing the fight against inflation through to a successful end. The added monetary stimulus would intensify price pressures in the economy, worsening the inflation problem that is at the root of today's high interest rates. The end result of the process would inevitably be higher not lower rates. Some of the damage of severe financial stress can be averted if less of the burden of restraint is placed on monetary policy. As you point out, the credit-sensitive sectors of the economy would benefit greatly if, in particular, there were a less substantial federal government demand on the debt markets. Sustained, lari,e budget deficits, which appear unavoidable unless there is further progress in cutting expenditures, can only tend to squeeze out private borrowers who do not have, in effect, first call on the nation's financial resources. To achieve an0 sustain a lower level of inflation and interest rates will require a fundamental change in expectations about future price behavior. Not only borrowers and lenders, but also cnnsumers, business and labor must be convinced that they can make plans and commitments for the future with confidence that price increases will be restrained. This conviction will not come about if government policies--both monetary and budgetary--show signs of wavering in their intention to bring down inflation. I believe we are making some progress in reducing inflation and changim., attitudes. I do not underestimate the difEiculties of continuing on this course. I hope and trust .we TAU also not underestirate the dangers of failing to turn inflation around--or, to put it more positively, the enormous 'opportunity we have to change the debilitating economic trends of the past decade or 1.()re. I appreelote very much your toLing the time to give me /our views on the situation. Sincerely,  kiti$48,imps  DK:JLK:vcd (V-313 and 332) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Kohn Ms. Wing Mrs. Mallardi (2)  ActiOn assigned Mr. Kichline  .  PHIL SHARP _ 10TH LNSTRICT, INDIANA  4  •  •  2452 RAYBURN HOUSE OFFICE BUILDING (202) 225-3021  tatai OurgralS of: tbe poua of AtpresSentatibeZ :4%)  assbington3D.C. 20515 tle CD  October 23, 1981  00 .•  Mr. Paul A. Volcker Chairman of the Board of Governors Federal Reserve System 20th Street at Constitution Avenue, N.W. Washington, D.C. 20551  (A)  t-  Dear Chairman Volcker: The reports this week that the economy is slipping into a recession nationally confirms the conditions the people I represent in Indiana have been facing locally for many months. I am writing to you to urge a change in the monetary policy being pursued by the Federal Reserve System. The Board of Governors must act to ease its tight money policy and to bring down interest rates. The current high interest rates have hurt automobile sales; the housing, construction and real estate industries; farming and small business operations. In recent months, we have seen record numbers of bankruptcies, especially among small businesses. We are seeing a major drop in farm income tnis year and rising unemployment. These conditions are disastrous in Indiana and other areas where automobile and agricultural production is of great importance. There has never been, and there is not now, a quick fix to our economic problems, and I know the Federal Reserve System must avoid a sudden and wide swing in monetary policy. But I believe it is essential that the Board of Governors change its current, excessively tight policy. Congress has enacted tax legislation designed to stimulate greater investment, and work remains for the Congress and the President in controlling budget deficits. I fear, however, that unless monetary policy changes and interest rates decline, revitalization of American business and industry will be postponed indefinitely and millions of our citizens will be without jobs.  Phil Sharp Member of  ress  PS/tw   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  11...SHARP Dign-Ricr. INDUILNA  2452 RAYBURN HOUSE OFFICE BUILDING1 (202) 225-3021  111 Congresz of tbe Uniteb etateti Potuse of Nteprelentatiba Elobington,ri.C. 20515 October 30, 1981  Dear Friend, I recently sent the enclosed letter to Federal Reserve Chairman Volcker protesting high interest rates, and I wanted you to have a copy of it. Statistics recently confirmed nationally what those of us in Indiana have known for many months--the economy has slipped into a recession--and there is no question that prolonged high interest rates have been a major cause. The Congress and the President must work to keep the deficit under control, but the Federal Reserve's excessively tight money policy is having a devastating impact on Indiana and the nation:  --Housing sales and starts are at their lowest level since the 1974 recession; 300,000 unsold homes remain on the market. --Early October auto sales plunged 35%; enormous job losses are occurring and investment in new plants, machinery and equipment is threatened. --Owners of small businesses tell me they cannot survive unless interest rates drop substantially; a record number of 450,000 people are expected to file for bankruptcy this year. --Farm income, according to the Wall Street Journal, is expected to be the worst in 20 years; higher production costs and the need for additional borrowing are creating serious problems.  I would like to hear from you on this issue. If you agree that action by the Federal Reserve is needed, I would ask that you, too, write to Chairman Volcker. We must pull together to help rebuild the strength of our economy, and I would like to have the benefit of your thoughts on this issue, or on any other matter of concern to you.  Phil Sharp Member of Co  ess  PS/tw Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  Ai Action assigned Mr. Kichline mk 11,  2452 RAYBURN HOUSE OFFICE BUILDING (202) 225-3021  PHU-SHARP 10TH DISTRICT. INDIANA  Congre5 of the tiniteb  tato  pouge of Ntepretientatibeti Maribington,0.e. 20515  •  October 23, 1981 //'  n Mr. Paul A. Volcker Chairman of the Board of Governors Federal Reserve Board 20th Street at Constitution Avenue, N.W. 20551 Washington, D.C. Dear Chairman Volcker: The reports this week that the economy is slipping into a recession nationally confirms the conditions the people I represent in Indiana have been facing locally for many months. I am writing to you to urge a change in the monetary policy being pursued by the Federal Reserve System. The Board of Governors must act to ease its tight money policy and to bring down interest rates. The current high interest rates are seriously damaging important parts of our economy. Interest rates have hurt automobile sales; the housing, construction and real estate industries; farming and small business operations. In recent months, we have seen record numbers of bankruptcies, especially among small businesses. We are seeing a major drop in farm income this year and rising unemployment. These conditions are disastrous in Indiana and other areas where automobile and agricultural production is of great importance. There has never been, and there is not now, a quick fix to our economic problems, and I know the Federal Reserve System must avoid a sudden and wide swing in monetary policy. But I believe it is essential that the Board of Governors change its current, excessively tight policy. Congress has enacted tax legislation designed to stimulate greater investment, and work remains for the Congress and the President in controlling budget deficits. I fear, however, that unless monetary policy changes and interest rates decline, revitalization of American business and industry will be postponed indefinitely and minions of our citizens will be without jobs.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Phil Sharp Member o Congress   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  Ow,, /1Aatt#A441,  v 3u )  BOARD OF GOVERNORS  ..• tr ..  •co . . •0 • -T1 • -4 .  1 !-(,)  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  A. 1 ( 44,  x, ..11\  .RAL RE  November 19, 1981  PAUL A. VOLCKER CHAIRMAN  The honorable Ken Kramer house of Representatives 20515 Washington, D.C. Dear Mr. Kramer: Thank you for your recent letter regarding Federal Reserve policy and the impact of high interest rates. I want to assure you that I and the other members of the Federal Reserve Board share your concern about the stresses being created in the economy by high interest rates. While some sectors of the economy have seemed to be quite resistant to the prevailing financial pressures, others clearly have been hit hard by tne high cost of credit. It is important to note that Federal Reserve policy is not directed toward maintaining any particular level of interest rates but rather to promoting a rate of growth of money and credit that is consistent with reducing inflation and improving our long-term economic prospects. The current level of interest rates is a result of stubbornly high inflationary expectations and the application of the monetary restraint needed to reduce inflation in the face of continued strong private credit demands and the need to finance the large feaeral deficit. As you know, there has been a considerable reduction in interest rates since this summer in connection with a weakening of demands for money and credit as economic activity 2 / has declined. Short-term Treasury bill rates have dropped 31 to 4 percentage points from the average level prevailing in 2 percent-/ August, bank prime rates have been reduced to 161 from more than 20 percent in August--and some short-term market rates nave fallen even more. Long-term market rates also have declined, but by much less, which in part reflects continued skepticism about future price developments I referred to earlier. These developments point out the limits of the Federal Reserve's influence on market interest rates. If the Federal Reserve were to attempt to artificially reduce interest rates by pouring reserves into the banking system, such a shift in the direction of policy would serve only to heighten the already deep-seated fears--reflected in the very depressed bond markets-that the government is in fact not committed to seeing the fight against inflation through to a successful end. The added monetary stimulus would intensify price pressures in the economy, worsening the inflation problem that is at the root of today's high interest rates. The end result of the process would inevitably be higher not lower rates.  •  •  The honorable Ken Kramer Page Two  Some of the damage of severe financial stress can be averted if less of the burden of restraint is placed on monetary policy. As you point out, the credit-sensitive sectors of the economy would benefit greatly if, in particular, there were a less substantial federal government demand on the debt markets. Sustained, large budget deficits, which appear unavoidable unless there is further progress in cutting expenditures, can only tend to squeeze out private borrowers who do not have, in effect, first call on the nation's financial resources. I agree with your emphasis on the importance of attitudes and expectations for our economic performance, and like you I am concerned about the increasing signs of pessimism among small businesses and others feeling the impact of high interest rates. It is this same concern about psychological factors, however, that leads me to conclude that an easing of monetary policy would be largely ineffectual in achieving a lasting decline in interest rates. To achieve and sustain a lower level of inflation and interest rates will require a fundamental change in expectations about future price behavior. Not only borrowers and lenders, but also consumers, business and labor must be convinced that they can make plans and commitments for the future with confidence that price increases will be restrained. This conviction will not come about if government policies--both monetary and budgetary--show signs of wavering in their intention to bring down inflation. I believe we are making some progress in reducing inflation and changing attitudes. I do not underestimate the difficulties of continuing on this course. I hope and trust we will also not underestimate the dangers of ailing to turn inflation around--or, to put it more positively, the enormous opportunity we have to change the debilitating economic trends of the past decade or more. I appreciate very much your taking the time to give me your views on the situation. Sincerely,  DK:JLK:DS:pjt (#V-307) bcc: Mr. Kohn Mr. Kichline Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action assigned Mr. Kichline  1111  KEN KRAMER 5TH DISTRICT, COLORADO  COMMITTEES:  ARMED SERVICES EDUCATION AND LABOR  Courgre511)1 tbe Ottiteb Atatel  WASHINGTON OFFICE: 114 CANNON HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 (202) 225-4422  DISTRICT oFriCES: 1520 NORTH UNION BOULEVARD COLORADO SPRINGS, COLORADO 80909 (303) 632-8555 275 UNION EXCHANGE 8933 EAST UNION AVENUE ENGLEWOOD, COLORADO 80110 (303) 779-6930  Pou5e of ilepretentatibef Wattington, ae. 20515  r tr.)  October 16, 1981  co  r,  r.:. r. ;T•  •'" • . . ) TN.  CD  The Honorable Paul Volcker Chairman Board of Governors of the Federal Reserve System Twentieth Street and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Chairman Volcker: from both the I realize that you have probably received many letters rve to review its public and private sectors urging the Federal Rese presently high monetary policies with the objective of reducing the interest rates. a tight money policy While I respect the Federal Reserve's camitrrent to become just as in order to combat inflation, high interest rates have than inflation. serious a problem -if not a more serious problem interest rates Therefore, I feel we should move decisively to bring down. ation and high interest Of course the long-term solution to both high infl novernment growth rates is to balance the federal budget and restrain le, the Administration and spending. With the backing of the American peop budget through the and the Congress are now working towards a balanced President's Economic Recovery Program. impeding the potential In the short tenm, however, high interest rates are ram by limiting the benefits of the President's Economic Recovery Prog in man) cases, is ability of small businesses to obtain credit, which interest-sensitive necessary for them to continue operating. The most erships are being small businesses, such as homebuilders and car deal all over the nation devastated by high interest rates. Car dealerships ts have reached are being forced to close their doors and housing star are builders everywhere their lowest level in thirty-five years. Not only ty of mortgage losing their businesses, but the cost and unavailabili the richest of loans have placed a home beyond the reach of all but Americans.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  especially We cannot afford to have America's small bLsinesses go under, and help get when they are desparately needed to increase productivity forced out the economy rolling. Nor can we afford to have more people inflation for of jobs and onto unemployment rolls. For many, the cure economy is as is becoming worse than the disease. The psychology of the  '  •  •11.*  The Honorable Paul Volcker October 16, 1981 Page 2  important as the reality, as the reality will often follow the psychology. It is imperative that we have an atmosphere of hope and cptimism rather than one of despair and gloom. At this point, high interest rates are having such a disastrous effect on small businesses that the atmosphere of hope is rapidly dissipating. I realize that the Federal Reserve cannot open up the federal floodgates or we will have an exacerbated inflationary spiral, but something must be done about the high interest rates. In order to maintain an atmosphere of optimism and to assure that high interest rates do not thwart the nation's chances for economic recovery I am urging the Federal Reserve to immediately loosen the nation's money supply enough to bring interest rates down to reasonable levels. Your cooperation would be greatly appreciated by those of us in the Congress who are committed to reduced government spending and who will order to control continue to fight for a balanced federal budget inflation and get the economy moving again.  KK:mj   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  ilk  •' of GOV;•• R4,%  \N\t .\\\N4Q40,,&L', • - 'soot BOARD OF GOVERNORS OF THE  •co •o  FEDERAL RESERVE SYSTEM t-t • •  L RE.S  WASHINGTON, D. C. 20551  November 19, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable John P. East United States Senate Washington, D.C. 20510 Dear Senator East: Thank you for your recent letter regarding Federal Reserve policy and the impact of high interest rates. I want to assure you that I and the other members of the Federal Reserve Board share your concern about the stresses being created in the economy by high interest rates. While some sectors of the economy have seemed to be quite resistant to the prevailing financial pressures, others clearly have been hit hard by the high cost of credit. It is important to note that Federal Reserve policy is not directed toward maintaining any particular level of interest rates but rather to promoting a rate of growth of money and credit that is consistent with reducing inflation and improving our long-term economic prospects. The current level of interest rates is a result of stubbornly high inflationary expectations and the application of the monetary restraint needed to reduce inflation in the face of continued strong private credit demands and the need to finance the large federal deficit. As you know, there has been a considerable reduction in interest rates since this summer in connection with a weakening of demands for money and credit as economic activity has declined. Short-term Treasury bill rates have dropped 31 / 2 to 4 percentage points from the average level prevailing in August, bank prime rates have been reduced to 161 / 2 percent--from more than 20 percent in August--and some short-term market rates have fallen even more. Long-term interest rates also have declined, but by much less, which in part reflects the continued skepticism about future price developments I referred to earlier. These developments point out the limits of the Federal Reserve's influence on market interest rates. If the Federal Reserve were to attempt to artificially reduce interest rates by pouring reserves into the banking system, such a shift in the direction of policy would serve only to heighten the already deep-seated fears--reflected in the very depressed bond markets--that the government is in fact not committed to seeing the fight against inflation through to a successful end. The   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  The Honorable John P. East Page Two  added monetary stimulus would intensify price pressures in the economy, worsening the inflation problem that is at the root of today's high interest rates. The end result of the process would inevitably be higher not lower rates. As you point out, one measure of money, Ml-B, is currently below the 1981 target range set by the Federal Open Market Committee. Ml-B, which consists of currency, demand deposits, and NOW accounts, was designed to measure the public's holdings of transactions balances. The Committee also has established targets for other, broader measures of the public's money holdings, and these are at or above the upper limits of their ranges. The Committee is not satisfied with the shortfall of Ml-B growth, but it is mindful of the danger that the increase in reserves necessary to bring narrow money to within its target range would foster expansion of the broader aggregates well above their respective targets. The exceptional weakness in Ml-B this year may reflect the influence of money market mutual funds and other means for allowing people to minimize their holdings of lower yielding demand or NOW account balances. In an era of rapid innovation in financial practices, growth of a broader aggregate that includes money market funds and other liquid assets could well be a better indication of the thrust of monetary policy than Ml-B. Some of the damage of severe financial stress can be averted if less of the burden of restraint is placed on monetary policy. The credit-sensitive factors of the economy would benefit greatly if, in particular, there were a less substantial federal government demand on the debt markets. Sustained, large budget deficits, which appear unavoidable unless there is further progress in cutting expenditures, can only tend to squeeze out private borrowers who do not have, in effect, first call on the nation's financial resources. To achieve and sustain a lower level of inflation and interest rates will require a fundamental change in expectations about future price behavior. Not only borrowers and lenders, but also consumers, business and labor must be convinced that they can make plans and commitments for the future with confidence that price increases will be restrained. This conviction will not come about if government policies--both monetary and budgetary--show signs of wavering in their intention to bring down inflation. I believe we are making some progress in reducing inflation and changing attitudes. I do not underestimate the difficulties of continuing on this course. I hope and trust   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  The Honorable John P. East Page Three  we will also not underestimate the dangers of failing to turn inflation around—or, to put it more positively, the enormous opportunity we have to change the debilitating economic trends of the past decade or more. I appreciate very much your taking the time to give me your views on the situation. Sincerely,  Seal A. Vacisec  -  DK:JLK:pjt (#V-309 bec: Mr. Kohn Mr. Kichline Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  assignei Mr. Kichline JOHN P. EAST NORTH CAROLINA  •  Ilenifeb Zfatez Zonate WASHINGTON, D.C. 20510  October 7, 1981 The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Twentieth Street and Constitution Avenue, N.W. Washington, D. C. 20511 Dear Mr. Volcker:  uz co ••  CD  ;*\.)  