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r https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Collection: Paul A. Volcker Papers Call Number: MC279 Box 11 Preferred Citation: Congressional Correspondence,January-February 1982 [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/c446 and https://fraser.sdouisfed.org/archival/5297 The digitization ofthis collection was made possible by the Federal Reserve Bank of St. Louis. From the collections of the Seeley G. Mudd Manuscript Library, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. 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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 clirected to: Seeley G. Mudd Manuscript Library 65 Olden Street Princeton, NJ 08540 609-258-6345 609-258-3385 (fax) email@example.com https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • • • ' Gov't •. 4' • ." .• .0 • 2 I- • =• BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551 PAUL A. VOLCKER CHAIRMAN RAL itt.S' • '• •..• • January 29, 1982 The Honorable David Durenberger United States Senate Washington, D. C. 20510 Dear Senator Durenberger: Thank you for your joint letter of December 14 with Senator Boschwitz, expressing concern about the impact on thrift institutions of deregulatory actions by the Depository Institutions Deregulation Committee. As you know, the DIDC has been charged by Congress with an inherently difficult task -- to phase out deposit interest rate ceilings to increase the return to savers while at the same time taking into consideration the current difficult situation of depository institutions, including, prominently, many thrift institutions. I am very concerned about the thrift industry, and I want to assure you that I will continue to take their situation into consideration in examining issues before the DIDC. At the Committee's most recent meeting on December 16, a decision was made to postpone consideration of further deregulatory actions until the Committee's next scheduled meeting on March 22. I joined in that decision in part because some of the deregulatory proposals on the agenda might have placed many thrift institutions under further earnings pressures at an inopportune time. There is no way to predict with assurance how financial markets and the condition of thrift institutions may change by March of this year and, accordingly, any judgment about deregulatory actions then would be premature. I would only note that as time goes on the DIDC's deregulatory mandate from the Congress and the likely competitive position of all depository institutions vis-a-vis money market funds and other market instruments will require continued consideration of further deregulatory actions. Again, let me assure you that, in consultation with DIDC Chairman Regan and the other members of the Committee, I will give serious consideration to the impact of such actions on thrift institutions and the housing industry before reaching any decisions. Sincerely, IDENTICAL LETTER TO SENATOR RUDY BOSCHWITZ t' `lc `‘` Cpea,, NB:RS:weel (V-387) bcc: Mr. Bernard Mrs. Mallardi (2)/i- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Action assignei Mr. Bernard CHAIRMAN N. 'WILLIAM L. _ ..4 NANCY 4 RLIDy ORRIN -..../OP,N MARK .• _ STEW CHAR... a C . HOLUNGS. LAW ON CHILES, FLA. JUst...,,H R. El:DEN. JR.., DEL. ..t_rr icrers-rom. LA. J. TENN. Ji..4 • _ •N. -.I, ,.• r.. r, ',ZiCnifeb Zia-fez, Zenate E•.:()N,, NEBR. J. DAt4 I. COLO. tr.4BAUlloi, OHIO M. Mc W. RIEGLE. JR., mICH. N.Y. w.....TNIHAN. wAsaL COMMITTEE ON THE BUDGET 5 WASHINGTON, D.C. 20510 DIRECTOR f DIRECTOR .1, 7.1 . • IS. December 14, 1981 CD "r1 ;••.) "" Honorable Paul A. Volcker CLairman, Federal Reserve Board Fedural Reserve Building 20220 Washinoton, D.C. co Dear Mr. Chairman: Wu are wr3ting to you as a member of the Depository Tnstitutions Deregulation Committee (DIDC) concerning recent 5:•nd prospective actions of the DIDC. We would appreciate a reply to our concerns at your earliest convenience. Our specific concerns deal with the effects of DIDC decisions on thrift institutions. As you know, these institutions are required by law to primarily finance longteIlu mortcjage loans. While thrifts have performed this function well, the requirement limits their ability to c:pute effectively in the current environment, affecting Loth the thrift and housing industries. Because of this t st_tLuLory requirement, deregulation has a different impac ns. on thrift institutions than on other depository institutio We are concerned that too rapid deregulation may further their imair the ability of thrift institutions to perform deregulation statuLory responsibility. We believe that orderly lity, l_uquirus that due consideration be given to this responsibi Loth the pending and future proposals. We respectfully 1:quost that DIDC carefully consider the effects of its rm Ou5;isions on thrift institutions so they can continue to perfo the their important function in our economy as a whole, and huusiny industry in particular. Thank you for your prompt attention to this most important ce. matter. Please feel free to contact us if we can be of servi Sinc .. 4 ', •-• ,,,,.fir. -‘t`'41; - • _ w" ,4pieAsfe w C"-----4,.- Duren be ger "-i-)S0 .jnitod State6 Senator t https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis i ku48 itz Ru y Bos United States Senator • f`tvv) • Ilvask.AL (v. N,) BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 January 29, 1982 The Honorable Ed Jenkins House of Representatives Washington, D.C. 20515 Dear Mr. Jenkins: Thank you for your letter of January 23 enclosing an article entitled "Our Federal Reserve Bank" forwarded to you by Mr. Frank Barrett of Holly Springs, Georgia. I appreciate the opportunity to comment on this article. The Federal Reserve System was established by the Federal Reserve Act of 1913 and is not a "private central bank." It is made up of twelve regional Federal Reserve Banks which are supervised by the Board of Governors in Washington. The Reserve Banks are corporate instrumentalities of the United States, and were established by Congress for public purposes. The Board is an agency of the Federal Government, and its seven members are appointed by the President with the advice and consent of the Senate. The Board is required by law to make an annual report to Congress, and members of the Board, especially the Chairman, are called upon frequently to testify before Congressional committees. The Federal Reserve is not operated for a profit and returns substantial sums to the U.S. Treasury each year. The earnings of the Federal Reserve System are derived chiefly from interest on U.S. Government securities held in the System's Open Market Account, which are acquired as a part of the System's monetary policy actions. In 1981, interest paid to the Federal Reserve on U.S. Government securities held in the System's Open Market Account totaled $14.55 billion and not $95 billion as stated in the enclosed article. In this regard, the System returns all earnings in excess of expenses to the U.S. Treasury; in calendar year 1981 payments to the Treasury by the Federal Reserve amounted to more than $14 billion. Thus, the question of payment of income taxes does not arise, although the Reserve Banks do pay real estate taxes to the cities in which they are located. As provided for by law, the stock of the Federal Reserve Banks is held entirely by commercial banks that are members of the Federal Reserve System. However, ownership of https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • -.. The Honorable Ed Jenkins Page Two that stock is in the nature of an obligation incident to membership and does not carry with it the attributes of control and financial interest ordinarily attached to stock ownership in corporations that are operated for the purpose of making a profit. The amount of stock that member banks are required to own is specified by law. The stock may not be sold or pledged as security for loans, and dividends are limited by law to 6 percent per year. If a Reserve Bank were liquidated, any surplus would go to the U.S. Government, not the stockholders. The accounts of the Board of Governors are audited each year by a firm of certified public accountants. Their audit report is reproduced beginning at page 240 of the enclosed copy of the Annual Report for 1980. Also enclosed is a staff memorandum describing the Federal Reserve's auditing procedures in more detail. In addition, the 95th Congress enacted Public Law 95-320, authorizing the Comptroller General of the United States to audit the Federal Reserve System. Pursuant to that statute, the General Accounting Office has conducted numerous audits of Federal Reserve activities. The article also mentions the cost to the Federal Reserve of acquiring currency from the Treasury Department and states that the Federal Reserve lends the same notes back to the Treasury Department at face value. The Federal Reserve Banks do acquire all their currency from the Bureau of Engraving and Printing--a unit of the Treasury Department--at the Bureau's cost of production, which currently is about 2 cents per note. These notes, however, are not loaned to the Treasury; they are issued to the public through the banking system, in response to the economy's need for currency. The article also suggests that the Congress could "re-purchase the Federal Reserve at any time for its outstanding stock." As mentioned previously, the Federal Reserve was established by an Act of Congress in 1913 and, of course, the Congress retains the authority to alter, amend, or even repeal the Federal Reserve Act. It should be noted, however, that the quasi-independent nature of the Federal Reserve helps to give the nation's monetary authority insulation from short-term political pressures. Such pressures otherwise would result in the temptation to use the Government's money-creating authority to finance Government expenditures. Governments throughout history have had a tendency to engage in spending activities that outstrip the taxes they are willing or able to collect. To avoid this pitfall, Congress established an independent monetary authority and deliberately insulated the Federal Reserve from short-term political pressures. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • ""' The Honorable Ed Jenkins Page Three As further background on the Federal Reserve, I am enclosing five pamphlets on the structure of the System that may be of interest to your constituent. I hope this information is useful. know if I can be of further assistance. Please let me Sincerely, (Signed) Donald I. Winn Donald J. Winn Assistant to the Board Enclosures CO:AFC:pjt (ftip V-16) bcc: Mrs. Mallardi https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Ray will be preparerl by Cong. Loson Office Dirrptacr or GEonau: ED JENKINS STR Din-Ric-T. GEORGIA ING 217 CANNCH HOUSE OrrtcE BUILD 20515 D.C. ON. . NZI WASHI TELEPHONE (202) 225-5211 Congreiz of the iliniteb etatt5 *must of atpresSentatibes$ CiIMMITTEE: WAYS AND MEANS Eatington,Ni.C. 20515 SUBCOMMITTEES: TRADE SELECT REVENUE MEASURES https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis HALL RANKS HART MARROW JACKSON CATOosA LUmPKiN CHERoKEE MURRAY DAwsON PICKENS FANNIN RABUN FORSYTH STEPHENS FRANKLIN TOWNS GIUAER UNION GwINNETT WHITE HABERSHAM WHITFIELD January 23, 1982 Honorable Paul A. Volcker Federal Reserve System Constitution Avenue Washington, D. C. 20551 Dear Chairman Volcker: RE: Mr. Frank Barrett Box 585 Holly Springs, Georgia 30142 constituent the I recently received from the above named L RESERVE BANK" with enclosed article entitled ""OUR" FEDERA reference to the Federal Reserve System. would have someone It would be greatly appreciated if you facts. check into the article and reply as to the in written form I respectfully request that all replies be in order to maintain a complete file. Thank you for your consideration. Sincerely, ED JENKINS ELJ/av Enclosure Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections. Citation Information Document Type: Newsletter Citations: Number of Pages Removed: 1 Saracen Society Foundation. "'Our' Federal Reserve Bank." Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org • • January 29, 1982 The Honorable Fernand J. St Germain Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman St Germain: As you know, the Federal Reserve does not ordinarily disclose its relationships with private depository institutions. However, in response to your request for an analysis of the concerns that Mr. Robert Spiller recently expressed to Speaker O'Neill regarding access of The Boston Five Cents Savings Bank to the Federal Reserve discount window, a staff review of the record in that respect is enclosed. The record demonstrates that the Federal Reserve Bank of Boston, consistent with the Monetary Control Act and the Board's related policy guidelines, has offered credit to The Boston Five Cents Savings Bank on the same terms and conditions available to commercial banks. Indeed, since August of last year, twenty-iix thrift institutions have participated in the extended credit program available to depository institutions subject to protracted liquidity strains. These institutions have received loans under the program totaling $622 million. The volume of borrowing has aprarently been limited by the easing in market conditions that developed over the latter months of last year which tended to moderate liquidity pressures on depository institutions and the Federal Home Loan Bank System. I can assure you and Speaker O'Neill that The Boston Five Cents Savings Bank has received access to the discount window on the same terms as any other similarly situated depository institution, thrift or commercial bank. Sincerely, iZ Enclosure FMS:AFC:NS:vcd (#V-336) bcc: Mr. Struble Mrs. Mallardi (2) v/ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • Review of Discount Window Contact with the Boston Five Cents Savings Bank Mr. Spiller of the Boston Five Cents Savings Bank suggests that the Federal Reserve Bank of Roston has, contrary to the Monetary Control Act, administered the discount window in a way that discriminates against thrift institutions, particularly those that are not members of the Home Loan Bank System. His views appear to reflect a misconception of the basis on which access to the discount window is available to member commercial banks as well as to other institutions. Federal Reserve credit is provided to eligible borrowers under two broad programs, both of which are designed essentially to ameliorate strains on the borrower's liquidity. Adjustment credit is available to meet temporary needs for funds or to cushion briefly more persistent fund outflows while an orderly adjustment is being made in the borrower's assets or other liabilities. Extended credit is provided when more protracted strains on liquidity positions appear to be developing with little prospect for correction over the near term. Reasons for adjustment borrowing that are considered appropriate generally include: loan demands the temporary accommodation of unexpected increases in the coverage of sudden, unanticipated deposit outflows; and the need to counter temporary and unexpected difficulties in obtaining funds from the money market. are: Among the reasons that are considered inappropriate borrowing to finance lending in the federal funds market; borrowing to acquire securities or money market paper at a profit. and borrowing to refinance outstanding indebtedness with other lenders at a lower interest cost. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis a • • -2- The Boston Five's initial request to borrow from the Federal Reserve came in the early fall of 1980, not long after the Board's Regulation A (which governs access to the discount window) had been revised (as required by the Monetary Control Act) to allow for borrowing by nonmember depository institutions on the same terms and conditions as borrowing by member banks. Because the bank was a net supplier of funds to the money market at the time, it was evident that any credit it borrowed from the Federal Reserve Bank was likely to be reloaned in the money market at a profit, or be used to repay outstanding more costly debt of other lenders. Since such uses would have run directly counter to our guidelines for adjustment credit borrowing, this initial Boston Five request was turned down. Officials at the Bank were advised, however, that if their institu- tion's liquidity position should subsequently come under pressure, adjustment credit assistance would be readily available. Starting in May 1981, the Boston Five did begin to experience occasional unanticipated strains on its liquidity and, from time to time thereafter, it obtained adjustment credit from the Boston Reserve Bank at the basic discount rate. During the early fall, the duration of the Bank's borrowing began to spill over into successive statement weeks. Because the Boston Five is a large institution with total deposits in excess of $500 million, it therefore became subject (in these spillover weeks) to the 3 percent discount rate surcharge then applicable to large institutions--where they draw on the discount window in successive statement weeks or in more than 4 of the most recent 13 statement weeks. After early October, the Boston Five avoided borrowing at the surcharge rate. