Full text of Paul A. Volcker Papers : Congressional Correspondence : March-April 1982, Folder 1, Box 11, Item c448

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ri,-_,. ,i,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Collection: Paul A. Volcker Papers Call Number: MC279  Box 11  Preferred Citation: Congressional Correspondence, March-April 1982 [Folder 1]; 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/c448 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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Mudd Manuscript Library 65 Olden Street Princeton, NJ 08540 609-258-6345 609-258-3385 (fax) mudd@princeton.edu   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Congressional March-April 1982   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  April 29, 1982  The honorable Stewart B. McKinney Louse of Representatives Washington, D.C. 20515 Dear I appreciate receiving your letter of April 23.  I have followed the developments within  the Committee regarding this report, and I certainly welcome your "additional views". Thanks so much for your words of encouragement.  Ny best to you and Doug Bereuter. Sincerely, SZ fagi  MJ:CO:NS:pjt (#V-105) bcc:  Mike Prell Mrs. Mallardi (2)  • 41.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  April 28, 1932  Mr. John Andelin Assistant Director Office of Technology Assessment Congress of the United States Washington, D. C. 20510 Dear Mr. Andelin: Thank you for sending the paper entitled "Electronic Funds Transfer Issues: and Equity."  Privacy, Security,  Developments in the EFT area are having  far-reaching implications for all users of banking services, and we appreciate having your analysis.  I  have passed the paper along to appropriate members of che Board's staff. Sincerely,  TEA:HDW:vcd (V-99) bcc :  Messrs. Allison, McEntee, White Mrs. Walls Mrs. Mallardi (2) 1../'  TECHNOLOGY ASSESSMENT BOARD TED STEVENS, ALASKA, CHAIRMAN MORRIS K. UDALL, ARIZ.. VICE CHAIRMAN ORRIN G. HATCH.•UTAH CHARLES McC. MATHIAS, JR., MD.  EDWARD M. KENNEDY. MASS-. ERNEST F. HOLLINGS, S.C. HOWARD W. CANNON, NEV.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  GEORGE E. BROWN,JR.. C.ALIF.  JOHN D. DINGELL. MICH. LARRY WINN,JR.. KANS. CLARENCE E. MILLER. OHIO COOPER EVANS, IOWA  JOHN H. GIBBONS  /gates Corium of tbe OFFICE OF TECHNOLOGY ASSESSMENT  DIRECTOR  IMP  WASHINGTON, D.C. 20510  fr. •.I., y )., 60./- I i!  JOHN H. GIBSONS  /7  April 9, 1982/1pq  '"T I  The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th Street and Constitution Avenue, N.W. Washington, DC 20551  co -n -yi c1 ✓n  =7  OM  =  rirrl _4(-1 -- MI  -— rn.‹. c-.. rn ::::: MI  Z .r.  Dear Mr. Volcker:  7.r.  I am pleased to bring to your personal attention the Office of Technology Assessment's Background Paper on Electronic Funds Transfer Issues: Privacy, Security, and Equity. The paper provides a preliminary analysis of relevant EFT developments since the completion of the work of the National Commission on Electronic Funds Transfer in 1977, and the possible implications for user privacy, system security, and consumer equity. I hope you will find this report informative and useful. Sincere  hn Andelin A sistant Director  ci:7La r...a —0 —  (n 3:=5 ar.  IP CA LO  Cjrn rri ,::1 >  O cci 1›. 7J  CZ)  .-_, -- cD c)  r-1....n -71 cn pi...._,c) 7_)=!..- c) <rn < rn rn 7:*. c1 'IP  r.-) ": to -4 4,--,  71::  :.-  April 26, 1982  The honorable Jake Garn Chairman ComrAttee on Banking, Lousing and Lrban Affairs United States Senate 20515 Washington, D.C. Dear Chairman Garn: I ea.,1 writing to advise you that today the Boara extended until December 31, 1982, the deferral for deposit reporting and reserve maintenance for nonmember depository institutions with total deposits of less than $2 million. After passage of the Monetary Control Act of 1980, the Board first deferred these requirements for small institutions until May 1961, on the basis that requiring a large number of small institutions to report and maintain reserves might interfere with oraerly implementation of the Act. The deferral was then extended on two occasions, first until November 1981 and then until May 19(52, in light of pending legislation to provide for a permanent e;,_emption for small institutions. It is the sense of the Board that it will be increasingly difficult to grant further extensions of the deferral beyona this year unless some legislative action is taken with regard to the exemption. As you know, the Board, in its legislative recommendations as part of the 1981 Annual Report to Congress, suggested either exempting depository institutions with less than $5 million in deposits from reserve requirements or exempting the first $2 million of reservable liaLilities of all aepository institutions. As always, the Federal Reserve is prepared to offer any assistance that you or your staff may wish in considering this issue. Sincerely,  GTS:PSP:NS:DJW:pjt Dcc: Messrs. Ettin, Simpson, Schwartz, Pilecki Legal Records (2) Iaentical letters also sent to: Chrmn. St Germain & Fauntroy Cong. Stanton & Wylie   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  April 28, 1982  The Honorable William Proxmire United States Senate Washington, D. C. 20510 Dear Senator Proxmire: Thank you for your recent letter urging that the Federal Reserve extend the deferral of reporting and reserve maintenance requirements for nonmember depository institutions with deposits of less than $2 million. The Board today extended the deferral until December 31, 1982, in view of legislative proposals that are now being considered by Congress. However, it is the sense of the Board that it will be increasingly difficult to grant extensions beyond the end of this year unless some legislative action is taken with regard to tne exemption. The Board believes that it is preferable to remove very small institutions from the burden of reserve requirements cowpletely. In its legislative recommendations to Congress, the Board has suggested either exempting depository institutions with less than $5 million in deposits from reserve requirements or exempting the first $2 million of reservable liabilities of all depository institutions. Once again, thank you for expressing your views on this matter. Sincerely,  IDENTICAL LETTERS TO SENATORS RIEGLE AND SARBANES GTS:PSP:DJW:vcd (V-98) bcc: Mr. Schwartz Mr. Pilecki Legal Files (2) Mrs. Mallardi (2)v Mr. Ettin Mr. Simpson  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action assigned to Mr. Ettin. JAKE GARN, IJTAH. CHAIRMAN JOHN TOWER, TEX. JOHN YEINZ. PA. WILL*M L. ARMSTRONG, COLO. RICHARD G. LUGAR, IND. ALFONSE At. D'AMATO, N.Y. JOHN H. CHAFEE, R.I. HARRISON SCHMITT, N. MEX.  HARRISON A. WILLIAMS. JR., N.J. WILLIAM PROXmIRE. WIS. ALAN CRANSTON. C.ALIF. DONALD W. RIEGLE, JR., MICH. PAUL S. SARRANES. MD. CHRISTOPHER J. DODD, CONN. ALAN J. DIXON, ILL.  M. DANNY WALL, STAFF DIRECTOR DIRECTOR AND COUNSEL HOWARD A. MENELL, MINORITY STAFF   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ?..;Cniteb Ztafez Zerrate BANKING, HOUSING, AND URBAN AFFAIRS  COMMITTEE ON  WASHINGTON, D.C. 20510  April 15, 1982 •••••111  11,  co =")  The Honorable Paul Volcker Chairman Federal Reserve Board Washington, D.C. 20551  rrl  r--  CD  rn ) --4 cm r <  7.) CD  CD CD --n rr".  CT) aez  Dear Mr. Chairman:  2:2 c? lat tow The National Association of Federal Credit Unions has broug temral Reserve's our attention the fact that on May 1, 1982, the Fede (under $2 million) porary regulatory exemption for small institutions We believe that from reserve and reporting requirements will expire. regulation. no useful purpose would be served by expiration of this  <r < r, rn  LT) rf  Cr'  ral Reserve The Monetary Control Act in clear terms gives the Fede provision recogthe flexibility to count cash items as reserves. This sfy their reserve nized that smaller institutions would be able to sati rve was also given requirements with their cash assets. The Federal Rese so that they wide flexibility to administer the reporting requirements would not be unduly burdensome. satisfy There is certainly a presumption that these institutions we believe that the reserve requirements with cash assets. Therefore, ption and provide Federal Reserve should, by regulation, extend the exem all regulations, for a reasonable annual reporting requirement. As with the Federal Rethis one should be reviewed from time to time to assure s in fact. serve that the presumption continues to have a basi to depart from The public would derive no benefit from a decision hed by the Monetary the principle of universality of reserves establis urgent legislative Control Act, and such a step would interfere with the thrift and housing responsibility to address the grave situation in the insured intermediaries industries and the question of competition between and non-insured financial companies. Sincerely,  (-o/  /William Proxmire,'  onald W. Riegle, J anking Minority Me  2 1 ? _ (-41 s S.  Paul Sarbanes, U.S.S.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  April 28, 1982  Tne honorable George bush President of the United States Senate Washington, D.C. 20510 Dear Mr. Vice President: Pursuant to the requirements of Section 206 of tne Depository Institutions Deregulation anc; Monetary Control Act of 1980, I am pleased to submit my annual report on the activities of the Depository Institutions Deregulation Committee during its second year of operation and on the viability of depository institutions. Sincerely,  S/Paul Vo'eke(  Enclosure Identical ltrs. also sent to:  bcc:  Mr. Ettin Mrs. Mallardi (2)v/  Speaker O'Neill, Chrmn. Garn and St Germain, Sen. Riegle, Cong. Stanton.  40.  ANNUAL REPORT ON THE DEPOSITORY INSTITUTIONS DEREGULATION COM4ITTEE BY PAUL A. VOLCKER, CHAIRMAN BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM  Background In the past year, the continuing high levels of interest rates have contributed to the problems of many depository institutions, especially thrift institutions.  With deposits and other sources of funds increas-  ingly tied to market rates, these institutions' costs have continued to escalate much more quickly than the returns on their assets, a high proportion of which consists of longer-term mortgages or other assets acquired in past years at rates below those currently prevailing in the market . Moreover, the level of interest rates and the sluggish economy have slowed the rate at which these mortgages are turning over, limiting the increase in the effective yield on thrift asset portfolios. As a result, most thrift institutions have been experiencing losses and eroding net worth.  These losses have affected the viability of  a significant number of institutions; since last April, 53 thrift institututions have been merged under the direction of the FSLIC and FDIC, 1 has been placed in receivership, 1 has been liquidated and many more institutions now have net worth ratios below those considered satisfactory by supervisory authorities.  Concerns about the viability of thrift institutions  have constrained the actions of the DIDC in raising or removing deposit rate   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  A-  -2-  ceilings.  At each step, the committee considers the balance between improve-  ments in the competitive position of depository institutions vis-a-vis unregulated institutions and earnings pressures that might be generated by an acceleration in shifts of low-yielding deposits to categories paying higher rates. As serious as the problems of the thrift industry are, it is important to remember that they remain basically transitional in nature. The soundness of most thrift institutions will be restored as interest rates decline, as asset turnover gradually brings portfolio yields closer to prevailing market rates, and as these intermediaries are able to take advantage of changing regulations that permit them to acquire additional instruments whose rates fluctuate more closely in line with deposit costs.  Differential An assessment of the impact of removing the differential between deposit rates permitted to be paid by thrifts and banks is required in this report.  The evidence suggests that allowing thrift institutions to pay  depositors a higher rate than commercial banks does increase the thrift share of the funds flowing into depository institutions.  In light of the  relatively slower growth of thrift deposits in recent months, the DIDC has authorized, effective May 1, 1982, a one year differential on a new 91-day deposit with a $7,500 minimum denomination.  During that year, however, the  differential is suspended any time the Treasury bill discount rate is 9 percent or below for four consecutive auctions, since rates at these levels are likely to result in a rapid improvement of thrift earnings.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -3-  However, while the differential appears to improve fund flows into thrift institutions relative to commercial banks, its impact on longer-run thrift viability or the total volume of funds flowing into housing finance is questionable.  With respect to viability, even with a differential,  ceiling rates set high enough to make deposits competitive with nondeposit investment vehicles will, given current asset holdings, put pressure on thrift earnings.  Moreover, an inability to attract funds is not the major dif-  ficulty currently facing thrifts; amortization and repayments of existing assets, inflows of new deposits, and borrowed funds provide sufficient funds to meet the existing mortgage demand.  It is not the lack of avail-  able funds, but rather the reduced demand at current interest rates that has decreased the flow of credit to housing.  In addition, an increasingly  active secondary market for mortgages has reduced the degree to which housing finance need rely upon thrift institutions as ultimate suppliers of credit. Over the longer run the differential will disappear entirely with the elimination of deposit ceilings under the DIDMCA.  Recognizing this  eventuality, and endeavoring to bring about a smooth transition to a deregulated environment, the DIDC has adopted a long-term deregulation strategy that eliminates ceilings--and therefore the differential-gradually, beginning with longer maturity time deposits.  As a first step in this process the  DIDC in March approved a ceilingless account with a minimum maturity of 3-1/2 years, effective May 1.  Disintermediation The DIDMCA requires discussion of the "disintermediation of savings deposits from insured banks and thrift institutions to uninsured money   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -4  market innovators paying market rates to savers" in each annual report.  The  principal vehicle for such disintermediation in recent years has been money market mutual funds (MMMFs), whose total assets (not including those available only to institutions) have grown more than 75 percent in the last 12 months to more than $160 billion.  While growth of small time and savings  deposits at depository institutions has improved in recent months--reflecting the public's increased demand for liquidity in a period of economic uncertainty--over the last year such accounts have shown relatively modest growth. The availability of MMMFs with superior yield and liquidity as compared to most small time account categories has placed pressure on the DIDC and the institutions to offer similar instruments.  In the past year,  the institutions have turned to retail repurchase agreements (RPs), which have no ceilings, and more recently there has been considerable discussion of accounts linking deposits to MMMFs or to retail RPs.  Although wide-  spread use of such "sweep" accounts would help depository institutions maintain customer relationships, they would accentuate earnings problems, accelerate the loss of total deposits since the maintenance balance on sweep accounts is small, and raise the cost of funds for housing, small business and agriculture.  They also present problems for monetary policy, especially  when transactions accounts are involved, as shifts into and out of these accounts may cloud the measurement of the money supply and thus make it more difficult for the Federal Reserve System to interpret movements in the monetary aggregates or to control a true transactions aggregate.  In this regard  they would accentuate an already troublesome aspect of all MMMF accounts;   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -5-  in recognition of this problem, the Federal Reserve has requested authority to place reserve requirements on MMMFs with transactions characteristics. Many depository institutions, as well as the members of the DIDC, have become incresingly sensitive to the need to enhance the competitive posture of depository institutions vis a vis the money market funds.  At  the same time there is a concern that an action permitting the institutions to offer an instrument fully competitive with all the features of money market mutual funds would result in enormous added earnings pressures as funds shifted from savings and other low yielding deposits to the higher yielding accounts.  The DIDC has voted to permit a new short term instrument  that is expected to stem the flow of funds to MMMFs while mitigating the problems resulting from internal shifts. goes into effect May 1.  This 91-day, $7,500 minimum account  In addition, the DIDC staff has been instructed to  continue to develop a shorter-term instrument that will compete more effectively with MMMFs while minimizing the cost impact.  Recommendations As part of the annual report, each member of the DIDC is asked to make recommendations on measures to encourage savings, provide equitable treatment of small savers, ensure a steady and adequate flow of funds to thrift institutions and the housing market, and maintain the economic viability of depository institutions.  In this regard, I reemphasize my belief  that over the long run these goals can only be met by monetary and fiscal policies aimed at encouraging price stability and, in that context, an environment of much lower interest rates.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -6-  Progress toward these goals will enable the deregulation of interest rates for depository institutions to proceed in an orderly manner with minimal impact on thrift institutions.  The existence of strong market  incentives in the current economic and interest rate environment requires progress toward deregulation in any event, in order, among other things, to maintain the viability of depository institutions over time.  However, as  long as interest rates are high, the deregulation will need to be "managed" in a way that reduces the short-term impact on earnings of thrift institutions. The extension of eligibility for IRA/Keogh accounts, accompanied by the DIDC action to permit depository institutions to offer such accounts free of interest rate ceilings or minimum deposit restrictions, offers the prospect of some encouragement to individual savings, and the incentives are equitably available to small savers.  The nature of the savings flows  should help encourage longer term investment.  The DIDC deregulatory  schedule, beginning with the 3-1/2 year ceilingless account, will also help meet these goals. While these measures will also help ensure the flow of funds into the depository institutions and the housing market, earnings pressures at thrift institutions will continue until interest rates fall and asset portfolios are restructured.  A number of actions to facilitate an orderly transi-  tion period have been proposed.  One that I believe should be given serious  consideration is capital infusions to ensure the viability of institutions that are fundamentally sound but experiencing short-term problems.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  In  .%.  4w1P.  -7-  addition, I recommend enactment of the "Regulators Bill" to provide clear guidance by Congress as to the circumstances and procedures under which failing thrift institutions can be acquired by a bank, bank holding company, or an out-of-state thrift institution.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • f  April 27, 1982  The Honorable Lloyd Bentsen United States Senator 912 Federal Building Austin, Texas 78701 Dear Senator Bentsen: I am writing to acknowledge receipt of your letter requesting comment on correspondence you received from Mr. Troy Barclay concerning color-coded currency. Although all paper currency and coin go into and out of circulation through the Federal Reserve Banks or their branches, the Bureau of Engraving and Printing, under the direction of the Department of the Treasury, produces all paper currency for the Federal Reserve System. Therefore, I have referred your inquiry to Mr. Harry Clements, Director, Bureau of Engraving and Printing, Room 119, 14th and C Streets, S.W., Washington, D. C. 20228. Sincerely,  Donald J. Winn Assistant to the Board  cc:  Mr. Harry Clements, Director Bureau of Engraving and Printing  CO:vcd (V-83) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi  •  Action assigner' Mr. Allison LLOYD BENTSEN TEXAS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  COMMITTEES:  FINANCE ENVIRONMENT AND PUBLIC WORKS JOINT ECONOMIC  'Unita)Ztafez Zenate  SELECT COMMITTEE ON INTELLIGENCE  WASHINGTON. D.C. 20510  CD  -ri •-n  March 25, 1982  C") frl CDz . , -71 ri-)  Mr. Paul S. Volcker, Chairman Federal Reserve System Constitution Avenue between 20th and 21st Streets, N.W. Washington, D.C. 20551  X rel rn r:  Dear Mr. Chairman: I recently received a telephone inquiry from Mr. Troy Barclay of Perryton, Texas voicing his concern about some color-coded currency that has been printed and is currently being stockpiled by the federal government. Mr. Barclay feels that this currency could undermine the value and soundness of the present currency of the United States. I would appreciate your advising me of any pertinent information concerning the existence of such currency and its intended use. Thank you for your assistance. Sincerely,  PLEASE REPLY TO:  912 Federal Building Austin, Texas 78701  ........  -r i  CO "...  rn C rrl  co c :  ar 2:11  ) >' f—  It` X) c:7  =7  rn 3=1  <  71C Q.)  c) < rri :"?.?  LI) ••  , r  CJ1  tf,  1:7)  •••••••  . ••47 •0 • -n • -A  . . •• Of G01/4.•. •, 0 if? • 1-  BOARD OF GOVERNORS . :  ,  OF THE  FEDERAL RESERVE SYSTEM  .A /-• •  WASHINGTON, D. C. 205S1  -I,") ; 41 FL''' ,•). .' *. x' 't _--'r5. ..m:_: ,k,. RAL • ••  April 26, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable William Proxmire United States Senate Washington, D. C. 20510 Dear Senator Proxmire: I am pleased to provide the Board's views on S. 2162, a bill that would require: (a) that the receipts and disbursements of the Federal Financing Bank be placed in the unified budget; (b) that the outlays and budget authority arising out of the Bank's operation be charged to the appropriate federal agency notwithstanding any contrary law or regulation; and (c) that no federal agency may issue, sell, or guarantee a security of the type ordinarily financed in securities markets unless it is first offered for sale to the Federal Financing Bank. In the Board's view there are two basic issues raised by S. 2162. The first is whether the direct lending activities of federal agencies should be included in both the unified budget and the recently established federal credit budget or whether, instead, they should be accounted for only in the federal credit budget. S. 2162, if adopted, would, of course, result in such loans being reflected in both budgets. There is an obvious advantage to this approach since it would make the unified budget a more nearly comprehensive accounting of the cash transactions of the federal government. On the other hand, there are disadvantages. First, it may suggest that the economic consequences of direct federal outlays and federal lending are the same when, on the contrary, the latter may entail a substitution for some financial activity that would have occurred in any event, rather than a net addition to demands on financial markets. Moreover, this approach seems implicitly to suggest that direct loans, because they involve a cash outlay of a federal agency, are very different in their economic effects from loan guarantees. There can be substantial differences, particularly when significant subsidies are involved, but in many cases the similarities between direct loans and loan guarantees may well outweigh the differences. Accordingly, it may be advisable to establish accounting procedures that would treat direct loans and loan guarantees in a similar manner as is done in the credit budget. The Board is inclined, therefore, to the view that efforts should be directed toward implementing separate budgets for direct outlays and for credit programs. Such a step would require, however, making Congressional procedures for controlling   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  MINN  The Honorable William Proxmire Page Two  programs within the credit budget as stringent as those established for the unified budget process. These procedures should include making all credit programs, except those intrinsically of an "entitlements" nature, subject to appropriations control. The second issue is, of course, whether the credit activities of the Federal Financing Bank itself should be moved onto the budget. In regard to this question, the Board generally supports the thrust of the second and third elements of S. 2162 as listed above. It is clearly sensible to have the outlays that are undertaken with the assistance of the Federal Financing Bank charged to the agency initiating these activities, as is done (as an addendum item in the functional categories) in the official budget documents transmitted to Congress, and to have the assessment of these activities and their authorization undertaken within the context of budgeting for the agency actually carrying out the program. It makes the same good sense to require all agencies first to offer securities that would ordinarily be financed in securities markets to the Federal Financing Bank so as to avoid a proliferation of agency issues or the disruption of the orderly marketing process intended to be achieved by the Bank. In addition, it would be appropriate for most asset sales, such as sales of certificates of beneficial ownership by the Farmers Home Administration and others, to be treated as borrowing (rather than negative outlays) so that appropriations control is not eroded. If these steps were taken, it is then difficult to see the need to put the activities of the Federal Financing Bank on the budget. Indeed, a problem could arise if the Federal Financing Bank were to be made subject to the budget allocation process and its ability to act as a financial intermediary were thus constrained. In that event, it could occur that the funds that agencies are authorized to disburse under their credit programs could exceed the total volume allocated to the Federal Financing Bank. The Federal Financing Bank would then be put in the position of having to ration funds among competing programs; this, of course, is an activity that should be done by the Congress and not by an administrative agency. Alternatively, the "efficient" gain sought by the Federal Financing Bank would be lost to the extent credit programs are financed piecemeal in the market. Taking these points into account, the Board supports elements (b) and (c) of S. 2162 as listed above. The Board believes, however, as it has stated to the Congress on several   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ..•••• •k •  •  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable William Proxmire Page Three  past occasions, that it would be advisable to continue to treat the Federal Financing Bank as an inteLmediary that assists other agencies to carry out their programs and does not have an independent role. Sincerely,  , IDENTICAL LETTER TO:  The Honorable Willis D. Gradison House of Representatives Washington, D. C. 20515  FS:SL:EE:vcd (V-82) bcc:  fag  Mr. Struble Ms. Lepper Mr. Ettin Mrs. Mallardi (2) ,7  Action assigned Mr. Axilrod  MARK O. HATFIELD, OREG., CHAIRMAN TED STEVENS, ALASKA LOWELL P. WEICKER, JR., CONN. JAMES A. MC CLURE, IDAHO PAUL LAXALT, NEV. JAKE GARN, UTAH HARRISON SCHMITT, N. MEX. THAD COCHRAN, MISS. MARK ANDREWS. N. DAK. JAMES ABDNOR, S. DAK. ROBERT W. KASTEN, JR., WIS. ALFONSE M. D AMATO, N.Y. MACK MATTINGLY, GA. WARREN RUDMAN. N.H. ARLEN SPECTER, PA.  WILLIAM PROXMIRE, WIS. JOHN C. STENNIS, MISS. ROBERT' C. BYRD, W., VA. DANIEL K. INOUYE, HAWAII ERNEST F. HOLLINGS. S.C. THOMAS F. EAGLETON, MO. LAWTON CHILES, FLA. J. BENNETT JOHNSTON, LA. WALTER D. HUDDLESTON, KY. OUENTIN N, BURDICK. N. DAK. PATRICK J. LEAHY, VT. JIM SASSER. TENN. DENNIS DE CONCINI, ARIZ. DALE BUMPERS, ARK.  BOARD OF CC\q.RNORS FEDERAL. RESERVE SY  198Z PO 26  f"  NI 9.1iitifeb Zfalez Zenafe ON APPROPRIATIONS  COMMITTEE RECEIVED OFFICE OF- THE CHAIRMAN WASHINGTON, D.C.  20510  J. KEITH KENNEDY, STAFF DIRECTOR THOMAS L. VAN DER VOORT. MINORITY STAFF DIRECTOR  March 24, 1982 Mr. Paul A. Volcker Chairman Federal Reserve System 20th Street & Constitution Avnue, NW Washington, DC 20551 Dear Mr. Volcker: Earlier this month, we introduced legislation to put the operations of the Federal Financing Bank in the budget. As you know, the Bank accounts for over $20 billion in off-budget outlays and has been a major factor in the unusually rapid growth of Federal credit programs. We are enclosing for your review and comments a copy of the legislation together with a reprint of an introductory floor statement. Previous attempts to put the Bank in the budget have met with little success. One of the arguments has been that it would not be appropriate to assign the budget authority and outlays to the Treasury when the underlying transactions are initiated by other Federal agencies. Another argument is that placing the Bank in the budget would cause Federal agencies to finance their programs directly in the government securities markets as they did prior to the establishment of the Bank. Our legislation overcomes these objections by allowing the Director of the Office of Management and Budget to assign to the appropriate Federal agency the budget authority and outlays arising from the operations of the Bank, notwithstanding any contrary law or regulation. This provision would override various special statutory provisions such as the favorable treatment given to certificates of beneficial ownership issued by the Farmers Home Administration. The legislation would also prohibit Federal agencies from financing their program in the government securities market unless the securities were first offered to the Bank. The Secretary of the Treasury would be permitted to waive Bank financing in cases where the security was not an appropriate investment for the Bank. In order to avoid any disruption in considering the budget for fiscal year 1983, our proposed legislation would not become effective until fiscal year 1984. The effective date might even be delayed further if more lead time were considered to be essential.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  A  Putting the Federal Financing Bank in the budget will provide the Congress and the public with a more accurate assessment of the size and scope of the Federal government's activities. It also will insure that Federal credit programs financed through the Bank compete in the budget, dollar for dollar, with all other Federal programs. This will help prevent a possible misallocation of resources. We hope that you can support this legislation and we look forward to receiving any comments or suggestions you would care to make.  Oh  )(AA WILLI M.C. Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  GRADISON U.S.S.  ,t; •  e-a4a_se. '  B ikzr  „ .i'11)111":"  ‘;'„ , 4  44 .4.4.4'•‘...1 144  United States of America  Vrii. 798  id.. V.,  1-1 -7 th PROCEEDINGS AND DEBATES OF THE y CONGRESS, SECOND SESSION WASHINGTON, TUESDAY, MA  RCH 2, 1982  By Mr. FROXMIRre S..2162. A bill to amend the Federal Financing Bank Act of 1973 to require that the receipts and disbursements of the Federal Financing Bank be iicluded in the Federal budget, am.. fcr other purposes; to the Committee on Bar.king, Housing, and Urban Affairs. TRUTH IN BUDGETING ACT OF 1982  Mr. PROXMIRE. Mr. President, I am introducing legislation to put the operations of the Federal Financing Bank in the budget of the United States. The Federal Financing Bank is a relatively obscure agency of the Treasury. It operates wholly outside the budget and the reg-ular appropriations process, yet it holds $107 billion in outstanding loans and spends $20 tillion a year. In just 8 years it has become the third largest bank in the 'United States; it will soon be the. biggest. The Federal Financing Bank was established by the Congress in 1973 in order to provide a more efficient method al financing Federal credit programs. The legislation creating the Bank was requested by Treasury officials who were concerned about the growing number of Federal agencies marketing their own securities in Government securities markets. There were three ways in which Federal agencies were able to tap the Government securities market,. The first was to issue their own debt securities. The proceeds from this borrowing would be used to finance the agency's program - . The second method was to sell loan assets or certificates of beneficial ovmership in pools of loans held by the agency. These certificates were fully guaranteed by the issuing agency and were in reality another forrn of borrowing. The third method v..as to guarantee securities issued by private lenders or other non-Federal entities and sold in securities markets. This financing method W2S typically used to finance large projects where banks or other lending institution.s were reluctant to use their ovrn money. The end result of all this creative financing WaS tO raise the cost of financing Federal programs. Because agency issues were often unfamiliar to investors and had complicated security pro-visions. they traded in thinner markets and at higher rates of interest, even though the credit risk was substantially equivalent to a U.S. Treasury security. In many cases the additional financing cost was ultimately paid by the Federal Government in the form of higher interest rate subsidies. Each agency had to employ their own separate financing staff. thereby adding further to the increased cost. Also. the marketing of new agency issues was often ill-timed with borrowing by the Trea.sury or other Federal agencies. For all these reasons, the Treasury concluded and the Congress agreed, that a central farility was needed to finance these separate programs The Federal Financing Bank Act of 1973—Public Law 93-224—established the Bank under the management of the Secretary of the Treasury. The Bank was authorized to purchase securiti.es issued, sold. or guaranteed by a Federal agency. It was thus able to provide an alternative source of fi https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  nancing for the three principa l methods by which Federal agen cies had gained access to the Governmen t rities market. The Bank would secu-. get its funds by selling its °an sscu rities in the market or by borrowing dire from the Treasury. By the endctly fiscal year 1981, the Bank held $25 of billion in agency debt securities, $52 billion in agency loan assets, and $30 billion in agency guaranteed loans for a total of $107 billion. All of these holdings were financed by Treasary borrowing. WHY WAS THE BANK PLACED OFF-1 117DGET? _ Section 11(c) of the Federal Financing Bank Act provides that the receipts and disbursements of the Ban k shall not be included in the totals of the budget of the U.S. Governme nt. Why was this done? No clear reason is evident- in the legislative history. The legislation, including the budget exerriptiori, was crafted by the Treasury. There is no discussion of the exemption in the committee reports or the floor debates. In fact, there is no evider.ce that the Congress ever seriously reflected upon the budget exemption or considered its implications. It yeas largely regarded as a technical provision prepared by the Treasury experts. To the extent there was any discussion at'all on this point, it revolved around the notion that the Bank was not intended to affect the budgetary status of existing programs. As Treasury Under Secretary Paul Voicker stated in the hearings: The Federal FiLancink Bark is not a device to remove programs from the Fede ral budget: nor is it a device to bling programs back into the budget. The Bank would in no way affect the existing budget treatment of Federal credit prnrams. If a program is financed outside of the budget, tl.t treatnaent would continue. If a proaram 'is now nanced in the budget. that treatment woulfid continue. The Ba.nk is intended to improve the financing of all Federal ager.c.es' borrowing activities, regardless of tht.ir budgetary treatment. In a limited sense, the Bank did not change the existing budgetary treatriient of Federal credit programs. If an agency v..as able to avoid being included in the budget by financing its program in the private securitieS market. it would continue to escape the budget if it financed its program through the Federal Financing Bank The legislation establishing the Bank taok for granted existing budget ni ocedures; it did not examine the legitimacy of those procedures. Such an appras*:'.. v.as understancia ble since the_ecre ept of the Bank ha( already arouael the suspicion of Federal credit agencies and their allies in the Congress. Expa.nding the legislation to reforra existing budgetary practices would almost certainly have insured its defeat. Nonetheless, tl_csa practices needed to be refoniief, .n 1973 and the need is even greatet today. INADecosAcy OF CURRENT stroort coricrrr.s Our present system for recc credit programs in the budget rived from the President's Comn on budget Concepts whose re e ln 1967 led to the establishment ei she unified budget in 1969. Linde] .- 1ceie concept,s, loan disbursements ne eepayments are counted in the bi eset as an outlay. However, if the loar :aid to a private investor, the receipt.. fi the sale can be used to offset the ori.1•  No. 18  nal outlay. Agency borrowing from either the public or the Treasury is treated as debt firancing and cannot, be used to offset loan outlays. Loan guarantees are not reflected in the budget since Fecieral funds are not directly involved unless there is a deThe unifcren budget concepts eseaalished by the Commission also attempted to close a loophole cievelopeci by several agencies in the 1960's for financing loan programs outside the budget. These agencies would finance their lending activity by selling participation certificates or certificates of beneficial ownership against pools of loans held by the agency. However, the agency would continue to hold and service the loan while guaranteeing the full payment of interest and principle on the certificate. In reality, these certificates v:ere essentially a disguised form of borrowing. However, the agencies considered them to be asset sales and used the proceeds to offset the original loan outls.ys. The President's Commission classified this type of financing as borrowing thereby preventing agencies from reducing their budget outlays through the sale of certificates. Notwithstanding the establishment of these sound principles, the Farmers Home Administration was able to secure a special statutory exemption which provided that its certificates of beneficial ownership—CBO's—are to be treated as asset sales rather than borroveing-7 U.S.C. 1932(d)(b). As a result, the Farmers Home Administration can remove its loans from the budget by selling CBO's to the public. Consider now the options for financing an additional $1 billion in loans by the Farraers Home Administration under current budgetary arrangements and without reference to the Federal Financing Bank. The first option is to make the loans with appropriated funds. Assuming there is still a budget deficit, Treasury would obtain the funds by issuing an aC.ditional $1 billion in Treasury securities to he sold in the Government secueia.; ties market. The second method would. be for the Farmers Home Administre Lon to raise the billion dollars by ing guaraeiteed CBO's in the same., Goverru-nant securities market. The third menod would be to have a pr., vate lender make the loans witn money cbtained by issuing bond-type Eecurities guaranteed by the Farmers . Home Administration and sold in the same Government securities market. All three financing methods are essentially the same. The money is 4-----sised in the same market, possibly i.rom the same investors, and in each &ase the borrowing is backed by the full faith and credit of the Federal Government. and yet under current budgetary rules, only the first financing method would be counted in the budget. The second and third methods allow the additional billion doll ars in lending to occur outside the budget. This example illustrates t.l'airadequacy of current budget concepts anci the need for a thorough revision. The legislation establishing the. Bank not only perpetuateci but expanded the opportunities for offbudget financing. For example an onbu get loan can now bz-ivtaoved from dthe budget by selling it to the Fcdera! Financing Bank_ In actu.ality, the.laa. n is! 1%.  agency to another Federal - agency. Normally, the outlays arising from the loan :would be deducted from the books of the agency selling the loan and added to the outlay totals of the agency buying the loan. But because the Federal Financing Bank is oft budget, the outlays do not appear in the U.S. budget. Similarly, an offbudget loan made by a private lender and guaranteed by a Federal agency can be converted into an offbudget direct loan when it is sold to the Federal Financing Battik. In . some cases, the loan is made directly, by the Bank without any partotipatiOn by a private lender. The b -TOwer. simply issues a promissory no.t1 triat is then guarani eed by a FederaLap44.y. The Federal Financing Bank 1.;:i'f.; • ..`f note and sends a check directly :o • . borrower. Although the tran, .c• .t has all the characteristics of a direct' loan, it appears totally outsile th budget. WHY THE BANK SHOULD BE IN THE BUDGEI  Whatever the original reasons for placing the B.aak outside the budget, there is no longer any justification fur continuing the exclusion. The House Budget Committee and the Gent ral Accounting Office hale studied the , issue and both have concluded that the opaga.tions of 1 he Bank should be in the budget., Similarly, the Congressional Budget Office has extensively documented the distortions arising from the Bank's budget exemption.2 A buoget set•ves two main purposes: First, it provides a complete and accurate recording of the total operations of the U.S. Government; second, it provides a rational mcthod for allocating scarce resources among competing u.ses. Excluding the Federal Financing Bank from the budget violates both of these purposes. Excluding the Federal Financing Bank from the budget misleads the pu'utic abuut the true size and scope of the Federal Government's activities. Had the operations of the Bank been included in the budget, total Federal outlays and the Federal budget deficit would have been $21 billion greater in fiscal year 1981. Instead of a $ 58-billion deficit, the real deficit was $79 billion. The Reagan administration is planning to reduco the off-budget outlays of the Federal Financing Bank to $16 billion in fiscal year 1982 and to only $12 billion in fiscal year 1983. However, these projections must be taken with a considerable grain of salt. Actual outlays by the Bank over the last 5 years have increased at a rate of 29 percent a year. Moreover, during this same period, actual outlays have exceeded the initial budget estimate by 25 percent. Part of the roason is that the Office of Management and Budget has traditionally underestimated the volume of disaster loans ; made by the Farmers Home Administration and financed through the Bank. The administration is also assuming the Appropriations Conunittees will drastically curtail credit activity under other credit programs administered by the Farmers Home Administration. Since most of the cost of these programs appears off-budg,et, there is little pressure on the Appropriations Committees to impose the cuts recommended by the administration. As a result, the off-budget outlays arising from the activities of the Federal Financing Bank are likely to persist at the $20 billion level over the next several years.2 At a time when we are trying to reverse the relentless expansion of the Federal Government, v:e do not ser:e our purpose well by attempting to conceal $20 billion in additional deficit spending. This $20 billion must be borrowed by the Treasury along with the $90 to $100 billion needed to finance the recorded budget deficit. There is no difference in either type of borrowing: each has the same inflationary effect on financial markets r_nd the economy. We are simply fooling ourselves and irnpairing our own credibil we perpetuate these budgv..hen ity https://fraser.stlouisfed.org • • Federal Reserve Bank of St. Louis  financing through the Federal Financing Bank has also accelerated the growth of certain Federal credit programs that make heavy use of the Bank's facilities. In particular, the Farmers Home Administration, the Rural Electrification Administration, and the Foreign Military Sales pro; gram account for 88 percent of all the loans held by the Bank. These programs have grown rapidly 'since the Bank was established in 1974. For example, the Congressional Budget Office study reveals that since the Bank was established, the Rural Electrification Administration increased its annual lending by an average of 29 pecent a year, whereas prior to the • Bank, the program grew at a rate of only 5 percent a year. Similarly, the rate of loan growth at the Farmers Home Administration jumped from 16 percent to 26 percent a year. There is no doubt that most of these loans met important needs. However, because they are financed off-budget, the definition of need may not be as strict as the criteria used for onbudget programs. For example. in addition to helping small farmers, the Farmers Home Administration has financed office buildings, fast food stores, condominiums and large corporations such as Perdue Farms. Subsidized disaster loans have gone to wealthy borrowers without regard to their ability to obtain credit elsewhere. In some counties, delinquency rates are as high as 70 percent. And during 1980, when many homebuilders , and auto dealers were going bust because of high interest rates, the REA , launched a new program for making 5 , percent loans to cable TV companies. An argument can be made that most rOr all of this increased loan volume would have occurred outside the budget anyway, even without the Bank. In theory, an agency could have sold its loan assets or marketed the guaranteed securities in the private securities market, thereby escaping the budget. However, private financing would have been considerably more expensive and this increased cost might have acted as a brake on loan expansion. Moreoever, in certain cases such as the foreign military sales program, the feasibility of selling guaran. teed bonds issued by developing nations is probably limited. More importantly, the availability of off-budget financing distorts the budget allocation process regardless of whether that financing is conducted through the Federal Financing Bank or through the private securities market under existing accounting procedures. In either case, the off-budget credit programs are not subject t,o the same critical review we give to all of the programs that are in the budget. The off-budget programs have an edge; they do not have to compete for scarce budget dollars. As a result, there is a strong possibility that we have misallocated resources. This means that the American people are not getting the maximum benefit from their tax dollars. It also means that we in the Congress are not doing the job for which we were elected. Another reason for putting the Federal Financing Bank in the budget is to preclude the Office of Management and Budget from manipulating the figures on the official budget deficit. The present system offers many tempting possibilities for reducing the size of the official deficit simply by changing the timing of transactions with the Federal Financing Bank. For example, when the budget is being prepared for the forthcoming budget year, OMB can estimate that the net volume of loan asset sales from the Farmers Home Administration to the Federal Financing Bank v:111 be $2 billion less in the current year and $2 billion greater in the budget year. The effect of this simple change is to increase outlays and the deficit by $2 billion in the current year a.nd to reduce outlays and the deficit by $2 billion in the budget year. Thus, by a simple v.-ave of a magic accounting v.and, total outlays and the deficit appear to Jecluie by $4 .  •  -  %/Lamm &Rum  way I.:Lax riiL  yCeit IA/ tile  budget year. In actuality, all that has happened is that the accounting entries have been changed. These manipulations would not be possible if the Federal Financing Bank were in the budget. EFFECT OF PUTTING THE BANK IN THE BUDGET  Treasury officials have generally opposed putting the Federal Financing Bank in the budget even though the budget totals for the United States are seriously distorted by the exemption. Their argument is twofold. First, it is argued that a. simple repeal of tile budget exemption would result in the Treasury being charg,ed for outlays and budget authority that should properly be attributed to the agencies initiating the transaction. If the repeal of the budget exemption were coupled with an annual appropriation to the Bank, its role would tend to change from a passive financing vehicle to an active allocator of credit among government programs. If the Bank did not have enough budget authority to meet all the claims made upon it, agencies would revert to selling their securities in the market, thereby resurrecting all of the problems that gave rise to the establishment of the Bank of 1973. Second, the Treasury argues that the problem is not so much tilt: olfbudget status of the Bank, but rather the way certain programs are treated in the budget, particularly the favorable treatment given to CBOs issued by the Farmers Home Administration and the exclusion of guaranteed loans from the budget. Over $48 billion in Farmers Home Administration CBOs were financed by the Federal Financing Bank since its creation. About half of the $20 billion in off-budget outlays attributed to the Bank would be placed on budget and charged to the Farmers Home Administration if the special statutory provision defining CBOs as asset sales were repealed—assuming the Farmers Home Administration continued to use CB0s. Eliminating the special exemption for Farmers Home Administration CBO's would still not close the guaranteed securities loophole which accounts for approximately one-half of the Federal Financing Bank's activity. Moreover, unless this loophole were closed, most of the loans financed by the Farmers Home Administration through the CB0 route could be converted into loan guarantees and still be kept off budget. Therefore, repealing the special status of Farmers Home Administration CBO's would not, by itself, solve the problem. A more comprehensive solution is needed. PROVISIONS OF THE LEGISLATION  The legislation I have introduced is designed to meet the arguments of the Treasury while still insuring that all of the Bank's present activity is properly recorded in the budget. First of all, the legislation repeals section 11(c) of The Federal Financing Bank Act which places the Bank outside the budget. Second, it authorizes the Director of the Office of Management and Budget to issue regulations to require that the outlays and budget authority arising out of the Bank's operations are charged to the appropriate F'ederal agency notwithstanding any contrary law or regulation. This would nullify the special treatment given Farmers Home Administration CEO's. It would also allow, the OMB Director to eliarge the guaranteeing agency with the outlays and budget authority arising from the purchase of a guaranteed obligation by the Bank. Third, it reauires that no Ftderal agency may issue, sell, or guarantee Et F.ccurity of the type ordinarily financed in securities markets unless it is first offered for sale to the Federal This provisiun is Financing needed to pre‘ent agencies from tapping the securities market directly as they did prior to 1973. The Secretary of the Treasury is authorized to determine by regulation tne types of secui ties subject to tnis requirement and to  1  Pft. v.'aive the requirement where it is not an Appropriate investment for the Aktinkt This requirement is not intended to apply to guarantee programs such as FHA or VA mortgage loans or similar loans which are financed by local lending institutions rather than in the Government securities market. • Fourth, the legislation will not become effective until fiscal year 1984. This will permit ample time for the Congress and the administration to adjust to the new ground rules. It will also avoid possible confusing cha.nges in the budget for fiscal year 1983 which has alrea.dy been submitted to the Congress; The end result of my proposed legislation is to include in the budget all of the programs tha.t are now financed off-budget through the Federal Financing Bank. The budget entries would appear in the accounts of the program agencies extending the loans or aua'antees. These programs would be funded through the normal appropriations process where they would IIliVf• to compete, dollar for dollar, with 'in other program:;. The Cone ress and the people would get a true and aecii.aie picture of the total size of the tailget and the budget cieficit. And the Congress waald be In a k, tier position to allocate budget doll:irs aniong competine progr anis in order to achieve the hiehest posainle ret urn. RI : ATIONSHIP TO THE ttit.UIT BI'DGET  Ivir. President, I believe this leelstar ;on will supalement the crtoit budeet lega.lat fon introdnee,I. In the &nal(' by 6e:1i:dor Pfr.R( Y and m trie House by Conttressman MIN1-:" . I strongly supra,' . i: :.; long oe I e lee'slat ion and I liode ..i. I it et.• Le enacted this year. Tire ererit. budget legislation atrengtlit.i.s t le eledit budget system already dt veioped by the Congress and the Carter and Reagan administrations for fiscal year 1981 and 1982. Under this system, the Appropriations Committees have established annual limitations on approximately 60 percent of the gross amount of new Federal credit activity while agg,regate targets for all Federal credit activity are cont?ined in the budget re.solution. The credit budget legislation reqUires Congress to establish a binding ceiling on the gross amount of Federal credit activity in the second concurrent budget resolution. The ceiling would include loan guarantees as well as direct loans. Under the present system. targets are established but they are not binding. The legislation also makes available all of the enforcement procedures of the Congressional Budeet Act in order to er.forre compliance with the aggregate ceilings on credit activity. loor example. it would not be in order to consider legislation providing new lending or guarantee authority if it would cause the aggregate ceiling to be exceedeci. Ttlf' credit budget legislation also provide& that legt-lation e.stktilihtuttg Dew Cledtt proaram, vioald nut be in order unles, It provided that the amount of ere-tilt almistance ev,teruled Must be &pp/toed ila ad aim I" MI 1141 Ay proprtations ActWh:le the credit butler t 1.‘Watson la net Lied. It does not suite a.: the prvt)  km& regarding the proper budgetary treatment of Fi deral crede programs. Nor wt11 It aubstantiall) curt) the growth of credit prograats beyond o hat sould have been accomplished under the current system. at lea.st for the first few years. While in theory, thc Congress could curtail program growth by setting lower binding cell lugs in the budget resolution, there are several practical reasons why this is unlikely to occur. First. most of the focus of the Congress arid the public has been on the regular budget deficit. It will be difficult to concentrate the same degree of attention on the size of the credit budget. at least until its size is perceived to be politically important. Since no revennts are included in the Ir. . credit budget there are no surpluses or deficits by which to measure fiscal re sponsib ility; https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Second, Congress might find it hard to reduce aggregate ceilings because there is no body of t.,-fr‘ry for predicting the economic eat ' of an aggregate level of FerierEil credit activity. Indeed, any aggregate total is a composite of many separate programs with. widely different economic effects. A program of 100 percent loan guarantees financed through the securities market probably has a much greater displacement effect than a 90-pereent guarantee program financed through local lending institutions, yet both are given the same weight in an aggregate credit ceiling. A change in the mix of programs could have a much greater effect on financial markets and the economy than a change in the aggregate total. Third, the very establisment of a separate credit budget outside the framework of the regular budget might reinforce the belief by some that credit activity is less costly than spending and does not require the same degree of restraint. For all these reasons. there would be a tendency for the Congress to set aggregate credit ceiling high enough to accommodate most of the anticipated program growth, at least until ft become more familiar with the concept. In the meantime. Congress should not permit the forrnal establishment of a separate credit budget to di-,ert its attention from closing loopholes in the regular budget. Credit programs need to be counted in both when they are financed with Federal dollars. Putting the Federal Financing Bank in the budget would plug the biggest loophole in the regular budget—a $20 billion loophole. I hope the legislation to accomplish this can be adopted this year along with the credit budget legislation. Mr. President, I ask unanimous consent that the bill and a section-by-section analysis be included in the RECoRD At the end of my remarks. There being no objection, the material was ordered to be printed in the RECORD, fiS follows: S. 2162 Be it enacted by the Senate and House of Rep-csentatives of the United States of America in Congress assembled, SHORT TITLE Serrtor; 1. This Act may be cited as the "Truth in Budgeting Act of 1982". REPEAL OF BUDGET F.XEMPTION Sue. 2 Section 11(c) of the Federal financing Bank Act of 1973 (Public Law 93-224) is repealed. assicroAENT or st•i)cyr umesc-r  Sec. 3. The Federal Financing Bank Act of 93 224) is amended by 19'73 (Publ.(' adding the follov.iiig raw section after Section 11: "ASSIGNMFJeT OF bUDC.ET IMPACT "Sir 11A The Director of the Office of Management and liudeet In atithori:pd to 1sAur regulations pro‘lcung that the buchtPt Stilhorit) sincl Outlay% arising from Ihr barite's operstions shah Or charre,4 to Ube accg.uta of the NtsProVriste Priem) aernr)• orip and such regv tat bons shall ha‘• pv 0%• 114P11 Cot het pro% wow. of Las or rPfuts t. -s ites 4 INewrturr 1 of the Prdr•a.1 1 er•irini 01 214 , ft Ita-ta Act tat trf3 ••••••• tetf t r &AA rvg at Iht 'fret the-vr-of 'ow lea)... in.100 A etirrai fug, y ma, no•'11t tssue or sell an oblwatior of a tt-p.p ordinarii) financed in Imestment slisci. securVies markets unless MO tOltoktion ts firbt of.f, ied for sale to the Istin%: or -Or guarantee an obligation of a type which is ordinarils financed in investmcnt securities marketa Unless the terms of thc guarantee provide that it will cease to be effectiee if the obligation is hi id by any person or governmental entity other than the agency making the guarantee or the Brulk The Secretary of the Treasury shall issue regulations to carry out the provisions of this subsection, and such regulations shall list the types of obligations to which this subsection applies. the Secretary tnay waive the requirements of this subsection with respect to types of obligations that the Secretary determines are not appropriate investments for the Bank.".  EFFECTIVE DATE SEC. 5. (a) The amendments made by this Act shall take effect on October 1, 1983. (b) The amendments made by this Act shall not be deemed t,o be superseded. modified, or repealed except by a pr(n ision of law which is enacted after the date of enactment of this Act, and which amends the Federal Financing Bank Act of 1973. SECTION-BY-SECTION ANALYSIS—TRU TH IN BUDGETING ACT Section 1. Short title. This section states that the legislation may be cited as the "Truth in Budgeting Act of 1982". Section 2. Repeal of Budget Exemption. This section repeals Section Mc) of the Federal Financing Bank Act. Section 11(c) now provides that none of the receipts and disbursements of the Bank shall be included in the totals of the budget of the United States government. Section Mc) also provides that nothing in the Federal Financing Bank Act shall affect the budget status of the Federal agmcies selling obligations to the Bank or the method of budget accounting for their transactions. Section 3. Assignment of Budget Impaet. This section requires the Director Office of Management and Budget of the to issue regulations assigning the budget authori ty and outlays arising from the Bank's operations to the appropriate Federal agency. These regulations would have precedence over any contrary law Or regulation. This authority would enable the Director of OMB to classify' the salt. of all of beneficial ownership to the certificates Bank :es borrowing. It would also permit OMB to eleir‘e the guaranteeing arency mth ti.c budi.,et authority and outlays arising from the purchase of any guaranteed obligation by the Bank. Section 4. Control Of Marketable Oblwi• lions. This section prohibits Federal agencies from is..suing or selling obligations of a type ordinarily financed in investment sc rities markets unless the obligati on is first offered for sale to the Bank. This provision simply clarifies authority already possessed by the Secretary of the Treasury under Section 7(a> of the Federal Financing Bank Act to specify the. source of financing of ans obligation issued or sold by a Federal agency. The section also prohibits Federal agencie s from guaranteeing any obligation ot a type ordinarily traded in investment SCCIllit leS markets unless the guarantee stipulates is is valid only if the obligation is held by the guaranteeing agency or the bank. The Secretary of the Treasury is required to list by regulations the types of obligations subject to the requireinents of this section. The Secretary may waive the requirements for any obligations that the Secretary determines are nut appropriate! investments for the Bank. All of the Secretary's determinations under this aection are intended to be at his sole Judgment and are final and conclusive. This section is not intended to apply tO guarantees of loans made by local lending institutions and not financed in lin securities markets such as FI1A or VA mortgage loans. Section 5. Effecti‘e Date. This section provides that the legi.!ition will becoine effective on October 1. 1083.  10A0 rim rt ot Aucars 3 1971 rAn gro akusiet Cmainbett try X,g. rl N. OS Ilks.$ 11111 •The 1'.. • t. tr.. ,P Treuroorst el Probreal Crir.64 Art/roanah.1-•rts tJaertashol IOU A  •  April 21, 1982  Tne i.onorable Bill Grauison house of Representatives 20515 Washington, b.C. Dear Lill: Thank you for your recent letter concerning the proposals before the DIDC that would permit depository institutions At to offer more competitive short-term deposit instruments. , its last meeting, the DIDC authorized depository institutions um beginning May 1, to offer a 91-day time deposit with a minim rest uenomination of $7,500 and with a ceiling rate of inte are no indexed to the 91-day U.S. Treasury bill rate. There this restrictions on the types of customers that may hold assist account. Tne DIDC believes that this instrument will ding in proviaing increased returns to small depositors, inclu smaller governmental units. In conjunction with its consideration of this new on developing instrument, the 1.)IDC also asked its staff to work ittee within new deposit instruments and report back to the Comm continue to 30 uays. I would anticipate that the DIDC would sit explore the possibility of creating new short-term depo with instruments to enable depository institutions to compete return money market instruments as well as providing increased to all depositors. As you are aware, the Board has indicated that it bility has no objection to the expansion of the NO account eligi be list to include governmental units. I believe this would to earn a desirable way of enabling smaller governmental units a return on their transaction balances. I appreciate teceiving your views on this important matter. Sincerely,  GTS:NS:pjt (#V-69) bcc: Gil Schwartz Legal Records (2) Mrs. Mallardi   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action assignei Mr. Bernard WASHINGTON OFFICE. 11 17 LONGWORTH HOUSE OFFICE BUILDING WASHINGTON. D.C. 20515  ?RADISON BILL, 1ST DISTRICT. OHIO  TELE....0...E.wwn5-3164  RON ROBERTS ADMINISTRATIVE ASSISTANT  Congre55 of Me Unita  tatc5  DISTRICT OFFICE. FEDERAL OFFICE BUILDING 550 MAIN STREET  Potick of ileprefsentatibet  Owes-  4520L CINOZDNATI TELE4NE,(54#84-6  aliatbington, ri.C. 20515  (1-3 M  March 18, 1982  Mr. Paul A. Volcker Chairman Depository Institutions Deregulation Comm. Federal Reserve Building Constitution Avenue Washington, D.C. 20551  4t 6•1  :41%/4  :Or AZ1  CO 3:29 :At  r•-• '  CD  Col -11 M —1C) <  <  (r) .74.7  Dear Paul: I understand that on March 22, 1982, the DIDC will consider a number of proposals to deregulate interest rates on time deposits. These proposals include: a 14 day certificate of deposit requiring a $25,000 minimum investment; a "super" NOW account requiring a $5000 minimum investment; and a NOW account which pays the minimum passbook interest rate on'the first $2500 deposit and a market rate of interest on amounts in excess of that sum. A court ruling has prohibited State and local governments from storing their funds in NOW accounts unless those funds are des:;gnated for a narrow range of specific uses. Larger governments with sophisticated cash management systems skirt this prohibition through 1,he use of bank repurchase agreements. Small governments, however, receive no return on the public funds they hold in checking accounts. Additionally, since thrift institutions can offer only NOW accounts, the are precluded from competing for these governmental deposits at all. I have joined several members of Congress in introducing legislation to permit general purpose governmental units to use NOW accounts. Until this legislation is passed, however, small governments need an investment instrument they can use safely. Toward this end, I encourage the express inclusion of "governmental depositors" among those eligible to purchase short-term certificates of deposit. In addition, reductions in the $25,000 minimum investment requirement and the 14 day holding period would increase this certificate's effectiveness to small governments which would have liquidity problems with the proposed requirements. of I appreciate your consideration of this issue. In this period l that declining federal revenues to States and localities, it is essentia forward we boost the return on the investment of public funds. I look to your support. Sincerely,  lPGradison ' i\ Representative in Congress BG/sb   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  •  .• .•_ of G01/47 •• R4,%  .• *co  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  .c) • .4  • 4 )• ,  WASHINGTON, D. C. 20551  RAUL A. VOLCKER  RAL RES  • • •.. - • •  April 21, 1982  CHAIRMAN  The Honorable Daniel Moynihan United States Senate Washington, D. C. 20510 Dear Senator Moynihan: In following up our conversation last week on the subject of real interest rates, I have asked the Federal Reserve staff to compute the ex post facto real returns that would have been realized through various investments in Treasury debt instruments during the last 30 years or so. I have enclosed the results of these computations for your information. To summarize, the results indicate that the real return on fixed-income investments was quite low during most of the period--even turning negative during the 1970's. Even for the past several years taken together, the average real return has not been especially high. I would emphasize that these calculations omit the effect of taxation, which is to lower these yields further and to make more of them turn out negative. The first two tables indicate the real returns that would have been achieved between various periods by rolling over three-month Treasury bills. As you can see, investments in T-bills initiated in the early- and mid-1970's period generated negative real returns--an experience that we are still recovering from. The next chart illustrates the real returns that one would have achieved by investing in intermediate-term (10 year maturity) Treasury issues. Again, much of recent experience has involved negative real rates of return. The staff also attempted to construct the ex post facto real return over a 30-year period for an investment in a 30-year Treasury bond in 1951 assuming that the investor reinvested the proceeds from each coupon in a security that matured on the final year (1981), and further reinvested the proceeds from each such derivative security in securities that matured in 1981, and so on. This, as you can imagine, proved to be nearly impossible because of the number of calculations involved. But, as a means of approximating the real returns to a buyer of long-term bonds over the last three decades, the staff portrayed the effect of reinvesting the coupon income at the original interest rate on the bond itself. As the last table shows, such an investor would have   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Daniel Moynihan Page Two  received an annualized real rate of "return" of minus 1.5 percent during that period. In other words, an investor who invested $10,000 in long-term bonds in 1951 would have had only $6,303 in equivalent purchasing power 30 years later. Of course, much of the erosion in purchasing power experienced by the investor was a result of the rapid rates of inflation that we experienced in the mid- to late-1970's, when real rates were generally negative. Again, the inclusion of taxation in these calculations would make the returns even worse from the investor's viewpoint. In my view, the investing public, whether private citizens or professional investment managers, is continuing to react with a certain skepticism to the current evidence that inflation has begun to abate. Their prolonged experience with high rates of inflation eroding the real returns on their investment--and indeed the purchasing power of the investment itself--coupled with the prospect that huge federal deficits over the foreseeable future may lead to renewed inflationary pressures are the key factors holding interest rates today so high above today's inflation. To my mind this emphasizes the urgency of prompt and decisive action on the budget problem-and the potential rewards in terms of lower interest rates from doing so. Sincerely,  Enclosures  BM:NS:pit bcc: Brian Madigan Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  PA.  Table I  Annualized Real Rates of Returnl 3-month Treasury Bill Rollovers  Terminal Year Initial Year  1954 1958  1958  .6  1978  1982  1.0  .7  .7  1.5  1.1  .7  .7  1.5  1.0  .5  .5  1.1  .6  .0  .2  .1  -.5  -.1  -1.1  -.2  1962  1966  1970  1974  1.0  1.3  1.2  1.5  1.7 1.9  1962 1966 1970 1974  .8 1978 First quarter to first quarter. return. 1. Consumer price index used to deflate   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Table II  Real Value of $10,000 Investmentl 3-month Treasury Bill Rollovers  Terminal Year Initial Year 1954 1958  1962  1966  1970  1974  1978  1982  1958  12,178  12,237  11,698  10,221  11,669  12,063  10,838  11,417  11,914  11,972  11,445  11,802  10,768  11,237  11,291  10,794  11,131  10,436  10,486  10,025  10,337  10,04E  9,602  9,906  9,560  9,858  , 10,603  1962 1966 1970 1974  10,312 1978 First quarter to first quarter. deflate return. 1. Consumer price index used to   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Table III MENTS RETURNS ON TEN-YEAR TREASURY NOTE INVEST (Real and Nominal Returns) Investments made in 1953 to 1971  I  I  I  I  I  1  I  I  I  I  10  I  1  I  1  I  I  q.•••••••  ••••••4  e  e  /# e o  Nominal  % %  e e  .111••••••••  ose .60 ee  MIP  ••• so`  4  ere 01111 ... li••••••11•16  •••  ft • • •I  •  2 Real  1.1/•0•1111  1 I 1953  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Uses CPI.  1 1 1956  1 1 1959  1 I 1962 INITIAL YEAR  1 1 ill 1968 1965  I 1971   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Table IV NOTE INVESTMENTS RETURNS ON TEN-YEAR TREASURY 1971 Investments made in 1953 to  Returns Initial Year 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971  Nominal 2.9122 2.5966 2.9672 3.2735 3.6901 3.4068 4.3037 4.1368 4.0253 4.1012 4.2297 4.5359 4.7183 5.0978 5.2296 5.8021 6.7366 7.3278 6.3476  Real 1.5314 1.1264 1.3149 1.4472 1.9221 1.4995 1.9391 1.342 .92149 .77979 .42875 _ .18965 _ .73796 -.63522 -.85968 -.64521 -.31093 -.45127 -1.9136   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Table V  al Values Final Nominal and Re r Compound Investment of a Particular 30-Yea  at principal and The investment assumes th each year, for a one-year interest are reinvested . (1951) long-term rate period, at the original ulations for a $10,000 The results of these calc een 1951 and 1981 are: initial investment betw  Final nominal value: 1 Final real value : 2 : rn tu re l na mi no ed Annualiz : Annualized real return  I. 2.  $21,403 6,303  2.6% -1.5%  computed using the CPI. The real return was longl return is the 1951 The annualized nomina . term Treasury bond rate   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  April 21, 1982  The Honorable Timothy E. Wirth Chairman Subcommittee on Telecommunications, Consumer Protection and Finance Committee on Energy and Commerce house of Representatives Washington, D.C. 20515 Dear Cnairman Wirth: Thank you for your letter of April 19 inviting the Board to testify at your Subcommittee's hearings on proposed legislation relating to the jurisdiction of the Securities and Exchange Commission and the Commodity Futures Trading Commission over certain new and proposed "derivative" investment instruments. Governor J. Charles Partee is looking forward to appearing, on behalf of the Board, on April 23. Sincerely,  CO:pjt (#V-101) bcc: Gov. Partee Messrs. Kohn, Plotkin & Struble Mrs. Mallardi (2)  ROOM B-331  NINETY-SEVENTH CONGRESS  RAYBURN HOUSE OFFICE BUILDING PHONE (202) 225-9304 A V-MOT. ""' E. WIRTH. COLO.. CHAIR MAN VONALd2.1•IcirrtYtofil0 JAMES H. SCHEUER, N.Y. EDWARD J. MARKEY, MASS. THOMAS A. UJKEN, OHIO AL SWIFT WASH. HENRY A. WAXMAN, CALIF. E.ARDISS COLLINS ILL. W. J. "BILLY" TAUZIN. LA. JOHN D. DINGELL.. MICH. (EX OFFICJO)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  JAMES M. COU-INS. TEX. MATTHEW J. RINALDO, N.J. E.ARLOS J. MOORHEAD, CALIF. IHARC L. MARKS, FA. THOMAS J. TAUKE, IOWA THomAS J. BLILEY, JR., VA. JAMES T. BROYHILL, N.C. (ex orncso)  U.S. House of Representatives SUBCOMMITTEE ON TELECOMMUNICATIONS, CONSUMER PROTECTION, AND FINANCE OF THE  COMMITTEE ON ENERGY AND COMMERCE  Washington, D.C. 20515 April 19, 1982  ../ft //)  Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System 20th and Constitution, N.W. Washington, D.C. 20551 Dear Mr. Chairman: I am writing to confirm our telephone invitation to you to testify at hearings on proposed legislation relating to the jurisdiction of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) over certain new and proposed "derivative" investment instruments. The hearings will also address H.R. 5515, legislation which would place a moratorium on futures and option contracts on stock indices or stock groups, and other relevant matters, including margin issues. The hearings will be held on April_23, 1982, and will begin at 9:30 a.m., in a room to be announced. A number of concerns have been raised about the impact of the proposed jurisdictional scheme upon the securities markets and investors. Specifically, concerns have been raised about problems that may result from the different regulatory treatment given by the SEC and CFTC over instruments which, in some cases, may be functionally equivalent. In addition, concerns have been raised that futures trading on securities-based products is expanding to a wider market of investors, but without the investor protections offered by the federal securities laws. It has also been suggested that intermarket manipulative schemes and trading abuses may be difficult to detect when the underlying securities are regulated by one agency and the derivative instruments are regulated by another. In addition, some have said that the proliferation of derivative instruments based upon "values" or "differences" will detract from the liquidity of the secondary market for securities and divert funds from the capital formation process itself.  # (  `14k   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Honorable Paul A. Volcker April 19, 1982 Page Two  Specific concerns have been raised with respect to the different margin treatment for securities, options and futures contracts. I would appreciate your directing your testimony to these concerns, and to the following issues relating to margin requirements: 1) macroeconomic considerations in the determination of margin credit, including the purpose of margin requirements in general and the impact of margin requirements on speculation in the securities and futrues markets; 2) your general authority to set margins on futures contracts; 3) any legislative recommendations, including suggested language for amendments to Section 7 of the Securities Exchange Act of 1934, for the purpose of clarifying your authority to set margins on stock index futures and other functionally equivalent securities derivatives; 4) the competitive effect of different margin requirements on economically equivalent or comparable instruments; 5) the impact of trading in derivative instruments, such as options and futures, on the underlying securities markets and, specifically, the effect, if any, of trading in such derivative instruments on capital formation; 6) the effect and adequacy of margin levels on futures contracts on the Value Line Index traded on the Kansas City Board of Trade. Written statements will be included in the hearing record in full. We ask that you limit your oral presentation to five minutes, highlighting your written submission, so that Subcommittee members will have sufficient time to engage you in a more detailed discussion of your statement. Subcommittee rules require that you file 75 copies of your written testimony with the Subcommittee staff, Room B-331 Rayburn House Office Building, at least two days prior to the hearings. If you have any questions concerning your participation in the hearing, please feel free to contact Marti Cochran at (202) 225-9304. On behalf of the Subcommittee, I thank you for participating in these important hearings and look forward to your appearance. With best wishes,  Timothy E. Wirth Chairman Subcommittee on Telecommunications, Consumer Protection and Finance TEW/mcf  40' .•.0f GO  •  .*. •co •0  t.%  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  \ .2  #t;. :  ▪•1 ' 0 - ‘‘.4' ••••s e .0  WASHINGTON, D. C. 205E1  " .;:::.  •• ERAL RE.S - •• ••• •• ••  April 20, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable Bill Nichols House of Representatives Washington, D. C. 20515 Dear Mr. Nichols: Thank you for your letter with which you enclosed correspondence you received from Mr. C. Eugene Boyd of Anniston, Alabama. Mr. Boyd expressed concern about the impact of deregulatory action by the Depository Institutions Deregulation Committee (DIDC) on savings and loan institutions and housing. The DIDC has been charged by Congress with an inherently difficult task--to phase out deposit interest rate ceilings so as to increase returns to savers while at the same time taking into consideration the current difficult situation of depository institutions, including, prominently, many thrift institutions. I am also concerned about the thrift industry, and you may assure Mr. Boyd that I will continue to consider the impact on that industry and housing when examining issues before the DIDC. As a result of balancing these considerations in light of current circumstances, the DIDC took several actions at its meeting on March 22. As you know, the DIDC authorized a new 91-day deposit instrument which, among other features, will have a temporary 25 basis point differential in favor of thrift institutions. The DIDC also established a deregulatory schedule at the meeting, beginning with the lifting of ceilings on new accounts with maturities of 3-1/2 years or more. This new account may be offered starting May 1, 1982, and its initial minimum maturity will be reduced by one year on April 1, 1983, 1984, and 1985, respectively. On March 31, 1986, the account will have the minimum maturity for time deposits--currently 14 days. In keeping with your request, Mr. Boyd's letter was made part of the official DIDC record. Sincerely, NB:NS:vcd (V-71) bcc: Normand Bernard Mrs. Mallardi (2) cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Steven L. Skancke Executive Secretary -- DIDC  Sgaul  VolckeE  BILL NICHOLS 3RD DISTRICT, ALABAMA  COMMITTEE ON ARMED SERVICES  Action assigned Mr. Bernard  . 7 RAYBURN BUILDING , 4  DISTRICT OFFICES:  WASHINGTON, D.C. 20515  104 FEDERAL BUILDING  Congrez5 of Me Unita'fgatess  PHONE: (202) 225-3261  PHONE: 236-5655  ji)ousSe of Reprettntatibeti  COUNTIES: AUTAUGA CALHOUN CHAMBERS CLAY CLEBURNE COOSA ELMORE  POST OFFiCE Box 2042 ANNISTON, ALABAmA 36202  LEE LoWNDES mACON RANDOLPH RUSSELL TALLADEGA TALLAPOOSA  107 FEDERAL BUILDING OPELIKA, ALABAmA 36801 PHONE: 745-6222  Wassbington, D.C. 20515  115 EAST NORTH SIDE TUSKEGEE, ALABAmA 36083 PHONE: 727-6490  March 19, 1982  UD OD  -11  c-) rn  Mr. Paul A. Volcker Chairman Depository Institutions Deregulation Committee 20th and Constitution Avenues Room B 2120 Washington, D. C.20551  rn  7M 3:31  rn  r-  3IC  r• g-0  to  Dear Mr. Volcker: Attached is a copy of a letter I have received from my constituent, C. Eugene Boyd, opposing two specific proposals which are on the Committee's agenda for its' upcoming March 22nd meeting. Mr. Boyd is opposed to a wild card four year certificate of deposit and the short term certificate of deposit to compete with money markert mutual funds which he feels are detrimental to the long term viability to the savings and loan industry. I would ask that my constituent's comments be made the official proceedings on this matter. if  B BN:cm Enclosure cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. C. Eugene Boyd 1115 Apache Pass Anniston, Alabama 36201  Nichols, M.C.  :.z)  rn ,-, Li) • rt."  rn< rn  ›-  "TA f  art of  rti f.-, 1, (  .  .d  i  March 16, 1982  The Honorable Bill Nichols House of Representatives 2417 Rayburn House Office Bldg. Washington, D. C. Dear Bill: time. I am writing you with r you of ute min a e hav me let Please n industry and the american Loa and s ing Sav the for n cer great con titution Deregulation osi home owner. As you know the Dep will deliberate Committee will meet again on Two specific proposals of ion lat egu der r the furthe a year certificate of deposit and are being made; a wild card 4 pete with the Money Market com to t osi dep of te ica tif cer short term Mutual Funds. ndustry hinges on its The very existance of the Sav ime to reey ave su icien cost of funds decreasing u . and increase their income yields arrange their asset composition home rease before interest rates to The cost offinds must also dec d to ordable price. I am not oppose buyers can come down to an aff timing but I suggest to you that the es, rat st ere int of ion lat egu der als not realistic. These two propos is es rat of ion lat egu der the of sing g the cost of funds and increa sin rea inc of ect eff the e hav will . I urge you to do anything in ers buy e hom the to es rat ge mortga errent of the DIDC which will be a det ion act any ay del to er pow your the home buyer and the financial ry, ust ind n Loa and s ing Sav to the ry. soundness of our banking indust Sincerely,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4 . E ene Boyd 1115 Apache Pass Anniston, Alabama  36201  • •  *.c;  BOARD OF GOVERNORbOF THE  •  „„ %••• ..  FEDERAL RESERVE SYSTEM :  • 'NAL  WASHINGTON, D. C. 20551  April 16, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable Jake Garn Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. 20510 Dear Chairman Garn: I am pleased to respond to your letter of January 20 regarding correspondence you received from Admiral V. A. Lascara, President of the Navy Federal Credit Union, concerning the "adverse action" notice requirement in the Equal Credit Opportunity Act and the Board's Regulation B. I can assure you that Navy Federal's concerns have been receiving serious attention, and I want to report to you on the action we have taken in response to their problem. Admiral Lascara disagrees with an interpretation of Regulation B as to what the regulation requires when a creditor needs additional information from a credit applicant who, despite a request, fails to furnish it. The staff's opinion is that a written notice is required if the creditor ultimately does not grant the credit. If the application is withdrawn, of course, the creditor need not send anything. Our staff has discussed this matter extensively with Navy Federal, with other creditors, and with the National Credit Union Administration in an effort to assess the magnitude of the problem. They have also visited Navy Federal's operations center here in Washington. It appears that Navy Federal's operations are not common even among credit unions. Unlike other creditors, Navy Federal's credit personnel communicate by telephone with a sizable percentage of its members regarding their credit requests. Consequently, the requirement of a written notice does represent a change from the procedures that Navy Federal would normally follow. We have made a special effort to find ways to minimize the notification burden for Navy Federal, and have suggested operating procedures that address Navy Federal's principal concerns. These are discussed in the enclosed letter to Admiral J. G. Schoggen, Navy Federal's General Manager.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  A  The Honorable Jake Garn Page Two  There is also the question, raised by the Navy Federal, about the need for public comment on this issue. As noted in the enclosed exchange of correspondence, the Board is scheduled to review all of Regulation B within the year as part of its Regulatory Improvement Project. This review will explore the ways in which regulatory burdens might be reduced while retaining important consumer protections. Following this review, there will be an opportunity, as Admiral Schoggen observes in his April 14 letter, for Navy Federal as well as other creditors (and consumers too) to participate in the regulatory process. I hope these comments are helpful to you. of further assistance, please let us know.  If we can be  Sincerely,  Enclosure  (3/26/82 ltr. to Admiral J. G. Schoggen from Dolores S. Smith)  DSS:NS:pjt (#V-21) bcc: Dolores Smith Mrs. Mallardi   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action assignea Janet Hart with into copy to Governor Teeters JAKE. GARN, UTAH, CHAIRMAN JOHN TOWER, TEX. JOHN IC- Nrz, PA. WIL!, Art_ -,:sig.isrpeopio, COLO. RICHARD G. LUGAR, IND. ALFONSE M. D'AMATO, N.Y. JOHN H. CHAFEE R.I. HARRISON SCHMITT, N. MEX.  HARRISON A. WILLIAMS, JR., NJ. WILLIAM PROXMIRE, WIS. ALAN CRANSTON, CALIF. DONAI_D W. RIEGLE, JR., MICH. PAUL S. SARSANES, MD. CHRISTOPHER J. DODD, CONN. ALAN J. DIXON, ILL.  11Cnifeb Ziatez Zenale  M. DANNY WALL, STAFF DIRECTOR HOWARD A. MENELL, MINORITY STAFF DIRECTOR AND COUNSEL   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS WASHINGTON. D.C.  20510  January 20, 1982  Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System 20th & Constitution Ave., NW Washington, D.C. 20551 Dear Chairman Volcker: Enclosed is a letter, with attachments, which I received from Admiral Lascara in his capacity as President of the Navy Federal Credit Union. He is seeking assistance in getting an Official Staff Interpretation regarding adverse action notification for incomplete applications under the Equal Credit Opportunity Act. Without passing judgment on the legal arguments raised in the attached correspondence, it appears to me that Navy Federal's concerns, both as to the substance of the interpretation they have received and its form, have considerable merit and are worthy of further consideration. NFCU claims that sending adverse action notices to applicants submitting incomplete applications entails unnecessary administrative expense and in fact they estimate the cost to Navy Federal at $41,000 per year and the cost to all federal credit unions at $1,784,000. They also point out that placing adverse action notices in the credit files of such applicants, when there has been no actual refusal to grant credit, is a disservice to consumers. In addition, NFCU believes that regardless of the substance of the interpretation that is finally issued, the interpretation should take the form of an Official Board Interpretation. This would provide the double benefit of allowing for public input on this issue and official notification to all creditors of the interpretation once it becomes final. I believe that the safeguards which are inherent in official interpretations could be helpful in this instance where there appears to be little information on the scope of, and problems with, the practice and the cost/ benefit of the various options.  .  ,4*   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Honorable Paul A. Volcker January 20, 1982 Page 2 I would appreciate your assistance in responding to Admiral Lascara's concerns and also your consideration of a reevaluation of the issues he raises.  Jake Garn Chairman Enclosures JG:bck  NAVY  FEDERAL  CREDIT  UNION  WASHINGTON, D.C. 20391  OFFICE OF THE PRESIDENT  23 July 1981  The Honorable E. J. Garn Chairman, Senate Banking Committee Banking, Housing and Urban Affairs 5207 Dirksen Senate Office Building Washington, D. C. 20501 Dear Senator Garn: We at Navy Federal Credit Union recall with pleasure and appreciation your address at our annual meeting of the membership in March. We also applaud your noteworthy efforts to eliminate or modify unnecessary and non-cost effective consumer regulations. In April Navy Federal received an invitation to make an input to Vice President Bush's Task Force on Regulatory Relief. In response we submitted summaries of fifteen instances in which laws and regulations could be changed to increase benefits or decrease costs. In view of your interest in this type of improvement, a copy of our submission is enclosed (enclosure (1)). I believe you will be interested in the latest development concerning the seventh of our fifteen items entitled "Equal Credit Opportunity Act". For more than a year Navy Federal has been trying to obtain an official Federal Reserve Board staff interpretation concerning the requirement for Notice of Adverse Action when an applicant fails to respond to_the creditor's request for information needed to make a credit decision. Upon receipt of NFCU's initial request dated 12 June 1980 (enclosure 2)), the FRB issued an unofficial staff interpretation on 25 July 1980 (enclosure (3)). NFCU responded on 15 August 1980 (enclosure 4)), pointing out the inadequacy of an unofficial interpretation in a situation where the interpretation, in effect, changes the Regulation B definition of adverse action from "refusal to grant credit" to "failure to grant credit." By letter dated 29 June 1981 (enclosure (5)), the Assistant Director, Division of Consumer and Community Affairs, FRB, advised that the staff cannot concur in the NFCU position. NFCU remains convinced that the rationale set forth in our initial letter to the FRB is in accord with Regulation B and that the FRB unofficial interpretation constitutes a disservice to consumer-members and imposes an unnecessary expense upon creditors. In support of our position, NFCU's attorney has stated, "I have carefully researched the statute and after considering all of the facts, I am of the opinion that such an interpretation exceeds the statutory meaning of the terms."   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Continued Page Two Any influence you could bring to bear to cause the Federal Reserve to reconsider its position would be of significant benefit to both consumer-borrowers and grantors of consumer credit. If NFCU can be of further assistance in this matter, please let me know. Sincerely,  . A. Lascara Vice Admiral, SC, USN (Ret.) President VAL/hf Enclosures   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE . ; cr CO ve4 ..e • •0  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  ---••:t5ou.;..is. •  DIVISION OF CON.SUMER AND COMmuNITY AFFAIRS  June 29, 1981  t.) Vice Admiral V.A. Lascara, SC, USN (Re President Navy Federal Credit Union Washington, D.C. 20391 Dear Admiral Lascara: the delay in getting back to you Please accept my apologies for B. The staff has given further study to n tio ula Reg ut abo on sti que r you on of ff interpretation regarding the matter your request for an official sta lication. I regret that we cannot conapp e let omp inc an on ion act e ers adv to take. The staff continues to believe us h wis you t tha on iti pos the in cur applies when a creditor requests and the nt eme uir req ion act e ers adv the t tha creditor may not treat the application as The it. e vid pro to ls fai ant applic having been withdrawn. 1980, however, the creditor may As noted in our letter of July 25, ements at the time it requests the comply with the adverse action requir er. The creditor could provide a stateadditional information from the consum information is not provided within ment to the effect that if the requested cannot be approved. A statement of on ati lic app dit cre the e, tim e abl son a rea l satisfy § 202.9. this nature, plus the ECOA notice, wil   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Again, thank you for your patience. Sincerely,  Dolores S. Smith Assistant Director  Enclosure  k'5  a.  Navy Federal Credit Union WASHINGTON, D.C. 20391  .... A Service Institution  April 20, 1981  in Reply Reief To Account No.  Mr. Morgan Williams gue President, Cooperative Lea of the U.S.A. Suite 1100 1828 L Street, N. W. Washington, D. C. 20036 Dear Mr. Williams: by the opportunity provided es iat rec app on Uni dit us by Navy Federal Cre ship, which was forwarded to ber mem SA CLU the to your April 3rd letter Regulatory Relief project. h's Bus ent sid Pre e Vic CUNA, to participate in y strongly believe in the man we on, uni dit cre t ges As the nation's lar other forms of tinguish credit unions from dis ch whi es enc fer dif fundamental cerned that the ion. We are therefore con nat our in ons uti tit ferences and financial ins appears to ignore these dif ns tio ula reg and s law trend of receht m in a tide of dit union by engulfing the cre of al viv sur y ver threatens the ogenization. financial institution hom tions and/or instances in which regula n tee fif of ies mar sum Enclosed are costs. The se benefits or decrease rea inc to er ord in d nge of relative laws could be cha are listed below in order iew rev y tor ula reg r fo fifteen requests priority:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  /  Bankruptcy (Law) Regulation D Truth in Lending (Law) Regulation Z Allotments of Pay ctices Fair Debt Collection Pra Act Equal Credit Opportunity omputation Mortgage Loan Interest Rec ulation Credit Practices Trade Reg m in NCUA Consumer Compliance Progra g E) Electronic Fund Transfers (Re Maximum Dividend Rates Regulation C Requirement Share Account Disclosure Regulation G  Enclosure (1)  Continued Page Two istance in this on can be of further ass Uni dit Cre l era Fed y Nav If matter,ADlease let us know. Sincerely,  1(ug s Rear Admiral, USN First Vice President  TJH/hf Enclosures cc: Mr. Jin R. Williams President ociation Credit Union National Ass Mr. John J. Hutchinson President eral Credit Unions National Association of Fed   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  . obc•ftm.•,•wro 4101411L •  NAVY  FEDERAL  CREDIT  UNION  WASHINGTON, D.C. 20391  15 August 1980 OFFICE OF THE PRESIDENT  Ms. Janet Hart Director, ity Affairs Division of Consumer and Commun Board of Governors of the Federal Reserve System Washington, D. C. 20551   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Dear Ms. Hart: requested an Official Staff In my letter of 12 June 1980, I the procedures prescribed in h wit e anc ord acc in on ati ret Interp B. The requested interpretation n tio ula Reg of 2) d)( .1( 202 n Sectio ify applicants of adverse action concerns the requirement to not ointed to receive in reply an app dis was I ts. ues req n loa taken on 25 July signed by Mr. Robert C. ed dat on ati ret erp int ff sta l unofficia ns that the public will be Plows. This manner of response mea t on the interpretation, nor will afforded no opportunity to commen be made aware that this intercredit grantors throughout the nation of adverse action as printed in pretation changes the definition Regulation B. conclusion, we nevertheless Mr. Plows states, "Despite our ing to provide any adverse action appreciate your concerns about hav to supply needed additional notice where the applicant has failed on is made to Regulation B, we information. If any future revisi The time to consider this will certainly consider this issue." future revision date. As issue is now, not at some uncertain be informed promptly if this previously noted, creditors need to ersede the official definition sup to is on ati ret erp int l cia ffi uno Regulation B. of adverse action contained in ation will adversely affect More importantly, this interpret my 12 June letter, it is unfair, consumers. As I pointed out in to issue them adverse action and a disservice to consumer-members, credit files when in fact there has notices and enter copies in their related matter, consumers should be a As . dit cre of ial den no n bee pursuit of an incomplete loan se cea to e tim any at ct ele free to h freedom by stating that an suc ies den on ati ret erp int The request. d as having been withdrawn ate tre be not may on ati lic app incomplete rove it. This poses an app to ed par pre was or dit unless the cre possibly be prepared to not can or dit cre The . ion impossible situat the applicant has failed n whe on ati lic app an e rov app approve or dis to make the credit decision. to provide information needed  Enclosure (4)  Continued T'age Two The 25 July unofficial staff interpretation is cons idered an inadequate response to the adverse action issue in that it: fails to inform creditors of the new defi nition of adverse action; denies to the Board an opportunity to receive public comment; and, constitutes a costly disservice to consumers. It is therefore requested that the issues addressed in my lett er of 12 June be reconsidered and either a change to Regulation B or an Official Staff Interpretation be issued at the earliest possible date. Very truly yours,  A Lascara Vice Admiral, SC, USN, RET. President VAL/hf   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF  .....  .•...• • . •,-, Of COV/-•„•. •. 44•••••,„ .•. .. 0 . 4 . / ,. ,-.1" „,••••-,- i -.4 . 9 4%...`4'• • •. ‘-'' ,V• . . .. 4*,'‘‘''•-•,?. .ii,?,•\  THE  FEDERAL RESERVE SYSTEM  ,:tif....--.):c. •6 4" :'s .f.,• ...-?• :"'(" ill.-..,.. ..-tif -4 .P:  WASHINGTC I, D. C. 20551  , • I.  7 .. ' /1 ... 111111 '''$5 ..3\7 . . ' ' •44, ' •• • k. . k o • e ' ' •..r .  DIVISION OF CnI.JSUMER AND COMMuNITY AFFAIRS  .. : ..f;LKE.S° • • • • • •.  