Recently I met with a group of home builders from my st7ate, some of whom are on the brink of bankruptcy because of current high interest rates. As you are well aware, high interest rates have had a particularly devastating effect on the corastruction and automobile industries. Frankly, I feel they are being asked to bear a disproportionately high burden in the fight against inflation. Can nothing be done about this problem? Let me say at the outset that I am not an advocate of any of the "quick fix" solutions presently before the Congress. I fully appreciate the need for sound, consistent monetary and economic policies, and I yield to no one in my determination to reduce budget deficits by cutting wasteful and extravagant federal spending. I know that there are no easy solutions to this problem. Nevertheless, I believe that an unduly restrictive monetary policy can be as detrimental to economic recovery as an unduly permissive one. As you know, Secretary Regan suggested recently that the Federal Reserve should ensure "a sufficiency of money to enable the economy to recover nicely." I have personally inquired of the Treasury Department and have found that M 1-B is presently growing at a rate well below the Federal Reserve's own minimum goal of 3 1/2 percent. Possibly, Secretary Regan is correct in suggesting it is time to ease up a bit. I can see no good reason why the Federal Reserve should not stick to its own announced targets. If it carries monetary discipline too far it runs the risk of provoking some rash corrective measure from Congress. I know that neither of us would want to see that. Please give this request careful consideration. est thanks. Best wishes, 1dr-/4? 6 J n P. East United States Senator JPE:jej  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  My sincer-  Informat. copies sent Messrs. Syron, Schwartz, Ettin an-1 Bra-Ifielrl  JAKE GARN. UTAH, CHAIRMAN JOHN TOWER, TEX. JOHN HEINZ, PA. WILLIAM L. ARMSTRONG, COLO RICHARD G. LUGAR. IND. ALFONSE M. D AMATO. N.Y. JOHN H. CHAFEE R.I. HARRISON SCHMITT, N. MEX.  HARRISON A. WILLIAMS. JR., N.J. WILLIAM PROXMIRE, WIS. ALAN CRANSTON, CALIF. DONALD W. RIEGLE, JR., MICH. PAUL S. SARBANES, MD. CHRISTOPHER J. DODD, CONN. ALAN J. DIXON, ILL.  M. DANNY WALL, STAFF DIRECTOR COUNSEL HOWARD A. MENELL, MINORITY STAFF DIRECTOR AND  ?Anita)Zfafes Zertale COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS WASHINGTON, D.C. 20510  cp -n  , tf  CD  October 19, 1981  1'7•  -4 ":•,) •••• •  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Washington, D. C. 20006 Dear Chairman Volcker: On October 19, 1981, the Committee on Banking, Housing and Urban Affairs will begin a series of hearings on four proposed pieces of legislation: S. 1686, S. 1703, S. 1720 and S. 1721. Included in these bills are proposals for new powers designed to enhance the ability of our nation's depository institutions to compete and remain strong in the evolving financial marketplace, to expand the options available to regulatory agencies in dealing with troubled financial institutions, to remove due-on-sale and usury restrictions that undermine financial institution strength and to enable state and local governments to use NOW accounts. This letter is a formal invitation to you to appear as a witness for a hearing before the Committee on October 29, 1981. The hearing will be held in Room 5302 of the Dirksen Senate Office Building and will begin at 9:30 a.m. Enclosed is a copy of the Committee's "Guidelines for Witnesses." While the "Guidelines" ask for 75 copies of your prepared statement, I would greatly appreciate your sending at least 100 copies, for the level of interest in these hearings is particularly high. If you have any further questions, please call John Collins or Lamar Smith of the Committee's staff at 202-224-7391. re SinceS  osur ) Jake Garn Cnairman JG:lsw Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • .• 0f• GOvt : • •  tN•c-  ) (A) (V -  BOARD OF GOVERNORS  o •• *0 • • 1 ‘ :1  NVUIKAA  OF THE  FEDERAL RESERVE SYSTEM it• g•)„ •. 1-6.se •• • • • • • •'  WASHINGTON, O. C. 20551  November 4, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable Ron Paul House of Representatives Washington, D.C. 20515 Dear Mr. Paul: Your letter of October 15 asks for our.,counsel's opinions on certain legal effects of amendments to the Monetary Control Act that would limit the Federal Reserve's ability to purchase foreign government securities to bonds denominated in the currency of the issuing government and to debts of governments with which the Federal Reserve System has swap agreements. With regard to specific questions you rais'e, counsel advises that the amendments you propose would not appear to (a) prevent the use of foreign government obligations as collateral for Federal Reserve notes, or (b) narrowly limit the number of governments whose debt could be purchased, in the sense that the Federal Reserve, with the agreement of the foreign country, theoretically could expand the network of swap agreements. More broadly, if I understand the intent of the amendments, they would attempt to codify the basic rationale for the authority provided in the Monetary Control Act--that is to provide a convenient and assured investment outlet for foreign currency balances acquired as a result of foreign exchange market activities. However, I should also point out the amendments could be undesirably rigid in some respects, even viewed in that appropriate context. Swap agreements are, of course, two sided, and circumstances may arise in the future such that either the Federal Reserve or a foreign central bank may not find a swap agreement desirable or generally needed, even though we may acquire currency balances of that country. For example, the foreign central bank may feel that it has access to sufficient dollars without an ongoing facility--i.e. a "swap"--for, in effect, borrowing them directly from the Federal Reserve. At the same time, we may find that exchange market operations undertaken in the normal course of managing the nation's foreign exchange reserves lead to holdings of that country's currency. It would be desirable, under the circumstances, still to be able to earn interest on those holdings through the convenience of investing the funds in the foreign government's securities.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  The Honorable Ron Paul Page Two  If it were felt that something like the proposed amendments were in fact needed, more general language limiting investments in governmental securities of foreign countries to the employment of currencies acquired in the course of exchange market operations would be more appropriate. In any event, I believe the purpose of the existing provision has been well documented in testimony and floor statements during Congressional consideration of the Monetary Control Act and in subsequent statements. In the circumstances, I question whether further legislative clarification is necessary. Sincerely,  r  -  -4 G.- ...}4/  SHA:PAV:pjt (#V-306) bcc: Mr. Axilrod Mrs. Mallardi (2)  •  Action"'signed Mr. BraifieH  •  RON PAUL 22ND DISTRICT, TEXAS  R00M 1234 LONGW"..,RTH HOUSE OFI'ICE BUILDING (202) 225-59!1  1110 NAsA Rono 1. SUITE 100 HOUSTON, TEXAS 77058 (713) 486-8583  Congre55 of tbe Ziniteb 6tatt5  COM M ITTEE ON BANK ING, FINANCE, AND URBAN AFFAIRS  6711 BELLFORT AVENUE., SUITE 307 HOUSTON, TrxAs  3k)ou.5t of ikepreltntatibet  2116 THOMPSON HIGHAlAY, SUITE 105 RICHMOND. TEXAS 77469 (713) 226-4568  RANKING RErum_icAN SUBCOMMITTEE ON GLNCItAL OVERSIGHT  Mi:morn, UNITED STATES GOLD POLICY Commissiont  101 OYSTER CREEK DRIVE LAKE JACKSON, TEXAS 77566  October 15, 1981  (713) 297-3961  xi  ,•-••• Irlo ' ....; r4 :  / L'...2  r  4' )  CONGRESSIONAL HOTLINES: HOUSTON:(713) 237-1550 LAKE JACKSON:(713) 297-0202  /, I  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System 20th Street & Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Volcker: Two amendments to the Monetary Control Act have been suggested. I am writing for the purpose of soliciting your counsel's opinions on what effects these amendments would have on the Federal Reserve's power to (1) purchase the obligations of foreign governments or international agencies; (2) use those obligations as collateral for issuing Federal Reserve notes. The first amendment (H.R. 3407) would specify that the Fed could purchase only bonds denominated in the currency of the issuing government. The second suggested amendment would permit the Fed to purchase only the debts of governments with which it has swap agreements. Would either of these amendments prevent the use of foreign government obligations as collateral for issuing Federal Reserve notes? Would either amendment limit the number of governments the debt of which the Fed could purchase, i.e., are not swap agreements arrived at by the Fed independently of Congress? What practical limitations, if any, would be imposed by these amendments? Sincerely,  :  Ron Paul Member of Congress RP/jr  77087  (713) 226-4636  Mattington, 13.e. 20315   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CONSTITUENT SERVICE CENTERS:  •  40'  •  0 •,". 0 rov;;• .•.r.--- " "•. • e-/<%-A- .7 l'' ,,,, .. . /..,  .4", t3  2 •• -', ' 4J :•.: 4,4 ....  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  ..  , . • . : r I \':.-  WASHINGTON, O. E. 20E51  41 •  A.  vtEs. ••fRAL •• ••  November 17, 1981  PAUL A. VOLCKER CHAIRMAN  Tne Honorable Charles McC. Mathias, Jr. United States Senate Washington, D.C. 20510 Dear Senator Mathias: Thank you for your letter concerning monetary policy. I understand the concerns which prompted you to write. The growth of Ml-B, to which you referred, is below our target ranges for the year. however, as a result of the development of money market funds and other financial innovations, the growth of the "effective" money supply has in my view been somewhat understated. It has become clear to me that less money narrowly defined is now needed to finance any level of growth in the economy then may have earlier been the case. The broader measures of money --M2 and M3--are now at the top or above our ron(ucs. For these reasons, I believe monetary policy has on balance been about right. Over time the Federal Reserve remains committed to the objective of achieving monetary growth that is consistent with an (Jxpanding but non-inflationary economy. I must tell you that our control over monetary growth is quite limited over the short run, so much so that I would question the feasibility and indeed thu possibility of "fine tuning" such as you appear to be recommending. You note your concern about the strongly inhibiting impact that high interest rates are having on certain sectors of tne euonomy. I share that concern. The underlying cause of hiuh interest rates is, of course, our continuing problem of inflation. In my judgment, monetary policy still is carrying too much of the burden in our anti-inflationary fight. The result is moru strain and pressure on financial markets and crc!dit-dependent sectors of the economy than is desirable or necessary. Monetary restraint has to be supplemented by other actions, particularly measures to reduce the federal deficit. Obviously, a solid beginning has been made by the Congress in thjs arca but much more needs to be done. I appreciate your continuing interest in monetary policy and I would be pleased to discuss these issues further with you. Sincerely,  NB3DS:pjt (#V-317) bcc: Mr. Bernard Mrs. Mallardi (2)  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  oi,te  Action assigned Mr. Axilrol CHAFLES McC. MATHIAS, JR. •  MARYLAND  2Cnifeb Ziatez Zenate 1E1 OCT P-In  F wAstiiNG JT0N.  