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Boston Five's • • • -3- lqR1 borrowing record shows 18 individual adjustment credit loans totaling about $83 million. In late summer, after the Federal Reserve announced that it was establishing discount rates on extended credit to meet liquidity strains at savings and other institutions with longer-term assets, officials at the Boston Five expressed interest in obtaining such credit. At that time the program provided credit to eligible borrowers for the first 60 days at the then prevailing basic discount rate of 14 percent (which was appreciably below the prevailing charges on borrowings from private money market lenders). For borrowings under the program that extended beyond 60 days (to 150 days), the charge during the additional period was 15 percent; and for borrowings that extended beyond 150 days, the charge was increased to 16 percent--in all cases below the 17 percent overall rate then applicable to adjustment borrowings that were subject to the surcharge. The extended credit program for depository institutions with longer-term assets was established to alleviate problems that are very different from those addressed by the adjustment credit program. Extended lending is designed essentially to assist firms facing protracted strains on liquidity arising from net fund outflows. The immediate credit needs of institutions confronted with such liquidity strains are often sizable, and the likely timing of repayments on loans arranged to cope with these strains is uncertain. Since the volume of high powered reserves that might be released through extended credit lending appeared to be potentially very large at the time the program began to be implemented last summer, the Federal https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • -4- ed Reserve established guidelines designed to assure that credit would be advanc only when it was clearly needed and would be repaid as soon as alternative sources of funds might again become available. To assure that these guidelines to were effective, prospective borrowers were required, among other things, could continue seeking funds from usual market sources to the extent funds be reasonably obtained. In addition, they were expected, while borrowing limit from the Federal Reserve, to forego increases in investments and to minimum increases in loans to already outstanding commitments plus whatever volume of expanded lending might be required to retain a competitive foothold in their local credit market. Users of extended credit were also t required to provide more frequent and complete reporting on their curren and prospective cash positions. When the Boston Five first sought credit under this extended lendity ing program, it clearly was not being confronted with severe liquid pressures. Nevertheless, the Bank did provide evidence suggesting that it liquimight experience significantly larger fourth quarter drains on its s of dity reserves than had previously been anticipated, and that reflow s for funds to cover this need might not be forthcoming from usual source some weeks ahead. In light of this evidence the Boston Reserve Bank ed credit agreement indicated that it was prepared to enter into an extend with the Roston Five to help cover its relatively protracted credit needs should they in fact arise. Because the general objective of the extended the lending program is to meet different and more protracted needs than had previously regular adjustment credit program in which the Boston Five consistent been involved,arrangements for making these longer-term loans out. with the guidelines set down by the Board had to be worked https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • • 5- A feature of such arrangements to which management of the Boston Five has registered special objection is the requirement that prospective users of the program draw on alternative sources of funds, to the extent they are reasonably available, before coming to the window. Application of this guideline to savings banks and savings and loan associations that are members of the Federal Home Loan Bank System means that they are required to seek assistance from their FHL Bank before turning to the Federal Reserve. In the early fall of 1981, at the request of the Home Loan Bank System, because of general pressure on the liquidity of the Home Loan Banks, the Federal Reserve and the FHL Banks agreed to share in meeting the added credit needs of institutions that were members of the FHLB System. Borrowers like the Boston Five that are not members of the FHLB System are also expected to maintain their access to alternative sources of funds, such as bank lines of credit, to the extent this can be reasonably accomplished. Commercial banks--whether members or not--are subject to the same guideline. The Boston Five posed a special problem in this regard because it had apparently cancelled the last of its regular credit lines with commercial banks sometime after passage of the Monetary Control Act on the presumption that any unexpected needs for credit in the future could be fully accommodated instead through borrowing at the Federal Reserve discount window. Staff at the Boston Reserve Bank questioned the wisdom of this decision from the start, suggesting that any prudently managed depository institution should maintain regular back-up credit lines with a special industry lender or private lenders. It is clearly a sound banking practice for institutions without a special industry lender to maintain some external source of liquidity. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis I . • • t .-6- When the Boston Five recently requested extended credit, the Boston Federal Reserve, therefore, indicated that while it was prepared to cover most of the Bank's projected need, the Boston Five should seek to reestablish credit lines with commercial banks to cover a part of it. Staff at the Boston Fed recognized that it might be difficult to reestablish bank credit lines after they had been allowed to lapse. The staff felt, however, that the Boston Five should at least make the effort to do so, since other users of extended credit were being required to place reasonable reliance on alternative sources of funds before coming to the Federal Reserve. The Reserve Bank was prepared to withdraw this requirement if the credit was not reasonably available, and its position in this regard was carefully explained in meetings with Boston Five officials. However, the Boston Five apparently never attempted to determine the availability and cost of such alternative sources. Perhaps the misunderstanding that has arisen between Mr. Spiller and the Boston Reserve Bank--as to whether the Boston Five has been subject to different treatment than member commercial banks--is attributable to a failure to draw a clear distinction between the adjustment and extended credit programs. In its use of adjustment credit the Boston Five has been asked to operate within the same administrative guidelines as member banks. And in its request for access to extended credit, it has been asked to work out the same type of operating agreement and adhere to the same operating guideline as other users of that program throughout the country. Mr. Spiller also objected to the provision in the letter of understanding which the Boston Reserve Bank has requested him to sign (in https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis , % • • -7- order to qualify for extended credit) that would permit the Reserve Bank, upon written notice, to modify the terms of the agreement on which such credit would be provided. It is standard practice for regulatory author- ities to include such language in lending agreements in order to gain protection in the event of a deteriorating financial situation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Federal Reserve Board Staff January 13, 1982 FERNAND J. ST GERMAIN, R.I., CHAIRMAN HENRY S. REUSS, WIS. HENRY 42. GONZALEZ, TEX. "FIJOL.EPH MINISH, N.J. FRANK ANNuNZIO. ILL. PARREN J. MITCHELL, MD. WALTER E. FAUNTROY, D.C. STEPHEN L. NEAL, N.C. JERRY M. PATTERSON. CALiF. JAMES J. BLANCHARD, MICH. CARROLL HUE3ARD. JR.. KY. JOHN J LAFALCE, N.Y. DAVID W. EVANS, IND. AskAction 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. assigned Mr. Kichline IP • U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NORMAN E. D'AMOURS. N.H. STANLEY N. LUNDINE, N.Y. NiNETY-SEVENTH 2129 RAYBURN HOUSE CONGRESS OFFICE BUILDING WASHINGTON, D.C. 20515 MARY ROSE OAKAR, OHlo 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. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis November 17, 1981 471) DAVID DREIER, CALIF. 225-4247 Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20551 Washington, D.C. rl -172. Dear Mr. Chairman: Attached is correspondence I received from the Speaker of the House of Representatives. As you will note, he includes a letter from Mr. Robert Spiller, President of the Boston Five Cents Savings Bank. Mr. Spiller is concerned about the terms and conditions of his institution's access to Federal Reserve Discount Window borrowings. To allow me to respond more fully to the Speaker, it would be appreciated if you would provide me with an analysis of this matter. Your consideration of this request will be greatly appreciated. Sincerely, • J. St Germain man Enclosure 77 Lan stHOMM., P. O'NEILL, JR. MASSk-HUSErrs DEMOCRAT THE SPEAKER 411 2231 RAYINURN Housr OF-ma BUILDING WASHINGTON, D.C. 20515 (202) 225-5111 Congrm of tbt Einiteb Otate5 PoufSe of ilepraentatibt5 N rJV S 1981 November 5, 1981 The Honorable Fernand J. St. Germain Chairman Committee on Banking, Finance, and Urban Affairs United States House of Representatives Washington, D.C. 20515 Dear Freddie: Enclosed is the recent letter I received from Mr. Robert Spiller, President of the Boston Five Cents Savings Bank. I would appreciate it if you could review Mr. Spiller's statements and advise me accordingly. As always your assistance is appreciated. Sincerel • Thom s P. O'Neill, Jr. The Speaker FG/kml Enclosure https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • Spiller `• • r ,• tab *'4. t hO e St0n ° 1 )/ Five Pres & Chief Executive Officer ‘Li The Boston Five Cents Savings Ban(' Ten School Street Boston, Massachusetts 02108 Telephone 617 742-6000 October 27, 1981 The Honorable Thomas P. O'Neill, Jr. 2231 Rayburn Building Washington, DC 20515 Dear Congressman O'Neill: In March of 1980, the Congress of the United States passed the Monetary Control Act of 1980 which was a major piece of banking legislation. There were parts to this comprehensiv e bill which dealt with deregulation of depository institutions, further broadening of power for federally-chartered savings banks, inclusion of reserve requirements for thrift banks and availability to non-member banks of both the short-term and long-term access to the Fed discount window. As we are all so acutely aware, the financial crunch that we are living in today has created some very extraordinary circumstances and for many thrift banks perilous conditions do indeed exist. The unregulated money funds have taken from many banks large amounts of deposits and as a result liquidity has become an acute issue. In November of 1980 this Bank filed a request with the Federal Reserve Bank of Boston to borrow money under extended credit provisions for purposes of liquidity. It is now one year later and our access to the Fed is still blocked. The joint explanation statement of the Committee on Conference in the Congressional Record of March 24, 1980 under Title I says the following: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis "Access to the Federal Reserve's Discount Window. Any depository institution holding transactions accounts would have access under the same terms and conditions as member banks to the Federal Reserve discount window upon enactment of the bill. Pricing of Federal Reserve Services. The House amendment includes a provision for the Federal Reserve to price services provided by the Federal Reserve Banks and open access to these services to all depository institutions on the same terms and conditions as member banks." o t) "‘ Aeilk • ‘.10)i • _The Honorable Thomas P. O'Neill, Jr. Page 2 October 27, 1981 In actual language of law, Title I, Section 103, Paragraph 7 reads as follows: "DISCOUNT AND BORROWING - Any depository institution in which transaction accounts or nonpersonal time deposits are held shall be entitled to the same discount and borrowing privileges as member banks. In the administration of discount and borrowing privileges the Board and the Federal Reserve banks shall take into consideration the special needs of savings and other depository institutions for access to discount and borrowing facilities consistent with their long-term asset portfolios and the sensitivity of such institutions to trends in the national money markets." My interpretation of this law is that our bank shall have the right and privilege to borrow from the Fed under the same conditions and same privileges as a member bank. After a one-year struggle with a file of correspondence two inches thick, we have now received from the Boston Federal Reserve a "Letter of Understanding" which will require us to arrange commercial bank credit lines or other sources of funds in an amount equaling one-half of the amount that the Fed will lend to us. In addition, the "Letter of Understanding" will allow the Fed to modify, at will, the terms of the agreement to accommodate changing circumstances. This in fact means that they can modify the agreement anytime they so wish. In our opinion the attitude of the Federal Reserve Bank with respect to the Monetary Control Act of 1980 is discriminatory and outrageous. We are convinced that the Federal Reserve does not wish to lend to thrift institutions and fully intends to violate the will of the Congress as expressed in the Monetary Control Act of 1980. We are required to have reserves with the Federal Reserve Bank, yet they have taken the position that they will not extend to us the privileges that we are paying for. I would hope that your office would be willing to assist us in changing the present attitude of the Federal Reserve Bank. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Sincerely, —) . _ Spiller R bert President • • 28 Jr,' 1992 The Honorable Jake Garn Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Garn: The Board of Governors is pleased to send you a copy of its Annual Report to Congress on the Equal Credit Opportunity Act for the year 1981. Sincerely, S/Paul A. Volcker. Enclosure bcc: Desiree Perkins Mrs. Mallardi (2) Identical ltrs. sent to: Sen. Williams, Chrmn. Chafee, Sen. Dodd; and Chrmn. St Germain, Cong. Stanton, Chrmn. Annunzio and Cong. lOmmilm, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -t4cer- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • 28 JAN /aarr The Honorable George H.W. Bush President of the United States Senate Washington, D.C. 20510 Dear Mr. Vice President: Pursuant to the requirements of section 707 of the Equal Credit Opportunity Act, the Board of Governors is pleased to submit its sixth Annual Report on the Equal Credit Opportunity Act. The report contains a summary of the Board's administrative functions under the Act and an assessment of the extent to which compliance with the Act is being achieved. Sincerely, S/Patil A. Vo!cke[ Enclosure bcc: Desiree Perkins Mrs. Mallardi (2) Identical ltr. also sent to Speaker O'Neill. • .••• v- to ) BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551 January 28, 1982 The Honorable Richard A. Gephardt house of Representatives Washington, D.C. 20515 Dear Mr. Gephardt: Thank you for your letter of January 18 requesting comment on correspondence you received from Mr. Ben H. Wells concerning the Monetary Control Act of 1980 (P.L. 96-221). Mr. Wells suggests that the Monetary Control Act should be repealed. As you are aware, Congress, in the Monetary Control Act, took the step of imposing Federal reserve requirements on all depository institutions because it believed that universal reserve requirements were necessary to improve the Federal Reserve's ability to control the money supply to assist in the fight against inflation. Repeal of the Act would impair the Board's ability to conduct monetary policy by exempting large portions of the money supply from one of the most basic tools used by the Federal Reserve to influence the quantity of money. Mr. Wells' concern about the Monetary Control Act relates to a relatively minor provision of the Act which has given rise to a great deal of misunderstanding. The letter Mr. Wells quotes from states that the Monetary Control Act authorizes the Federal Reserve to "buy the debts" of foreign countries or governments. The original Federal Reserve Act, enacted in 1913, permitted the Federal Reserve to purchase various types of securities in the open market. The purpose of this authority originally was to provide Reserve Banks with the opportunity to earn a return on their funds. There was never any indication that the authority was to be used to "monetize" foreign debts of insolvent nations or agencies, and the Federal Reserve has no intention of doing so. Indeed, virtually all of our securities holdings consist of U.S. Government and agency obligations ($124 billion) purchased in conjunction with open market operations and in the course of issuing Federal Reserve notes. The Monetary Control Act of 1980 amended the open market authority of the Federal Reserve to permit us also to purchase obligations of foreign governments and their agencies. This is the provision about which there has been considerable misunderstanding. The legislative history of the Act indicates https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • Oa" The Honorable Richard A. Gephardt Page Two that Congress intended this authority to be used only in conjunction with the Federal Reserve's normal activities in the foreign exchange market. In the course of foreign exchange operations, the Federal Reserve from time to time acquires balances in foreign currencies. Prior to the passage of the Monetary Control Act, there was no convenient way in which foreign currencies held by the Federal Reserve could be invested to earn interest. As indicated by Senator Proxmire on the floor of the Senate on March 27, 1980, during the Senate's consideration of the Monetary Control Act, the purpose of this provision is "to provide a vehicle whereby such foreign currency holdings could be invested in obligations of foreign governments and thereby earn interest. This authority would be used only to purchase such obligations with foreign currencies balances acquired by the Federal Reserve in the normal course of business" (126 Cong. Rec. S 3168). In Chairman Volcker's testimony before the Senate Banking Committee on September 26, 1979, he indicated that the purpose of the provision was to add to the present list of assets, currently eligible for purchase by the Federal Reserve, short-term government securities so as to enable the Federal Reserve to invest its non-interest bearing foreign currencies in interest bearing obligations. (These earnings are ultimately paid over by the Federal Reserve to the U.S. Treasury.) It was never the intent of the Federal Reserve to use this provision to "bail out" foreign governments that may be in danger of defaulting on their debts. We believe it is clear that the authority is to be used only in conjunction with the Federal Reserve's normal foreign exchange operations. With respect to purchasing obligations of Eastern bloc countries such as Poland, the Federal Reserve has not purchased and has no plans to purchase obligations of such countries. As noted above, the Federal Reserve would only buy short-term liquid obligations of foreign governments with currency balances of those foreign countries acquired in connection with foreign exchange operations in order to earn a return on what would otherwise be non-interest bearing currency holdings. As indicated in the Board's Annual Report, reciprocal currency arrangements exist with the following countries only: Austria, Belgium, Canada, Denmark, England, France, Germany, Italy, Japan, Mexico, the Netherlands, Norway, Sweden, and Switzerland. I hope that this is helpful to you. know if I can be of further assistance. Please let me Sincerely, onnTinnaldtWinti 1 (GTS):CO:AFC:pjt (#V-10) bcc: Mrs. Mallardi https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Donald J. Winn Assistant to the Board Cong. Liaison Office will prepare response • ARDT RICAARD A. GEPH Dimucr. issougU M 1TTEE WAYS AND MEANS C.OM BUDGET c2,144 m rrrEE "' CH IEt TASK FORCES DEMOCRATIC STEER I NG AND POLICY COM M ITTEE https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ATES CONGRESS OF THE UNITED ST HOUSE OF REPRESENTATIVES WASHINGTON, D.C. 20515 WASHINGTON OFFICE: 218 CANNON HOUSE OFFICE Butumma WASHINGTON, D.C. 20515 Pmoptz.:(202) 225-2671 DISTRI OFFICE: S470 HAMPTON AvEpaut SY. Louts, M 'mom 63139 PHCNS (314)351-5100 0 January 18, 1982 "/ so : The Honorable Paul Volcker Chairman, Board of Governors of the Federal Reserve Federal Reserve Building t Streets Constitution Ave. between 20th & 21s Washington, D. C. 20551 Dear Mr. Chairman: the enclosed letter from to ard reg h wit you to g tin wri am I arding the Monetary Control reg ls, Wel Ben Mr. e, min of nt a constitue Act of 1980. address the concerns which I would appreciate it if you would he raises in his letter. I look fore and trouble In advance, thank you for your tim r future. ward to hearing from you in the nea Yours very truly, Richard A. Gephardt RAG:mwof Enclosure „-, g WESTMORELAND PLACE • ST. LOUIS, MISSOURI 63103 e4Iisq,Weal 35 November 25, 1981 Honorable Richard A. Gephardt 218 Cannon House Office Building Washington, D. C. 20515 Dear Dick: Federal program for the You usually hear from me beseeching support for some profit organizations: arts. As you know, I devote all my time to not-forConservatory and Schools for the Saint Louis Symphony; CASA-The Saint Louis Street Forum; Missouri the Arts; Laumeier International Sculpture Park; First Arts Council; Committee for the Arts in Missouri. far-reaching in its effect on the whole Now comes another concern which is more d States. Here is a letter structure and future of the solvency of the Unite Federal Reserve the beneficent from George Capps on a dangerous move to make the lender to the world of bankrupt nations: Federal Reserve to buy the "The Monetary Control Act of 1980 permits the example, Poland owes debts of foreign countries or governments. For billion; Poland is unable Western banks, including U.S. banks, over $28 the Federal Reserve to pay. Under the Monetary Control Act of 1980, York banks, in that case