July 25, 1980  Vice Admiral V.A. Lascara, SC, USN (Ret.) President Navy Federal Credit Union Washington, D.C. 20391 Dear Admiral Lascara: concerning Regulation B. This responds to your June 12 letter an applicant when adverse action You inquire about the requirement to notify is taken on a loan request. receiving a loan application You describe a situation where, after requested additional information from a member of your credit union, you receive a response to your questions, from that applicant. When you did not ger interested in the loan, and you you assumed that the applicant was no lon took no further action. Union Administration advised An examiner from the National Credit ice of adverse action should have you that, pursuant to Regulation B, a not e an position is that failure to approv been sent to the applicant. Your erse action; thus, it does not uncompleted loan application is not adv require a notice of adverse action. B defines adverse action as Section 202.2(c)(1)(i) of Regulation y the amount, or on substantially a refusal to grant credit in substantiall states: on . . ." Section 202.9(a)(1) ati lic app an in ted ues req ms ter the (ii) of action taken within: . . . ant lic app an ify not ll sha or dit "A cre an uncompleted application." As on ion act ercP Ariv ing tak er 30 days aft an applicant where the application an example of an appropriate notice to ncipal 202.9(b)(2) lists as one pri is incomplete, the model form in e." ent, "Credit application incomplet reason for adverse action the statem   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  202.9(a)(1)(ii), and 202.9(b)(2) Considering S§ 202.2(c)(1)(i), ing an ditor takes adverse action regard together, we believe that a cre l e the request, even though additiona rov app to ls fai it if on ati applic s applicant. Unless one of exception listed the m fro ght sou is on informati actions must be treated as either favor— all e, abl lic app is 2) c)( .2( in § 202 able or adverse.  Enclosure—Q):  ‘”•••  4 1"   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Where an application is in - omplete and the applicant might be able to rectify the incompleteness, t.ile creditor has an obligation under 202.2(f) to notify the applicant of the item needed and to allow the applicant a reasonable time to respond. If the applicant does.not respond within a reasonable period, the application nevertheless may not be treated as having been withdrawn unless the parties contemplated that the applicant would inquire about the status of the application and the creditor was pre— pared to approve it (see § 202.9(d)). We think that there is a simple method, however, for handling incomplete applications without having to send a separate adverse action notice. As part of a written request for the needed item or information, you may simply note that, if the requested item is not provided within a reasonable time, the credit application cannot be approved because it is incomplete. A statement of this nature, along with the ECOA notice speci— fied in 4 202.9(b)(1), would satisfy the requirement of 4 202.9(a)(1)(ii). The necessary statement could be incorporated in a letter, with the ECOA notice printed at the bottom. Despite our conclusion, we nevertheless appreciate your concerns about having to provide any adverse action notice where the applicant has failed to supply needed additional information. If any future revision is made to Regulation B, we will certainly consider this issue. In view of the opinions expreised in this letter, we believe the protection afforded by § 706(e) of the Equal Credit Opportunity Act is neither necessary nor appropriate. Therefore, this is an unofficial staff interpretation. If you have further questions, please feel free to contact us. Respectfully,  Robert C. Plows Assistant Director cc:  Fred M. Haden, Esq.  •  •••  •  - 1./("' oil 29 •••••••••.•••.....,.......1•111•••••••••••••-.  •••••••  •  NAVY  FEDERAL  CREDIT  UNION  WASHINGTON, D.C. 20391  12 June 1980 OFFICE OF THE PRESIDENT  Ms. Janet Hart unity Affairs Director, Division of Consumer and Comm rve System Board of Governors of the Federal Rese Washington, DC 20551  Dear Ms. Hart: tation f This is a request for an Official Staf Interpre es vrescribed in submitted in accordance with the procedur requested interSection 202.1 (d)(2) of Regulation B. The the applicant pretation concerns the requirement to notify when adverse action is taken on a loan request.  4   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  U) has Since June 1979, Navy Federal Credit Union (NFC ances under been engaged in an effort to clarify the circumst ired to be which a written notice of adverse acticn is requ lation B. sent to an applicant under the provisions of Regu and exchanges of There have been discussions with examiners (NCUA) Regional correspondence with a National Credit Union n Director and the Chairman, National Credit Unio Adminiser with the tration Board. I have twice discussed this matt cial Federal Chairman who suggested that I request an Offi Reserve Board Staff Interpretation. The differences in interpretation of Regulation B x initially arose from the case of NFCU member Feli Reyes an Perez. On Friday 15 September 1978, Mr. Perez submitted t application to NFCU's wire/cable loan facility at Roosevel Roads, Puerto Rico, for a loan of $1,800 ($1,073 for debt consolidation and $727 for brain surgery for his daughter). On Monday 18 September the loan officer at NFCU Headquarters determined that additional information was needed in order to make a credit decision and wired the following questions to the Roosevelt Roads Facility for relay to Mr. Perez: What will the total cost be for the brain surgery? (The loan officer wanted to know if the amount $727 represented only an initial deposit for the surgeon.) Is hospitalization insurance available to help meet the cost? What is the name of the hospital? (Needed for the purpose of making one of the loan proceeds checks _payable  _JUN 1.1 1580  Pecoived CLCA Log No. Date Out  -  7  Enclosure (21  •  Continued Page Two to the member and the hospital.) On 19 September the questions were asked of Mr. Perez by Mr. Davison, Head, Roosevelt Roads Facility. On 18 October, Mr. Davison mailed the hard copy of the loan application to NFCU Headquarters, Washington, DC 20391, with a notation that the member had made no response to the questions. NFCU concluded that Mr. Perez was no longer interested in' obtaining the loan and took no further action. On 13 June 1979 an NCUA examiner visited NFCU and advised we had violated Regulation B by not providing a written notice of adverse action to Mr. Perez. NFCU pointed out that under Section 202.2(c) of Regulation B adverse action is defined as "a refusal to grant credit..." and, since NFCU had not refused to grant credit no adverse action had occured. By letter dated 29 August 1979, the Director, Region III, NCUA, supported the examiner's position and stated, "if an application is not approved by the credit union, then it must be disapproved...". NFCU t.hen sought legal assistance. Attorney Fred M. Haden in his letter of 17 September, copy enclosed, stated, "I do not concur....I have carefully researched the statute and after considering all of the facts, I am of the opinion that such an interpretation exceeds the statutory meaning of the terms...". Upon receiving NFCU's letter of appeal the matter was referred to the National Credit Union Administration Board. In his letter of 18 January 1980, the Chairman, National Credit Union Administration Board, concurred with the position taken by the Regional Director. The basis cited by the Chairman is stated below, followed in each instance by NFCU's comments with key points underlined. The NCUA letter quotes Section 202.9(a)(1): "A creditor shall notify an applicant of action taken...". NFCU feels this partial quotation conceals the intended meaning. The complete quotation reads: "A creditor shall notify an applicant of action taken within: (i) 30 days after receiving a completed application concerning the creditor's approval of, or adverse action regarding, the application; (ii) 30 days after taking adverse action on an uncompleted application." NFCU never received a ccmpleted application in spite of prompt effort to obtain the needed information from the applicant; therefore, subparagraph (i) does not apply. Adverse action is defined in Section 202.2(c)(1) as, "a refusal to .grant credit in substantially the amount or on substantially  ! N V -.1.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  Om •••••  Continued Page Three the terms requested in an application...". NFCU did not refuse to grant credit to Mr. Perez; therefore, subparagraph (ii) is not applicable in this case. NCUA further states, "In other words, implied in the notification provisions of 202.9 is the basic assumption that action of some type must be taken on an application submitted by an applicant." NFCU does not argue with this assumption. The credit union did take action on the very pext business day by requesting from the applicant information.needed to make a credit decision. This action by NFCU is fully sanctioned by Section 202.2(f) which states, "A completed application for credit means an application in connection with which a creditor has received all the information that the creditor regularly obtains and considers in evaluating E -Dplications for the amount and type of credit requested (including, but not limited to,...any additional information requested from the applicant)... NCUA next commented in its letter: "Specifically section 202.9(a)(1)(ii) was provided to allow a creditor to take adverse action on an incomplete application without requesting the missing information if the missing information could have no impact on the decision to grant credit even if the information was provided." While this statement is correct, it has no bearing on the Perez case. NFCU did request the missing information because it was felt the response would have an impact on the credit decision. The NCUA letter then states, "Additionally, a creditor may not consider an application withdrawn for the purpose of section 202.9(d) unless the application is first approved as provided in that section. Failure by a member to respond to your xequest for additional information does not constitute a 'withdrawal' for the purpose of section 202.9(d)". This statement is true only "if the creditor approves the application..." (202.9(d)). The problem is that Regulation B makes no provision for the situation being addressed, wherein the creditor had not approved the application. It appears NCUA is interpreting section 202.9(d) as being aloplicable if the application was not approved as well as if it was approved. As pointed out by Attorney Haden, no authority to make such an interpretation is contained in the statute. NCUA concludes by stating, "Therefore, it is our position (as confirmed in discussions with Federal Reserve Board staff) that failure to approve an incomplete loan application is, in itself, adverse action." This position constitutes  'fa  .   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  0.•  •  •  I   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  Continued Page Four an unwarranted departure from the clear definition of adverse action provided in Section 202.2(c) of Regulation B. Consumer Affairs staff personnel have, in effect, applied a new definition of adverse action reading, "failure to atprove", in place of the Regulation B definition, "refusal to grant". This new definition varies significantly from the definition in the regulation and, in the opinion of our counsel, is inconsistent with the language and intent of the Equal Credit Opportunity Act. I wish to assure the Board of Governors that this request for interpretation is not motivated by any desire to avoid compliance with law and regulation. The purposes are to avoid unnecessary administrative expense, which in member-owned credit unions fall directly upon the members, and, an even more important reason, to protect the consumermembers from unwarranted accumulation of loan disapprovals in their credit history files. NFCU, with its highly Mobile, worldwide membership of over 500,000, experiences substantial numbers of instances like the Perez case wherein members never respond to our requests for information needed to make a credit decision. If the NCUA position is permitted to stand, NFCU will have to undergo the expense of: revising operating procedures to call back into the processing stream on the 27th or 28th day all those applications on which needed information has been requested but not received; prepare and mail adverse action notices to each affected member; and, answer subsequent letters from members complaining about the stigma of a disapproval when they had merely changed their minds and decided not to pursue the loan request. In addition, it is considered unfair and a disservice to consumer-members to place disapprovals in their credit files when in fact there has been no denial of credit. Navy Federal Credit Union and numerous other credit unions, particularly those with highly mobile, widely dispersed memberships, will greatly appreciate your thoughtful consideration of our position as stated in this letter. Sincerely,  V. A. Lascara Vice Admiral, SC, USN, RET. President VAL:cc Enclosure Chairman, NCUA Board cc: Mr. Lawrence Connell, Jr., , NCUA Board Mr. P. A. Mack, Jr., Vice Chairman Mr. Harold A. Black, Member, NCUA Board  •••  ".  ••  •  .  Tair  P C  • •  pt•0C  rthrn,  Offirro  4112.-fiurfrir,  43. e.. ..c.r•Ses vistsiwiA alw0  El5D TI.rrsiluzr5 11E?  DISTRICT Of cOLuR•s& DANIS  1 . 14•4 A,TICA.0  fli.r.rtrtrz:girgirrizs 221BD  welko.§... C. 04Ce4 UPTRIC  7D3 gkrra B21-DB21  L.O. 01/79  September 17, 1979  Captain Richard Cobb, S.C. USN (Ret.) Manager Navy Federal Credit Union P.O. Box 162 Dunn Loring, Virginia 22027 Dear Dick: You have asked for an opinion concerning Mr. f Ganzfried's letter of August 29, 1979 addressing itsel to the requirement of Navy Federal Credit Union having to send an adverse action notice to the members who have submitted incomplete loan applications, who have been told to furnish additional information, and have not furnished such information. Section 701 D1 of the Equal Credit Opportunity Act states:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  "Within 30 days (or longer reasonable time as specified in regulations of the board for any class of credit transaction) after receipt of a completed application for credit, a creditor shall notify the applicant of its action on the application." Regulation B, Section 202.2 F states: "A completed application for credit means an application with which a creditor has received all the information that the creditor reaularly obtains and considers in evaluating applications for the amount and type of credit requested (including, but not limited to credit reports, any additional information requested from the applicant, and any approvals or reports  SEP 191M I  •••  T z:Lbr-rt, Arrii.5zzn & •  Captain Richard Cobb September 17, 1979 Page Two  by governmental agencies or other persons that are necessary to guarantee, insure, or provide security for the credit or collateral); provided, however, that the creditor has exercised reasonable diligence in obtaining such information...." Regulation B, Section 202.9 notification states:  A creditor shall notify an applicant of action taken 30 days after taking adverse within action on an uncompleted application  "Notification of action taken.  I have made a search of all of the board, official and staff interpretations of the Federal Reserve Board concerning this matter and have been unable to find any staff interpretation on this matter. I have communicated orally with Linda Coen of NCUA,who is responsible for consumer regulation enforcement, and the Federal Reserve Board concerning their interpretation of the facts in this case. I did not identify Navy Federal Credit Union as being the credit union concerned. Both NCUA and the Federal Reserve Board are interpreting the statute and regulations as Mr. Ganzfried has interpreted them. They are stating that once an application is submitted by a member, approval or disapproval of the application must be made whether or not the application is complete under the definition stated above. Mr. Ganzfried states in his letter that under Regulation B, if an application is not approved by the credit union, then it must be disapproved and the credit union must adhere to all the notification requirements of Section 202.9 of Regulation B. I do not concur with Mr. Ganzfried, the Federal Reserve or the National Credit Union Administration. I have carefully researched the statute and after considering all of the facts, I am of the opinion that such an interpretation exceeds the statutory meaning of the terms as set forth above.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  zzii_gz:rr  .r-rt,  CS.  6aptain  Richard Cobb September 17, 1979 Page Three  Mr. Ganzfried states that under the facts of this case, an application can not be considered withdrawn when additional information is requested. I concur with Mr. Ganzfried's position in that regard inasmuch as the only person who can withdraw whaz is submitted to the credit union is the person who submits the application. However, I am of the opinion that there is no requirement in the statute that any action has to be taken, approval or disapproval, where an application is incomplete. It would appear to me that the proper procedure to follow would be to inform the member that his application has been received but can not be considered for approval or disapproval until the pertinent information is returned to the credit union so that a decision can be made one way or the other. In other words, in my opinion, you can keep an application in a state of limbo until you receive the normal information required in such cases for a decision. In view of the above, it is my recommendation that a letter be written to Mx. Ganzfried and mailed on the 29th of September, 1979. This letter should state that you do not agree with his conclusions and wish to appeal his decision to the National Credit Union Administration. I have enclosed a copy of a proposed letter to Mr. Ganzfried. The date of September 29 is used because Navy Federal Credit Union comes under the jurisdiction of Harrisburg on October 1, 1979. Undoubtedly, Mr. Ganzfried will forward your reply to Harrisburg. Harrisburg, in all probability, will forward it to NCUA who, hopefully, within a reasonable amount of time will give us an answer. I predict that the answer will be that Mr. Ganzfried's interpretation is correct. Simultaneously, with this action, I believe that we should send a letter to the Federal Reserve Board,which I will do at your direction, and ask for a Board interpretation which is the highest type of interpretation the Federal Reserve can issue. If the National Credit Union Administration or the Board concur with Mr. Ganzfried then Navy should comply with the decision. However, there is an appeal from   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  INg  girthrn,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  & jisafriurfrir,  Captain Richard Cobb September 17, 1979 Page Four  their decision because we can go to the United States District Court on the basis that we have exhausted our . administrative remedy and ask for an injunction to prohibit the Federal Reserve Board and the National Credit Union Administration from ruling, as they are ruling, ' as they have exceeded their statutory authority. If you wish to discuss this matter further, I will be at your disposal. Sincerely yours,  Fred M. Haden FMH:pm Enclosure  iew: . Request for Regulatory Rev  Source of Rule: Citation:  Description of Problem:  Estimated Cost:  Estimated Benefit:  Other Impact:  Comment:  Originator:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Equal Credit Opportunity Act  Federal Reserve Board lementing Title VII, Equal Regulation B (12 CFR 202), Imp Consumer Protection Act Credit Opportunity Act of the (U.S.C. 1601) retation dated 25 July 1980, An unofficial FRB staff interp n of adverse action from in effect, changed the definitio ilure to grant credit". "refusal to grant credit" to "fa lenders to issue notifications The interpretation requires e applications in cases where of adverse action on incomplet ders' requests for information applicants never respond to len complete. needed to make the applications 0 a year To this credit union -- $41,00 $1,784,000 a year To all federal credit unions -7_ her net benefit is negative, see "Ot To member-consumers Impact" below. the interpretation is to prevent Although the avowed intent of ue of refusing to grant credit, lenders from avoiding the iss is that the credit records of the far more pervasive effect are unfairly blemished by adverse large numbers of consumers usals to grant credit ever action entries even though no ief occurred. solve this problem. No legislation is requited to the FRB. interpretation can be changed by J. G. Schoggen Treasurer-Manager (703) 827-5200 Navy Federal Credit Union Washington, D. C. 20391  The  •  4  N't-c• (V-10  . .•:.. OF COVE • • • q-\) : 0 ' '' A l :co A-4,k.,  •C •••1  7  BOARD OF GOVERNORS OF THE •2;  FEDERAL RESERVE SYSTEM  it•  WASHINGTON, D. C. 20551  ..e ,'-''': ..-1 U111111 1 ) • .5. l'\741t1 c6. .• ....,t ::.'"4,I• . ••.e'O .',.:  • • 4./ AL ikt t" • • • • • .. • • •  April 16, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable Eldon Rudd House of Representatives Washington, D. C. 20515 Dear Mr. Rudd: It was nice seeing you on the plane last week, and I must tell you what a delightful place I found Phoenix to be. You asked me to comment on your National Home Ownership Bond Bill (H.R. 4833), which would authorize a new partially taxexempt financial instrument to attract funds for construction and purchase of new homes. While I understand and sympathize with the problems addressed by this proposal, I am concerned that the program could fall short of achieving its intended benefits and might well entail costs greater than those envisioned. For example, current market interest rates call into question the potential of National Home Ownership (NHO) Bonds to attract investors' funds. With taxable equivalent yields on tax-exempt state and local government obligations now at very high levels, NHO bonds bearing a taxable equivalent yield of 14 percent could prove uncompetitive under current market conditions, especially for investors in high tax brackets. This problem could be solved by greater tax foregoence under your plan, but, of course, this would raise the costs of the program to the Treasury. Conversely, as interest rates decline, the bonds would be highly attractive, but then the added stimulus should not be necessary. Moreover, investment in NHO bonds will not enlarge residential mortgage flows dollar-for-dollar. Participating institutions, in order to maintain a desired balance of risk and return in their portfolios, might divert some other funds from mortgage lending by replacing them with the proceeds of NHO bonds; to prevent this substitution of funds would, at the least, entail considerable additional administrative costs. Alternatively, some purchasers of NHO bonds might finance their purchases from other deposits that currently provide mortgage funds. Indeed, experience with the one-year maturity, taxexempt All Savers' Certificate (ASC) suggests that most of the funds placed in ASCs have come from other deposits, and that the ASC may have added little, on balance, to the volume of   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • • 4   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Eldon Rudd Page Two  mortgage lending. And, of course, more of the recipients of the money would probably have been willing, in the end, to pay a higher interest rate. To the degree that NHO bonds did bolster mortgage lending, I am very doubtful that the associated indirect enhancement of Treasury revenues would cover the direct cost s. Additional taxable income generated in the housing and rela ted sectors would be apt to come, at least to some degree, at the expense of a reduction in taxable income in other areas of the economy. That is especially true in the context of prospect ive huge federal budget deficits; in those circumstances, the chances are that new federal programs to channel credit and econ omic activity to any one sector would add to financial mark et pressures, raise market interest rates, and thereby subs titute for activity elsewhere. The impact on other sectors woul d depend on their sensitivity to higher interest rates. But, unde r those circumstances, jobs generated by the new program would like ly come to a considerable extent at the expense of jobs lost in other, non-subsidized parts of the economy--including the nonsubsidized part of the housing market. I am well aware of the distress that high interest rates are imposing on the housing sector, its suppliers, and homebuyers. However, in my judgment, the greatest contribu tion the government can make at present to resolving the inte rest rate problem, and assisting the housing industry, would be to deal effectively with the prospective budget deficits. I have repeatedly expressed the view that substantial action by the Congress and the Administration to reduce prospective budget deficits and the total of federal demands on credit demands would have a salutary impact on financial markets generally and greatly facilitate interest rates coming down on a sustainable basis. Thus, action on the deficit itself woul d be a very favorable step in support of your bill's goal of stimulating housing, and I believe your proposal should be viewed in that context:. I hope that my comments will bc hclpful. mc know if I c:111 be of furtlIcr i. 1 1 L.' '  NMS:PAV:vcd (V-78) bcc:  Mr. Fisher Mr. Trepeta Wfng  51.g.