D.C. 20510  •  October 28, 1981  3/7  Mr. Paul A. Volcker Chairman Board of Governors of the Federal Reserve System 20th Street & Constitution Avenue Washington, D.C. 20551 Dear Mr. Chairman: News reports recently state that the Federal Reserve has tightened the growth of the money supply (Ml-B) to such an extent that the growth rate is far below the Board's target range of 3.5 percent to 6 percent for this year. The resulting high cost of money, in the form of high interest rates, has seriously inhibited the normal functioning of certain economic sectors, most notably housing, small business, and farming. This, in turn, has forced job layoffs and unprecedented slowdowns in products and services which those sectors provide. The pent-up demand for those products is growing at a dangerous rate,.threatening to explode once relief in interest rates occurs. For these reasons, I think it is important that the Board carefully fine tune monetary policy in keeping with these factors. Thank you for your attention to this matter. With best wishes, Sincerely, ,  CM:mtm   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ///  azz /: Charles McC. Mathias, Jr. United States Senator  •  • Noveuber 16, 1931  The honorable Harold L. Volkmer Rouse of Representatives Washington, D. C. 20515 Dear Lr. Volkrer: Thank you for your thoughtful letter concerning deregulatory actions by the Depository InstitutJons Deregulation CoTutittee. You made specific reference to the concerns of thrift industry officials about the new IRA/Keogh account, scheduled to go into effect on Decell.ber 1, 1981, and the new rule which permits four week averaging of bill rates in establishing new ceilinF rates on roney marl-et certificates. Thrift industry officials are also concerned, as you further noted, about the poosible adoption of new deregulated deposit instruments at the ne,:t meeting of the DIDC to be held on December 16. Please be assured that I understand the concerns of the thrift industry and I will review then very carefully in arriving at my decision on these issues. Should you wish to do so, I would be pleased to discuss these matters personally with you. Sincerely,  NB:WRM:vcd (V-327) bcc:  ••••   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Bernard Mrs. Mallardi (2)  •  Action assigne-1 Mr. B e  4i-fAROLD L. VOLKMER  DI STRICT OFFICES: LEE VIOREL DISTRICT ADMINISTRATOR R00M 370  9T'H CONGRESSIONAL DISTRICT MISSOURI  1007 LONGWORTH HOUSE OFFICE BUILDING WASHINGTON. D.C. 20515 (202) 225-2956  HOUSE COMM ITTEE ON AGRICULTURE  FEDERAL BUILDING HANNIBAL, M SSOURI 61'.401  C011gritnOitlientittb tate5 Pou5e of iltpresSentatibel5  (314) 221-1200 535 RUE ST. FRANCOIS FLORISSANT. M ISSOURI  Mastingtort, rs.C. 20515  63031  (314) 837-1688 1181 S. DUCHESNE ST. CHARLES, M I SSOURI 63301  HOUSE COMMITTEE ON SCIENCE AND TECHNOLOGY  (314) 946-5649 122 BOURKE  MINDY A. TRACHTENBERG  November 9, 1981  MACON, M ISSOURI  ADMINISTRATIVE ASSISTANT  Mr. Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System Constitution Avenue and 20th Street Washington, D. C. 20551 Dear Chairman Volcker: I would like to bring the following matter to your attention as an Ex Officio Member of the Depository Institutions Deregulation Committee. Recently, I had the opportunity to discuss, with the Savings and Loan industry of Missouri, the problems they are facing and was quite impressed with their concern over the scheduled actions of the Depository Institutions Deregulation Committee (DIDC). Of most concern are those regulations implementing the "wild card" 18-month IRA-Keogh Certificate and the Four-week averaging Money Market Certificate rates. I urge you to very carefully review these actions for the adverse impact they will have on the savings and loan industry before they are implemented, as well as take a second look at any of the proposed DIDC actions concerning interest rates or new types of accounts which are purported to "help" the industry. The industry spokesmen are quite concerned that if they receive any more "help" from the DIDC, they are not going to be able to meet the urgent needs of savers and the pent-up demands of the homebuyers of America. If I can be of any assistance on this or any other matter, please do not hesitate to get in touch with me at 225-2956. With best regards, I am Respectfully yours,  Harold L. Volkmer Member of Congress HLV/d1m/am cc:  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  63552  (816) 385-5615  Depository Institutions Deregulation Committee  •  •  -411 .. . • ofGovt4:•.  .0 ..‘" •0 • co  :6 • -„ •A .  1 Ao r ..,‘  .  .• \ :2; i- • L. ..,..": IIIMIti . 0.7 ..'"',,, ‘-....k  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  `\  i''-*. 44., '' . • ..-. •" 7 , -:.......7.20: .• RAL RE3  November 10, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable David Pryor United States Senate Washington, D. C. 20510 Dear Senator Pryor: I appreciate the opportunity to respond to your thoughtful letter concerning decisions made by the Depository Institutions Deregulation Committee (DIDC) at its meeting on September 22. You expressed concern about three of those decisions, including the rate increase of one-half percentage point on passbook savings. I share the latter concern, and voted against the increase both when first introduced and at the time it was reconsidered. As you know, the DIDC reversed its earlier decision and voted to rescind the increase which would otherwise have gone into effect on November 1. With regard to the new IRA/Keogh account, I was persuaded by the argument that the major expansion in eligibility voted by Congress will lead to large inflows of new IRA/Keogh funds and that the competition for such funds, including that from insurance companies and brokPrage firms, will be strong. In the circumstances, I felt it was very important to give depository institutions an instrument that will provide them the opportunity to compete effectively in a much enlarged market. I am also persuaded that IRA/Keogh deposits provide a relatively stable source of funds that over time may enhance the availability of funds to the housing industry. With respect to the new formula which permits a higher rate on six-month MMCs when a four-week moving average on sixmonth Treasury bills exceeds the latest auction result, I would note that its purpose is again to improve the ability of depository institutions to compete with other institutions for these types of funds. Specifically, the altern3tive methods of calculating MMC interest ceilings will enable banks and thrift institutions to be more competitive with money market mutual funds throughout the interest rate cycle. I can understand your concerns and I want to assure you that I share your objectives for a viable thrift industry   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  A  •  At The Honorable David Pryor Page Two  and a strong economy. I would be happy to discuss these matters further with you, and I will in any event keep your concerns firmly in mind at future DIDC meetings. Sincerely,  (NB:RS):AFC:vcd (V-326) cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Bernard Mrs. Mallardi (2)%./  •  Action assignei Mr. Bernar  il  DAVID PRYOR ARKANSAS 248 R:lf SELL SENATE OFFICE BuILDING WASHINGTON. D.C. 20510 (202) 224-2353  COMMITTEES: AGRICULTURE. NUTRITION. AND FORESTRY GOVERNMENTAL AFFAIRS  "AlCnifeb Zfafez -.Senate  SPECIAL COMMITTEE ON AGING SELECT COM M ITTEE ON ETHICS  WASHINGTON. D.C. 20510 ARKANSAS OFFICE. 3030 FEDERAL BUILDING LrTTLE ROCK. ARKANSAS 72201 (501) 37/3-6336  November 2, 1981  (7)  Mr. Paul A. Volcker, Chairman Board of Governors Federal Reserve System 20th Street and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Chairman:  In approving the Depository Institutions Deregulation and Monetary Control Act, the Congress clearly gave the Depository Institutions Deregulation Committee a mandate to raise returns on small savers' accounts to the market level; however, it deliberately left the timing of such increases indefinite to allow the DIDC to adjust the changes to the state of the economy. Now the DIDC has approved or is considering certain changes which might better be postponed to a later date. The savings and loan industry in particular is concerned about DIDC decisions on passbook savings, the six-month money market certificate index and the IRA/Keogh "wild card. The industry argues that the increase in the passbook rate, for example, will not help small savers but would seriously harm S & L's all over the country and would offset the recent gains from the All Savers certificates. The U.S. League of Savings Associations estimates that the change in passbook rates will cost their institutions around $500 million over the next year, that the MMC index change will cost about $300 million, and that the "wild card" could cost well over $800 million. During the August recess members of Congress found that the number one concern among our constituents is high interest rates, especially mortgage rates. In fact, there is near panic among many segments of the population, including small businessmen, potential homebuyers and farmers. While I sympathize with small savers, who have subsidized borrowing for many years, I question the wisdom of increasing the price of certain funds at this critical time. I am hopeful that in the next few months the effects of the President's economic policies will begin to exert downward pressure on interest rates and that we will then be able to implement the small savers provisions without further harming our economy. I was pleased to note that the Committee has delayed the implementation date on the passbook decision and hope this delay indicates a willingness by the members of the DIDC to closely consider the effects of the timing of these recent decisions and others to come. Sincerely, • David Pryor DP/alj   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  •••.'  • BOARD OF GOVERNORS OF THE  'co 11  '0  FEDERAL RESERVE SYSTEM  • 'II  WASHINGTON, O. E. 20551  h- • •  • .4  -„<<,  . • •..itEs .