the could buy the Polish debt of one of the New a bad loan they made to New York bank would have been bailed out of pay the American taxpayers, Poland. And since Poland will never be able to uptcy, taking the penalty for they are saving the New York bank from bankr Fed can buy foreign debts, the bank's mistakes. I think just because the gn debts, because if it does not necessarily mean that it will buy forei well say you're ready they do this there will be no end and you might as hed and so is the to give up the ghost; the American dollar is finis oy the American nation. Because if you destroy the currency, you destr social order, and we could only look forward to a revolution, anarchy, and finally a dictatorship. use all of your influence to repeal the portion of the Monetary Control Act of 1980 which gives the Federal Reserve the power to monetize foreign debts of insolvent nations or agencies." "I hope that you Dick, the American taxpayers have no holy obligation to bail out greedy New York banks who make loans to dubious countries at high interest rates. George Capps puts the sequence of downfall eloquently. Let's let the New York banks wallow in the quagmire of their own making. Yours, en Ben H. Wells BHW/jd cc: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mr. George H. Capps Of\A ' 5 • tke•tta (v,-59 0 BOARD OF GOVERNORS OF THE • c0 . •0 • -ri • FEDERAL RESERVE SYSTEM it • WASHINGTON, D. C. 20SSI ‘ ,1 • cl% Rt• • .RA.. January 27, 1982 •• RAUL A. VOLCKER CHAIRMAN The Honorable Robert J. Lagomarsino House of Representatives Washington, D.C. 20515 Dear Mr. Lagomarsino: Thank you for your letter of December 21 enclosing correspondence from your constituent, Mr. Richard Brooks, concerning the Board's recently published proposal to clarify Regulation Z's definition of an "arranger of credit." This issue is inherently difficult and one to which we have given considerable thought. On the one hand, no one is anxious to propose additional government regulations. On the other, there is a legitimate concern that the interests of both buyers and sellers be adequately protected in a transaction as significant as the sale of a home. We are now struggling to find a reasonable solution to this problem, which, as you may know, arose from recently enacted legislation intended to simplify the Truth in Lending Act. Under the amended Truth in Lending Act, a person who regularly arranges for the extension of consumer credit from those who do not regularly extend credit may be subject to the disclosure requirements of the Act. The Board's proposal (enclosed) would amend the definition of "arranger of credit" in revised Regulation Z to describe more clearly an arranger of credit and, if adopted, would cover real estate brokers who arrange more than five seller-financed transactions. In the proposal, the Board specifically requested comment on whether such real estate brokers should be considered arrangers of credit and subject to disclosure responsibilities under the amended Truth in Lending Act. As you are aware, S. 1720, introduced by Senator Garn, includes a provision that would exclude arrangers of credit from the Truth in Lending Act. This would serve to relieve real estate brokers involved in seller-financed transactions from disclosure responsibility under the Act. Although no action was taken on this provision by Congress prior to adjourning for the Christmas recess, legislation was adopted (H.R. 4879) delaying the effective date of the amended Truth in Lending Act from April 1 to October 1, 1982, which would provide Congress more time to change the law if that is determined to be desirable. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis N1101., The Honorable Robert J. Lagomarsino Page Two I appreciate your taking the time to share your constituent's views, and I can assure you that his comments will receive the fullest consideration. Sincerely, Sant A.!chef 81) Enclosure (p.r. dtd. 10/20/ MPE:DS:NS:pjt XXI= (V-390) bcc: Maureen English Mrs. Mallardi (2) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ROBEFTJ.LAGOMARSINO 19-1-1 a DISTRICT, CALIFORNIA 2332 RAYBURN BUILDING WASHINGTON, D.C. 20515 202-225-3601 ASSISTANT REGIONAL WHIP, PLAINS AND WESTERN STATES https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • CLO will prepare respons. EE ON COMMI FORVGN AFFAIRS suacommiTTEEs: Congre55 of tfit Eniteb tact; pott5e of Repre5tntatibe5 tilcusbington, D.C. 20315 INTERNATIONAL ECONOMIC POLICY AND TRADE RANKING MINORITY rYIEMBER INTER-AMERICAN AFFAIRS COMMITTEE ON INTERIOR AND INSULAR AFFA I RS SUBCOm m ITTEES: INSULAR AFFAIRS RANKING MINORITY MEMBER December 21, 1981 4e0 r--- PUBLIC LANDS AND NATIONAL PARKS -1 u ••••••••• Hon. Paul Volcker Chairman Federal Reserve Board Federal Reserve Building 20051 Washington, D.C. Dear Mr. Chairman: Enclosed is a letter from my constituent, Richard Brooks, regarding Truth in Lending Docket #R-0368. I would be interested in your comments on this issue and look forward to your reply. Thank you. Sincerely, ROBERT J. LA Member of Co RSINO ess RJL;k1m encl. D FIBERS THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLE https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • 411 INVESTMENT PROPERTY (805) 642-8564 DEC 1 4 le • INVESTMENT PROPERTY • GROUP INVESTMENTS • CONSULTANTS • INVESTMENT COUNSELING • COMPUTER ANALYSIS Pecember 7, 1981 The Honorable Paul A. Volcker Chairman Federal Reserve Board FeJeral Rt-nerve Building Uashington, D.C. 20051 RE: Truth-in-Lending Definition O:f "Arranger of Credit" Regulation Docket #R-0368 4.1 Dear Sir: red tape to This proposal does nothing for the consumer. It adds ggling real estate the snail real estate Broker and burdens the stru business. effort to eliminate I would suggest that you support President Regoan's people you want to federal bureaucracy. Learn to communicate with the tion day. regulate. Otherwise, you will be remembered on elec Yours truly, RICHARD A. BROOKS RAH/emb cc: I/Congressman Robert J. Lagomarsino Senator Alan Cranston Ventura Board of Realtors XXYAM 21° MAX tji° XXXXCO VENTURA, CALIFORNIA 93003 iN*.QQa-Sk. • .1'v. • Of GOV;•• - BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 205S1 January 27, 1982 PAUL A. VOLCKER CHAIRMAN The Honorable Gordon J. Humphrey United States Senate 20510 Washington, D.C. Dear Senator Humphrey: Thank you for your letter on behalf of several of your constituents concerning the Board's recently published proposal to clarify Regulation Z's definition of an "arranger of credit." This issue is inherently difficult and one to which we have given considerable thought. On the one hand, no one is anxious to propose additional government regulations. On the other, there is a legitimate concern that the interests of both buyers and sellers be adequately protected in a transaction as significant as the sale of a home. We are now struggling to find a reasonable solution to this problem, which, as you may know, arose from recently enacted legislation intended to simplify the Truth in Lending Act. Under the amended Truth in Lending Act, a person who regularly arranges for the extension of consumer credit from those who do not regularly extend credit may be subject to the disclosure requirements of the Act. The Board's proposal (enclosed) would amend the definition of "arranger of credit" in revised Regulation Z to describe more clearly an arranger of credit and, if adopted, would cover real estate brokers who arrange more than five seller-financed transactions. In the proposal, the Board specifically requested comment on whether such real estate brokers should be considered arrangers of credit and subject to disclosure responsibilities under the amended Truth in Lending Act. As you are aware, S. 1720, introduced by Senator Garn, includes a provision that would exclude arrangers of credit from the Truth in Lending Act. This would serve to relieve real estate brokers involved in seller-financed transactions from disclosure responsibility under the Act. Although no action was taken on this provision by Congress prior to adjourning for the Christmas recess, legislation. was adopted (H.R. 4879) delaying the effective date of the amended Truth in Lending Act from April 1 to October 1, 1982, which would provide Congress more time to change the law if that is determined to be desirable. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis o • • The Honorable Gordon J. Humphrey Page Two I appreciate your taking the time to share your views and those of your constituents. I can assure you that these comments will receive the fullest consideration. Sincerely, S/Paul A. Volcke,‘ Enclosure (p.r. dtd. 10/20/81) MPE:DS:pjt (#V-350) bcc: Maureen English (w/copy of incoming) Mrs. Mallardi (2)\,/ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Action assignel janet Hart • GORDON J. HUMPHREY NEW HAMPSHIRE 6205 DIRKSEN SENATE OFFICE BUILDING (202) 224-2841 commITTEEs AR M ED SERVICES CHAIRMAN: SUEICOMMITTEE ON PREPAFtEDNESS ENERGY AND NATURAL RESOURCES CHAIRMAN: SUBCOMMITTEE ON ENERGY REGULATION -74iCrtifeb ,Sfafez Zenate NEW HAMPSHIRE TOLL FREE NUMBER 1-800-852-3714 WASHINGTON, D.C. 20510 LABOR AND HUMAN RESOURCES CHAIRMAN: SUBCOMMITTEE OH ALCOHOLISM ANO DRUG ABUSE December 3, 1981 3 Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Constitution Avenue & 20th Street, N.W. Washington, D.C. 20551 -,j Dear Mr. Volcker: erned consituents I am writing on behalf of several conc you will soon consider of mine. It is my understanding that ding Act. I would like to the revisions of the Truth-in-Len question of exempting real ask that you carefully consider the estate brokers from these revisions. colleague, Senator Garn I have also been informed that my this proposal. has submitted statements to support n. Thank you for your time and consideratio With best regards, I am Sincerely yours, GJH:aao ONE PILLSBURY STREET CONCORD, NEW HAMPSHIRE (603) 228-0453 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 03301 FEDERAL BUILDING, Room 730 275 CHESTNUT STREET MANCHESTER, NEW HAMP'SHIRE (603) 666-7691 FEDERAL ButuDiNo. ROOM 209 03103 80 DANIEL STREET PORTSMOUTH, NEW HAMPSHIRE (603) 431-8760 03801 157 MAIN STREET BERLIN, NEW HAMPSHIRE 03570 (603) 752-2600 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • • January 22, 1982 The Honorable Fernand J. St Germain Chairman Committee on Banking, Finance and Urban Affairs House of Representatives' Washington, D. C. 20515 .41,4 • Dear Chairman St Germain: Thank you for your letter of January 20 concerning my testimony on monetary policy pursuant to the Full Employment and Balanced Growth Act of 1978. I look forward to appearing before your Committee_ on February 10 at 10:00 a.m. Sincerely, CO:vcd (V-9) bcc: Mike Prell Mrs. Mallardi (2)c..7"' sr GERMAIN. R.L. CHAIRMAN FERNAND J. F,',.ENRY S. REUSS, WIS. HENRY B. GONZALEZ. TE.X. JOSEPH G. MINISH, NJ. FRANK ANNUNZIO, 11.1... PARREN J. MITCHELL, MD. WALTER E. FAUNTROY, D.C. STEPHEN L. NEAL, N.C. JERRY M. PATTERSON, CALIF. JAMES J. BLANCHARD. MICH. CARROLL HUBBARD. JR.. KY. JOHN J. LAFALCE, N.Y. DAVID W. EVANS, IND. NORMAN E. D'AMOURS. N.H. STANLEY N. LUNDINE, N.Y. MARY ROSE OAKAR, OHIO JIM MATTOX, TEX. BRUCE F. VENTO, MINN. DOUG BARNARD, JR., GA. ROBERT GARCIA, N.Y. MIKE LOWRY, WASH. CHARLES E. SCHUMER, N.Y• BARNEY FRANK, MASS. BILL PATMAN, TEX. WILLIAM J. COYNE, PA• STE.NY H. HOVER. MD. • Mike Pre11 coor-linating statement • U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-SEVENTH CONGRESS 2129 RAYBURN HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 January 20, 1982 J. WILLIAM STANTON, OHIO CHALMERS P. WYLIE. OHIO STEWART B. MCKINNEY. CONN. GEORGE HANSEN, IDAHO HENRY J. HYDE. ILL. JIM LEACH, IOWA THOMAS B. EVANS, JR.. DEL. RON PAUL. TEX. ED BETHUNE. ARK. NORMAN D. SHUMWAY. CALIF. STAN PARRIS, VA. ED WEBER, OHIO FLA. BILL 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. mccou_um, Z2.5•42.47 Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20551 Washington, D.C. Dear Mr. Chairman: This letter will serve to confirm conversations l between our respective staffs regarding the Semi-Annua y, Monetary Policy Hearings. You are scheduled to testif Act pursuant to the Full Employment and Balanced Growth Room 2128 of 1978, on February 10, 1982, at 10:00 a.m. in Rayburn House Office Building. copies It would be appreciated if you would provide 100 -four of your testimony to the Committee at least twenty hours in advance of this hearing. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Sincerely, Fernand J. St Germain eairman illk https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • January 22, 1982 The Honorable Henry S. Reuss Chairman Joint Economic Committee Washington, D. C. 20510 Dear Chairman Reuss: Thank you for your letter of January 20 inviting me to appear before your Committee at hearings on the current state of the economy and economic policy for 1982. I am looking forward to being with you on Tuesday, January 26, at 10:00 a.m. Sincerely, CO:vcd (V-8) bcc: Mike Prell Mrs. Mallardi (2) Mike Pre11 drafting statement -I - HOUSE OF REPRESENTATIVES HENRY S. REUSS, WIS., CHAIRMAN RICHARD BOLLING, MO. LEE H. HAMILTON, IND. GILLIS W. LONG, LA. PARREN J. MITCHELL, MD. FREDERICK W. RICHMOND, N.y. CLARENCE J. BROWN. OHIO MARGARET M. HECKLER, MASS. JOHN H. ROUSSELOT, CALIF. CHALMERS P. WYLIE, OHIO • • SENATE ROGER W. JEPSEN, IOWA, VICE CHAIRMAN WILLIAM V. ROTH, JR., DEL. JAMES ABDNOR, S. DAK. STEVEN D. SYmMS, IDAHO PAULA HAWKINS, FLA. MACK MATTINGLY, GA. LLOyD BEHTSEN, TEx. WILLIAm PROXMIRE, WIS. EDWARD M. KENNEDY, MASS. PAUL S. SAFtBANES, MD. . Congre55 of the tiniteb :.-z)tate5 JOINT ECONOMIC COMMITTEE (CREATED PURSUANT TO SEC. 5(a) OF ruaLic LAW 301, 7ITH C.ONGRESS) WASHINGTON, D.C. 20510 JAMES K. GALBIRAITH,, EXECUTIVE DIRECTOR 4 January 20, 1982 The Honorable Paul Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. Dear Mr. Chairman: to appear I am delighted to know that you will be able day, January 26, 1982, before the Joint Economic Committee on Tues and economic policy to discuss the current state of the economy in Room 1202 for 1982. The hearing will begin at 10:00 a.m. of the Dirksen Senate Office Building. ement to the Please send 20 copies of your prepared stat Committee, Room G-133 Administrative Assistant, Joint Economic D.C. 20510, to arrive Dirksen Senate Office Building, Washington, These copies will at least 24 hours prior to your appearance. they may have time accommodate the Members and the staff so that Please bring an to formulate questions prior to the hearing. appearance for distribuadditional 80 copies on the day of your ies. tion to the press and other interested part ess our appreciaOn behalf of the Committee, I wish to expr meet with us. We tion for your cooperation and willingness to of these important all look forward to our discussion with you issues. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Sincerely, 1 p„., '`AA'k . Henry S. Reuss Chairman • N\4.0 rt\c utb.,t4L v sj BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 205S1 fitALRE.S. January 22, 1982 PAUL A. VOLCKER CHAIRMAN The Honorable Carroll Hubbard House of Representatives Washington, D.C. 20515 Dear Carroll: Thank you for your further letter concerning actions of the Depository Institutions Deregulation Committee as they affect the savings and loan industry. I read with interest the letter that you enclosed from Mr. Roscoe I. Kerr, Jr., President of a Louisville area savings and loan and President of the Kentucky Savings and Loan League. I want to assure you that I understand and share many of the concerns that prompted him to write to you. As I indicated in my letter of December 23, the DIDC has been assigned an inherently difficult task by the Congress, namely, how best to remove deposit rate ceilings in order to provide a marketrelated return to savers while at the same time not placing so great a burden on depository institutions that it would threaten their viability. In his letter Mr. Kerr referred to my testimony of last June regarding the desirability of imposing reserve requirements on those money market funds that serve as the functional equivalent of transaction balances. I continue to favor such reserve requirements from the two perspectives of monetary control and equity among financial institutions. As you know a number of deregulatory proposals were on the agenda for the December 16 meeting of the DIDC. I voted with the majority of the DIDC members to postpone consideration of those proposals until the Committee's next meeting, which is scheduled for March 22, 1982. I have quite differing views on the various deregulatory proposals in question. These include a general deregulatory schedul which would phase out deposit rate ceilings gradually over the years ahead, beginning perhaps with maturities in he 3 to 4 year area. Such a schedule has much to recommend i my view, although questions remain regarding its specifics nd the timing of its introduction. In the https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • AN, • The Honorable Carroll Hubbard Page Two latter connection I believe that experience with the recently deregulated IRA and Keogh accounts should give us a much firmer basis for judging the likely impact of longer-term time accounts that have been freed of regulatory rate ceilings. The proposals presented to the DIDC on December 16 also included various options for a new short-term time deposit that would improve the ability of depository institutions to compete with short-term market instruments and especially with money market mutual funds. Some of those options, the more aggressive ones, seemed to me in December to run a substantial risk of significantly reducing the earnings of many thrift institutions, given prevailing conditions in financial markets. Others would tend to minimize, but not eliminate, that risk. The DIDC obviously faces a dilemma. If it did nothing in this area, depository institutions would continue to be seriously inhibited in their ability to compete with money market mutual funds and other evolving financial instruments. On the other hand, Mr. Kerr's point about the earnings squeeze on thrift institutions is also entirely germane. I want to keep an open mind on all these issues which I believe should be decided only in the context of the financial conditions that will prevail at the time of the March meeting. You can reassure Mr. Kerr that my decisions will take careful account of the impact of any deregulatory actions not only on savings and loan associations, but also on other depository institutions that face a similar earnings squeeze because of their large holdings of relatively low yielding fixed-rate assets. Best regards, Sincerely, Kga4 NB:WRM:pjt (#V-5) bcc: Norm Bernard Mrs. Mallardi (2) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis *Action assigned Mr. Bernardo CARROLL HUBBARD AT LARGE MAJORITY WHIP CONGRESSMAN 1ST DISTRICT, K ENTUCKY 2244 RAYBURN HOUSE OFFICE BUILDING WASHINGTON, D.0 20515 (202) 225-3115 COMMITTEES BANKING. FINANCE AND URBAN AFFAIRS Congre55 of tbe anittb tatO jiiouSe of ileprefientatiberS MERCHANT MARINE AND FISHERIES CHAIRMAN,SUBCOMMITTEE ON PANAMA CANAL/OUTER CONTINENTAL SHELF afsbington,;D.C. 20515 January 7, 1982 c, --- c.. C7" -I https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Honorable Paul Volcker (Vice Chairman of DIDC) Federal Reserve Board 20th Street & Constitution Avenue, N.W., Room 2048 Washington, DC 20551 Dear Paul: I am writing in further reference to the Depository Institutions Deregulation Committee (DIDC) and its actions with regard to the savings and loan industry. I would appreciate your consideration of the enclosed letter from Roscoe I. Kerr, Jr., President of the Greater Louisville First Federal Savings and Loan Association. I believe Mr. Kerr's letter is worthy of your consideration. He has reviewed several letters written by members of the Committee, studied the legislation which created the DIDC, and reviewed the DIDC's policies and the effect of the policies upon the savings and loan industry, the nation's depository institutions and the thrift