-at  Please let  7 ro-  ELDON RUDD  Action assigned Mr. Kichline  WASHINGTON OFFICE: 1 1 10 Lotaawoorrm BUILDING  4TH DISTRICT. ARIZONA  WASHINGTON. D.C.  20515  (202) 225-3361 COMMITTEE ON APPROPRIATIONS  Comm of tbe Unita! Otatess Pousq of ilepreiqntatibeZ  MSTRICTOFFME 6900 E. CAPAELBACK ROAD SCOTTSDALE. ARIZOP4A  85251  (602) 241-2801  Uilasbington, 33.e. 20515 March 23 1 9 8 2  .....-LC ) CO  CD  -1-1 -11 ..c.._.).  The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th Street and Constitution Avenue, N.W. Washington, D.C. 20551  0'1 07") ' 1 1ra ...4.......F .t...  f' " 1 , C.; u'".,..  r-1 "1111 IVI VC  rn `-'' 7 , ) "P" • C, (--  4-3,  ' .,L";=1-11 rr --I?  . I , cp at  ,0:11  .r."1:7.4-.....74.. ' )-. " 4‹.  rr'•  .711  ..r  c--" 7P  ..C7.1' cn %%!..  Lo  Dear Paul, Following up our conversation at lunch today, you questioned whether my bill, H.R. 4833, the National Home Ownership Bond Bill, would be a direct subsidy. This is simply a follow up to explain H.R. 4833. You are as well aware as I am that the homebuilding, housing mortgage and related industries are almost in a state of collapse. It is essential for those industries to survive intact if the significant fiscal and monetary changes that have occurred in the last two years are to take effect and build the foundation for a prosperous future. To that end, I have introduced this bill which I feel is not only consistent, but complimentary to the philosophy behind the Program for Economic Recovery. H.R. 4833 proposes that lending institutions be authorized to issue National Home Ownership Bonds which would have a maturity of five years and a face yield of 10%. These bonds would be given preferential tax treatment, geared to the investor's income bracket, which would make them the equivalent of a 14% taxable instrument. The proceeds of the bond sales would finance new home mortgages at 12%. I have taken the liberty of enclosing a brochure on this bill. You will note that based on the best estimates obtainable from home builders and people in the home mortgage industries, it is clear, as is explained in the brochure, that the issuance of these bonds will generate taxable income from the construction of new residential homes that will far exceed any tax foregoence implicit in the bond program. What is more important is that the new taxable income generated will be generated much quicker than the gradual structure of the tax foregoence. This aspect of the bill is, in my humble opinion, the most critical factor in light of the budgetary picture that we face.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .00  The Honorable Paul A. Volcker March 23, 1982 Page Two  Almost daily demands are heard from within and outside the Government for an easing of the monetary policies of the Federal Reserve and for Government action to bring down prevailing interest rates. We are also hearing proposals from within and outside the Government for outright subsidies to these suffering, but critical industries. If the Program for Economic Recovery is to succeed, we must find a way to keep those industries alive but must not use the very same tools that have put us in the situation in the first place. I am convinced that this bill does just that. It satisfies the need for relatively low interest rates for the pent up demand for residential construction, putting back to work hundreds of thousands of laid off workers in the housing, real estate, timber, appliance and supporting industries. Mr. Chairman, I hope that you can find the time to consider this proposal and offer me any comments or criticisms you may have. It was a pleasure to see you and I enjoyed the opportunity to talk to you today. If there is any other information that I can send you, please let me know. My best wishes to you, Sincerely, ( 727 Eldon Rudd Member of Congress ER:al Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  April 16, 1982  lae aonorable Daniel P. Moynihan United States Senate Washington, U. C. 20510 Dear Senator Moynihan: As we discussed at lunch the otaer day, eaclosed is the Board's most recent Report on Monetary Poli cy and my accompanying testimony wnich gives an overview of the course of monetary policy in 1981 and our intentio ns for 1982. I have also enclosed a chart wnich upaates the actual record of the monetary aggregates so far in 1982. The staff is preparing some material on "real" interest rates and investment yielas which I will forward to you next week.  Sincerely, ;04 Enclosures Report on Monetary Policy, Feb. 10, 1982 Testimony, Feb. 11, 1982 Cnart, lreitp. 12, 1982 NMS:dmg-b CC:  P\r-  Mr. Winn Mr. Soss Ms. Wolfe (2)  April 16, 1,S2  VicelkInorabl* Andy Ireland Mese of Representatives gemkington. D. C. 20515 Beer Mr, Irelands I have your letter of March 22 concerning the merger proposal involving Chemical Mew York Coeporatton end Florida National Basks of ?Lerida, Ina, and requesting my reaction to this type of proposal ?remit the viewpoint of general bamk regulation. Chenisit's proposal is representative of a number of arrangements recently consIuded by Legge honk bolding companies and out-of-state book* whereby the bolding company makes a significant investment, obtains presently less then S per cent of the voting stook of the bank, but al** acquires the right to obtain full voting control after authogiwation of interstat* bookie", by the enactment of state or federal law. Our general approaok te these arrangements hes been to avoid regulation where congress hos not provided for it. In sectiom 2(a)(3) of the Sank gelding COmpany Act, Cemgress hes specifically enacted a presumptiem that any sway whic% owns lees than 5 per cent of a bank's voting smeurities dees not have eemtrol over that bank. No have mode it knew, however, that the Board requests holding sempocies that intend to enter Into traneections of the type have described to consult with germ! steff befoxe consummation of the proposal. The *toff has attempted to examine Come proposals from the point of view of whether there are any facts and circumcisions which would ovelccon the Congressionelly enacted presamption of as mantra if less than 5 per cent of voting stock to acquired. As proposals nf this general type hove proliferated, we hove seen a considerable vaLiaty of terms and sonditiems. aa a osasequenne, the staff is endlertaking a review of those arrangements to detonable whether there are any typos of provisions which would emsgmet that the arrangements do in fact give de facto control by the honk boldiag aspen, over the bank prior to the time of the enactment of the appropriate authorising legislation. If such a pattern may exist, the Soerd will determine whether it is neceesery to tat* preventative action. As a separate matter, the Board has been quite concerited about the varlous proposals involving Floriee National. Tn two recent decisions the Beard has required ome potential aoquiror of Florida lifetime/ stock   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  lb* Vamorable Andy Ireland !Mgt Two  not to exceed the aoquietion limits imposed by tbe Change in Sank Control Act and found, after a detailed review of the record, that this party doss not presently exercise a controlling influence over the management ec policies of Flovtda Notional* In addition, tbe staff, in reagemas to a petition from Southeast tanking Corporation has held a meeting, On the record, to gather evidesee on the question of whether Chendeel awns or controls mere than S per cent of the shares of Placid& Mattemal et ass the power to exercise a controlling ...afluence over the Management or policies ef Florida National. We expect within a short tine to reAch aemelusions with respect to this matter ead take any action that may be appropriate* Sincerely,  179 4/19/82 IDENTICAL LETTERS SENT TO, The Honorable sill Nelson (incoming March 18 - 070) The Honorable Don Fugue (incoming March 19 - 874 The Honorable Rill McCollum (incoming March 17 - #72   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ANDY IRELAND  Action as signeri Mr. Mannion  FLORIDA OFFICES: WINTER HAVEN, FLORIDA  ESTH DISTRICT. FLORIDA  33880  120 WEST CENTRAL AVENUE P.O. Box 9447 WASHINGTON OFFICE. 11.141 LONGWORTH HOUSE OFFICE BUILDING WASHINGTON. D.C. 20515  Congre55 of the Uniteb  tate5  2z)  Iklutington, 3D.C. 20515  COMMITTEES:  33506  BRADENTON, FLORIDA 1101 6TH AVENUE WEST  ji)ouiie of teproSentatibt5  (202) 225-5015  013) 299-4041, 299-5120  P.O. Box 1220 (813) 746-0766, 748-1388 SARASOTA, FLORIDA  33578  2002 RINGLING BLVD., RM. 238  FOREIGN AFFAIRS  P.O. Box 1029 (813) 366-4896  SMALL BUSINESS LAKELAND, FLORIDA  33803  CHAIRMAN, SUBCOMMITTEE ON SPECIAL  2015 SOUTH FLORIDA AVENUE  SMALL BUSINESS PROBLEMS  (813) 687-8018, 687-8193  -11  March 22, 1982  c) -n -n  tc) co  r) MI  =  c:)z, -nrri .....,c-) -,- rn m<  Hon. Paul A. Volker Chairman, Federal Reserve Board Board of Governors Federal Reserve System Washington, D.C. 20551  hiiI  3:31  = 1%)  rn r" RI 7,  r. 7;c_,-,c) m--, 01 cr) rr, —49, x,=."... 4.:r-.<  "—  Ul  r;r" ...h.. al  > 70  a ›z  CD Ce I> 71 CD  ril en  Air  r" „1-e  =  Up  —< -C) •• cf, 73 --I c,,r) .— , ...... r7..!  Dear Mr. Chairman: In December, I wrote you inquiring about the status of your examination of several interstate banking acquisitions which have raised serious questions in my home state, and elsewhere. You very kindly wrote back to say that you were following the situation closely, and would inform me of the results of your review. In your letter of Jan. 5, 1982, you indicated that you did not have sufficient details of the proposed Florida situation to discuss it with me. Now, I believe, many details of the proposal are available, and the question again arises as to the Board's intentions regarding interstate banking in the absence of any change in Federal law. As I asked on Dec. 16, again, I would appreciate it if you would share with me the views of the Board with respect to whether such transactions are lawful under current banking laws, or whether such transactions are merely devices by which interstate banking can be accomplished, de facto, without any approval or review by your board. Again, many thanks for your consideration of this important matter. cerely,  API:cn  PLEASE RESPOND TO:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  WASHINGTON  0 WINTER HAVEN  0 BRADENTON  0 SARASOTA  0  LAKELAND  ..• f GOvi•••  .  ..• .  BOARD OF GOVERNORS OF THE  .444  1: i-.•  ' ....k i  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20E51  .i. ‘1: 44'.  :1 , 1, %:'  .RAL RE  ••..••  April 15, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable Parren J. Mitchell House of Representatives Washington, D.C. 20515 Dear Parren: Thank you for your letter of April 2 in which you expressed your concern about the impact of Regulation Q on depository institutions. I want to assure you that I understand the concerns that prompted you to write. At its meeting on March 22, the Depository Institutions Deregulation Committee adopted a schedule to phase out ceilings on time deposits, beginning with the lifting of all rate ceilings on new accounts with maturities of 3-1/2 years or more effective May 1, 1982. Thereafter, the minimum maturity with no rate ceiling will be reduced by one year on April 1 of 1983 and 1984, and to six months on April 1, 1985. On March 31, 1986, all remaining ceilings on time deposits will be lifted. The Depository Institutions Deregulation Committee also authorized a new short-term deposit instrument at the March 22 meeting. The major features of the new instrument are a 91-day maturity, $7,500 minimum denomination, and a ceiling rate tied to the 91-day Treasury bill rate. Thrift depository institutions may pay up to the bill rate while commercial banks may pay no more than the bill rate less 25 basis points. I am not satisfied that the new short-term instrument approved at the last meeting does the whole job of enhancing the competitive position of depository institutions vis-a-vis money market mutual funds and others, and I said so at the meeting. As you may know, the DIDC at my strong urging directed the staff to report within 30 days on alternative short-term instruments that would allow depository institutions to compete more effectively with money market mutual funds and other market alternatives for short-term funds. A competing objective is, of course, that of avoiding an excessive cost impact on depository institutions, especially with respect to possible shifts of funds from passbook accounts. Any new instrument will necessarily involve a compromise between the two objectives.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  IP`  Tne honorable Parren J. Mitcnell ...Page Two .•  I appreciate the opportunity to convey my views on aeregulatory actions by tne Depository Institutions Deregulation Committee. We snare the same concerns ana objectives. Sincerely,  Mfg NB:NS:pjt (#V-95) bcc: Mr. Bernard Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action assigned Mr. Bernard CONGRESSIONAL BLACK CAUCUS  COMMITTEES: CHAIRMAN SMALL BUSINESS COMMITTEE  PARREN J. MITCHELL 7TH DISTRICT. MARYLAND  CHAIRMAN OF THE SUBCOMMITTEE ON MINORITY ENTERPRISE, ECONOMIC DEVELOPMENT AND HOUSING  SUBCOMMITTEES: CHAIRMAN OF THE SUBCOMMITTEE ON SBA AND SBIC AU1HORITY, MINORITY ENTERPRISE AND GENERAL SMALL BUSINESS PROBLEMS BANKING, FINANCE AND URBAN AFFAIRS COMMITTEE  Congre55 of the Uniteb 3DowSe of AtpretientatibesS  OFFICE ADDRESSES: DISTRICT OF COLUMBIA OFFICE: 2367 RAYBURN HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 (202) 225-4741  1/1avbingtort, ri.C. 20515  SUBCOMMITTEES:  BALTIMORE DISTRICT OFFICES: GEORGE FALLON FEDERAL BUILDING ROOM 1018  DOMESTIC MONETARY POLICY  31 HOPKINS PLAZA BALTIMORE, MARYLAND 21201  HOUSING GENERAL OVERSIGHT  (301)962-3223 JOINT ECONOMIC COMMITTEE 1903 BLoomINGDALE ROAD BALTIMORE, MARYLAND 21216  SUBCOMMITTEES: INVESTMENT, JOBS AND PRICES TRADE, PRODUCTIVITY AND ECONOMIC GROWTH  April 2, 1982  cijo ) "PI  tC5  rr/ r-,  -71  Z-73 rri  at) r--  "Tr"  The Honorable Paul A. Volcker Chairman Board of Governors of The Federal Reserve System 20th Street & Constitution Avenue, N.W. Washington, D.C. 20551  r) 7 r„.  I  ry) c-:  rre 9F)  I would like to express concern about Regulation Q, which imposes an artificial limit on the amount of interest savings and loans institutions and banks are allowed to pay on time deposit accounts. The Congress enacted the Depository Institutions Deregulation and Monetary Control Act of 1980 on March 31 of 1980. The Act directed the Deregulation Committee to gradually phase out and ultimately eliminate the artificial limitations on the maximum rates of interest and dividends which may be paid on deposits and accounts as rapidly as economic conditions warrant. However, the Committee's actions heretofore have not led to the appropriate gradual phase out of the rates. Given present economic conditions and related uncertainties, what is needed is a specific timetable that indicates to both depositor and depositories the changes in rates that will take place and the exact time of such changes. In addition, while savings and loans and banks are artificially restrained as to the rate of interest they can pay, money market funds are paying a market rate of interest that has averaged 15 percent as opposed 4 percent paid on savings accounts since the creation of the 1 to the 5/ Deregulation Committee. This has had catastrophic affects on savings and loans and banks.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -‹  -g"-• CO)  Dear Mr. Chairman:  For example, from the period March 1981 to March 1982 money market funds grew $101.2 billion to $187.3 billion, larger than the combined total of 11,000 of the Nation's 14,000 banks. The funds continue to grow at the rate of almost $3 billion a week. This represents more deposits  jC3C3 Fr u) c+) rry , (72  727  • 4  Chairman Paul A. Volcker Page Two April 2, 1982 than Maryland's largest bank has been able to attract in its history: the Thus, an instrument is needed that gives the regulated depositories option to compete on the same terms and conditions as those presently enjoyed by the money market funds. Local banks would have a means of attracting and retaining local funds, which in turn could be made available for local borrowers. Therefore, I urge that DIDC move swiftly and effectively to facilitate ial the creation of an instrument and phase out more quickly the artific to limit on interest rates which will allow savings and loans and banks attract deposits. I hope to hear from you as early as possible. Sincerely, / ) 04" , /1" Parren J. Mitchell MEMBER OF CONGRESS PJM:td   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  0 ........ • Of G°V't ••  BOARD OF GOVERNORS OF THE  • •C • CO • •  •  •0 1...1  **-51.1'  1[[.J(..  • Ln•  • .RALikts .• • •  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20SEI  April 15, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorab_e Mickey Edwards House of Representatives 20515 Washington, D.C. Dear Mr. Edwards: Thank you for your letter in which you expressed your concern about the impact of Regulation Q on depository institurns that tions. I want to assure you that I understand the conce prompted you to write. At its meeting on March 22, the Depository Institutions ngs Deregulation Committee adopted a schedule to phase out ceili ceilings on time deposits, beginning with the lifting of all rate on new accounts with maturities of 3-1/2 years or more effec rate tive May 1, 1982. Thereafter, the minimum maturity with no ceiling will be reduced by one year on April 1 of 1983 and 1984, and to six months on April 1, 1985. On March 31, 1986, all remaining ceilings on time deposits will be lifted. The Depository Institutions Deregulation Committee also 22 authorized a new short-term deposit instrument at the March 91-day meeting. The major features of the new instrument are a tied maturity, $7,500 minimum denomination, and a ceiling rate tutions to the 91-day Treasury bill rate. Thrift depository insti pay no may pay up to the bill rate while commercial banks may more than the bill rate less 25 basis points. I am not satisfied that the new short-term instrument the approved at the last meeting does the whole job of enhancing competitive position of depository institutions vis-a-vis money market mutual funds and others, and I said so at the meeting. staff As you may know, the DIDC at my strong urging directed the s to report within 30 days on alternative short-term instrument that would allow depository institutions to compete more effec tively with money market mutual funds and other market alternatives for short-term funds. A competing objective is, of course, that of avoiding an excessive cost impact on depository institutions, especially with respect to possible shifts of funds y from passbook accounts. Any new instrument will necessaril involve a compromise between the two objectives.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Tne honorable Mickey Edwards Page Two  I appreciate the opportunity to convey my views on deregulatory actions by the Depository Institutions Deregulation Committee. We share the same concerns and objectives. Sincerely,  NB:NS:pjt (#V-66) bcc: Mr. Bernard Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action assignei Mr. Bernari  ICKEY EDWARDS  COM M ITT Er S: APPROPRIATIONS  FIFTH DISTRICT, OKLAHOMA SUBCOMMITTEE ASSIGNMENTS:  Congrell of tbe tiniteb etatel fputt ot ikepretentatibet  208 CANNON HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 (202) 225-2132  MILITARY CONSTRUCTION FOREIGN OPERATIONS  Ellatbington, D.C. 20515 DISTRICT OFFICE:  March 15, 1982  717 OLD POST OFFICE BUILDING OKLAHOMA CITY, OKLA. 73102 (405) 231-4541   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4.0 CO  C")  c:D= rrt c-) rn The Honorable Paul A. Volker Chairman, Federal Reserve 20th & Constitution Washington, D.C. 20551  Cr)  rely,  M ckey Edwards, mber of Congress ME/blm  ati-  cp rin  —42 r  c-,rn c  rn tr)  ) . z 7_L 1r 4  king industries to The ability of the thrift and ban interest bearing offer to its customers market rate to the economic transaction accounts is imperative le should be well being of this nation. A schedu se out Regulation Q adopted at your next meeting to pha Act and a new instruwithin the statutory period in the ting to assist the ment should be approved at that mee competing with money thrift and banking industries in market funds.  Sin  70  in CI  ion at the next I am writing to urge you to take act ons Deregulation meeting of the Depository Instituti ssional mandate Committee to carry out the Congre Deregulation and under the Financial Institutions out Regulation Q Monetary Control Act of 1980 to phase of the Federal Reserve Board.  ou for your consideration.  CD , C.  31Ir 7::3  Dear Mr. Chairman:  Thank  -T • rrt , C rr.  t .  A . ;of GO ve •.. ...•,c  .  BOARD OF GOVERNORS OF THE  •es, :0  .-  1;  .,  1— • -`12; (-). 4<,.  •A  '.1es • .4,  RAL IZES  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  April 15, 1982  '• • • • • •'  PAUL A. VOLCKE R CHAIRMAN  The Honorable Toby Roth House of Representatives 20515 Washington, D.C. Dear Mr. Roth: Thank you for your recent letter regarding the effects of high interest rates on the prospect for economic recovery. I fully understand and sympathize with your concerns; I too would like to see prompt relief from the high interest rates that have so seriously gripped our nation. Unfortunately, the Federal Reserve has no "magic wand" to control interest rates--indeed, quite arguably we have less control over the real rates that you note are very important than over nominal rates. Real rates represent the outcome of supply and demand forces in the market for credit, with the actions of the monetary authority only one influence in the complex process. The Federal Reserve could seek to lower interest rates by fostering faster growth of the money supply, but this might provide only temporary relief at best. To the extent such action called into question our commitment to a longer-range anti-inflation effort, the resultant exacerbation of inflation expectations would tend to raise nominal rates--especially in the longer-term debt markets that are of such critical importance to some of the sectors you note. As you know, I have emphasized the important role of fiscal policy as a determinant of interest rates in the current situation. The federal government obviously looms very large in the credit markets today, and it is clear that the prospect of persistent--even growing--budgetary deficits weighs heavily as a negative factor for potential investors in fixed-income securities--especially in the intermediate- and long-term markets. Decisive action to reduce the size of the budget deficits in the years ahead would alleviate concerns about a continuing tension between private and public credit demands and, I believe, could bring significant relief in terms of reduced nominal and real interest rates. It is my view at this time--and it is a view shared by the Federal Open Market Committee generally--that our monetary targets for 1982 will accommodate an upturn in the economy later this year, in an environment of slower inflation. The recent   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  l  d  So The nonorahle Toby Roth Page Two are, of course, a big t on fr e ic pr e th on ts ets favorable developmen titative monetary targ an qu of g in tt se e Th elus on that score. ' times of rapid change e es th in r, ve we ho , is not a simple matter d thus we recognize an s, ce ti ac pr d an ns io in financial institut cated that we would di in ve ha We y. it il ib the need for some flex es in the upper parts at eg gr ag e th of th ow gr not be troubled by est that our targets gg su ld ou sh ts en ev if t of their ranges, bu prepared to alter be d ul wo we , ng ni ai tr ns still are unduly co ress. At this stage, ng Co e th to on si ci de r them and to report ou the economy, I think in es ss re st t en rr cu however, despite the uld hope that, while wo I d an e, ur at em pr be such a decision would Administration and the e th n, io at tu si e th r to m that we continue to moni t in place a fiscal progra pu to ng vi mo be ll wi ss Congre bring sustained relief to rt fo ef e th to e nc re gives greater cohe for renewed prosperity. on ti da un fo d un so a y la from inflation and Sincerely,  V-E4) JF:RMF:MJP:JLK:NS:pjt (f bcc: Mr. Fruend Mr. Fisher Mr. Prell chline. (2) Mr. Ki 2larai Ma Mrs.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action  TOBY ROTH  •  EIGHTH DISTRICT WISCONSIN  .  , nei Mr. Xichlffie a.!!k: ..,1!1111#1-P '  • •  JIMPIr 111  ;  uu  T" "  FOREIGN AFFAIRS COMMITTEE SUBCOMAAITTEES: EUROPE AND THE MIDDLE EAST INTERNATIONAL OPERATIONS RURAL CAUCUS TRAVEL AND TOURISM CAUCUS  illniteb *tees Boast of ittepresentatiuts  WASHINGTON OFFICE 215 CANNON HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 DISTRICT OFFICES 126 NORTH ONEIDA STREET APPLETON. WISCONSIN 54911 207 FEDERAL BUILDING 325 EAST WALNUT STREET GREEN BAY, WISCONSIN 54301 NORTHERN BUILDING 844 PIERCE AVENUE MARINETTE, WISCONSIN 54143 101  March 29, 1982  un co  rri cD 1"TI  1:1,.  MM —0  rn  Paul A. Volcker, Chai, A e Board of Governors of Federal Reserve Sys, „1 Federal Reserve Building Constitution Avenue Washington, DC 20551  rn ) c-  C.I1 e"; rn 0  rc,c) M -9 Cl) .