•  November 10, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable Joe Skeen House of Representatives Washington, D. C. 20515 Dear Mr. Skeen: Thank you for your recent letter expressing concern about the extraordinarily high levels of interest rates we have been experiencing. Let me assure you that I share your concern about the nation's economic difficulties and am well aware of the hardship imposed upon the groups and individuals you mention. Unfortunately, there is no "quick fix" to our major problem, which is inflation. A sustained lowering in the level of interest rates and a generally improved economic performance can only be achieved by a reduction in inflation and in the deeply entrenched expectations of continued rapid price escalation We at the Federal Reserve believe that by raintaining our policy of gradual reduction in monetary growth we offer the best prospect of an ultimate return to price stability. Such a policy minimizes the risks of either a precipitous disruption in economic activity or renewed upward pressures in inflation. Some progress is being made. Since you wrote, shortterm rates have declined sharply. The declines in long-term interest rates have been smaller, reflecting in part continued skepticism that inflation will be brought under control. In these circumstances, any indication that the Federal Reserve was attempting to artificially reduce interest rates by too aggressively expanding the money supply would nullify the progress we have already made toward reducing inflation and inflationary expectations. Rather than declining, interest rates would probably increase, possibly to levels higher than we have already experienced. Thus, the Federal Reserve must remain conunitted to a policy of moderate monetary growth. Of course, the financial pressures associated with such a policy would be less painful for the economy if, at the same time, pressures on the financial markets were relieved by decisive action to curb the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  The Honorable Joe Skeen PaLe Two  growth of the federal budget deficit and thereby reduce public sector borrowini; requirements. At any rate, we do see signs of progress, and I am convinced our policy will prove successful over time in returning to economic prosperity. Sincerely,  CG:GB:JSZ:NS:RS:PAV:vcd (V-293) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ms. Glassman Ms. Salus Ms. Wing Mr. Burghardt Mrs. Mallardi (2)  ',Action assignei Jim Kichline  •  9 508 LONGWORTH HOUSE OFFICE BUILDING . WASHINGTON D.C. 20515 202-225-2365 COMMITTEES: AGIRICULTURE  Conart15 of tbe tiniteb  SCIENCE AND TECHNOLOGY  tact(  ji)ou5e of AtprefSentatibeZ  SUZANNE EISOLD ADMINISTRATIVE ASSISTANT  JOESKEEN  DarniucTomeres FrprmAL ButLoan Rostwo_L, Nrw Mocico 88201 (505) 622-0055 FEDERAL BkIILDING LAS CRUCF-S N EW M ICO 88001 (505)524-8022 300 W. ARRip4c-roN FARmiNaroN, Ne.v M Ex tco 87401 (505) 327-4933  2ND DISTRICT, NEW MEXICO  CD  September 18, 1981  f• 4  s'''; 7T,  Mr. Paul Volcker Chairman Federal Reserve Board 20551 Washington, D.C.  CD  24. , I (  •  I  6:4  J1C  Dear Mr. Volcker: Today's interest rates are the highest this nation has seen in over a century. We believe that it is imperative that the Federal Reserve review its monetary policies with the goal of easing these interest rates. The people of this nation are now endeavoring to control inflation through self-discipline and support of Congressional and Presidential action. Your inaction can only be interpreted by the people of this nation as unresponsive to a unified effort by the Administration, Congress and the people to increase productivity, provide jobs and actually reduce inflation and interest rates. The President's economic stimulus package will be frustrated if these exorbitant rates are not lowered. The current rates are having a disastrous effect on our economy and the ability of small businesses, farmers and others to keep operating. In addition, reinvestment by industry is dampened and the creation of new jobs will be seriously affected.  Most will ones type  The impact of these results simply cannot be underestimated. of the 13 million jobs we hope to create in the next few years come from small businesses, but only if they can expand or if new can be created. Current high interest rates will not allow this of activity.  Mr. Chairman, these interest rates are already forcing the closure of many small businesses throughout the nation. The number of car dealerships has declined by more than 1900 dealers, home sales have dropped significantly as have the number of housing starts. Jobs lost due to these business failures will not be regained if interest rates do not drop. The policies of the Federal Reserve System have a major effect on interest rates and in my opinion are now one of, if not the major, roadblock to economic recovery. I urge you to review the policies of the Federal Reserve and to take actions to lower interest rates.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  EEN er of Congress  1  . . -4  .••  . . -.. 4, ••ofGovt,i ••o ••:,-  • t' . c0 •. .  •  • BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  •0 • -n • -A .Z .cv` ..4••  WASHINGTON, D. C. 20E51  .RALREs  .  • • • •. •  November 10, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable Bill Archer House of Representatives Washington, D. C. 20515 Dear Mr. Archer: Thank you for your recent letter requesting comment on the adoption of disclosure requirements relating to the All Savers Certificates ("ASCs") suggested by the National Association of Home Builders ("NAHB") and the National Association of Realtors ("NAR"). The NAHB and the NAR are concerned with the need for a better reporting system to ensure that depository institutions are complying with the housing tie-in mandated by the legislation. We believe that it is important that Congress' intent that ASCs lead to expanded investment in qualified residential financing be met. To this end, members of the Board's staff, in conjunction with the Federal Financial Institutions Examination Council ("FFIEC"), are developing examination procedures designed to ensure compliance with the requirement contained in the legislation that depository institutions place an amount equal to 75 percent of either the previous quarter's net increase in ASCs or qualified net savings in qualified residential financing by the end of the next quarter. These standardized procedures will be presented to the FFIEC in the near future, and we believe that their adoption will provide a sufficient basis for the agencies to ensure that depository institutions in their jurisdiction comply with the legislation and current regulations. With respect to the suggestion that depository institutions be required to make monthly reports of compliance, we have serious reservations about increasing the paperwork burden on depository institutions, particularly smaller institutions, in view of Congressional legislation, such as the Paperwork Reduction Act, which requires federal departments and agencies to minimize reporting burdens. We also believe that public disclosure of the information sought by the NAHB and NAR could put an institution at a competitive disadvantage, since such information would reveal   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • The Honorable Bill Archer Page Twc  the investment and lending strategies of the institutions. Public disclosure of this information could also compromise the integrity and confidentiality of the examination process. It should also be noted that the information sought is generally exempt from disclosure under federal law. We believe that the current regulatory requirements-that an executive officer of a depository institution certify that the institution has complied with the requirements to extend qualified residential financing, and that the work papers supporting the certification be made available to examiners--enable the individual agencies to ensure that the intent of Congress in authorizing ASCs is carried out. We also believe that sufficient sanctions exist for institutions to comply with the requirements of the legislation. We will, of course, continue to monitor developments in this area to ensure that the tie-in to residential financing as required by the legislation is complied with. Thank you for your comments on this issue. Sincerely,  g.414.thikitoottk  DR:GTS:DJW:NS:RS:vcd (V-295) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Dan Rhoads Gil Schwartz G.C. Log #311 Legal Records (2) Naomi Salus Mrs. Mallardi (2)  Action assigned Mr. Bradfield / BILL Arr.:HER 71-14 DisyRi- r, TExAs (NJ  WASHINGTON OFFICE: 1135 LONGWORTH HOUSE OFFICE BUILDING  MEMBERN WAYS AND MEXNS COMMITTEE—  DISTRICT OFFICE: FEDERAL OFFICE BUILDING HOUSTON, TEXAS 77002  Congreo of the Einiteb 6tatef; P:,OU5St of ileprelentatibeti  CD  ---  gg i  I  Wassbington,13.e. 20515  L  CD  cc) cr)  CD  L—  October 7, 1981  C.)  Dear Mr. Chairman: I am enclosing a copy of a letter sent to you the National Association of Home Builders and Association of Realtors regarding the need to efficient reporting system with regard to the Certificate housing tie-in.  yesterday by the National enact a more All Savers  I worked very hard in the Ways and Means Committee during the consideration of the tax bill to see that the provisions of the All Savers Certificate included a tie-in to residential financing. In order to insure that this requirement is met, I would like to encourage that you consider adopting a rule along the line of that advocated in - the enclosed letter. The intent of the Congress in passing this provision was to provide the American people with a source of increased mortgage financing and I would very much appreciate your consideration in this matter. Sincerely,  Ar ember of Congress ;if* r Honorable Paul A. Volcker Chairman Federal Reserve System Washington, D. C. 20051   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FII3ERS  •  •  NATIONAL ASSOCIATION OF HOME BUILDERS NATIONAL ASSOCIATION OF REALTORS®  October 6, 1981  Mr. Paul A. Volcker Chairman Federal Reserve System - The Board of Governors Constitution Avenue & 20th St., N.W. Washington, DC Dear Chairman Volcker: We are writing you in your capacity as Chairman of the Federal Reserve System concerning the recently issued regulations promulgating the so-called All Savers Certificate§ (ASCs) passed by Congress in the Economic Recovery Tax Act of 1981. We wish to express our views on the need to provide a more efficient reporting system with respect to the ASCs housing tie-in mandated by the Act. As you are no doubt aware, millions of American families are currently prevented from buying a home due to the high cost and unavailability of mortgage financing. In addition, depository institutions, the traditional source for home mortgages, have suffered from runaway inflation, bank deregulation and changing saver habits. To respond to this pervasive problem, the Congress has granted depository institutions access to tax-exempt financing via the ASCs. In doing so the Congress stated its intent in the Conference Report accompanying the legislation that participating institutions will use the ASC proceeds "to provide residential financing by the end of the subsequent calendar quarter." The regulations provide overall requirements that must be observed by institutions offering the ASCs. In order to give more specific guidance to institutions, what is needed now are rules enunciating the reporting format envisioned in the current regulations and providing for public access to each institution's report on the housing tie-in. Only in this way will institutions know with certainty what information is called for by the regulations and Only in this way can members.of an institution's local community know with certainty that the institution's invegtments are consistent with the intent of Congress. On behalf of the more than 800,000 individuals represented by our organizations, we urge you to adopt rules to provide for monitoring of the ASC housing tie-in on a 30-day basis and public access to documents outlining each institution's progress in providing the residential