industry. I believe that, combined with his experience in the savings and loan business, the deliberations on the DIDC by Mr. Kerr compel the consideration of his statements by the members of the Committee. Consequently, I would appreciate your comments concerning the issues addressed by Mr. Kerr. When I recieve your reply, I will contact Mr. Kerr. Thank you for your assistance in this matter. With best wishes for you, I am Sincerely yours, Carroll Hubbard Member of Congress CH/111 Enclosure cc: Roscoe I. Kerr, Jr. • GREATER LOUISVILLE • LA,Ati One Finencia! Sckia-e Louisvilie. Kentucky 40270 5137-BE391 First Federal Savings and Loan Association Roscoe I Kerr, Jr President December 24, 1981 The Honorable Carroll Hubbard, Jr. 423 Cannon House Office Building Washington, D. C. 20518 " vitt 0 •%' Dear Congressman: Thank you for taking time to visit with me and Jerry Mahoney, Top Orendorf, Charlie Murphey, Wayne Overall, Jack Rhorer, who composed the Kentucky Delegation of Savings and Loan Officers calling on their legislators on December 10. We appreciate very much the assistance you gave us in writing and telephoning various people and specifically other legislators and members of the Depository Institutions Deregulation Committee for the purpose of requesting and encouraging such Committee to take no action at their meeting of December 16 as to proposed new investment accounts, some of which would have been wildcard-no limit on interest rate type of accounts As a result, Treasury Secretary Donald T. Regan, Chairman of the DIDC, agreed, at the meeting on December 16, to the postponement of any action temporarily, with the understanding that the Committee would again consider taking action at it's March meeting. It is hoped that the Committee can be influenced to delay any action of the nature proposed beyond March and that no new prop 3als surface for consideration in the meantime. Those of us in the thr_ft industry believe any further action by the DIDC needs to be delayed for a substantial period of time. Mr. Regan, by a letter dated December 15, a copy of which I have seen, corresponded with various legislators and I would like to comment on his last paragraph inasmuch as it discloses his lack of understanding of the present savings and loan and savings banks situation. He stated, "The actions taken by the DIDC are intended to give financial institutions an opportunity to retain the funds they now have, and to compete for new ones in a rapidly changing environment." In answer to this, it is well known by prudent people in the financial world that the thrift indust ry is not yet in a position to afford such competition. He further states, in the same paragraph, "For the Committee to fail to recognize and respond to this new environment in a timely fashion would continue the shackles on these institutions and deny them the opportunity to compete with other intermediari es in effect, it would compound the errors of the excessive and unresp onsive government regulations of the past which have placed nany of these instit utions in their present plight." https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 444 • • • Page Two The Honorable Carroll Hubbard, Jr. 423 Cannon House Office Building Washington, D. C. 20518 I do not know what he means by "timely fashion," but by the previous actions and the contemplated actions of the DIDC, it is obvious that they are not attempting to phase out the interest rate matter by 1986 as Congress mandated, but a lot sooner. Mentioning the opportunity to compete is fine, but if we positively cannot compete, as we obviously cannot at this time, having the opportunity to do so is little solace. His reference to the quote "compound the errors," etc. has nothing to do with the present plight of the savings and loan institutions. In years gone by, we have enjoyed Regulation Q and other interest rate governmental regulatory controls and have prospered as has the housing industry and made possible the availability of funds for the American home buyers. Mr.Regan followed up the December 16 meeting with a letter dated December 17, whereby he acknowledged that no action was taken at such meeting and that it would be reviewed again at the Committee's March meeting. The last sentence in his first paragraph of December 17 is the most disturbing factuality about the matter at hand inasmuch as it states, "The agenda items were designed to liberalize the rate of interest that could be paid on various thrift accounts." That, in itself, would have raised the cost of money to the thrifts and would have hastened the day of our insolvency. My own association, the Greater Louisville First Federal, has assets in excess of 500 million dollars and enjoyed it's most profitable year, in it's 66 years of existence, in 1978, and while inflation was even then with us, the "monster" money market funds surfaced shortly thereafter with the offering of higher interest rates to investors and with the commencement of this type of account, along with the formation of the DIDC, our problems began. The DIDC exemplifies the attitudes of the commercial bankers and the brokerage houses and is made up of perhaps the perfect example of a "conflict of interest committee" as I can invision, and the continued actions and course of direction of the DIDC will hasten the day of ruination and doom to the savings and loan industry and the savings bankers. In reviewing House Bill 4986, it was the large piece of legislation which created the DIDC, Congress mandated the Committee to GRADUALLY plase out controls, between the date of such law's enactment in 1980 and the year 1986. This Committee was charged with the responsibility of doing so without bringing injury to the thrift institutions and without causing the shortage of funds being available for housing. The previous actions of the DIDC have not taken these factors into consideration. I believe if Congress had wanted an overnight phase out of interest rate https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • . Page Three The Honorable Carroll Hubbard, Jr. 423 Cannon House Office Building Washington, D. C. 20518 controls, it could have enacted such legislation but the purpose of giving the thrifts until 1986 was to allow us some length of time to get our house in order by working toward the rollover of our lower rate mortgage loans to higher rates as well as making new mortgage loans at current market rates, thereby raising our overall yield and improving our earning position so we could more readily compete on an open market for funds in order to have mortgage money available for the financing of new construction and the purchasing of homes so badly needed by American citizens. It must be remembered the billions of dollars savings and loans have invested in low yield residential mortgage loans and they have furnished not only the principle means, but in some instances, the only means by which millions of people have been able to afford and obtain home ownership. Our industry did not suddenly arrive in it's present financial earning conditions overnight and we cannot turn this situation around overnight. Our commercial banking friends, yho obviously influenced the thinking of the DIDC, along with the money market fund people, are apparently not concerned with keeping our type of industry in operation or else they do not realize or do not care about the building industry or home ownership. This is not the business in which they engage and in which they have their expertise and it never has been. Who is to provide the funds and the know how in future years of home financing if the savings and loan industry does not survive? While we recognize the American banking interest groups are anxious to have an immediate complete phaseout of savings interest rates, having the bulk of our money invested in mortgages, at lower than present market interest rates, will not allow us to compete today. We need time, and while 1986 may not be enough time for us, 1982 phasing out, or even 83 or 84, will result in the death of the savings and loan industry. If our industry was in a -position to start from zero point or zero base today, and begin making mortgage loans at current interest rates, we could live with a rapid phaseout of interest rates being paid to savers and investors, however, in competing with the commercial banks, -who have most of their loans in demand loan accounts whereby the interest rates can be changed within a matter of 30-60 or 90 days, in most instances, we are not starting from the same beginning point and it is obvious that the 1986 phaseout mandate was decided on by an intelligent Congress, realizing and recognizing that it will take time for us to reverse our earning problems before we can openly compete. We are asking for time https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • -OPY rage Four The Honorable Carroll Hubbard, Jr. 423 Cannon House Office Building Washington, D. C. 20518 and we believe that we can overcome our earning difficulties if we are given sufficient time. That is all we are asking of the DIDC and you legislators. Give us the time that the enactment said we could have and not allow this Couimittee to phase us out in one or two years when the legislation House Bill 4986 mandated the Committee to do it in six years. I want to call to your attention a portion of the statement of Mr. Edwin B. Brooks, Jr., immediate past President and currently the legislation vice chairman of the U. S. League of Savings Associations, when he appeared on October 21 before the Senate Committee of Banking, Housing and Urban Affairs, and I quote, "We continue to believe that the efficient conduct of our nation's monetary policy requires some accountability for the enormous money market mutual fund industry...now, $160 billion in assets. Subsequent to your hearings in May on this subject, Chairman Volcker testified on the House side that reserves' authority for those money funds with transactionable features would be desirable for the conduct of monetary policy. As of September 9, 1981, MMMFs of all types had less than 14% of their assets in U. S. Treasury and Federal agency securities; 35.8% was invested in commercial paper; 22.5% in large CDs (almost exclusively of the largest, money center banks); and, 13.9% in Eurodollar and Yankeedollar CDs. The phenomenal growth of the commercial paper markets, beyond the reach of the Fed's controls on bank lending to corporate borrowers, has been made possible by the MMMFs. The jumbo CD investment reflects the drain of savings from local communities to large, money centi_tr banks. The significant use of foreign depositories and foreign maii.ets points up the ability of MMMFs to complicate the operation of domestic monetary policy. We would hope that your comprehensive legislative effort would not ignore the money market fund problem. Placing reserves on funds with transaction account accessibility is one step. Another -might be to require that funds devoted to serving individual investors invest significantly in U. S. Treasury and agency securities. This "shift to quality" would increase the demand for Treasury issues, with the important side effect of lowering the costs of financing the deficit and depressing the private sector deposits tied to Treasury rate movements." It is my belief the majority of investors in the enormous Money -Market Funds business are of the opinion their investments are almost totally backed or secured by U. S. Treasury and Federal agency securities, when in fact, they are not, as his statistics so indicated. These funds totaled 160 billion at the time of his statement and doubtlessly total many billions of dollars more at this time, have the bighest percentage https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • Page Five The Honorable Carroll Hubbard, Jr. 423 Cannon House Office Building Washington, D. C. 20518 of such amount in commercial paper and I believe it highly questionable if such collateral is as safe to the investor as first mortgage residential loans are to the savings and loan savings investors and too, we in the thrift industry are required to maintain large reserve accounts as well as to provide insurance of accounts through the Federal Savings and Loan Insurance Corporation. In the meantime, the MMF issuers run free of control without required reserves and insurance of accounts. If such protective requirements now imposed on savings and loans were also imposed on the brokerage houses, their rate of interest paid to their investors would, by necessity, be less, thereby allowing the savings and loans and savings banks to pay less interest in attracting lendable funds. Needless to say, lower cost money would result in lower interest rates to borrowers and would have a dramatic effect on the terribly depressed housing market, both in new construction as well as in the sale of existing homes. In the near future, It is obvious to me there will be a critical housing shortage in our country and the only solution, if the savings and loans are unable to supply the funds, will be for the Federal government to have another bureaucracy and millions of our citizens will end up having the Federal government as their landlord. I am on my 35th year in the savings and loan business and I assure you that what I have presented in this letter is as sincere an approach to our.problems as I can ascertain. Those of us who have dedicated our lives to an industry which was chartered for the purpose of making possible home ownership for millions of families are proud of our record over the past 150 years. Economic conditions may change, but this country was established by those who believed in individual values and pride of family and owning one's own home in our country should continue to be the American dream. I am afraid that throughout this entire transition period effecting our monetary policies, the forgotten man is the potential home buyer. At this time, it is generally agreed that 30 year olds are in the age group of the first time home buyers. During the 70's we had 34 million citizens reach that age. During the 80's, it is estimated there will be 42 million young people reach the age of 30. How are they to be housed? We ask for your continued support to the thrift industry and thereby directly assist the housing industry and these millions of potential home buyers. We are hopeful that you will support legislation such as House Bill 5135 and House Bill 5136 entered by Congressman Patterson, 5135 being the Bill which would require the DIDC to suspend it's actions for a period of six months in order to allow Congress to address the real problems that face https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis . S. • • Page Six The Honorable Carroll Hubbard, Jr. 423 Cannon House Office Building Washington, D. C. 20518 financial institutions and the consumer who borrows or saves with them and 5136 which Bill would restructure the makeup of the Committee members of the DIDC. I am writing this letter as both the President of the Greater Louisville First Federal Savings and Loan Association as well as the President of the Kentucky Savings and Loan League. I apologize for the length of this communication. Very R. RIK:dw https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ly yours, Kerr, Jr. • • • January 15, 1982 The Honorable Manuel Lujan, Jr. House of Representatives Washington, D.C. 20515 Dear Mr. Lujan: Thank you for your letter on behalf of your constituent, Mr. Greg M. Thomson, concerning the Board's recently published proposal to clarify Regulation Z's definition of an "arranger of credit." This issue is inherently difficult and one to which we have given considerable thought. On the one hand, no one is anxious to propose additional government regulations. On the other, there is a legitimate concern that the interests of both buyers and sellers be adequately protected in a transaction as significant as the sale of a home. We are now struggling to find a reasonable solution to this problem. Under the amended Truth in Lending Act, a person who regularly arranges for the extension of consumer credit from those who do not regularly extend credit may be subject to the disclosure requirements of the Act. The Board's proposal (enclosed) would amend the definition of "arranger of credit" in revised Regulation Z to describe more clearly an arranger of credit and, if adopted, would cover real estate brokers who arrange more tnan five seller-financed transactions. In the proposal, th Board specifically requested comment on whether such real es_ate brokers should be considered arrangers of credit and sabject to disclosure responsibilities under the amended Truth in Lending Act. As you are aware, S. 1720, introduced by Senator Garn, includes a provision that would exclude arrangers of credit from the Truth in Lending Act. This would serve to relieve real estate brokers involved in seller-financed transactions from disclosure responsibility under the Act. Although no action was taken on this provision by Congress prior to adjourning for the Christmas recess, legislation was adopted (H.R. 4879) delaying the effective date of the amended Truth in Lending Act from April 1 to October 1, 1982, which would provide Congress more time to change the law if that is determined to be desirable. I appreciate your taking the time to share your constituent's views, and I can assure you that his comments will receive the fullest consideration. MPE:DS:pjt (#V-373) bcc: Maureen English (w/copy of incoming) Enclosure Mrs. Mallardi (2) 4./. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Sincerely, 411' ()Action assigned Janet Hart • 1 323 LONGMONT( HOUSE OfFICE BUILDING MANUEL LUJAN. JR. 1ST DISTRICT. NEW MEXICO Congre of tfie Ziniteb *tato Ifious't of ArprecSentatibe0 Wastington. D.C. 20515 December 8, 1981 Mr. Paul A. Volcker, Chairman Federal Reserve Board 20th and Constitution Ave., NW 20551 Washington, D. C. •2•."‘ Cu) Dear Mr. Chairman: I have received a number of letters similar to the one enclosed concerning the new Revised Reg Z resulting from the 1980 Truth in Lending Simplification and Reform Act. Can you advise me if there are plans to revise the present definition of "arranger of credit" as it applies to real estate brokers? Any information you can provide which would shed some light on the future of this regulation would be appreciated. • https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Sincerely, ML:sr Enclosure • 1E °.°717. " THOMSON COMPANY REALTORS, INC. 1015_ Alvarado N.E. • Albuquerque, New Mexico 87110 (505) 265-5676 • Hon. Manuel Lujan, Jr. House of Representatives House Office Building Washington, D.C. 20515 Dear Manuel, I appreciate your having talked with me on the phone this last year about different problems facing the real estate business. I am concerned about the Federal Reserve Board's new Reg Z, resulting from the 1980 truthin-Lending Simplification and Reform Act, 1Thich defines home brokers as "arrangers of credit" in seller-financed transactions where the broker arranges more than five such transactions in the previous year. As real estate brokers we are particularly concerned with this definition and the credit disclosure responsibilities imposed under the Revised Reg Z. In today's real estate market, creative financing involving sellerfinanced transactions is the only option open to potential homebuyers in most instances. The effect of this Reg Z provision will be further dep- ression of home sales because of the uncertainty of a seller-financed sale. Therefore, we urge the Federal Reserve Board to revise its present definition of "arranger of credit" as it applies to real estate brokers. At the very least, the charging of a fee for arranging credit should be the proper test of whether one is an "arranger of credit." I would appreciate you looking into saying a strong word to Mr. Paul A. Volcker, Chairman of the Federal Reserve Board on our behalf. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ///,J7h-;nkirou, M. Thomson • • •Cs GOvk.k•. BOARD OF GOVERNORS OF THE •. co . •0 FEDERAL RESERVE SYSTEM • —k WASHINGTON, O. C. 20551 • •. ERAL • •..• •.•' January 11, 1982 The Honorable James Abdnor United States Senate Washington, D. C. 20510 Dear Senator Abdnor: Thank you for your letter of December 15 requesting comment on an inquiry from Mr. B. E. Bork regarding the interest charged his remittance option by the Fede ral Reserve Bank of Minneapolis for the late reporting of rece ipts of Federal tax deposits. The Federal Reserve Banks serve only as the Treasury's agents in collecting Federal tax receipts , and the regulations governing this activity are promulgated by the Treasury. Treasury Department regulations require that Federal Reserve Banks, as fiscal agents of the United Stat es, charge remittance option banks interest whenever their repo rts of Federal tax deposits are received by the Reserve Bank s more than one business day after the taxes are deposited. The Treasury's regulations make no distinction regarding the mean s by which the reports are delivered to the Reserve Banks; all reports must be received by the next business day to avoi d the interest charge. I should also mention that Reserve Bank processing time is not a factor in this situation. The date of receipt by the Bank is the only determining factor. A representative from the Minneapolis Federal Reserve Bank contacted an official of the Post al Service, who informed us that Minneapolis is a two-busines s-day mail point from Sioux Falls, South Dakota, since the distance is greater than 150 miles. This means that an item mail ed in Sioux Falls on Thursday and not delivered in Minneapo lis until the following Monday would be in compliance with Post al Service standards. Such a delivery schedule would, of cour se, cost your constituent three days in late fees in accordance with Treasury regulations. We have contacted an official of the Treasury Department, who indicated that he has also received correspondence from Mr. Bork dealing with this issu e and intends to respond directly to him, perhaps suggesting delivery alternatives used successfully by other banks in similar circumstances. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • -•‘ • The lionorable James Abdnor Page Two I hope this information is useful. if I can be of further assistance. Please let me know Sincerely, l r Signed) Anthony F. Anthony F. Cole Special Assistant to the Board MB:AFC:vcd (V-383) bcc: Mr. Paul Wohlleben Bureau of Government Financial Operations Department of the Treasury Mr. Bermudez Mrs. Mallardi -s ison Action assigned. Mr. All • "Z:Crtifeb Ziafez Zenate VVASH INGTON. D.C. 20510 December 15, 1981 Cliff. Paul Volcker Federal Reserve System 21st and Constitution Washington, D.C. 20551 r) Dear Mr. Chairman: enclosed correspondence from I have recently received the Mr. Bork. your office would review the I would be most appreciative if the pcints raised therein. letter and respord to me on assistance. Thank you for your time and With best wishes, Sin ely, / 4%57" ames Abdnor United States Senator 0A/dj Enclosure https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • Valley National ank 1103 East 841 Sir••1 P 0 BoA 789 OF SIOUX FALLS SOUTH DAKOTA 57101 (605 336-3740 December 4, 1981 Treasury Tax & Loan Department Federal Reserve Bank Minneapolis, MN 55480 Gentlemen: Effective September 3, 1981 our bank went on the daily remittance option for handling our Treasury Tax & Loan deposits. When we received the September statement of act ivity about October 20th, we were amazed and terribly upset. It is almost impossible for us to comprehend how it can consistently take two, three, four, five and even six days to get a letter delive red to, and processed by, the Federal Reserve Bank in Minneapol is from Sioux Falls. Frankly, our remittances should all be "0" days lat e. We contacted the Federal Reserve Bank about the billing and were advised that the charges are the respon sibility or the doing of the Treasury Department. Before the mid dle of November we contacted the Sioux Falls Postmaster about this abh orable situation. He was going to investigate the problem and rep ort back his finding. We received the October billing about November 20th and the same situation still exists. We object ver y strenuously having to pay late fees for our Treasury Tax & Loan remittances which we know are mailed daily, 999 out of 1000, well bef ore or by 5:00 o'clock P.M. Our Main Office has been assured by our branches that they too send out their mail on time. Someone betwee n our customer and the Treasury Tax & Loan department of the Federal Reserve Bank is not functioning properly when it takes suc h a long time to handle our remittances. It is unhelieveable that the Fed eral Reserve Bank does not or cannot process our letter in the absolute maximum of two days. For emphasis, I repeat , we object strenuously, being imposed a late penalty for these dep osits when we are in no way responsible for the absolutely irrespons ible "service" we are receiving from someone. Currently we do not send a cash letter to the Twin Cities, so a courier service is not utilized. Theref ore, the available, expeditious means we use is the U.S. Pos tal Service. See cliou,gt LAtoney Taktnett ilOUX FALLS • HAPRIc https://fraser.stlouisfed.org BUPG • LENNOX • Federal Reserve Bank of St. Louis VANItTrliki co be • • -2 ment g sent to several U.S. Govern in be is er tt le is th of py A co be concerned enough ll wi e on me so at th ng ti us tr affiliated people, m or this serious, expensive proble onsible t ec rr co d an e at ig st ve in to resp ion. It is requested that is ov pr y lt na pe e th e at in im el t. A partial copy of in la mp r co ou of e ar aw de ma Treasury people be arges is enclosed. the itemized statement of ch Yours very truly, / /B. E. Bork / Executive Vice Pres. Cashier BEB/yvl Enclosure s, SD cc: Postmaster, Sioux Fall Postmaster, Minneapolis, MN Reserve Bank, Minneapolis l ra de Fe t, en id es Pr , an ig rr Mr. Gerald Co ington, D.C. Senator Larry Pressler, Wash ington, D.C. p'Senator James Abdnor, Wash File from Sioux Falls, SD ed il ma s wa 1 198 4, mber This letter dated Dece on December 7, 1981. g in il ma al rm no r ou with https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis . 1r1/.Pf./S' " • • 4 4rir. ---SJ VALLtY lz 1P'ULL V._ C.. S1UUX lb* Ur . L 14 17 4 • to 10 %0 41,/u4 9/04 S/o4 9/u0 S/Cb S/G3 qi.•0 S/09 9/10 9/10 S/10 4y/1 4/11 9/11 47/11 4/14 ( Sr.4 S/14 4/1 S/15 9/1:) 9/1‘. 51101 .KTC;IrT- F7ZT 1,k1. a 9/0.) 9/L3 TW:.,4;1-.Y 1 '411, 1."I IT 4;A.A %/it 1::/t. /t•4 S103-9/6.3 C/W, 1/0-. 9/0, 4/Cm 4: -/c719/U de 9/10 9/03 9/iO 9/Ut 1:1; 9:t 31 1 11 - CC. 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Volcker January 26, 1982 To: Congressman Stanton Attached is the tentative draft we discussed this afternoon. Attachment. • • AN OUTLINE OF A PROPOSED BILL CONSISTING OF THE THREE TITLES: Expanded Powers for Thrift Institutions Modifications in Banking Laws Federal Preemption of State Due-on-Sale and Usury Laws TITLE I EXPANDED POWERS FOR FEDERAL THRIFT INSTITUTIONS 1. https://fraser.stlouisfed.org Federal 0 Reserve Bank of St. Louis Expanded Asset Powers A. Real Property Loans: Section 1 removes restrictions in the form of loan-to-value ratios that now apply to loans secured by residential real property that are made by Federal S&Ls and savings banks, although the FHLBB would be authorized to set appropriate ratios in its discretion. The limitation on nonresidential real estate lending would be increased to 30 per cent from its present level of 20 per cent of assets. B. Commercial or Other Loans: Section 2 permits Federal S&Ls and savings banks to invest up to 10 per cent of assets in secured and unsecured loans for commercial or agricultural purposes (including small business investment companies) as well as equipment leasing and would apply a limit on such loans to one borrower of $250,000 or 10 per cent of capital, whichever is higher. In exercising this lending authority thrifts would be expected to give priority in their lending policies to the credit needs of farmers and local business. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • -2- Currently, Federal S&Ls cannot make commercial loans; Federal savings banks currently can make commercial loans up to 5 per cent of the assets and only within the state in which the institution is located or within 75 miles of its home office. In addition, the proposed bill would remove the present limitation of 20 per cent of assets on investments in commercial paper and corporate debt securities, provided such investments were made in prime, highly liquid instruments, and provided that investments in the paper of any single institution did not exceed 10 per cent of capital, or $250,000, whichever is higher. The requirement that Federal S&Ls may invest in mutual funds having portfolios consisting entirely of assets in which S&Ls could invest directly would not be changed. C. Consumer Loans: Section 3 permits Federal S&Ls and savings banks to make consumer loans without limitation. Currently, such loans are limited to 20 per cent of assets. D. State and local Securities: Section 4 permits Federal S&Ls and savings banks to invest up to 100 per cent of assets in state and local obligations. Investments in the obligations of one issuer would be subject to a percustomer limitation of 10 per cent of capital, or $250,000, whichever is higher. Currently, such investments are limited to general obligations and certain housing-related obligations. E. Time Deposits in S&Ls: Section 5 permits Federal S&Ls ts and savings banks to invest in time and savings deposi • • _3_ of other insured S&Ls and savings banks. Such deposits (net of reciprocal balances) would also be treated as liquid assets. Currently, Federal S&Ls generally can make deposits only in FDIC-insured commercial banks and only deposits of commercial banks and Federal Home Loan Banks qualify as liquid assets. F. Additional Investments: Section 6 permits Federal S&Ls and savings banks to engage in educational loans without limitation. Currently, such loans are limited to 5 per cent of assets. G. Investments - Overdrafts: Section 7 authorizes Federal S&Ls and savings banks to make loans in the form of overdrafts in transaction accounts. Currently, only overdrafts in NOW accounts are permitted. 2. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Acceptance of Demand Deposits Section 8 permits Federal thrifts to accept demand deposits from individuals without limitation and from businesses in connection with a commercial, corporate or business loan relationship. This authority is identical to the authority that Federal savings banks presently possess. This section applies the prohibition against the payment of interest on demand deposits to thrift institutions and authorizes the Federal Home Loan Bank Board to adopt rules concerning when a deposit is to be regarded as related to a business loan. In addition, Federal thrifts would be authorized to establish demand deposit accounts with commercial entities for the exclusive purpose of effectuating payments to these entities by their nonbusiness customers. • • -4- 3. S&L Holding Compani, Activities Section 9 provides that the activities of all S&L holding companies (both unitary and multiple) would be limited to those permitted to multiple S&L holding companies. Existing S&L holding companies would be grandfathered and could continue to engage in the activities they engaged in on the date of enactment. Currently, unitary S&L holding companies are not subject to limitations on permissible activities. 4. Application of Bank Holding Company Act Section 10 exempts S&Ls from the Bank Holding Company Act ng activities definition of "bank" so long as their commercial lendi it-taking do not exceed 10 per cent of assets, and demand depos powers are within the scope provided for in section 8. 5 !ranching Section 11 prohibits interstate branching by Federal S&Ls powers and savings banks exercising new commercial lending contained in section 2. Existing interstate branches would be permanently grandfathered. The Federal Hame Loan Bank prohibition Board would be permitted to grant exceptions to this s the on a case-by-case basis where such action facilitate another state. merger of a distressed thrift with a thrift in 6. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Miscellaneous Provisions A. Chartering and Purpose: Section 12 provides that Federal the FHLBB S&Ls and savings banks may be chartered by funds and for the purpose of deposit or investment of credit for individuals, for the purpose of primarily extending homes, farmers and small business. Currently, the statute focuses of home financing. upon chartering thrifts for the provision https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • -5Os B. Section 13 Notice on Savings Deposits and Capital Stock: lowers the minimum notice period for savings accounts to 14 days from the present 30, and would explicitly allow Federal S&Ls and savings banks to issue stock. C. Conversions to Federal Charters: Section 14 permits Federal conversion of thrifts into mutual or stock Federal S&Ls or savings banks and facilitates conversion of such stock institutions into national banks if such conversion is desired by the institution involved. D. Conversion from State Mutual to State Stock: Section 15 eliminates the prohibition against creation of Federal stock institutions in states where stock associations do not exist. The FSLIC would retain jurisdiction over conversion fram mutual to stock form. E. Incidental Activities: Section 17 permits Federal S&Ls and savings banks to engage in activities incidental to their deposit-taking and lending authority. no such explicit authority exists. Currently, • • -6- TITLE II MODIFICATIONS IN BANKING LAWS A. Amendment of Section 23A of the Federal Reserve Act Section 1 amends Section 23A of the Federal Reserve Act to simplify and reduce regulatory burdens. The revisions will increase the overall effectiveness of Section 23A by closing some potentially dangerous loopholes, while freeing banks within a bank holding company system fram unnecessary restrictions. The bill would apply the same restrictions to transactions between thrift institutions and their affiliates. B. Bankers' Acceptances Section 2 amends the Federal Reserve Act to increase the aggregate limit on the amount of eligible bankers' acceptances that may be issued by a member bank fram 50 per cent to 150 per cent of capital and surplus, and to 200 per cent with the permission of the Board. To assure that all institutions are subject to the same rules, the same limitations would apply to nonmember banks and the U.S. branches and agencies of foreign banks. C. FIRA Amendments Section 3 amends the Financial Institutions Regulatory ary and Interest Rate Control Act of 1978 ("FIRA") aimed at lessening unnecess restrictions and burdensame reporting requirements. These amendments g clarify existing laws and reduce same of the restrictions and reportin principal burdens with respect to loans to executive officers, directors and shareholders of insured banks. The amendment represents a combination by the Federal of the legislative proposals submitted to the Congress https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • -7- Financial Institutions Examination Council during 1980 and 1981. In the Council's judgment, they represent an important and necessary step in clarifying existing law and lessening the regulatory burden imposed on insured banks. D. Municipal Revenue Bonds Section 4 permits banks to underwrite and deal in municipal revenue bonds. This section contains provisions to protect against conflicts of interest or unsound banking practices and applies substantially all of these provisions not only to the new authority on municipal revenue bonds but also to existing authority to deal in municipal general obligation bonds. Bank underwriting of municipal revenue bonds would enhance competition in the revenue bond market, and should reduce costs to tax-exempt borrowers. E. Investment Company Activities Section 5 permits banks to sponsor and sell stock, bond and diversified mutual funds through a commingled agency account. No sales commissions may be charged and restrictions oould be established by the Federal Reserve Board to avoid conflicts of interest and self-dealing. Federal S&Ls and savings banks are given similar authority. This section would not permit banks or thrifts to sponsor, operate or sell money market mutual funds. F. Redefinition of Bank Under the Bank Holding Company Act Section 6 amends section 2(c) of the Bank Holding Company Act to redefine the term "bank" for the purposes of that Act to include Deposit Insurance (1) an insured bank as defined in section 3 of the Federal become an Act, or (2) an institution eligible to make application to e Act which insured bank under section 5 of the Federal Deposit Insuranc https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • -8- makes commercial loans or takes demand deposits, or (3) an institution determined by the Federal Reserve Board to be engaged in commercial banking by making commercial loans and taking demand deposits. An institution described in this section would not be regarded as a bank if the Board determines that the institution does not function as a commercial bank. not In addition, S&Ls shall not be considered to be banks if they do in have authority to make commercial loans not secured by real estate accept excess of 10 per cent of assets and do not have authority to a demand deposits from business customers except in connection with commercial loan relationship. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • -9- TITLE III FEDERAL PREEMPTION OF STATE DUE-ON-SAIE AND USURY LAWS A. Preemption of Due-on-Sale Prohibitions Section 1 preempts state law by permitting depository institutions to enforce due-on-sale provisions contained in mortgage instruments, although the states could override this preemption by enacting new legislation within three years. The bill exempts from preemption, assumptions of mortgages after the rendering of Court decisions or the effective date of state laws prohibiting enforcement of due-on-sale clauses, by permitting enforcement of due-on-sale provisions only for sales occurring after the date of enactment. B. Usury Provisions Section 2 broadens the coverage of preemptive actions taken with respect to state usury laws in the Depository Institutions Deregulation and Monetary Control Act of 1980. This section removes state usury ceilings on business, agricultural, and consumer loans, while permitting states to establish their own ceilings by enacting overriding legislation within three years. The bill provides that any new ceilings adopted could not be tied to the Federal Reserve discount rate since this rate is an instrument of monetary policy and not appropriately a benchmark for usury rates in the market. In addition, the bill recognizes the of binding character of state override actions taken since adoption the DIDMCA, but before the effective date of this section. The DIDMCA presently sets a ceiling of 5 per cent above the affects Federal Reserve discount rate on 90-day commercial paper and only loans above $1,000. Business and agricultural loans below that amount are subject to state usury provisions. Consumer loans are subject to a ceiling of 1 per cent over the discount rate. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • January 11, 1952 The Honorable john hiler house of hepresentatives Washinton, D. C. 20515 'Dear hiler: Thank you for taking the time to provide me with a copy of your dissenting views on the recently released "Report on Silver Prices and the Adequacy of Federal Actions." As you are aware, the silver episode was a cor.plex and difficult situation that raised a nui.,ber of important public policy issues, and the views presented by you and your colleaues reflect thoughtful consideration of these issues. 