financing envisioned by Congress. In this way, the residents of each community will know, on a timely basis, of a depository institution's housing investments and gain confidence in the ASC program and its favorable impact in their community. The 30-day system should provide for the same certifications currently proposed in the regulations but with the added requirements of a standardized reporting format and public disclosure by each institution of the reports and a summary of the account balances and investments used to prepare the report. The disclosure could be similar to that currently required in the Community Reinvestment Act. In addition, the report should delineate the total amount that was required to be put into qualified residential financing and the amount placed   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2-  •  into each of the eight types of financing specified in the ASC legislation. We believe this proposal would respond to the concerns raised in Congress and in the private sector with respect to the reporting requirements and enforcement of the ASC housing tie-in. We urge your immediate action and pledge our support and assistance. erely,  ' 47--"? .rtt,) resident Herman j. Smith NATIONAL ASSOCIATION OF HOME BUILDERS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ss_  John R. Wood, Presiden NATIONAL ASSOCIATION OF REALTORS®  #  •  •  NI( ME%-Q94---4c v - 419'7)  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551  November 2, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable Don Albosta House of Representatives Washington, D.C. 20515 Dear Mr. Albosta: I want to thank you for your recent letter expressing concern about high interest rates. I understand and sympathize with your views about the detrimental effects of high rates of interest on the economy, and particularly on home builders, small businesses, and farmers. But I think that it is important to keep in mind that inflation and heavy government borrowing are major contributing factors to these high costs of credit. If the Federal Reserve were to adopt an easier monetary policy to try to artificially reduce interest rates, the eventual result would be heightened inflation and inflationary expectations, leading to even higher interest rates. I would point out that although there is room for Ml-B to grow faster than recently and still remain within its target range, the broader M2 aggregate has been expanding at a pace near the top of its target range. Any move toward easier money, such as the reduction in reserve requirements which you suggest, would thus be likely to cause M2 growth to substantially exceed the prescribed target range. This development would undoubtedly be widely interpreted as a capitulation in the fight against inflation. Rates of interest would accordingly be apt to rise sharply again despite the outpouring of newly created money. I appreciate your suggestion about the appointment to the Federal Reserve Board of people with a strong background in farming or small business. I do think it important that Board membership reflect a variety of backgrounds and geographic representation, and I believe this has been the case over time. However, as you may recall, the law provides for such appointments to be made by the President--not by the Federal Reserve Board--with the advice and consent of the Senate. Lasting relief from the high interest rates that are constraining economic activity can be assured, I am convinced, only by curbing the inflation--and the high interest rates and imbalances that it spawns--by remaining committed to a policy of gradually moderating the growth of money and credit. I see   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  dr   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Don Albosta Page Two  some signs of progress in unwinding the inflationary spiral, and I remain hopeful that a consistent stance of monetary restraint, coupled with prudent fiscal policies, will assure a healthier economic environment for us all. Thank you for giving me the benefit of your thoughts on these issues.,/ Sincerely,  Sgaul tILKX  P/4  AK:RMF:JSZ:RS:pjt (#V-297) bcc: Mr. Fisfier Mr. Kling Ms. Wing Mrs. Mallardi (2)  Volcket  •  • . •*of GOV. . ..0 ER% . '2• 'co .6 i%  .,, -.4  ..1tr' ..'  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  ,...-  i-, .1.. 4-). ,44.,.  WASHINGTON, D. C. 20SSI  October 29, 1981  The Honorable William Proxmire United States Senate Washington, D. C. 20510 Dear Senator Proxmire: Thank you for the opportunity to conmient on the enclosed letter from Mr. D. A. Blanke, President of the First National Bank, Wisconsin Rapids, Wisconsin. Mr. Blanke has expressed some concern over the disparity in the rate which the Treasury charged on Treasury Tax and Loan deposits and the rate of return on the sale of these funds for the reserve week ending September 23. As Mr. Blanke indicated, the Treasury Department imposes a fee for funds held by Treasury Tax and Loan depositories, such as the First National Bank of Wisconsin Rapids, that exceed a pre-established ceiling. The Treasury charges for these excess deposits at a rate of 1/4 percentage point less than the national average Federal funds rate. In order to determine the daily average Federal funds rate, the New York Federal Reserve Bank calls several funds brokers in New York City each day to determine a representative sampling of funds traded. These rates are weighted by volume and an average is taken to arrive at the effective rate for the day. A mean average is taken of the daily rates to compute the weekly national average Federal funds rate, listed on the enclosed statistical release. This is the rate which the Treasury discounts by 1/4 percentage point in order to compute charges for Treasury Tax and Loan purposes. Depending upon regional market conditions, however, any given financial institution may find that its own return on Federal funds in a particular week is lower than or higher than the national average rate. Since the Federal Reserve Banks act in the capacity of fiscal agents for the Treasury Department in handling Treasury Tax and Loan Accounts, we have forwarded your inquiry to Mr. William E. Douglas, Commissioner, Bureau of Government Financial Operations, Department of the Treasury, for any additional comments he may wish to make. I hope this information is helpful to you. let me know if I can be of further assistance. cc: Mr. William E. Douglas Sincerely, MLB:AFC:CO:vcd (V-300) (Signed) Donald J. Vinn bcc: Mr. Bermudez Mrs. Mallardiv Donald J. Winn Assistant to the Board Enclosures 0/ /_.)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Please  •  Cong.  iaison Office will io memo toilairman  JOHN TOWER, TEX., CHAIRMAN STR7M THURMOND, S.C.  JOHN C. STENNIS, MISS.  SNOWY GOLDWATER, ARIZ. JOHN W. WARNER, VA.  HOWARD W. CANNON. NEV.  GORDON J. HUMPHREY, N.H. WILLIAM S. COHEN, MAINE  SAM NUNN. GA.  ROGER  W. JEPSEN, IOWA  DAN QUAYLE, IND. JEREMIAH DENTON, ALA.  HENRY M. JACKSON. WASH. HARRY F. BYRD, JR., VA. GARY HART, COLO. J. JAMES EXON, NEBR.  ,-T)enate  Paleniteb  .  t\t: \t..  CARL LEVIN, MICH.  COM M ITTEE ON ARMED SERVICES RHETT B. DAWSON, STAFF DIRECTOR AND CHIEF COUNSEL   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  WASHINGTON, D.C.  20510  October 7, 1981  Mr. Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Washington, D.C. 20551 Dear Mr. Chairman: We have been requested by one of our many Mississippi small businessmen to ask you to meet with them here in Washington to discuss the issue of high interest rates and the resulting desperate financial difficulties. The group thatdesires to meet with you is primarily in the home building supply and forest products industry, with membership in the National Forest Products Association, Mississippi Lumber Manufacturers Association, Southern Forest Products Association, Southern Hardwood Mhnufacturers Association, Mississippi Forestry Association, and the Mississippi Manufacturers Association. They are meeting on the 13th of October to formulate their concerns and suggestions and would plan for 100 to 200 of them to meet with you sometime after that date. If you could accommodate them, we would be most grateful. We will get the appropriate people of their organizations to contact you or your staff to make the necessary arrangements. With kind regards,  \, J,1  P  TRENT LOTT Member of Congress  THAD COCHRAN United States Senator  G. V. (SONNY) MO OMERY Member of Congress  C. STENNIS ited States Senator  • BOARD OF GOVERNORS OF THE  'co . •0 • -n • -A  FEDERAL RESERVE SYSTEM i- • :  WASHINGTON, O. C. 20E51  44, .  •.RALRE ••••••  October 28, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable Jim Dunn House of Representatives Washington, D. C. 20515 Dear Mr. Dunn: Thank you for your recent letter regarding the problem of high interest rates. We at the Board share your deep concern about the economic health of our nation and we want to do what we can to foster economic expansion. It is our aim, however, to make sure that economic expansion is sustainable, and the weight of historical evidence is that there cannot be sustained prosperity in an environment of rapid inflation. For this reP,son, we have committed ourselves to a policy of moderating the growth of money, recognizing that progress toward price stability otherwise will be impossible. While we would like to see an easing of interest rates, we do not believe that it would be fruitful to pursue that objective by abandoning our course of monetary restraint. Such an action would have disastrous effects on the attitudes of participants in financial markets. Borrowers and lenders alike would respond in a fashion that would widen the "inflation premium" in interest rates that serves to compensate for the lower purchasing power of the dollars used to repay debts. I think it could be argued that the recent poor performance of the bond markets demonstrates the potential for such a development, although in this case it has been fears of the possible inflationary consequences of large federal budget deficits that has troubled many investors. You suggest that we may be restraining too severely the growth of money. I would be the first to grant that there are broad areas of judgment involved in monetary targeting. As we look at the several monetary aggregates we follow, however, we do not see evidence of excessively sharp deceleration in monetary expansion. At bottom, I'm afraid the crux of the matter is that, in attempting to turn back a tide of inflation that has been mounting for more than a decade, economic and financial stress   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  oa The Honorable Jim Oln Page Two  is almost inevitable. It is encouraging, however, that out of this pain is coming some progress--price increases on average have slowed this year. If we stick to our guns--with both monetary and fiscal policy maintaining postures of restraint--I think we can look forward to a gathering momentum in the process of disinflation, with an accompanying easing of financial tensions. On the other hand, if we flinch at this juncture, I fear that we will only be repeating the mistakes of the past and squandering the hard-earned gains we have made. Again, thank you for writing. I value the counsel of you and your colleagues in the Congress and view our continuing dialogue as inevitably contributing to the improvement of public policy. Sincerely, Wall Vqcket  MJP:JLK:vcd (V-303) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Prell Mr. Kichline Mrs. Mallardi (2)  Action assignei Mr. Richlin.  :JIM DUNN  Gri4 DISTRICT. MICHIGAN  •  WASHINGTON OFFICE: 1511 LONGWORTH BUILDING WAsHINGTON, D.C. 20515 (202)225-4872  COMMITTEES: SCIENCE AND TECHNOLOGY VETERANs' AFFAIRS  ,?1,1/&ght(Ade92aAk HOUSE OF REPRESENTATIVES WASF1INGTON, D.C. 20515  NOME OFFICES: 245 FEDERAL Bi.m...Dmo LANSING, tv1ICHIGAN 48933 (517)377-1893 JACKSON CITY HALL 161 WEST MICHIGAN AVF-NUE JACKSoN, MICHIGAN 49201 (517)787-43Z3  October 15, 1981 Paul A. Volcker Chairman, Board of Governors Federal Reserve System Washington, D.C. 20551  P6  Dear Mr. Chairman: Today I personally delivered to Governor Partee of the Federal Reserve Board a barrelful of keys. These keys were sent by citizens hit hard by unprecedented high interest rates. They symbolize the inability of families to buy the homes and cars they've dreamed of owning. The sending of these keys to their representatives reflects their desperation and misery in being locked into an economic prison. I did not want this message to stop here; many of these keys belong to you and your colleagues on the Board. My state of Michigan, as is well-known, was suffering economic disaster even before the advent of these crippling interest rates. Industries basic to my state are the most vulnerable to explosive rates and are now fighting financial paralysis. Unemployment is still at an inhuman level, and those with an income find themselves unable to purchase under credit terms currently demanded. The rest of the country is calling for relief as well. The money supply need not be held at as tight a level as it is. This country cannot sacrifice certain major industries, small business, and many hardworking families in the name of economic theory. We in Congress have been cutting budgets and are reducing deficits. The Federal Reserve must play its part in the economic recovery of this country. I and thousands of former key holders ask that you start now.  Ji unn Member of Congress JD/wsm   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  511 ijO  • - •.0? G viii; ,• .*0 qv0•te .0  • BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  %A" RO • • RAL •...•• •  October 28, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable Douglas Applegate House of Representatives Washington, D.C. 20515 Dear Mr. Applegate: Thank you for your recent letter regarding the economic situation and the impact of high interest rates. The conditions you describe in your district are most distressing, and, of course, they are not unique to your area. I am well aware that these are difficult times for many households, businesses, and governmental units across the country. High interest rates are an important factor in the difficulties of many industries today, but I think it must be recognized that other problems exist as well--including prominently in some of the instances you note years of unrealistic wage and price increases that have made American firms less competitive in the world marketplace. Indeed, inflation more broadly is at the root of much of the economic stress we face, including high interest rates. There is simply no way that I know of to reduce interest rates on a sustained basis without restraining inflation and lowering the inflationary expectations of borrowers and lenders. To be sure, the Federal Reserve could flood depository institutions with reserves and drive down very short-term interest rates. But this would yield, at most, temporary relief from high short-term rates, lasting only until the resultant inflationary monetary expansion led to still greater pressures of credit demands on credit supplies, and the market's anticipation of such effects might even result quite quickly in higher longer-term rates. Public confidence in the Federal Reserve's commitment to anti-inflationary monetary restraint is absolutely essential if there is to be a durable easing of interest rates. And, as has been indicated by the behavior of the bond markets in recent months, a credible commitment to fiscal restraint--to the ending of our persistent federal budgetary deficits--is also crucial. I believe we are beginning to see signs of progress in the fight against inflation. ' I would hope that the psychological momentum that has made that progress so difficult will begin to   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  Ab  The Honorable Douglas Applegate Page Two  turn decisively in a more favorable direction, bringing about an easing of financial tensions and paving the way to better economic performance. To shift gears in monetary policy at this' juncture, it seems to me, would be to repeat the mistakes of the past and to lose the hard-earned gains we have made to date. I welcome this opportunIty for an exchange of views on these important matters. A sincere dialogue can only be constructive as we work together to frame monetary and fiscal policies that will serve the interests of our nation. Sincerely, Wad A. Vqcket  MJP:JLK:CO:pjt (#V-301) bcc: Mr. Kichline Mr. Prell Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ection assigned Mr. Kichline• COM M I TTEES: 18TH DISTRICT,.OHIO 435 CANNON HOUSE OIrCE BUILDING 20515 WASHIN.. 202-225-6265  PUBLIC WORKS AND TRANSPORTATION  VETERANS' AFFAIRS DISTRICT OFFICES STEUBENVILLE 614-283-3716 ST. CLAIRSVILLE 614-695-4600 NEW PHILADELPHIA 216-343-9112 EA wr LiVERPOOL 216-385-5921  DOUGLAS APPLEGATE UNITED STATES HOUSE OF REPRESENTATIVES October 14, 1981  Honorable Paul A. Volker Chairman Federal Reserve Board 20th & Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Volker: "Now is the time for all good men to come to the aid of their country." These, of course, are words we first used on the typewriter, but there is now a stronger meaning and need for the fulfillment of these words today. America is hurting, Mr. Chairman, and I am appealing at this time to your good sense of economic judgement and sensitivity to people who are financially hurting in an effort to reverse this trend. Established business people, blue collar workers, and young people alike, are suffering as well as the nation's established institutions. One need only look at this nation's basic industries such as housing, automobiles, steel, and the like to see the devastating financial effects that the Federal Reserve's tight money policies are having. Further, the repercussions in terms of massive nationwide unemployment and an overall depressed economy are severe. The situation won't get any better either, if you and your board continue to severely restrict the use of available money to these people. Loosen the reigns, Mr. Chairman, lest we suffer the worst recession since the 1930's! The nation needs an economic stimulus which you can provide by acting in this matter. I live and represent eastern Ohio, an area where steel mills and coal mines have laid off over 5,000 people in the last 60 days. This, coupled with thousands of existing lay offs, brings the unemployment rate in my congressional district to well over 11% and worse yet, there is no economic relief in sight. Interest rates must come down or the economic foundation upon which this nation is built will begin to quickly deteriorate. I am aware of the possibility of increased inflation if interest rates are allowed to decline, but no one can say that that will be the end result for sure. I believe we should be given the chance to   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  Chairman Volker -  Page 2  find out for sure. After all, what good interest rates keep America from working. Now is the time to let the mayket levels needed to sustain the economy. the nation working again. Otherwise, catastrophic.  lower a_  stablish e,economic is enou /Let's get gonsequenc, s will be  OiaC e ,  Y,  UGLA U.S. C N DA/kmp   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ation if high  E  ATE MAN  •  •  October 26, 1981  Yr. John Pearson Page County Appliance Center, Inc. 517 West Sheridan Avenue Shenandoah, Iowa 51601 Dear Mr. Pearson: Congressman Harkin forwarded your letter to me in which you indicate concern about high interest rates. I very much understand your concerns over the intense pressures faced by many firms and individuals as a result of high interest rates. We all very much want to see lower interest rates, but a sustained lower level of rates can only be achieved by a reduction in inflation and inflationary expectations. The Federal Reserve could attempt to lower intEregt rates only by expanding the supply of money at an accelerated pace. Such a policy, however, would shortly add fuel to the fires of inflation and lead to still higher rates. I believe we are beginning to see some signs of progress in unwinding the inflationary spiral, and I remain hopeful that a consistent stance of monetary restraint, coupled with prudent fiscal policies, will prove successful over time in returning the country to prosperity. Sincerely, S/Paul A.lio,l_ckei  cc:  Congressman Tom Harkin  LW:JLK:vcd (V-311) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ms. Wing Mrs. Mallardi (2)  "'Hon assigned N4r. Kichline  "iOM HARKIN 5TH DISTRICT, i0WA  •  DISTRICT OFFICES: P.O. Box 264  213 POST OFFICE BUILDING AMES, IOWA 2.411 RAYBURN HOUSE OFFICE BUILDING WASHINGToni, D.C. 20515 (202) 225-3806  Comm tbe Unita tate5 ji)otaie of ileprelSentatibefS  229 FEDERAL BUILDING COUNCIL BLUFFS, lowA 51502  Box  SPECIAL PHONE FOR THE HEARING IMPAIRED  H  (712) 325-5533  Kiassbingtort,;IC. 20515  TTY-202-224-2793 TTY-202-224-6801  October 21, 1981  commirrmEs:  AGRICULTURE  of 1  STREET CRESTON, i OWA 50801  113 W. MarroomERY  SCIENCE AND TECHNOLOGY  Paul A. Volcker Chairman, Federal Reserve System 20th St. and Constitution Ave. NW. Washington, DC. 20551 Dear Mr. Volcker: Enclosed is a letter I received recently from Mr. John Pearson of Shenandoah, Iowa. He has asked me to forward it to you. Mr. Pearson is upset over high interest rates. Any attention you can give to his concerns would be appreciated. Thank you for your assistance in this matter. Sincerely,.  Tom Harkin Member of Congress TH/ts Enclosure  (,;   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  50010  (515)232-6111  C:=1  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  (515) 782-5727  kw)  PAG6COUNTY APPLIANCE CENTE1INC.  F-1  JOHN AND MARGARET PEARSON ilif7 WEST SHERiDAN AvE Ro-iONE 712-246-22eS SHENANDOAH IOWA 51601  FRIGIDAIRE  • .•  4 0\o`  APPLIANCES AiP CONDITiONERS  ZENITH RADIO TELEVISION  -  .2  - 8  .je -4-K-1_,  '2j7Z  e7ty-s--  0.../  Cr-•-rs-e$2  ,  /  s5  e  o  - c-ZerZ  c  e 9kirr—  `7".e,  e7  ,  P—?`  .;„,e 34-1•-cf7 ZA.7---(11-Zjef  „_  : 4/ 4.  _  C-C-1-4-Str--)(<2  / -r/' 1-vP- e   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  0/  • •• 0 .0 •  GOvi •. BOARD ) r * ' ; *  OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  1,)•  WASHINGTON, D. C. 20551  t/ ( (e. .•  October 19, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable Bob Traxler House of Representatives Washington, D. C. 20515 Dear Mr. Traxler; Thank you for your letter of October 7 regarding the economic stresses that have been associated with high interest rates. I can appreciate your concerns, especially in view of the depressed state of the Michigan economy. I--and my colleagues at the Federal Reserve--share your concerns about the nation's economic difficulties. We would very much like to see a return to lower interest rates. However, there is no quick fix for high rates that will also be lasting. If we were to open wide the monetary taps, as your letter suggests, the inevitable result would be an aggravation of the inflationary trends and expectations that are the root of our current problems. The only practical course for the Federal Reserve, and the one that provides the best hope for a sustained reduction of interest rates without undue economic disruption, is to maintain a policy of measured restraint on monetary expansion. \Of course, the financial pressures associated with such a policy will be considerably ameliorated by decisive action to curb the growth of the federal budgetary deficit. As you know, concerns about the prospects for the budget have weighed heavily on the financial markets in recent weeks, and indeed have moved long-term bond yields to all-time highs in the face of some easing in short-term rates. I might note that the so-called "broad" monetary aggregates--M2 and M3--have been running high relative to their target ranges thus far this year. It has been this fact, along with a recognition that major innovations in the public's cash management behavior have been restraining the demand for traditional transactions accounts, that has led the System to avoid an aggressive effort to bring the narrow monetary aggregates up into their ranges. On balance, I believe that the behavior of the aggregates is consistent with the longer-range objective of slowing monetary expansion gradually toward rates consistent with price stability --an objective supported by the Administration and the Banking Committees of the Congress.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • The Honorable Bob Traxler Page Two  I might also note that, although high interest rates clearly have not helped, they have not been the whole story behind the troubles of the housing and automotive industries. Past inflationary excesses in the housing market and large price hikes posted by auto makers have contributed appreciably to the drop in demand in those sectors; you may find the enclosed staff report of interest in this regard. I think the message in this is that we are unlikely to achieve a renewed and durable prosperity unless we lick the problem of inflation. We're beginning to make progress in that battle, and it surely would be a great mistake to retreat now. If we falter now, I fear that we will only find eurselves with even greater difficulties down the road. Again, I appreciate your taking the time to express your concerns. I think that it is essential in these difficult times that the Congress and the Federal Reserve keep open the lines of communication so that we can work together in as constructive a way as possible to restore a sound economy. Sincerely, S/Paul A.  (9/1/81 study, "The Impact of High Interest Rates on the Housing, Automobile, Agriculture, and Small Business Sectors" M I/ MJP:JLK:vcd (V-292)  Enclosure  A  bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Kichline Mr. Prell Mrs. Mallardi (2),V  Action assignei Mr. Kichline  •  80131tRAXLER  HOME OFFICES:  8TH DISTRICT, MICHIGAN  SAG I NAW OFFICE: Room 62, NEW FEDERAL BUILDING  COM M ITTEE ON  100 SOUTH WARREN STREET SAGINAW, MICHIGAN 48601  APPROPRIATIONS  CONGRESS OF THE UNITED STATES  WASH I NGTON OFFICE: 2448 RAYBURN HOUSE OFFICE BUILDING  HOUSE OF REPRESENTATIVES WASHINGTON, D.C. 20515  WASHINGTON, D.C. 20515 202-225-2806  517-753-6444 BAY CITY OFFICE: Room 317, FEDERAL BUILDING 1000 WASHINGTON AVENuE BAY CITY, MICHiGAN  48706  517-894-2906  October 7, 1981  LAPEER OFFICE: 210 WHITE BUILDING 350 NORTH COURT STREET LAPEER, MICHIGAN  48446  313-664-5622  The Honorable Paul A. Volcker Chairman, Federal Reserve Board Washington, D.C. 20551  r7*  Dear Mr. Chairman:  "•  The prolonged tight money policy of the Federal Reserve has brought our -iition 1 5. economy to the brink of crisis. I urge the Board to act--now--to relieve the severe hardship brought on by high intereset rates. •  Since the beginning of this year, the Fed's policy of sharply restrictiQ money supply growth, below your own targets for 1981, has resulted in lingering interest rates more than 10% over the the rate of inflation. Those unprecendted interest rates are causing economic devastation: *Prohibitive mortgage rates have brought homebuilding and real estate businesses to a virtual halt, thousands of building and construction workers remain jobless, the American dream of home ownership has slipped away from millions. *The high price of automobile loans is the single most important factor in holding automobile sales down, crippling manufacturers and dealers, and preventing tens of thous;J:Ids of autoworkers from returning to work after more than a year-and-a-lic f of unemployment. *Farmers and small businessmen cannot find the credit to finance their onging operations. let alone to expand)or make new capital - investments; _bankruptcies are growing. *Thrift institutions and state and local governments are finding that the high cost of money is destroying their ability to provide essential services to consumers and taxpayers. Michigan has been in a deep recession for two years. We cannot endure more hardship. High interest rates threaten our national economic recovery. The President's strategy of combatting inflation and unemployment through new capital investment-that spurs economic growth and long-term productivity increases--is being choked in the cradle. Tax breaks next April for new investments are of little value if American businesses cannot afford to make the investments in the first place. Mr. Chairman, I implore the Board to act now to increase the growth of the money supply to the upper limits of your own 1981 targets. Every day of delay constituents. is another of misery for thousands   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  yc THIS STATIONERY PRINTgo 0t...1:114reW  __LIY145//  Aut._ vvri  H-L.L.  I En- KS  •  •  •  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 205S1  October 15, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable Frank R. Wolf House of Representatives Washington, D.C. 20515 Dear Mr. Wolf: Thank you for sending me a copy of the paper by your constituent, Mr. Ronald M. Sendak. I share Mr. Sendak's concern about the current high level of interest rates, and the burden that these interest rates place on the credit-dependent sectors of the economy. In addition, I join Mr. Sendak in applauding the recently enacted policies of the Administration and Congress aimed at both reducing the growth of federal expenditures and changing the tax laws to improve the environment for business and personal savings and investment. I cannot agree, however, with Mr. Sendak's assertion that Federal Reserve policies are creating inflation. Nor can I support the remedy that he advocates for lowering inflation--namely, establishing, by law or regulation, a maximum limit on interest rates of 10 percent or less. High interest rates are not the cause of our current inflation, rather they are the result of the buildup of inflation and inflationary pressures over many years. Interest rates are ultimately determined by market forces--by individuals and businesses acting upon their own judgments of their current needs and the future. Thus, high inflationary expectations are reflected in interest rates, as borrowers must compensate lenders for their expected loss of purchasing power. Any attempt to artificially reduce interest rates by either legislation or regulation, as advocated by Mr. Sendak, would be counterproductive, since such a policy would foster a misallocation of resources and likely aggravate our economic and financial problems. As you may know, short-term interest rates have declined somewhat over the last several weeks. However, long-term interest rates remain high reflecting in part continued skepticism that inflation will be brought under control. We have begun to see some signs that inflation is abating and all interest rates will decline as further progress is made toward a lasting reduction in both inflation and inflationary expectations. This goal can be reached, I believe, only if the Federal Reserve   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  The Honorable Frank R. Wolf Page Two  steadfastly adheres to its policy of gradually reducing the growth of money and credit to amounts compatible with price stability. To do otherwise would only increase inflation and inflationary expectations ultimately leading to higher not lower interest rates. At any rate, I do believe we are making progress and I hope we can all look forward to better times before too long. Sincerely,  NM:DK:JLK:RS:pjt (#V-270) bcc: Mr. Mains Mr. Kohn Mr. Kichiine Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action assigned Mr. Kichline FRANK R. WOLF 10TH DISTRICT, VIRGINIA  COMMITTEES: POST OFFICE AND CIVIL SERVICE  PLEASE RESPOND TO ADDRESS CHECKED  SUBCOMMITTEES,  Congre55 of tbe Unita Otate5  WASHINGTON OFFICE: 414 CANNON BUILDING WASHINGTON. D C. 20515 (202) 225-5136  liptifSe of ikepre5entatibo5  CONSTITUENT SERVICES OFFICES:  tilatington, n.e. 20515  CIVIL SERVICES HUMAN SERVICES POSTAL OPERATIONS PUBLIC WORKS AND TRANSPORTATION  0  1651 OLD MEADOW RD. SUITE 115 MCLEAN, VIRGINIA 22102 (703) 734-1500  SUBCOMMITTEES: AVIATION WATER RESOURCES  September 23, 1981  19 E. MARKET ST. ROOM 4B LEESEILII4G, VIRGINIA 22075 (703) 777-4422  Mr. Paul A. Volcker Chairman Federal Reserve Board 21st and Constitution Avenue, N.W. Washington, D.C. 20551  CD -11  uo co  r'i r7, 1  Dear Mr. Volcker:  01  1---  ,1  One of my constituents who is a business management consultant sent me the enclosed article on interest rates which he will publish soon and I thought you might find it interesting.  -•-)  Nj  ,r.  r• 7: LT..  .7;; _  :731 ; 01•••••••  ••  C,  With best regards, I am  Ln Sincer  Frank R. Wo Member of C  gress  FRW/jjs enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  ; . 7: 7  •  •  About the Author--Ronald M. Sendak is a graduate of Harvard College and Harvard Business School, with doctoral studies at several other universities.  He has had careers in business and government  and has taught college courses in business and economics. His articles have been published extensively.  Sendak is  now a business management consultant in Washington, D. C.  Though schooled in economics, he prefers to be considered a businessman, not will agree.  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  economist.  His detractors undoubtedly  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Research paper Citations:  Number of Pages Removed: 7  Sendak, Ronald M. "Interest Rates: Time For a New Look—And New Laws."  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102