1 appreciate your com:Nents and concerns with respect to the silver episode and, in particular, your thoughts on the role of the Federal Reserve. Sincerely, .a Wri.":14RE:vc d bcc: 391) Mr. Taylor Nr. Ryan Nrs. Nallardi "f3-4-%,e —te9 ' 7d.t L/4, k if • JOHN P. HILER THIRD DISTRICT. INDIANA WASHINGTON orricri 1338 LONOWORTI4 OFFICE BUILDING C. 20515 (202) 225-3915 I1Ou'T.E WASHINGTON. COMMITTEES: GOVERNMENT OPERATIONS DISTRICT OFFICE: SMALL BUSINESS Rwrot GLEN OFFICE PLAZA 501 MONROE STREET, Room 120 SOUTH BEND. INDIANA rowepais o dibtited Yticdas (219) 234-4431 HOUSE OF REPRESENTATIVES WASHINGTON. D.C. 20513 December 18, 1981 4s9/ Honorable Paul A. Volcker Office of the Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Chairman Volcker: The Committee on Government Operations has just released its Report on Silver Prices and the Adequacy of Federal Actions in the Marketplace. I would like to provide you with a copy of my dissenting views. In drafting these views I took the liberty of expressing an opinion on issues relating to the role of the Federal Reserve Board in the arrangement of the Hunt loan. In both the hearings and the Report, misunderstandings about this were so prevalent that questions of fairness arose in my mind. I appreciate that central bankers must sometimes speak in Delphic terms, but in this case I think that your patient explanations -- and Mr. Corrigan's -- were not accorded sufficient attention. I trust we have provided a certain correction for the historical record, at least, without doing too much injustice to the orthodoxies of central banking. With best wishes, Sincerel /5OHN HILER Member of Congress JH/lv Enclosure https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 46601 • 4 DISSENTING VIEWS OF THE HON. JOHN P. HILER, HON. FRANK HORTON, HON. JOHN N. ERLENBORN, HON. CLARENCE J. BROWN, HON. THOMAS N. K1NDESS, HON. ROBERT S. WALKER, HON. M. CALDWELL BUTLER BON. JOEL DECKARD, HON. WILLIAM F. CLINGER, HON. RAYMOND J. McGRATH, HON. HAL DAUB, HON. WENDELL BAILEY, HON. LAWRENCE J. DeNARDIS, HON. JUDD GREGG, AND HON. MICHAEL OXLEY on the report "SILVER PRICES AND THE ADEQUACY OF FEDERAL ACTIONS IN THE MARKETPLACE, 1979-80" I. Introduction In a Parliamentary Inquiry assessing the Bank of England's behavior during the panic and crisis of 1825, the House of Commons deliberated on the proposition that "there are times when rules and precedents cannot be broken; others when they cannot be adhered to with safety." The events culminating in the crisis of "Silver Thursday" on March 27, 1980 represent another of those periodic episodes in modern history where circumstances combine with the foibles of men to inflict great stress on markets and their related financial institutions. We anticipated the occasion of this report as an opportunity to check our bearings and apply the lessons learned from past experiences to the formulation of effective public policy in'the future. therefore submit these dissenting views in the spirit of regret which attends a lost opportunity. Our dissent addresses three general areas of concern: First, we are not in agreement with what we understand to be the general thivst of the report, that the existing self-regulating mechanisms of Commodity exchanges are inadequate and that increased regulation of commodities markets from Washington is desirable. Second, we believe that certain findings are unwarranted and that certain recommendations are fundamentally unworkable; we r- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis We • • 0 - 2 •••• think that the implementation of these recommendations would create more problems than they solve and in any case open the door to mischief. Third, we find that the report fails to address adequately the substantive issues which arose during the last week of the crisis, and the subsequent response of federal officials to those issues. In our judgment, these omissions constitute a fatal defect in the report. II. The Significance of the Report The report is long and complex, yet it lacks the customary conclud- ing argument. We have read it with care and struggled with the classic question: "Yes, but what does it mean?" Our considered judgment is that if we accept the premises and implications contained in the report, we are left in the position of endorsing a proposal to transfer to federal authorities in Washington all those regulatory functions traditionally managed by the commodity exchanges themselves. This proposal is made largely on the basis of presumed and inherent conflict of interest. We note, in the body of the report, that the CFTC is roundly criticized for not intervening in the market, and for failing to utilize those regulatory tools which are traditionally used to bring stability to disorderly markets. These tools are the setting of margins, determining permissible daily price limit moves, establishing trader position limits, and providing for liquidation trading only. Yet, save for the question of timing (which is not addressed), the exchanges are criticized for adding to price volatility and market disorder by utilizing these very same tools. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 0' • II • • 4•1•. 3 Ina We look in vain for any alternative actions which the proponents of this report might have recommended. We have seen no evidence to suggest that the market might have behaved differently if those emergency actions had been directed from Washington rather than from the exchanges themselves. We perceive the additional irony that if a market emergency had been declared and attended by an administered settlement, the"domibeen nant longs"(i.e. the Hunt group, and the Conti group) who had abusing the market would have been extricated with considerably less punishment than that meted out by the market itself when silver prices reached an equilibrium on March 28, 1980. We reserve for later comment our discussion of the problems inherent in the concept of self-regulation. It is sufficient to note here that we do not believe a convincing case has been made within this report for such an extraordinary transfer of authority to Washington. To accept the premises of this report is to repudiate concepts which have provided the basis for organic law since 1922, and the foundations of practice since the 1840's. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • g•• • • •• - 4 Assessment of Certain Recommendations III. RecoLJnendation 2. b. proposes that the CFTC "develop and implement objective standards for identifying potentially disruptive market conditions, and that "when trading in a contract shows certain objective signs of disorderly behavior," some sort of mechanism be devised to implement "uniform, that mandatory corrective measures (which) should be triggered automatically." All these actions are presumably to be triggered by such indications as "depletion of ... deliverable supply, certain percentage price increases, or unreasonable price fluctuations." However attractive the objective of this proposal may be, we find it a basically unattainable goal in the real world. In order for such a mechanism to work, we would have to know what the real price of a commodity is. The real price is most likely what the market says it is at any given point in time - where willing buyers and willing sellers freely consumate transactions at public auction. Markets move quickly, transmitting and receiving signals embedded in a great deal of extraneous "noise". There is valid information and wrong information, evidence and countervailing evidence. How .• would such a mechanism "know" when it had all the relevant and correct information in order to act? It is important to note that constructive "intervention" in an expiring contract requires extensive information with respect to the availability of supplies on the physical side of the market. Such information is not always available, especially in world markets. Certain foreign governments, burdened with dual economies, trade major crops which are often the sole source of foreign exchange earnings. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 0' Sometimes their marketing strategies closely a • • 5 approach what generally are considered to be attempted manipulations. This is particularly the case where coffee, cocoa, and tin are involved. At such times, exchanges rely on the discipline of the market itself to provide the inevitable corrective. We doubt that "sovereign traders", for competitive reasons, would be willing to cooperate with exchange authorities in providing information at the level required to make automatic intervention feasible. We believe that regulatory intervention in these markets remains more an art than a science, whether it is initiated at the exchange or from Washington. It cannot be known beforehand with any great certainty what the effects of an intervention will be. The manipulation of margins, daily price limit moves, position limits, and so forth, are consummate acts of fine-tuning. Liquidation trading and administered settlements can be traumatic, if not costly, for innocent parties as well as for a minority of traders who may be abusing the market. In short, this proposal would substitute for the judgment of the market the decisions of individuals and machines whose pre- science and ability to act before the fact is highly questionable. Moreover, the pre-existence of certain automatic triggering mechanisms may provide inducements to attempt the very manipulations this proposal is designed to avert. In offering this proposal, the report does not marshal the sups port of any established disinterested authorities on the future markets. The sole rationale for mandatory prior action is the subcommittee staff's verbal assurance that "it can be done", . together with a student "note" from the Hofstra Law Review https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • - 6 ••• proposes that the CFTC require Recommendation 5.c. that exchange actions in response to disorderly market conditions in a commodity traded on more than one exchange be"coordinated in substance and timing." Lacking any precise definition, we are un- certain about what "coordination" is supposed to mean. The manda- tory application of uniform rules across a spectrum of different market conditions is an open-ended invitation to mischief. Assuming that disorder and congestion occur in the soft wheat market in Chicago, and the invocation of emergency trading rules is called for, does the directive above require that the intervention should also apply to spring wheat markets in Minneapolis and hard wheat markets in Kansas City? This concern might seem overdrawn save for the fact that reguIn the face of statutory guide- latory powers seldom go unused. lines or Congressional intent, the decision not to act can imply dereliction of duty, while the decision to act, whatever the consequences, at least is fortified by higher authority. proposes that "the CFTC should Recommendation 6.a. have the explicit authority to set minimum or 'floor' margins for all agricultural futures contracts" in order, among 'other things, to "build in a financial suitability requirement for the small speculator or hedger who does not have the financial means to weather daily price movements . 1I • • We find it passing strange that a report on silver should single out agricultural futures alone for this special treatment. There is scant evidence to support the proposition that federally mandated minimum costs have ever reduced the expense of doing business. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • II • _ 7 To the extent the exercise of such authority excludes participants from the market, we perceive minimum margins for "small r hedgers" as a direct threat to country elevators and farmers alike. Assuming the local elevator has satisfied state requirements for bonding and warehousing, qualified with its banker, and made mutually satisfactory arrangements with the exchange, the firm's ional continued operation is then subject to the vagaries of addit regulation from Washington which may or may not take sufficient account of its particular situation. lar For a report so concerned with undue risk, there is a singu ged failure to appreciate the risks associated with holding an unhed grain inventory. To the extent an elevator must hold unhedged through grain, prices paid to farmers are reduced correspondingly by widening the elevator's need to seek additional price protection the spread between local and terminal prices. These same consider- farm - more so ations apply to the farmer who stores grain on the elevator. with regard to the producer who stores at the local More- d access to over, to the extent the local grain merchant is denie •• • wr to forward the futures markets, the opportunities for the farme contract are further diminished. ns are too While the sponsors of this report argue that margi to "excessive low -- however low low is -- and thereby contribute ve they fail to speculation" and consequent "inflation", we belie out of the market, appreciate that higher margins price participants costs of doing thereby reducing market liquidity and increasing ure adds risk, price business. To the extent increased market expos doing business passed on spreads must widen, with the added cost of https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis \ • • _ 8 ultimately to the consumer. Such costs can be a significant factor where feed grain, soybeans, and meat are concerned. To whatever extent the federal government may get involved in setting margins, we do not relish considering the implications for staffing and the administrative problems which would be associated with making these decisions in Washington. Recommendation 4 contends that CFTC Commissioners and key staff should not meet or talk informally with major market participants about transactions, contracts, or commodities being investigated by the Commission for possibilities of a market manipulation, corner, or squeeze. It is recommended that such communica- tions take place within the confines of the Administrative Procedure Act and the Commission's own Rules of Practice. During the Subcommittee's hearings, the Commissioners stoutly responded that the CFTC does in fact make the appropriate distinctions between its monitoring and supervisory functions on the one hand, and its folmal adjudicatory proceedings on the other. In rapidly moving markets, there is need not only for the usual aggregation of data, but for knowledge also of certain traders' present and future intentions. This is particularly the case when it appears that a disorderly market may be developing. Under these conditions, an informal inquiry to the trader who holds a large position in nearby contracts would be appropriate in terms of the Commission needing to know whether he intended to liquidate, roll forward, stand for delivery or acceptance, or exchange physicals for futures, etc. Such inquiries also provide a means of conveying signals to the market without at the same time adding to the market's potential https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • .••• 9 problems by revealing limited concerns which can become exaggerated in the public eye. A large trader's knowledge that his position has become a matter of interest to the Commission can serve as a strong deterrent to someone who might be contemplating an attempted manipulation. During the Subcommittee's hearings, Commissioner Dunn responded in that to impose such limitations on communication would result the Co=ission talking only to itself. We concur. It is as important for the Commission to consult informally with exchange officials and market participants as it is for the Comptroller of the Currency to talk with "problem banks". Recommendation 5 argues that the CFTC should "exclude individuals with a financial interest or position in a contract, either direct or indirect, from participating in an exchange's rule enforcement proceeding or decision-making process which impacts that contract." The immediate result of adopting this proposal would be to disbar market expertise without making any provision for its replacement Though the report is silent on resolving this dilemma, we presume that the vacuum would be filled ultimately by the Commission, with the responsibility for the exchange boards' pertinent functions being transferred to Washington. The conflict of interest issue is an old and venerable controThe issue has been addres- versy with a rich and varied literature. sed by the Congress on numerous occasions. We are aware that questions concerning conflict of interest have been raised by certain participants in the silver episode as well as by the authors of this report. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis We believe that participation • • - 10 - as a major trader in a futures market also incurs special responsibilities, and in that context we would not expect exchange officials to stand by and watch their institutions be destroyed by abusive traders. At the same time we expect exchange officials to remain acutely sensitive to the potential problems involved in avoiding conflict of interest and in avoiding any appearance of conflict of interest. We take notice of the Commission's findings on the conflict of interest question as they are treated in both the Silver Report and the Trading and Markets Division's Rule Enforcement Review of September 29, 1981. These findings are, essentially, that no evidence was discovered to support the claims that the Commodity Exchange of New York or the Chicago Board of Trade rule change actions were implemented out of self-interest in order to lower silver prices. In addition, the Division Review included specific recommendations to increase the effectiveness of procedures designed to prevent conflicts of interest. We trust, fbr the marts' welfare and the larger public interest, there will be no subsequent basis for altering those findings. We further • • expect the exchanges to accept and act upon the recotmendations contained in the Division's report to further reduce any potential for abuse. self-regulation In the meanwhile we believe the concept of sensitive to Mark Twain's remains viable so long as officials remain ". reservations about "the prevalence of human nature All market maintaining fair participants have long-term vested interests in sional competence and and orderly markets. We recognize that profes reputations for personal ons. integrity count for much in board electi handlers, processors and The interests of producers, merchandisers, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • . .-. -11- traders are not monolithic, and we count on the diversity of these interests involved in the operation of an exchange to enhance the self-policing incentives of these institutions. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis . _ • • - 12 - IV. Final Considerations We take note of the continual inferences throughout this report that the Commission somehow was inattentive and lacked prescience with respect to what was happening in the silver markets. We confess we are baffled that the report is so preoccupied with the Commission's deliberations about silver during the latter months of 1979 while so little consideration is given to evaluating the Commission's activities imnediately before and during the climactic events in March of 1980. With all the benefit of hindsight we appreciate that the Commission was confronted with conflicting and necessarily incomplete information during these months. A full, and we trust, fair, read- ing of the records compiled by the Committees of Congress provides sufficient evidence to indicate to our satisfaction that the Commission was involved and concerned -- and that it was communicating those concerns in a world of imperfect knowledge. We do not believe it is sufficient merely to note that agency principals met face-to-face for the first time on March 26th. It is hardly necessary to point out that such officials have manifold responsibilities and demands upon their time. We believe there are practical limits on the extent to which the CFTC staff can keep officials apprised of potential problems given the Niagara of information which flows through the market system. The recommendation of the report envisions a level of coordination among these officials which we believe to be impractical. The essential problem here is not sharing expertise so much as it is timely response to critical information. We would infinitely prefer that these people meet on the basis of demonstrated necessity, rather than https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 0 • • - 13 - congregate on a prearranged basis to speculate about whether something was about to happen. In the final analysis, each student of the silver episode must make his own judgments about what happened. Whatever our individ- ual opinions, we all concur that the allegations that the Commission "failed to act", or that it was dominated by "paralysis", are inappropriate characterizations of the Board's response to the events of this period. At the height of the "crisis" the Board was asked to shut down the narket. Following deliberations, and on the basis of a unanimous recorded vote, it decided not to do so. Whatever the result, we know of few serious practioners of government who would suscribe to the view that a decision not to close the markets constitutes no decision at all. lAre observe that the section dealing with financial instrument futures contains such a litany of concerns and portents of difficulty that it becomes a virtual brief against the use of such futures. are not yet prepared to accept these judgments. We The concerns ex- pressed do not give proper consideration to more recent views by the Treasury Department which reflect additional experience in dealing with the potential "deliverable supply" prob-lems associated with expiring contracts. Our same concern extends to the discussion on stock index futures. These contracts are presently being considered for approval by the CFTC, and are still under study by experts. We do not believe that the Committee should make premature judgments about their feasibility. Persistent inferences in the report concerning Federal Reserve policy and certain extensions of credit should not go unremarked. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • - 14 - mehow possessed so d ar Bo e rv se Re l ra de Fe e The report implies that th ultimate loan to e th it ib oh pr or e ov pr ap authority to either the nks led by Morgan and ba of um ti or ns co e th by the Hunt interests to note that this transt an rt po im is it ew vi r First Dallas. In ou of existing debt g in ur ct ru st re a y il ar im action constituted pr endeavor we perceive is th In . et rk ma e th following the collapse of st resort" whose la of r de en "l e at og rr su that the banks served as a certain financial to ty fe sa of e ur as me e a assistance helped restor stomers, the public. cu r ei th to ly te ma ti ul institutions - and gal strue the existing le on sc mi rt po re e th in ns Assertio s or to force divestian lo e at iv pr te la gu re authority of the FRB to rket spective of whether the ma re ir ts se as ld he y el at ture of priv " to require public discus te da an "m no s ha B FR e Th is receptive or not. ate loans. sion and debate about priv e events which have th of nt me ss se as an at Finally, we believe th of d have mitigated many ul wo 80 19 of le dd mi e th transpired since on in this report. the concerns elaborated ts of "Silver en ev e th e nc si ed ss pa have More than twenty months ed in this report. lt su re h ic wh gs in ar he Thursday" prompted the Committees and the l na io ss re ng Co r jo ma ve Given the interest of fi cies, we note that en ag ch an br e iv ut ec ex r involvement of four majo odes in recent years. is ep d ie ud st re mo e th this is one of ve and significant steps ha d te le mp co en be ve ha s Major studie which in the future problems t er av to ay rw de un been taken or are These activities include e. od is ep er lv si e th were revealed during tion of limits on speculaop ad e th , on ti na di or co i- aproved interagency use of tax -motivated ab rb cu to n io at sl gi le tive positions in silver, trading, CFTC approval https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • - 15 - of a newly established National Futures Association to conduct field audits and examinations of brokerage firms, revisions in CFTC rules increasing minimum net capital requirements for futures commission merchants, and increased restrictions which inhibit use of physical commodities as collateral for loans to large traders. Follow-up hearings would have afforded an opportunity to measure progress - or the lack of it. Officials were summoned to appear before the SubcoElmictee shortly after the events in March, 1980, when information was still fragmentary and understanding was incomplete. A subsequent opportunity for the agencies to round out their views and complete the hearing record would have enhanced the value of the report. In summary, we do not believe a sufficient case has been made to justify the radical changes in exchange operation which are called for in this report. Moreover, we believe that many of the recommendations are impractical and unworkable. We find the report's evaluation of federal agency responses to the silver episode to be incomplete. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis EABER S SIGNATURE John P. Mier • • f\NAA tkcJ6(0, • •• • BOARD OF GOVERNORS ..• •o .eN, OF THE FEDERAL RESERVE SYSTEM \ S' •11 • • . 96IL •...• • • WASHINGTON, O. C. 20551 January 11, 1982 The Honorable Larry Pressler United States Senate 20510 Washington, D.C. Dear Senator Pressler: Thank you for your letter of January 4 requesting comment on an inquiry from Mr. B. E. Bork regarding the interest charged his remittance option by the Federal Reserve Bank of Minneapolis for the late reporting of receipts of Federal tax deposits. The Federal Reserve Banks serve only as the Treasury's agents in collecting Federal tax receipts, and the regulations governing this activity are promulgated by the Treasury. Treasury Department regulations require that Federal Reserve Banks, as fiscal agents of the United States, charge remittance option banks interest whenever their reports of Federal tax deposits are received by the Reserve Banks more than one business day after the taxes are deposited. The Treasury's regulations make no distinction regarding the means by which the reports are delivered to the Reserve Banks; all reports must be received by the next business day to avoid the interest charge. I should also mention that Reserve Bank processing time is not a factor in this situation. The date of receipt by the Bank is the only determining factor. A representative from the Minneapolis Federal Reserve Bank contacted an official of the Postal Service, who informed us that Minneapolis is a two-business-day mail point from Sioux Falls, South Dakota, since the distance is greater than 150 miles. This means that an item mailed in Sioux Falls on Thursday and not delivered in Minneapolis until the following Monday would be in compliance with Postal Service standards. Such a delivery schedule would, of course, cost your constituent three days in late fees in accordance with Treasury regulations. We have contacted an official of the Treasury Department, who indicated that he has also received correspondence from Mr. Bork dealing with this issue and intends to respond directly to him, perhaps suggesting delivery alternatives used successfully by other banks in similar circumstances. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • • The Honorable Larry Pressler Page Two I hope this information is useful. if I can be of further assistance. Please let me know Sincerely, (Signed) Anthony F. Cole Anthony F. Cole Special Assistant to the Board MB:AFC:pjt (#V-2) bcc: Mr. Paul Wohlleben Bureau of Gov't. Financial Opers. Department of Treasury Mr. Bermudez Mrs. Mallardi 100: Gov. Gramley https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Chairman. this week CLO has draft response; will go to BOB PACKWOOD. OREG.. CHAIRMAN BARRY GOLDWATER. ARIZ. HOWARD W. CANNON, NEV. HARRISON N. SCHMITT, H. MEX. RUSSELL B. LONG. L.A. JOHN C. DAN.cIRTH, MO. ERNEST F. HOLLINGS, S.C. NANCY LAN7A3N KASSEBAUM, 14THS. DANIEL K. INOUYE, HAWAII LARRY i-RESSLER, "ADAK. WENDELL H. FORD, KY. • 1110 SLADE GORTON, WASH. DONALD W. RIEGLE, JR.. MICH. TED STEVENS. ALASKA J. JAMES EXON, NEBR. BOB KASTEN, WIS. HOWELL HEFLIN, ALA. 'ZCrtifeb Zfatez Zerrate COM M ITTEE ON COM N1ERCE. SCIENCE, WILLIAM M. DIEFENDERFER, CH/EF COUNSEL AUBREY L. SARVIS. MINORITY CHIEF COUNSEL EDWIN K AND TRANSPORTATION HALL, MINORITY GENERAL COUNSEL WASHINGTON. D.C. 20510 r ar January 4, 1982 -) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ' Mr. Paul A. Volcker, Chairman Federal Reserve System 20th & Constitution Avenue, N.W. 20551 Washington, D.C. Dear Mr. Volcker: Enclosed is correspondence from a constituent, Mr. B. E. Bork, regarding difficulties he is having with Valley National Bank's Treasury Tax and Loan deposits. I would appreciate knowing what changes can be made to stop this problem from continuing. Thank you for your consideration of this matter. ward to hearing from you. I look for- Since,4 , /Pr sler arry P United tates Senator LP/pjp enclosure • • al Bank. Valley Nat,oution b, , Sheet f) 0 b o I: 19Til DEC 17 Pli 789 OF SIOUX FALLS SOUTH DAKOTA 571D1 1)05 1136-3/40 p 1 December 4, 1981 Loan Department Treasury Tax Federal Reserve Bank Minneapolis, MN 55480 Gentlemen: Effective September 3, 1981 our bank went on the daily remittance Loan deposits. When we reoption for handling our Treasury Tax we ceived the September statement of activity about October 20th, lt is almost impossible for us to were amazed and terribly upset. and compit7;!end how it can consistently take two, three, four, five the even six days to get a letter delivered to, and processed by, ly, our Federal Reserve Bank in Minneamplis from Sioux Falls. Frank remittances should all be "0" days late. We contacted the Federal Reserve Bank about the billing and were advised that the charges are the responsibility or the doing of the -sun/ Department. Before the middle of November we contacted the was going os master about this abhorahle situation. Siou:, Fa to investigate the problem and report back his finding. same We received the October billing about November 20th and the pay situation still exists. We obiect very strenuously having to are late fees for our Treasury Tax 6 Loan remittances which we know mailed daily, 999 out of 1000, well before or bv 5:00 o'clock P.M. send Our Main Office has been assured by our branches that they too out their mail on time. Someone between our customer and the not Treasury Tax 6 Loan department of the Federal Reserve Bank is e our functioning properly when it takes such a long time to handl ve Bank remittances. It is unhelieveahle that the Federal Reser um of does not or cannot process our letter in the absolute maxim being two days. For emnhasis, I repeat, we object strenuously, way imposed a late penalty for these deposits when we are in no arc reresponsible for the absolutely irresponsible "service" we ceiving from someone. a Currently we do not send a cash letter to the Twin Cities, so courier service is not utilized. Therefore, the available, expeditious means we use is the U.S. Postal Service. C /),ci,e/e --130to Jtolle!J cPaithicik 2\4,"14 , N.,___. At t 5 Digitized for SIOL FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • ELK • HARRISBURG • L ENNOX • YANKTON POINT • JEFFERSON • NORTH SIOUX CITY • TEA • • • 910 -2 A copy of this letter is being sent to several U.S. Government affiliated people, trusting that someone will be concerned enough to investigate and correct this serious, expensive problem or eliminate the penalty provision. It is requested that responsible Treasury people be made aware of our complaint. A partial copy of the itemized statement of charges is enclosed. Yoqrs very truly, , -=./: ,/,..,-- 1 / B. E. Bork 'Executive Vice Pres. t, Cashier BEB/yvl Enclncnre cc: Postmaster, Sioux Falls, SD Postmaster, Minneapolis, MN Mr. Gerald Corrigan, President, Federal Reserve Bank, Minneapolis vSenator Larry Pressler, Washington, D.C. Senator James Abdnor, lashington, D.C. File This letter dated December 4, 1981 was mailed from Sioux Falls, SD with our normal wailing on December 7, 1981. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis I 1(./.41111 1 • ri% —t,Zt,C, VALLLY NA1 1, 1.i 1 SIUUX /1.1.1%, GUI I• eiN ("1 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ---. eft ...., 9/71 9/ez 'Y/?3 ) tylz: SIi., 4y/z-, vii.-1 9/ 4 5 Se/25 9/Z5 (7/2c. S/zi 9/t6 We(' 9Izt, ,-,/,,4 5/- (y Si:U iir3CJ ' (y/30 ANt. tA7-Zr7P1 1.0. I 1.•.- I ,//z: 11/.:-, 'y/L2., Q/24 ,/, -. -.ie.', ',/t:., `,/.. "-, -,/:. Q/:' .I:. %/„._ c/29 W4: %.•/ 1.0 P /-:-, r-, .)/ ,t */ / 7/- t' 47/-1. 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IA ...., L.A.,.-; uo6 .1 k..._ CA 04, Ll U62 jul — 363 t l., Cl5 el 002 - C,1 L3 UVZ uui Li U0:4 3 0 C, 1 O 1. O 1 1 6 1 (..4 CUZ 1 4 . (" C.1 ul ..,4 u.-.. 0..1 1 u u 1 63 oi (:_ ul u.1 Li IRAN L'S,A Dy7 O 2 .51. _.1 4. A --wl -:...) ..:1 -11 ',..1 .,1 1 .:.1 .)1 , v"-•1 • ni " _i ..,ot., kilt) Uv6 1 . 4 0 0 1_ I ::,1 _,1 .=,..1 c..., U05-Uu:-, 0U5 ) Wt. " _ Ou3 C, uu.:, 61 livL L.... 0 3 'i _) .5; :1 _.)1 LF t") • • htt,'-`_,t_ !, ;,1L • .4-520L. VALLEY NA1.11;NAL LAN*: .SILOX Pit https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis oUt LATE YOUR (//11 0:10 1U/L.1 16/01 9rety 1,11LA krCE1P1 DAlt. Fk-a; !JAI:: bkAN NO 1,1Ch NO [41,YS LATL litAN ce.A. 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IC,/I.) 10/14 lb/14 10/L5 10/1"J if.: 01 01 u3 u4 U4 el 002 006 003 004 LK:3 003 CO6 - 604-- 14./16 ku/iL 1c/10 '16/I i4J/1; - 4 0 0 1 0 1 1 1 10/15 lo/15 lu/i4 10/1,T io/14 1-t.416 1 31 :51 0 luluz 1 /14 /%-: 2 5 61 002 U;i2 741 47.-3 7S1 31 .31 v".3 1 1 A 0.4 t; 6 (•-r U11 •.;"3 )L • • January 7, 1982 The Honorable Charles McC. Mathias, Jr. United States Senate Washington, D.C. 20510 Dear Mac: Thank you for your letter of December 16 inviting the Board to participate at a meeting you have scheduled to discuss current economic conditions with presidents of several Maryland banks and other depository institutions. Vice Chairman Frederick H. Schultz is looking forward to being with you on Friday, January 15, at 10:00 a.m. Sincerely, CO:pjt (#V-388) bcc: Gov. Schultz Mrs. Mallardi (2). https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis V. ROTH, JR., DEL., CHAIRMAN WILI.kAM CHARLES .iff'PERCY\ILL. TED STEVENS, ALASKA ODon Winn will discuss with Mipiast staff THOMAS F. EAGLETON, MO. HENRY M. JACKSON, VVASH. , JR , MD. CHARLFS MC C. MATHIAI. • ! JOHN C. DANFORTH, MO LAWTON CHILES, FL.A. S. COHEN, MAINE: • DAVID DORFAI9ERGER, MINN. M•CK MATTINGLY, GA. JOHN GLENN, OHIO WARREN B. RUDMAN, N.H. CARL LEVIN, MICH. WILLIAM SAM JIM NUNN, GA. SASSER, TENN. DAVID PRYOR, ARK. 9./Cnitieb Ztafez Zertate JOAN M. MC ENTEE, STAFF DIRECTOR https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis COM M ITTEE ON GOVERNMENTAL AFFAIRS WASHINGTON, D.C. 20510 December 16, 1981 The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System 20th & Constitution Avenue, N.W. 20551 Washington, D Dear Chai m er: I am concerned about the effect of high interest rates and inflation on depository institutions. Depository institutions are key partners with the housing, automobile, and agriculture sectors of our economy, which have experienced the most severe impact of the current inflation. As one of the federal regulators of depository institutions, your agency plays a significant role in the financial health of those institutions. I have asked the presidents of several Maryland federal banks, savings and loans, and mutual savings banks to meet with me to explore the current situation and roads to recovery. I invite you or your representative to join us for a round table discussion on Friday, January 15, from 10 a.m. to noon in Room 457 of the Russell Senate Office Building. I expect we would have a free discussion covering problems in the banking and thrift industries as well as any economic forecasts you may have for 1982. I would anticipate questions from the group on recent Depository Institutions Deregulation Committee actions and on pending financial restructuring legislation such as S. 1720. ...• r.n • • a https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Paul A. Volcker Page Two Please let me know if you or your representative will be able to join us by telephoning Ms. Mary Wall of my staff at 224-9149. I look forward to seeing you. With best wishes for the Holiday Season, Sincerely, Charles McC. Mathias, Jr. United States Senator ?c--agK L1P-z1 46 • • January 6, 1982 The Honorable Don Fuqua House of Representatives 20515 Washington, D.C. Dear Mr. Fuqua: Thank you for your letter of December 16 concerning Chemical New York Corporation's proposed acquisition of an equity interest in Florida National Banks of Florida, Inc., Jacksonville, Florida. As you may know, this is an issue of some controversy and the Board's staff is currently studying the proposed acquisition to determine whether it complies with applicable law. The Board is also reviewing a petition submitted by Soutneast Banking Corporation requesting that the Board institute a cease and desist proceeding against Chemical New York Corporation and Florida National Banks in regard to the proposed investment. I should point out that to our knowledge at the present time there is no definitive agreement spelling out the details of the proposed equity investment. There is an agreement in principal that has been entered into by the two corporations, but complete details of the arrangement are presently being negotiated by the two parties. You can be assured that we will continue our review of the proposal to determine whether it is in conformance with federal law, and I would be pleased to inform you of the results of this review when it is completed. Sincerely, REM:AFC:DS:pjt (#V-381) bcc: Bob Mannion .Mrs. Mallardi V)10/ Identiaal ltrs. also eht to: Cong. McCollum (V-378) & Cong. Ireland (V-384) Cong. Fascell (V-389) ("On behalf of the members of the Board, I want to thank . . .") https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • Action assignel Mr. Ryan • DON FUQUA 2269 RAYBURN HI:XJSE OFFICE BuiLoInto WASHINGTON, D.C. 20515 2D DISTRICT FLORIDA https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 43 ' CONGRESS Or 'THE UNITED STATES HOUSE OF REPRESENTATIVES WASHINGTON, D.C. 20515 December 16, 1981 Hon. Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th Street & Constitution, N.W. Washington, D.C. 20551 Dear Chairman Volcker: ificant equity A proposal whereby Chemical Bank will seek a sign Inc., and also position in Florida National Banks of Florida, Florida National seek approval by shareholders of a merger of lly permitted has into Chemical when interstate banking is lega come to my attention. ly affect the structure The proposal, if consumated, could material as throughout the of banking within the State of Florida, as well interstate involvement country. This could become a pattern for t be irrevocable and of banking systems with results that migh unforeseen. banking, I am As one who has consistently opposed interstate since it would appear concerned with the status of this proposal could be effected to be an effort by which interstate banking banking law. I despite the current prohibitions in federal the House Committee intend to discuss this matter with Members of would welcome the on Banking, Finance and Urban Affairs and I transactions are Board's views with respect to whether such and whether or not lawful under current federal banking laws there is a loophole in current laws. attention to this matter. Thank you for your courteous and prompt Si cerel QUA DON Member of Con DF:Bcb • • JAMES R. JONES FIRST DISTRICT. OKLAHOMA WASHINGTON OFFICE: 203 CANNON HOUSE OFFICE BUILDING (202) 225-2211 CHAIRMAN COMMITTEE ON THE BUDGET MEMBER: COMMITTEE ON WAYS AND MEANS Congre55 of tbe tiniteb tate5 j[ioui‘e of ikepraientatibet TRADE suBCommITTEE DEMOCRATIC STEERING AND POLICY COMMITTEE DISTRICT OFFICE: 4536 FEDERAL BUILDING TULSA, OKLAHOMA Musbington,0.C. 20515 cHAIRm4N DEMOCRATIC RESEARCH ORGANIZATION January 5, 1982 C-7= , Honorable Paul A. Volcker Chairman Federal Reserve Board Washington, D. C. 20551 CO 170 Dear Chairman Volcker: (71 What a pleasant treat to receive your holiday greeting! On behalf of our family, let me wish you and yours a most joyous time during these holy days and extend our best wishes to you for the new year. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis With best wishes, Sincerely yours, JAME Mem JONES of Congress 74103 (918) 581-7111 • • BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 January 5, 1982 The Honorable Lloyd Bentsen United States Senator 912 Federal Building 78701 Austin, Texas Dear Senator Bentsen: Thank you for your letter of December 15 requesting comment on correspondence you received from Mr. John Staudt about the Board's recently published proposal to clarify Regulation Z's definition of an "arranger of credit." The proposal would require real estate brokers to give Truth in Lending disclosures in some seller-financed transactions. Under the amended Truth in Lending Act, a person who regularly arranges for the extension of consumer credit from those who do not regularly extend credit may be subject to the disclosure requirements of the Act. The Board's proposal (enclosed) would amend the definition of "arranger of credit" in revised Regulation Z to describe more clearly an arranger of credit and, if adopted, would cover some real estate brokers who arrange seller-financed transactions. In the proposal, the Board specifically requested comment on whether such real estate brokers should be considered arrangers of credit and subject to disclosure responsibilities under the amended Truth in Lending Act. As I am sure you are aware, S. 1720, introduced by Senator Garn, includes a provision that would exclude arrangers of credit from the Truth in Lending Act. This would serve to relieve real estate brokers involved in seller-financed transactions from disclosure responsibility under the Act. Although no action was taken on this provision by Congress prior to adjourning for the Chirstmas recess, legislation was adopted (H.R. 4879) delaying the effective date of the amended Truth in Lending Act from April 1 to October 1, 1982, which would provide Congress more time to change the law if that is determined to be desirable. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • . The Honorable Lloyd Bentsen Page Two The Board appreciates your taking the time to share your constituent's views. You may be assured that his comments will receive the fullest consideration. Please let me know if I can be of further assistance. Sincerely, Ogled) Donald J. Wini Donald J. Winn Assistant to the Board Enclosure (p.r. dtd. 10/20/81) (MPE:AFC:DS:DJW:)CO:pjt (#V-386) bcc: Maureen English (w/copy of incoming) Mrs. Mallardi./ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis CLowill handle response LLCM)BENTSEN TEXAS https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • 'ZCnifeb Zfcticz Zertate COMM iTTTES: FINANCE ENVIRONMENT AND PUBLIC WORKS JOiNT ECONOMIC CE SELECT COMMITTEE ON INTELLIGEN WASHINGTON. D.C. 20510 December 15, 1981 g CD Mr. Paul S. Volcker, Chairman Federal Reserve System Constitution Avenue between 20th and 21st Streets, N.W. Washington, D.C. 20551 Dear Mr. Chairman: ter that I have received Enclosed is a copy of a let Arlington, Texas concerning from Mr. John Staudt of Regulation Z. raised in this letter, and There are many valid points a thorough response on I would appreciate receiving perly respond to my this issue so that I can pro constituent. e. Thank you for your assistanc Sincerely, Lloyd entsen Enclosure PLEASE REPLY TO: 912 Federal Building Austin, Texas 78701 rn ;NJ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • November 23, 1981 The Honorable Lloyd Bentsen United States Senate Washington, DC 20510 Dear Senator Bentsen: I am writing you reaarding Regulation "Z" scheduled to go into effect on April 1, 1982, with the provision to include real estate brokers as "Arrangers of Credit", as interpreted by the Federal Reserve Board. I do not feel that real estate brokers should be included under "Arrangers of Credit" since we only show the prospective purchasers the different methods of financing available, but do not do the actual arranaing of financing. Our purpose is to advise the purchaser of alternative methods of financina available to him for the purpose of purchasing a home. Requiring a real estate broker to make a full disclosure under the Truth in Lending, Requlation "Z", would only amount to increased paperwork for real estate transactions. This would ultimately result in an additional fee to the buyer to cover the increased paperwork, and it would accomplish absolutely nothing insofar as a cost savings to the buyer or seller. Since there would be no direct savings to the purchaser, this additional paperwork does not make sense. I would appreciate your consideration regarding this matter. Sincerely, John A. Staudt Broker JAS/lw • COiNtd-IANV, LEALTOIZS® 1506 \v. Pioneer Parkway Arlington, Texas 76013 A • • A January 4, 1982 The Honorable Benjamin A. Gilman House of Representatives Washington, D. C. 20515 The Honorable Elliott H. Levitas House of Representatives Washington, D. C. 20515 Dear Messrs. Gilman and Levitas: d Thank you for your recent letter inviting the Boar Award for Exemplary to submit nominations for the Congressional rtunity to parService to the Public. We appreciate the oppo and applaud your ticipate in this very worthwhile program about government efforts to help dispel negative attitudes employees. d of After considering several candidates, the Boar nation at this Governors has decided not to forward a nomi next year's protime. We look forward to participating in gnize outstanding gram, and we support your efforts to reco service to the public. Sincerely, TD:BAP:DJW:vcd (#V-354) bcc: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Ms. Pilla Mr. Salvaggio Mrs. Mallardi Action assigned Mr. Salvaggio • Congre55 of the Eniteb Etato poticse of iltprerSentatibecS Eilastington, ri.e. 20515 Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, DC 20551 4' tin 'C7 rn CD • .0 •• Dear Mr. Chairman: 47- Our strong convictions about the importance of courtesy and responsiveness on the part of those who serve the public as Federal civil servants led to the establishment of the Congressional Award for Exemplary Service to the Public during 1980. This honor awards program is intended to highlight the very important contributions that many civil servants are making on behalf of the American public. By recognizing a representative number each year, this program serves to emphasize the interest and value that the President, the Congress and the people of our Nation place on courteous and responsive public service and helps to dispel some of the negative attitudes about Government employees which all too frequently are prevalent among our citizens. During the first year this program generated a great deal of interest--over forty dePartments and agencies nominated over 150 truly outstanding employees. We would once again like to invite your agency to participate in this program by nominating those in your organization who, through their actions and dedicated efforts, give real meaning to the term public servant. The U.S. Office of Personnel Management is again this year providing assistance in our sponsorship of this Congressional award. Nominations may be directed to: U.S. Office of Personnel Management Incentive Awards Branch Room 6H34 1900 E Street, N.W. Washington, D.C. 20415 Nominations are due February 15, 1982. Enclosed for your information is information concerning the awards, the criteria, and the format for nominations. We very much look forward to receiving your nominations and wish to express our appeciation for your interest and support. Benjamin A. Gilman Member of Congress Enclosure https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Elliott H. Levitas Member of Congress https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • Congressional Award for Exemplary Service to the Public Background The Federal government is judged by its employees and what the public thinks about Government depends upon their contacts with Federal personnel at all levels. Because of this, Federal personnel should be keenly aware of the image they project to the public in all contacts. This includes not only those actually involved in the contact, but others who work in the vicinity who may be overheard and/or observed by the public. Professional and businesslike conduct that leaves a favorable impression on the public and shows concern for our fellow man, which forms the basis for common rules of cuurtesy, are of paramount importance and must be encouraged. The Civil Service Reform Act emphasized the concern of both the President and the Congress that Government services to the public be more courteous. Congressman Elliott H. Levitas' particular interest in this matter prompted him to author a provision in the Civil Service Reform Act of 1978 that permits performance standards to include the extent of courtesy Government employees demonstrate to the public. As the agency providing leadership to the program to improve courtesy to the public throughout Government, the Office of Personnel Management is cooperating with Congressman Levitas and Congressman Benjamin A. Gilman in a program of recognition for Government personnel who provide exemplary and courteous service to the public. Objectives To encourage a concerned and responsive attitude toward the public among Government personnel, and to underscore the interest of the President and the Congress in improving courtesy throughout Government. Eligibility Individual s, small groups or teams of Federal civilian employees. Criteria 1. For purposes of this award "public" means (a) the general public, and (2) other organizations or groups,including government,that are serviced by Federal personnel. 2. The contribution being recognized must have been in connection with a Federal program or function. Contributions to community services or activities are not eligible, unless it is the responsibility of the employing organization to provide such services. 3. Nominees must have demonstrated a degree of courtesy in dealing with their public that exceeds normal expectations: e.g. courtesy, promptness, willingness to "go the extra step," and a general desire to reflect a favorable image of the Government and the organization. Nominations are encouraged for candidates who have: o established innovative procedures for responding to citizens' needs • • • https://fraser.stlouisfed.org Federal 0 Reserve Bank of St. Louis or interests that are more efficient, economic, and/or effective (e.g. development of improved procedures for handling written or telephones inquiries; development of an effective training program for those dealing with the public, establishment of a plan for the Aisle of awards to encourage and recognize outstanding contributions that respond to citizens' needs) o consistently exceeding job requirements in dealing with requests for information, materials, or other services (e.g. an individual or group that has received many favorable comments and letters on services rendered their public) o performed a special act or service well beyond the requirements of his or her job in direct response to a citizen need or concern (e.g. taking action to deal with a critical and immediate need for help or assistance within a community, or region). The Award Honorary recognition in the form of a certificate will be presented to the winner(s) at a ceremony to be held on Capitol Hill. Finalists will receive letters jointly signed by the co-sponsors. • 411 ..„" *of covt . • .• cr-`) BOARD OF GOVERNORS OF THE • CO 1; -o • FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 • -A .; 3` • PAUL A. VOLCKER ' CHAtRMAN vti.s• • January 4, 1982 ,,, ,, • . •, - . •-•"..."' • f. .• .• . 4.7*, -• - • The Honorable Jake Garn, Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Garn: The Board of Governors is pleased to forward • to you its thirteenth Annual Report on Truth in Lending. This report highlights the Board's regulatory and educational activities in implementing the simplifying Truth in Lending amendments enacted in 1980. The report also covers compliance, legislative recommendations and the Board's other administrative functions under the Truth in Lending Act for the year 1981. Sincerely Sgaui A. Voicker .• Enclosure JCK:vcd bcc: Mr. Kluckman Mrs. Mallardi (2) IDENTICAL LETTERS SENT TO THOSE ON ATTACHED LIST https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis •• • 4 v• r • 111111. • Senate harrison A. Williams, Jr. Chairman John H. Chafee, Subcmte. o Alfonse 1%. D'Amato harrison Schmitt Christopher J. Dodd Alan J. Dixcn Consumer Affairs, Senate Banking House Chairman Fernand J. St Germain J. William Stanton Chairman Frank Annunzio, Subcmte. on Consumer Affairs and Coinage of House Bankins Henry B. Gonzalez Joseph G. Minish Williath Patman Steny H. Royer Ron Paul Thomas B. Evans, Jr Chalmers P. Wylie Gresory W. Carman Chairman Benjamin S. Rosenthal, Subcmte. on Commerce, Consurer, and Nonetary Affairs of House Govt. Operations Cmte. Lyle Williams Copies of report (w/o ltr.) sent to: Danny Wall Beth Climo Annette Fribourg Zul Nelson Jim Sivon Curtis Prins Jim Kutcher Greg Wilson Paul G. Nelson https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • •°'•of GO ve4 • : 4, ... .• "s-N 0 • . 440 • 4o •0 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM ‘ 4 9,54t0 • .71 WASHINGTON, D. C. 20SSI PAUL A. VOLCKER January 4, 1982 CHAIRMAN The Honorable Thomas P. O'Neill, Jr. Speaker of the House of Representatives Washington, D. C. 20515 Dear Mr. Speaker: The Board of Governors is pleased to submit its thirteenth Annual Report on Truth in Lending. This report highlights the Board's regulatory and educational activities in implementing the simplifying Truth in Lending amendments enacted in 1980. The report also covers compliance, legis- lative recommendations and the Board's other administrative functions under the Truth in Lending Act for the year 1981. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis S' cerely, adVa teti / Y ---- Enclosure Speaker of the House of Representatives received Speaker of the House of Representatives by JCK:vcd bcc: Mr. Kluckman Mrs. Mallardi (2),. • • BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 January 4, 1982 PAUL A. VOLCKER CHAIRMAN The Honorable George Bush President of the United States Senate Washington, D. C. 20510 Dear Mr. Vice President: The Board of Governors is pleased to submit its thirteenth Annual Report on Truth in Lending. This report highlights the Board's regulatory and educational activities in implementing the simplifying Trut h in Lending amendments enacted in 1980. The report also covers compliance, legis- lative recommendations and the Boar d's other administrative functions under the Truth in Lending Act for the year 1981. Sincerely, Enclosure President of the U. S. Senate received President of the U. S. Senate by JCK:vcd bcc: Mr. Kluckman Mrs. Mallardi (2)- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis January 4, 1982 The Honorable Ron Wyden United States House of Representatives Washington, D.C. 20515 Dear Congressman Wyden: Thank you for your recent letter outlining the January 30 meeting in Portland of Oregon Fair Share. Early in 1981, the Board agreed with National People's Action to send representatives to a series of 12 meetings to be held around the country where we could learn first-hand of conditions being experienced in the local community. Thus far, we have attended eight such meetings. Senior staff officials of the Board have attended most of the meetings; one member of the Board attended a meeting that was held in Cleveland. I and other members of the Board, however, have been kept advised of the discussions. Because of scheduling problems, I will be unable to attend the January 30 meeting in Portland but you can be assured that the Board will he represented by several members of its senior staff. The Federal Reserve Bank of San Francisco will also provide senior representation. I appreciate receiving your letter and I want to wish you the best for the new year. Sincerely, • • z RON WYDEN 3D DISTRICT, OREGON (ail/ WASHINGTON ADDRESS: SUITE 1440 LONGWORTH HOUSE OFFICE BUILDING PHONE: 202-225-4811 qiite;ta te.4/ HOUSE OF REPRESENTATIVES WASHINGTON, D.C. 20515 ENERGY AND COMMERCE COM M ITTEE SUBCOMMITTEES: HEALTH AND THE ENVIRONMENT ENERGY CONSERVATION AND POWER OVERSIGHT AND INVESTIGATIONS DISTRICT orricEl P.O. Box 3621 1002 N.E. HOLLADAY STREET PORTLAND, OREGON 97208 PHONE: 503-231-2300 Mr. Paul A. Volcker Chairman Federal Reserve Board 20th and Constitution NW Washington, D.C. 20551 December 23, 1981 SMALL BUSINESS SUBCOM M TTEE: EXPORT OPPORTUNITIES AND SPECIAL SMALL BUSINESS PROBLEMS SELECT COMMITTEE ON AGING Dear Mr. Volcker: I am writing at the request of Oregon Fair Share to urge you or one of the Board of Governors of the Federal Reserve Board to attend an Interest Rate hearing Saturday, January 30, 1982, from 1-3 p.m. in - 3, Portland, Oregon. In April 1980 you met with representative of National Peoples Action, a Chicago-based coalition of community organizations, and later agreed to hold a series of interest rate hearings around the country. Thus far, there have been hearings in Chicago, Indianapolis, Cleveland, Des Moines, Oakland and Boston. Oregon Fair Share, the Oregon AFL-CIO and the International Woodworkers of America En—grernYTEJ a hearing in Portland, and Mr. .7-§-7-ei-i-WiT7-7.7176--e -Trerident of the Portland branch, and Mr. William Burke, vice president of the Federal Reserve Bank if San Francisco, have agreed to attend. While the sponsors are pleased at these confirmations, they believe that monetary policy is truly determined by the Board of Governors, and thus the request for your or a member of the Board's attendance, too. Because Oregon's economy is dependent on the housing and wood products industries, my state has been severely impacted by high interest rates, and by the boom/bust cycles induced by monetary manipulation. Oregon's unemployment is 12.5 per cent, third highest in the nation. The intent of the hearing in Portland is not to make the Federal Reserve Board into the whipping boy for all our state's economic woes. Rather, the aim of the hearing is to explore the long-term effects of tight monetary policy and possible alternatives to such a policy. Hopefully, out of the hearing will grow a meaningful dialogue that can produce methods of fighting inflation that is less damaging to certain industries, such as housing and wood products, and certain regions, such as the Pacific Northwest. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • .• MR. PAUL VOLCKER Page 2 I would appreciate it if someone on your staff would contact Mr. Gary Conkling, my Administrative Assistant, to let me know whether you or a member of the Board will be able to attend this hearing. Thank you for your consideration of this matter which is of much interest to me. I look forward to your prompt reply. With warm regards, Sincerely, RON Mem RW/gc cc: Oregon Fair Share https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis DEN r of Congress https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 7110 2"&eikt....4. • FFES The Honorable George H. W. Push President of the U.S. Senate Washington. D.C. 21510 Dear mr. Vice President In accordance with the requirements of the Freedm of Information Act, I am please4 to submit the toard's Anrual Report covering the implemk,ntation of its administrative responsibilities under the Act during calendar year Maraly (7;zned) Paul A. EnclosunI President of the U.S. Senate, received by _ RLArnold:nlf 2/23/82