-qC) M <rwl< rn  to,A Cr  Ca)  Dear Mr. Chairman:  -4  CP  --  a reduction in Again, I must ask that the FED take immediate action to effect ict, I can assure you interest rates. Having just returned from my Congressional Distr of my constituents. that the issue of high interest rates is uppermost in the minds stand ready to Farmers cannot buy equipment to efficiently plant crops; builders ages, thousands of dig foundations for homes whose potential owners cannot get mortg are laid-off due to employees of auto and implement dealers, small parts manufacturers the cost of financing consumer needs. erupt, causing Without near term relief, the pent up demand for these goods will the Economic further upheaval in our economy. You must act now to insure that uled in mid-summer, Recovery Program kicks in prior to the tax cuts and COLA sched e dollars at unusually further contributing to the federal deficit and even more scars high interest rates. asing inflation is We must act now! The real cost of money, allowing for decre and see the rebound in disproportionately and artificially high. Let the M-1 free -capital improvements as housing starts, decline in the unemployment rate, upturn in dollars flow from the money markets to the free market. and Thrift Institution I'm working with my colleagues on the Real Estate, Housing nation out from adversity Task Force. In the past, the housing industry has led the e solutions for the into prosperous times. The Task Force expects to identify viabl progress made to conhomebuilding and homefinancing industries. We hope to further Now we must address high trol runaway inflation and eliminate burdensome regulations. well as develop interest rates and problems within the financial community as forward-thinking monetary policy. goals: we must reduce Mr. Chairman, again, I urgently request support of these now! we must have initiatives from the FED -- we must act interest rates "Af /P TOIY.r" Memb F of Congress TR/gw   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  April 15, 1982  Dear Nick: Just a quick note to welcome you to Washington. We need you -- even for a few months. See you at the swearing-in. Regards,  The Honorable Nicholas Brady United States Senate Washington, D. C. 20510  PAV:slw  MIL   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .• Of GC/Vt •  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  •C • -n  WASHINGTON, D. C. 20561 • ct' •  1?•ALRzs •••• • ••  April 15, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable Floyd J. Fithian House of Representatives Washington, D. C. 20515 Dear Floyd: Thank you for the opportunity to comment on the letter from your constituent, Mr. Marvin Christensen, which expresses his concern about the adverse impact that high interest rates are having on the building trades. I certainly understand his concern and yours that the burden of fighting inflation by controlling the growth of money and credit is falling most heavily on those sectors of the economy most sensitive to high interest rates. But the Federal Reserve does not have a "magic wand" to set interest rates, and, indeed, the current high level of interest rates is largely a reflection of a decade of high and increasing rates of inflation and a fear of further pressures from inflation and the federal budget posture in the future. I believe that the surest way to achieve a permanent lowering of the cost of credit is to demonstrate a firm resolve to reduce the rate of inflation over time. In this regard, our policy of restrained growth in money and credit to fight inflation is not synonymous with a policy of high interest rates. Indeed, I do not believe we could be successful in avoiding the problems cited by Mr. Christensen by retreating from our present policy and creating excessive money and credit growth. Previous failures to follow through on a credible anti-inflation policy have embedded a stubborn inflation expectations component in current interest rates. A failure to follow through at this point would likely reverse the progress that has recently been made on the inflation front and would mean that all the difficulties described by Mr. Christensen would only need to be repeated at some future point in time. Indeed, the reaction of financial markets might be to raise interest rates rather quickly out of fear of renewed inflationary pressures so that any relief might be short-lived at best. As you know, I firmly believe that interest rates will be higher and financial markets more unsettled the more that monetary policy alone is relied upon for a return to a stable economic environment. Progress by the Administration  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  The Honorable Floyd J. Fithian Page Two  and the Congress toward reducing the federal deficit, thereby easing federal credit demands, would be extremely valuable in relieving pressures on interest rates in the current situation. I believe that, with monetary policy and fiscal policy working in the same direction, prospects arc bright for a restoration of economic growth and stability in years to come. Sincerely,  DS:JZ:JLK:NS:vcd (V-94) bcc:  Ms. Zickler Mr. Stockton Ms. Wing Mrs. Mallardi  WASHINGTON OFFICE. 1210 LONGWORTH HOUSE  DISTRICT OFFICES:  Action assigned Mr. Kichline  513 MAIN STREET  "I•FICE BUILDING WAST-9NGTON, D.C.  LAFAYETTE: iNDIANA  20515  (202) 225-5777 COM MITTEES:  Congre55 of tijc Einitcb etate5  TOLL FREE ACTION LINE  518 SOUTH BUFFALO STRL ET WARSAW, iNEHANA  AGRICULTURE GOVERNMENT OPERATIONS  47901  (317) 423-5663  30out of ikeprelentatiW Utiassbington,ID.C. 20515  46580  (219) 269-1813  -OFFICE ON wHEELS" TRAVELING REGULARLY THROUGH THE DISTRICT  (800) 382-7517  FLOYD J. FITHIAN 2NO DISTRICT, INDIANA  March 29, 1982 co rr? Mr. Paul A. Vol^ker, Chairman Federal Reserve Board 20th 3treet & Constitution Avenue N.W. Washington, D.C. 20551  r, )  a =0  -sr) :L . - CD  • law -  Dear Paul:  4. 0,".•  One of my constituents, Mr. Marvin Christensen, has sent me a copy of a recent letter he wrote to President Reagan. 'Ir. Chri3tanse-1 is a carpenter whose livelihood has been reduced drastically as a result of inflation and current high interest rates. He is concerned that the policies of the Federal Reserve Board are creating "the new poor" among people in his situation, and he asked me to share a copy of his letter with you. I am equally concerned about the matters he raises, and am particularly concerned about the large number of Indiana Hoosiers who have been hit especially hard during our current economic As I have said in previous conversations with you, I difficulties. urge your full commitment to lowering today's high interest rates. I would appreciate it if you would give Mr. Christensen's letter your serious attention. Thank you fo:- your interest in this matter. Since ely,  THIAN FLOYD Member of Congress FF/ag Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Co  C:r  /q ea,  /27/iie  ft;  12 -/61a : /t? d 1-2/4 5pE/1-) 0 Ch D woek Foe 20 5,E.,9es y6-19rT h T ,u .7 j. 1 /0 ) A 0 /'of 1- /17121 77/ n=r-• A 2 OC /7 o S r s o L ? :4 - PE- VE tIG -7 C  hi  1 1  ?/_.) 40%  11 -a oe- tOo tEss TA  xi6. 7t- ei&  7-77 E-  VOLis e78  //,7  G  00At?k  C-#)A/  Low‘.e ED  7--//  /t)ii  ir  7-4  /0076w-es 7-  W /I, O D ? _5 6. T S V U / ) q" r/ 0)17x/  z)00.) iiizs 8ts / s 41r 2 , /220v/t.,  .9.)7 71,1c1  per-everL_ 0 u c E-C  0  •  c17,2 4  D  0it)c:/?; 0  Z- 4)6  / PZ‹72424.) 7/;r1  "X‘.577 •  /5 /JO  04) Ee  Cc,Uitirci  -au A L, y 0 0 4 1 , cv0/2 1-4vc. 4,7441. /77;71. c/ x) r k u / h -rh 8 o9 F 4 ; 7 e) do 6 ?..177•-- 7 600ecx, 6 ) 7(6 51 1/ 1w ci0(7 o f u 0 2 s ca /7 u od R P n rr Ak ei Dr  7,0/7/17/0/1  77//,5  Got)e-e.rneng-  - 6-7447E74 D°  198L6-s 0/t)z 0  (OUL-0Q)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  DasE- AkYr 0.1441T  too k m 6-- To  r3/e& P TA G orh &e  (Ve  FEI)E-e../;z  *  p)G" ,6ad  s9/71&-- wFic7  4711.rniL%7  tnc)  vEob roc. le tie/ r 77-)•6T Pss En)pLc..)(i eb I Give7 cLc)56-/F04/95 co aT 71) c--Si.=;u (n)chs I h  Le7  /7  a°4-- 7-0 r  Awd lious  r-)LL, th  Food nix) Ti)t.:ieer&-i r/9/17/Ly • R/911Li)A6.  2/9d  V  r  BE- 1A) ThE- Meriiplo\r/i)&-xir 1--1/6-)6 P6e) & TO /S IT how 1"-/d : 1 6 SO SA OuLd BE-- TA, Ui iS a a -7--/ b TEfr2Es-r el)-r Es Siv:,u1,c1  roe  Vcio nupOer  c--  I/  t -r- /4T STAe 7-0 tvock__  (loc..)  os  •  ) 61)/0i.  e-Fci  Peor-)6Y...  7  -- goy -)o 0/P6--P7 iL ioec-rd 0f -77;s /7/1-6 - - tc-ot. C4fe&-  TY/64,56'  p&-opL&--- ova P7.4 svni:r.yoc-) CaLL  hauti---  . A/ /Jlivs•:,  Elb-r-  1_ETL  -- 737/& -/Y-2E- To A9,3-E.,c 6)('/E)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  SPE/v(1  C  Owe- r-71_  eeiG4ii•  aticic -rh is  /Jo7- GO/),0  773&-79/u  O/L) rc,t2Gt-fr7i,t)  Peop -L. 1eE' m,c/ f vor.)  GET  iF  you 11  e -Ar-77e  0...7QL)  e-tnuG   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  APR  4 1982  The Honcrahle John C. Danforth Chairman Subcommittee on Federal Expenditures, Research and Pules Committee on Governmental Affairs United States Senate Vashington, n.c. 20510 Dear Mr. Chairman In accordance with the requiremprts of the Government in the Sunshine Act  I am pleased to submit the Board's fif-.  Annual Report covering the implementation of its administrative responsibilities under the Act during calendar year 1981. Sincerely,  Enclosure jM:PAV:cLc bccl  Mrs. Mallardi (2) Mrs. Booth Mrs. Doying  Identical letters also sent to  President of the Senate Speaker of the Rouse of Thomas P. O'Neill, Jr Chairman,Glenn English, and Individual Rights  - George Bush Representatives Sub.on Govt. Info. of House Gov't. °pers.  4  April 13, 1982  The Honorable William M. Thomas House of Representatives Washington, D. C. 20515 Dear Mr. Thomas: Thank you for your letter of April 1, 1982, requesting the Board to consider immediately and approve an application under the Bank Holding Company Act by Central Pacific Corporation, Bakersfield, California ("Central Pacific"), to acquire Kern Savings and Loan Association, Bakersfield, California. The Federal Reserve Bank of San Francisco has accepted the Central Pacific appliCation for processing, and your letter will be made part of the record on the application and considered by the Board in reaching its decision. The Central Pacific application raises important issues under the Bank Holding Company Act and the Board's Regulation Y. These issues are being given careful consideration by the Board and Reserve Bank staff and have been discussed with Central Pacific. We understand that Central Pacific is considering restructuring its proposal so as to address these concerns, and we will give full consideration to any final proposal submitted. We appreciate your interest and concern and your taking the time to provide us the benefit of your views. Sincerely,  IDENTICAL LETTER SENT TO:  Congressmen Bill Lowery David Dreier Norman D. Shumway  JVM:MAG:llw bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi (2) V-92 Mr. Bradfield G.C. #112 Mr. Mattingly Ms. Gadziala  W11 -1AM  rA. THOMAS  Action assigned —  Mr. Bradfield  324 CANNON HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 (202) 225 2915  1-14 ..-ISTRICT, CALIFORNIA  DISTR /CT OFFICES. 1830 TRurruN AVENUE, t200 BAKER SFlELD, CALIF ORNIA 93301 /(805) 327-3611  4.0M M ITTEE ON AGRICULTURE SUBCOMMITTEES: COTTON. RICE AND SUGAR DEPARTMENT OPERATIONS. RESEARCH, AND FOREIGN AGRICULTURE COM M ITTEE ON HOUSE ADMINISTRATION  Congros5 of the tiniteb tate5 30ousu of ikeprefientatibeg  858 W. JACKL:AN STREET. g1115 LANCASTER, CALIFORNIA 93534 (805) 948 2634 ADMINISTRATIVE ASSISTANT CATHERINE M. SWAJ1AN  Ellassbington,  April 1, 1982 0  rn  cp  •TI C)  The Honorable Paul A. Volcker Chairman, Board of Governors The Federal Reserve System Federal Reserve Building Washington, D.C. 20551  3=2  cp  rn  f-T1 =CD  c.n rs c.Jo cn cn  Dear Mr. Volcker: consideration and We are writing to request your immediate ition of control by the approval of the application for acquis a of Kern Savings and Central Pacific Corporation of Californi Loan Association of California. an application for Central Pacific Corporation has filed and Loan Association acquisition of control of Kern Savings s and Loan, and that with the California Department of Saving 1982. application was approved on March 24, t as the distressed A sense of urgency underlines our reques worsening. situation of Kern Savings is steadily promptly approved by your We believe this application should be st, given the small size agency for the following reasons. Fir ket they serve, this of both institutions and the local mar to a local problem, and acquisition would be a local solution ial impact upon the local would avert an enormous adverse financ ner has already approved community. Second, the State Commissio er Savings and Loan wanted the application, and noted that no oth es that this acquisition to acquire Kern. Further, she believ we believe that approval of serves the public interest. Third, with all public statements the acquisition would be consistent   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  :-..-3 I). ct  nr-T1  rrl  2) c  Fri  cr) , c) rr  <ri< -4  -  i , e.  ."  The Honorable Paul A. Volcker April 1, 1982 Page 2  by Congressional and Federal regulators regarding assistance to the thrift and housing industries, in that this solution is completely intrastate and involves no government assistance. To conclude, we urge that you give this application prompt and favorable consideration. Sincerely,  William M. Thomas,  Bill Lowery, M.C.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  m.a.  . imil 4 f., Dreier, w . .  No man D. Shumway, M.C.  .•  • •<-,of GovEk" • •.9-,••oP • Co ,...-,  OF THE . TA. i ..  .3.  :..?: .41:::‘  BOARD OF GOVERNORS  .. ---.--,'4/.•  `,' , F-- • .53r . ' 1 • , ‘ ...-42erlirr rr \ \  es ....4' Ot ••.  I I ,  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  L,.  ..4441• * • 1. . 0 —  Rf-s • RAI_.. •. • • •  April 12, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable Dante B. Fascell House of Representatives 20515 Washington, D.C. Dear Mr. Fascell: Thank you for your letter of March 17 concerning Chemical New York Corporation's proposal involving Florida National Banks of Florida, Inc. As indicated in my earlier letter to you, this is a matter of some controversy, and the various parties have been involved in extensive litigation in the Federal and State courts A definitive agreement was entered into on February 4 between Florida National Banks and Chemical New York Corporation. In order to apprise the Board of the details of the agreement and the circumstances leading to it, a meeting at which members of the Board's staff presided was held involving Chemical New York Corporation, Florida National Banks, Southeast Banking Corporation, and C.A. Cavendes, Sociedad Financiera on April 7 and 8. At the meeting, the organizations were given the opportunity to present evidence on the questions concerning the applicability of the Bank Holding Company Act to the agreement between Florida National and Chemical. A question that arises is whether, as a result of the agreement and other arrangements that have been entered into, Chemical owns, controls, or holds with power to vote more than 5 percent of the shares of Florida National or, in the alternative, has the power to exercise a controlling influence over the management policies of Florida National Banks. We are hopeful that the results of the twoday meeting will be able to provide the Board with detailed evidence on these issues. The parties to the meeting have been given until April 19 to supplement the record with written material. The results of the staff's investigation of the Chemical/Florida National arrangement will be coming to the Board for further consideration after the transcript of the meeting and the supplementary materials are fully analyzed, and I will be pleased to keep you advised of the Board's final disposition of the matter. Sincerely,  RM:pjt (#V-68) Mannion, bcc: Messrs. Bradfield, Mattingly, Alvarez Mrs. Mallardi  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  a atft  •  CHARLES R. O'REDAN ADMINISTRATIVE ASSISTANT  Action assigned N4r. Nfannion  ./ DANTEB.FASCELL 15TH DISTRICT. FLORIDA COMMITTEES: FOREIGN AFFAIRS CHAIR MAN: INTERNATIONAL OPERATIONS SUBCOMMITTEE MEMBER. INTERNATIONAL SECURITY AND SCIENTIFIC AFFAIRS SUBCOMMITTEE  Congre  GOVERNMENT OPERATIONS MEMBER: LEGISLATION AND NATIONAL. SECURITY SUBCOMMITTEE  of Mt Einittb  tate5  3botuk of RepretentatibeZ Eliaitington, 13.C. 20515 March 17, 1982  COMMISSION ON SECURITY AND COOPERATION IN EUROPE  UM CO rosi  -T1  ✓ri f= fT3 ✓o.  CHAIRMAN CANADA-•-UNITED STATES INTERPARLIAMENTARY GROUP CO-CHAIRMAN. U.S. DELEGATION  ]C:)  xn. =t  rn  Tab  X =CD < < rri tf) t—• tr.  3>  Dear Mr. Chairman: In early December 1981, I wrote to you with respect to an announced merger proposal between Chemical New York Corporation and Florida National Banks of Florida, Inc. Your response to my letter indicated that the Board would give the matter early attention. Subsequently, Chemical and Florida National have announced a definitive merger agreement. Because of this transaction's potential impact on the entire Florida banking structure, I am concerned that resolution not be delayed. If the agreement were allowed to be accomplished, it would effectively lock up Florida National and its shareholders for a potentially lengthy period. This aspect of Chemical's control would appear to raise serious problems for the Board as a bank regulator, aside from the question of impermissible interstate banking. In the event any Florida banking institution were a party to such a prospective merger agreement -- dependent for its legal consummation on some future change of federal law -- and encountered financial difficulties, those difficulties could not be resolved by another presently legal and immediate intrastate merger. This pattern appears to present a potential for serious bank regulatory and supervisory problems in Florida. I hope that the Board will take early action on the pending merger, and I would appreciate your letting me have your thoughts on the implications of such proposed mergers on the system of bank regulation. Sincerely,  c“),f&L D TE B. FASCELL Member of Congress   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  X c3C) rn  CO rY1 < rn =  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Washington, D. C. 20551  DBF/ks  7:1 11 ' 2 0 1--  fin  1 7: LP  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. E. 20551  April 9, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable Lawrence Coughlin House of Representatives Washington, D. C. 20515 Dear Mr. Coughlin: Thank you for your letter of March 30, submitted jointly by you and fourteen of your colleagues, regarding the danger that high interest rates may impede economic recovery. I share your concerns, and I too would like to see an early relaxation of the tensions in financial markets. Unfortunately, the Federal Reserve has no "magic wand" to control interest rates--indeed, quite arguably we have less control over the real rates that you note are very important than over nominal rates. Real rates represent the outcome of supply and demand forces in the market for credit, with the actions of the monetary authority only one influence in the complex process. The Federal Reserve could seek to lower interest rates by fostering faster growth of the money supply, but this might provide only temporary relief at best. To the extent such action called into question our commitment to a longer -range anti-inflation effort, the resultant exacerbation of inflation expectations would tend to raise nominal rates--especially in the longer -term debt markets that are of such critical importance to some of the sectors you note. As you know, I have emphasized the important role of fiscal policy as a determinant of interest rates in the current situation. The federal government obviously looms very large in the credit markets today, and it is clear that the prospect of persistent--even growing--budgetary deficits weighs heavily as a negative factor for potential investors in fixed-income securities--especially in the intermediate- and long-term markets. Decisive action to reduce the size of the budget deficits in the years ahead would alleviate concerns about a continuing tension between private and public credit demands and, I believe • could bring significant relief in terms of reduced nominal and real interest rates. It is my view at this time--and it is a view shared by the Federal Open Market Committee generally--that our monetary targets for 1982 will accommodate an upturn in the economy later this year, in an environment of slower inflation. The recent   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  .•   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Lawrence Coughlin Page Two  favorable developments on the price front are, of course, a big plus on that score. The setting of quantitative monetary targets is not a simple matter, however, in these times of rapid change in financial institutions and practices, and thus we recognize the need for some flexibility. We have indicated that we would not be troubled by growth of the aggregates in the upper parts of their ranges, but if events should suggest that our targets still are unduly constraining, we would be prepared to alter them and to report our decision to the Congress. At this stage, however, despite the current stresses in the economy, I think such a decision would be premature, and I would hope that, while we continue to monitor the situation, the Administration and the Congress will be moving to put in place a fiscal program that gives greater coherence to the effort to bring sustained relief from inflation and lay a sound foundation for renewed prosperity. Sincerely,  JLF:RMF:MJP:JLK:NS:vcd (V-88) IDENTICAL LETTERS TO THE HONORABLE: William J. Hughes Gene Snyder Floyd Spence Tom Harkin Don H. Clausen Gary A. Lee James J. Howard Walter B. Jones John J. Duncan Gus Yatron Edwin B. Forsythe William F. Clinger, Jr. Robin Beard Robert J. Lagomarsino bcc:  Mr. Freund Mr. R. M. Fisher Mr. Prell Ms. Wing Mrs. Mallardi (2)  Action assigned Mr. Richline  4)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Congrezz of the Unittb &tato  ) Li  Pou5e of Aeprelentatibr1 tpj  tusbingtonAID.C. 20515 March 30, 1982  Honorable Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Washington, D.C. 20551  CO .c)  SI.  =  LSD CO  CI  rr!  X2  CD  =::1  'n m ___, c) —m  I M)  7-7 r --, c, m; - -1 --, (-1 Cl r••• ...  1:72  <1- . <  F=7-1‹ C:rn =CD  ›. X)  N./  /›.  —0  DC ...... ...... . •  ...ilo >  Dear Mr. Volcker:  -rt rl'i C3 rrl  0 -11 -71  _  N3  CJI  r-  C"  :2-_- c)  r- t L'l : 4 Cil 4-4 rvr 1  f" =  = (--. •••.1  L,) 4  ..... .._,  High interest rates continue to plague the economy. In fact, they appear to be the most significant impediment to economic recovery. Prohibitively high interest rates are a disaster to the homebuilding industry, savings and loans, small businesses and large corporations, to say nothing of consumers. Both the reality and the prognosis for inflation indicate The reality is reflected in a decline a significant decline. in the rate of inflation from 13.3 percent in 1979 to 8.9 The prognosis of an inflation rate close percent in 1981. It is supported by declines to 7 percent in 1982 is realistic. in the "inflation hedges" such as gold which indicate a permanent drop in inflationary expectations. Under these circumstances the "real interest rate," the market rate minus inflation, is extraordinarily high. We have experienced an era in which the prime rate was in the 19 percent range and inflation was at 13 percent, resulting in a "real interest rate" of 6 percent. We are now in a period in which a prime rate around 17 percent combined with an underlying inflation rate of about 7 percent produces a real interest rate" of 10 percent.  .1k   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  r Honorable Paul A. Volcke March 30, 1982 Page 2  t to is critically importan " te ra st re te in al re The as verns business as well go it e nc si ry ve co re economic s there Under the circumstance . st ve in to s on si ci de personal which ting monetary policies op ad r fo se ca ng li el is a comp eal interest tes to fall so that "r ra st re te in et rk ma w will allo We urge you to omary level. st cu re mo a in ta at ll rates" wi e this objective. take steps now to achiev Cordially,  <2_  i L41(;;;  ILLI  J.  UG  , M.C.  . JO  C. LA Rt$CE C UGHLIN, M.  Ar405: JOHN JIDUNCAN, M.C.  M.C.  /4 GUS YATRON  . --%---, . .C 16 7 GENE S YDER  YD S  M.C.  M. C . EDWIN B. FORSYTHE,  NCE, M.C.  • Nor  TOM HARKIN, M.C.  M. C.  WIL  . .  N BE  911111.0.  . LA  • ES J. HOWARD, M.C.  ARSINO,  .C.  WALTER E. FAUNTROY  COM MITTEE ON DISTRICT OF COLUMBIA  DISTRICT OF COLUMBIA  SUBCOM MITTEES:  2350 RAYBURN  Housr  OFFICE BUILDING  WASHINGTON. D.C. 20515 (202) 225-8050  FISCAL AFFAIRS AND HEALTH  CongreEq; of tbe Elniteb '-lptate5 jboufse of IkeprecSentatibet4  GOVERNMENT OPER ATIONS AND METROPOLITAN AFFAIRS  Egassbington, 0.e. 20515  BANKING. FINANCE AND URBAN AFFAIRS  COM MITTEE ON DISTRICT OFFICE: 400 NORTH CAPITOL STREET SUITE 318, AMTRAK BUILDING  SUBCOM M ITTEES:  WASHINGTON. D.C. 20001   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CHAIRMAN. DOMESTIC MONETARY POLICY  (202) 275-0171  ECONOMIC STABILIZATION GENERAL OVERSIGHT AND RENEGOTIATION  kfarch 24, 1982  HOUSING AND COMMUNITY DEVELOPMENT CHAIRMAN, CONGRESSIONAL BLACK CAUCUS  C31  Mr. Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System Washington, D. C. 20551  C ral  .••••• tin 03 I...0  71IL •=4  r";  7 . 0 ) D.  71,-, -nrin 7.; rn  c)  c./1  Dear Paul:  4C1 :;•  r"  This is to acknowledge and thank you for your kind letter invitinp:1 me to speak at the evening session of your Federal Reserve Directors Conference on Monday, April 12, 1982, at the ‘v% ashington Marriott Hotel. I am accepting your invitation and look forward to it with much enthusiasm. If my office can be of further assistance, please don't hesitate in calling. Vt/ith kind regards. Sincerely,  WALTER E. FAUNTROY Member of Congress Enclosure  71 _,  r-  1.1.  —441  rV3  PlOGRAPFIY THE HONORABLE l',•ALTEP. E. FAUNTROY (D.- D. C.) NEP. BPI, U. S. HOUSE OF EEPPESENTATIVES  Welter E. Fruntroy, Chairman of the Congress ional Black Caucus, hos represented the citizens of our Nation's Capital in the U. S. Eouse of representatives since 1971, when he was the first person elected Delegate to the Fouse from the District of Columbia in 100 years. A ntative of Washingten, D. C., 1\ 3r. Feuntroy tans educated nt Dunbar High School, at Virginia Union University, where he grrduated Cum Laude in 1955, and at Yale University Divinity School, where he earned his Bnchelor of Divinity Degree in 1958. He began his public career in 1959 ns Pastor of the church of his childhood—New Bethel Baptist Church—where he continues to serve as Pastor. Ile brought to his sent in the Congress a rich background as a civil rig-hts activist end Christinn minister. Dr. 11.7r.rt in Luther King, Jr. appointed him Director of the Washington Bureau of thc Southern Christian Leadership Conference where hc performed many valuable services for the movement of the 60's. Ile was D. C. coordinator for. the historic arch on Wash ington for Jobs and Freedom in 1963. fle v.-es also coordinator of the Selme-to-11,ontgomery l',./arch in 1965, Vice Chairman of the White HoJse Conference "To Fulfill These Pights" in 1966, end leader of an historic urban renewal project which is revitelizing housing, businesses, rand public focilities for the low and moderate income families in his wan neig hborhood. 1;e served ns the first appointed Vice Chnirman of the D. C. City Council from 1967 to.1969, nnd as National Director of the Poor People's Campaign in 1969. Since his election to Congress, he has continued to build n record of achievement, having played key roles in the mobilization of bind< politicnIpoe..er from the National Black Political Convention of 1972, to the presidential elections of 1972, 1976, end 1980. In the 95th Congress, Walter E. Fruntroy v.'as member of the House Select Committee on Assassinations rnd Cha irman of its Subcommittee on the Assassination of Ditartin Luther King, Jr. lie is noa; ember of the House Banking, Finance end Urban Affrirs Committee and Chairman of its Subcommittee on Domestic P.7onetary Policy. Pe is /also a member of the House District Committee. ITc is Chnirman of the Dotard of Directors of the Southern Christian Lendership Conference and Vice President of the Martin Luther King Center for Social Change. In reco,Ynition of his record of humanitarian community service, both Virginia . . Union, in 19(38, and Yale Universi ty in 1569, hnve conferred honorary Doctor of Divinity degrees upon :Cr. Fauntroy. I:e was the chief architect of legislation, in 1973, that permitted the District of Columbia to elect its ov.n 117ayor and City Council and engineered the passage by both the U. S. House end Senate of a proposed constitutional amendment calling for full Congress ional representation for District of Columbia citizens in the U. S. Congress. The proposed amendmo_nt is now before our state legislatures for ratification. Because of his leadership in bringing voting rights to the people of the Nation's Capital, the Georgetown University Ltaw School awarded him nn honorary Doctor of Lay,' Degree in 1979. Congressmen Fauntroy is married to the former Virginia. They heve one son, , born  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  of Petersburg, .  •  March 11, 1982 The Honorable Walter E. Fauntroy Committee on 2anking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Walter: On behalf of the Board of Governors, I would like to extend to you an invitation to speak at the evening session of our Federal Reserve Directors Conference en Monday, April 12 at the Idashington Marriott Hotel. As you know, under the Federal Reserve's sooewhat unique charter, each of the 12 Reserve Sanks has a private-sector 3oard of Directors. These individuals have a wide variety of backgrounjs representing manufacturing, education, agriculture, the service industries, and of course banking. The program fur April will be primarily an orientation session for new directors, with the principal focus on current Federal Reserve System issues and including an extended discussion of economic and monetary conditions. We will begin the Monday evening session with cocktails at 6:15 p.m. followed by dinner at 7:00 p.m. We are expecting approximately 50 directors, and I am sure that they would be interested in any topic or issue that you would wish to discuss, but especially your Committee's agenda for banking legislation. The program will be informal, totally off the record, and no media representative will be present. We hope that you will be able to join us and look forward to hearing from you soon. Ilest regards. Sincerely,  [Jur  TEAllison:red   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • 0 ••4.4i-  •L .•  GC4/1"R4% ••  ROARD OF DOVERNOP  4J7p  .• I•  Z.  [mir  •  4,P ( • • /'-.Z. •*4 • • 18•1-1- RS • • •.. • • •  CF  FEDERAL RESERVE SYSTEM WASHINGTCN, U. C. 20551  March 17, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable Peter Rodino Chairman Subcommittee on Monopolies and Commercial Law Committee on the Judiciary House of Representatives Washington, D. C. 20515 Dear Chairman Rodino: I am pleased to reply to your recent request for my views on H. J. Res. 2, and other related proposals, to amend the Constitution to limit appropriations of the United States to the amount of its revenues or to limit such appropriations to a spec ified percentage of gross national product. Let me begin by emphasiz ing my agreement that there is a need to achieve better discipli ne over the budget process. A budget surplus has been realized only once in the past two decades, and federal outlays as a percentage of GNP have increased from 18.5 per cent in 1960 to 22.6 per cent in 1980. It is my belief that, if we are to bring about an end to inflation and create an environment in which private enterprise can thrive, the grow th of federal outlays must be slowed and brought into better balance with revenues in the years ahead. H. J. Res. 2 would, presumably, have ruled out most of the deficits that occurred in a long chain in the 1960s and 1970s. (I say "most" with the thought that, in a few instances, deficit spending might have been authorized by a greater than simple majority vote as provided in Section 2 of H. J. Res. 2.) In retrospect, a reduction in the cumulative amount of deficit spending over this period would have been desirable on economic grounds. Rigid adherence to a balanced budget rule is not, however, without its drawbacks. Under such a regime the tax cuts and expenditures increases that have been enacted at time s to counter recession would have been ruled out. Furthermore, at leas t as important is the fact that the automatic tendency of the budget to reduce the severity of a recession or damp inflationary surges in demand woul d be curtailed by such a restriction. When gross national product declines, for example, federal receipts drop--indeed, even more rapidly than income because of the progressivity of the federal tax structure. In response to such a development, adherence to the balanced budget restriction   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Peter Rodino Page Two  woul6 require the Congress to legislate a similar cut-back in expenditures, and this would reinforce the contractionary pressures in the economy. Tho Congress could attempt to minimize the required decline in outlays by raising tax rates to bolster revenues, but this too would add to contractionary pressures. On the spending side of the budget, unless significant changes are made in a number of programs, expenditures such as those for unemployment compensation would tend to rise automatically in a recession. A balanced budget restriction would, therefore, place a great deal of pressure on other budget categories--such as defense procurement--during economic downturns. As a consequence, priorities within the budget could be distorted and "start-stop" inefficiencies in tho more controllable programs might develop. In addition, taking the automatic stabilizing influences out of the budget would naturally place a greater burden on the use of monetary policy for stabilization purposes. Such a one-sided approach to stabilization policy may not be desirable. Although budget restraint would, at the present time, help to reduce strains in credit markets, substantial budgetary restraint in a period of severe economic downturn could make it more difficult: to implement appropriate monetary policy and to deal simultaneously with domestic and international economic problems. On a technical level, I would note a number of difficulties with H. J. Res. 2. First, it provides that "appropriations" should not exceed revenues. Although appropriations are the legal mechanism through which the Congress controls federal spending, it is "outlays" that, in combination with revenues, determine the federal deficit. Appropriations differ from outlays for a number of reasons. First, in a number of instances (such as housing programs and defense procurement), a project involves multi-year contracts and the appropriation is for the full cost of the project. Congressional control over longer-term budget developments is enhanced by this multi-year appropriations process. H. J. Res. 2 conceivably could encourage a process of single year appropriations which covered only a part of longer-term commitments. In addition, the budget authority for some trust fund programs, such as social security, is determined by revenues going into the trust fund--not by the projected outlays--and spending for these programs is not literally "appropriated" by the Congress on an annual basis. Finally, some programs are "appropriated entitlements". In the past, the Congress has routinely increased these appropriations   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4  The Honorable Peter Rodino Page Three  to match the projected spending; were the Congress not to do so, a con,plicated process of court cases and prorationing of the appro priated funds among entitled beneficiaries could result. In view of these ambiguities, I am not entirely certain about the intent of the authors of H. J. Res. 2. I believe these important matters require clarification. There is also another major area of ambiguity in the proposed amendment. The Congress, in attempting to set balanced receipt and spending totals, would have to base its deliberations on proje ctions for the coming year which are subject to substantial error and frequent revision. It is not clear from the proposed amendment whether the Congress would be required to revise its budget in cases where the economy's performance did not correspond with the forecast used in preparing the budget. It would be useful to clarify these matte rs as well. I might note that Section 3 of H. J. Res. 2, which requires repayment of the national debt, means that the budget would gener ally have to be in surplus rather than in balance. Moreover, there is no provision for adjustment of the 10-year intervals in the repayment schedule in the event that national emergencies lead to deficit spending. At times, therefore, this section conceivably could prove much more restrictive than intended. Over the long run, I am concerned that Congress would be tempted to circumvent the restrictions by placing more activities off budget and by creating more federal loan guarantee programs. Certainly, such a development would be undesirable and would seriously undermine the entire budget process. A limitation of federal appropriations to a specified percentage of GNP--a possibility mentioned in your letter--is subject to the same ambiguities as H. J. Res. 2 in regard to the word "appropriations". Assuming that the authors of such proposals intended the limitation to apply to outlays, it would be necessary to recognize the fact that the rate at which outlays occur from given budget authority cannot now be forecast with absolute accuracy. In addition, there are somewhat more important problems similar to ones noted above in connection with H. J. Res. 2. Whether a proposed rate of federal spending met the GNP ratio limitations-or a limitation on the growth of federal spending relative to the growth of GNP, which amounts to the same thing--would depend on an   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  °The Honorable Peter Rodino Page Four  economic forecast which would determine the denominator of the ratio (and would have compositional consequences for the numerator in view of the sensitivity of some spending categories to economic circumstances). If the economic forecast specified a downturn, outlays would be forced to contract, thereby removing some of the automatic stabilizing influence of the budget (the larger automatic stabilization component on the revenue side of the budget would not be affected) Conversely, spending would be permitted to rise if rapid GNP growth were forecast. These problems might be removed if a consensus could be reached on an appropriate set of "potential GNP" or "trend GNP" economic assumptions that could be used in evaluating both the numerator and the denominator of the GNP ratio limitation, Clearly, a fundamental issue currently under public debate is the share of our national output and income, abstracting from cyclical fluctuations, that the public wishes to channel through the Federal Government. In grappling with this issue, the Congress should recognize the consensus that now appears to exist for increases in defense spending and the upward pressure that demographic trends will exert on social security outlays and other programs for the elderly. The extent to which the share of GNP devoted to federal spending can be reduced despite these factors--and hence the correct number to put in a GNP ratio limitation--is largely a political matter on which I must defer to the judgment of the Congress. As an economic matter, I believe that it would be important to set such a GNP ratio limitation at a level which the public is willing to finance with tax revenues, Movement toward a balanced budget is necessary if inflation is to be brought under control without undue strains in financial markets, Further reductions in the trend of federal spending will permit tax reductions which can serve to enhance production incentives. I am encouraged that there now appears to be a tide of public sentiment for fiscal discipline and for limiting the growth of federal spending. I would hope that riaid--and perhaps unsustainable--budgetary rules can therefore be avoided. Nonetheless, steps to require special Congressional and public attention to decisions to authorize budget deficits, or increases in the federal share of GNP, deserve careful consideration. If the Congress should conclude that additional restrictions on the budget process are desirable, I would suggest that they first be tried out by incorporating them as amendments to the Budget Act, In this way, unforeseen problems could bc identified before the more profound and less easily reversed step of amending the Constitution is considered. Sincerely, SL:MP:PAV:vcd (V-60) /1 bcc: Ms. Lepper 4dLACali 41 Messrs. Prell, Zeisel, Kichline Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4 TIMOTHY E. WIRTH 2o DisTR'cr. COLORADO  WASHINGTON OFFICE: 2454 RAYBURN HOUSE OFFICE BUILDING WASHINGTON. D.C. 20515 (202) 225-2161  COMMITTEES: BUDGET ENERGY AND COMMERCE CHAIRMAN, SUBCOMMITTEE ON TELECOM M UNICATIONS, CONSU M ER PROTECTION AND FINANCE  CONGRESS OF THE UNITED STATES  SUBCOMMITTEE ON FOSSIL AND SYNTHETIC FUELS  WASHINGTON,D.C. 20515  SCIENCE AND TECHNOLOGY  February 26, 1982  HOUSE OF REPRESENTATIVES  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System 20th Street and Constitution Avenue, N.W. Washington, D.C. 20551  DISTRICT OFFICE: 8648 WEST COLFAX AVENUE LAKEWOOD,COLORADO 80215 (303)234-5200  71  Dear Mr. Volcker: This letter will confirm our recent conservation and your agreepFnt to speak to the 8th Annual Wirth Washington Seminar on Thursday, April 29. Lunch will be served at 1:00 pm, immediately followed by your presentation at 1:45. I would very much appreciate your joining us for lunch; please let me know if you are unable to do so. The Seminar will be held in Room 310 of the Cannon House Office Building (the Caucus Room) on Capitol Hill. I think you will greatly enjoy the group: 200 citizens of Colorado -businessmen, teachers, retirees -- a broad, non-partisan crosssection of our State. With the exception of our Senior Interns, each person pays his way for the 3-day Seminar. The sessions are informal I hope you will speak for 20 minutes or so and then be open for questions. Enclosed is a copy of this year's schedule, along with a flyer on the program. If you have any questions, please contact me or Gail Leach at 225-2161. Also, I would appreciate your sending us a copy of your biography which can be reproduced for the Seminar attendees. T lnnk fnrward to seeing 7\rjrin, thank you for agree1nq to join mq_ you there, and in advance, I appreciate your participation.  With best wishes, rely  ))1A Tir9hy E. Wirth  TEW:glc enclosures   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  •  Rth ANNUAL WIRTH WASHINGTON SEMINAR April 7?8 - Mav 1, 1 9g?  WFTINF,SnAY, APRTL 7:00 - R:10 pm  Welcome Reception in the Lohhv and Courtyard of the Rayburn House Office Ruilding  THIIRSDAY, APRIL lq Q:00 am  Orientation, Tim Wirth THF FETIER AL RI TTIGFT AND THF ECONOMY  10:00 am  Dr. Alice Rivlin, Director, congressional Budget Office "Introduction to the Budget and the Fconomy"  11:00 am  Senator Pete V. Domenici (R-N.M.), Chairman, Senate Budget Committee  11:45 am  Congressman lames lones(D-Okla.), Chairman, House Budget Committee  1:00 pm  LI INCHF.ON Hon. Paul Volcker, Chairman, Federal Reserve Board  FOREIGN ANT) IIFFENSE POLICY 2:10 pm  Hon. Walter Stoessel, Deputy Secretary of State  3:1 5 ry-n  General David C. lones, 'SAP, chairman, loint Chiefs of Staff  4:00 pm  Hon. lames \Woolsey, former IIndersecretary of the Navy I.S. Defense: Prohlerns N Prospects"  5:00 pm  "Theory 7: An Alternative Management Style" (film introduction to Friday afternoon discussion)  A:r1n - R:00 pm  Reception given by the Friends of the Wirth Washington Seminar lames Madison Ruilciing, Lihrary of congress  FRIDAY, APRIL 10   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  POLITICAL PARTIES ANT) THF CONGRFSS: THFy wORK 9:00 am  Congressman Thomas P. O'Neill, Ir.(D-Mass.) Speaker of the House of Representatives  9:45 am  Congressman Robert Michel* (R-111.) Minority Leader, House of Representatives  •  10:30 am  Congressman lack Kemp (R-N.Y.1  11:15am  Ms. Marian Wright Edelman, President, The Children's nefense Fund "Rudget Cuts: Another Perspective"  THE FI 71 IRE OF THE AMERICAN F_C,ONOMY l2:30 pm  LUNCHEON Mr. lohn Naisbitt, President, Naisbitt Associates The U.S.: We Are Changing At Rreathtaking Speed - And How"  2:15 pm  Mr. Joji Arai, Manager, lapan Productivity Center "The U.S. and Japan: A Foreign View"  3:00 pm  nr. Lewis M. Branscombe, Vice President and Chief Scientist, IRM "Imperatives for the Future of the Economy"  4:00 pm  nr. rlavid L. Rirch, Massachusetts Institute of Technology "Small Business, Innovation and Our Future"  SATURnAY, MAY 1  (session to he held in the Capitol, on the Floor of the House of Representatives)  9:00 am  Dr. Arthur White, Vice President 6r Partner, Yankelovitch, Skelht & White "National Trends: The Economy and The Country's Mood"  10:00 am  Wrap-up with Tim Wirth  * Acceptance pending; all others speakers accepted and confirmed 2/8/82   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Brochure Citations:  Number of Pages Removed: 6  "The Wirth Washington Seminar." Lakewood, CO: Friends of the Wirth Washington Seminar, 1982.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  TIMOTHY E. WIRTH  WASHINGTON OFFICE: 2454 RAYBURN HOUSE OFFICE BUILDING WASHINGTON. D.C. 20315 (202)225-2161  2D DISTRICT, COLORADO Com m mites: BUDGET ENERGY AND COMMERCE CHAIRMAN, SU BCOM M ITTEE ON TELECOMMUNICATIONS, CONSUMER PROTECTION AND FINANCE SUBCOMMITTEE ON FOSSIL AND  SYNTHETIC FUELS  CONGRESS OF THE UNITED STATES HOUSE OF REPRESENTATIVES  DISTRICT OFFICE: 8648 WEST COLFAX AVENUE LAKEWOOD.COLORADO 80215 (303) 234-5200  WASHINGTON.D.C. 20515  SCIENCE AND TECHNOLOGY  February 11, 1982  Dear Friend: The 8th Annual Wirth Washington Seminar, in cooperation with the Friends of the Wirth Washington Seminar, is now in the final planning stages. I hope you will be able to attend; the dates for this year's Seminar are April 28 - May 1. One of the reasons I came to Congress was my belief that there was too little communication and understanding between the people of this country and their government. For example, the future health of the economy of the United States depends in large part on mutual understanding between the business community and policy-making officials in the government. And the Wirth Washington Seminar is designed to increase this understanding. The Wirth Washington Seminar is an excellent opportunity for people from Colorado to develop a deeper knowledge of the issues facing the country, and a first-hand impression of many of the key people in government positions. And since all the sessions are informal, with a majority of time spent on questions and answers, the Seminar provides a forum for input from Coloradans on these issues. Enclosed is the agenda for the 1982 Seminar. As in our previous Seminars, we have an outstanding program this year, highlighted by Paul Volcker, chairman of the Federal Reserve Board; Senator Pete Domenici and Congressman 3im Jones, Chairmen of the Senate and House Budget Committees; General David Jones, Chairman of the Joint Chiefs of Staff; Congressmen Tip O'Neill and Jack Kemp; and Ambassador Walter Stoessel, Deputy Secretary of State. Priority this year will again be placed on the economy and the federal budget, with additional emphasis on foreign policy, the C,ongress as an institution, and U.S. productivity. A new addition to the schedule is our Saturday session on the floor of the House of Representatives. The success of the Seminar has made it necessary to limit attendance to 200 people. The only fair way to do this seems to be a "first-come, first-served" policy. The deadline for confirming a place in this year's Seminar is March 5. The Seminar fee, which includes the two-and-a-half day program, luncheons, materials and operational expenses, is $125.00 per person for those from Colorado, $200.00 per person for out-of-state participants. As in the past, we have made arrangements with the Hyatt Regency Hotel on Capitol Hill for rooms at a considerable savings. Westland Travel Services in Lakewood will be handling all the flight and hotel arrangements for those interested in taking advantage of the group rates. An information sheet detailing these costs is enclosed, as well as a reservation form to return to the Friends of the Wirth Washington Seminar with your deposit. I hope you'll be able to join us this year in Washington. Each year the program gets better, and this year's schedule is no exception. If you have any questions about the program, reservations or travel arrangements, please don't hesitate to call the Friends of the Wirth Washington Seminar at (303) 233-8955. I look forward to seeing you. With best wishes,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Timothy E. Wirth  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  COST ANn RESERVATION INFORMATION 8th Annual Wirth Washington Seminar , April 78 - May 1, 1 98  - SEMINAR FEE CONTACT: Heather Thomas (103) 233-8955  Payable to: Friends of the Wirth Washington Seminar Post Office Rox 15056 Lakewood, Colorado 80215 175.00 for Colorado residents 000.00 for out-of-state residents  (This cost includes 7 luncheons and 7 receptions as well as the -4 day Seminar program.)  A deposit of fisn.no per person is required to assure your reservation hv March 5. The halance of the Seminar fee is due no later than March 19.  _ TR AvFL ANn ACCOMMOnATIONs _ CONTACT: Ruth Woodard (3031 232-6600  Payable to: Westland Travel Services, inc. 9797 West colfax Avenue Lakewood, Colorado 80715  The package cost for 1 nights at the Hyatt Regency Hotel, round-trip airfare, all ground transportation, baggage ham-fling and taxes is: 4.00 per person each additional night 5.0r) per person each additional night  14.60.00 per person (double accommodations) 75.00 per person (single accommodations) -- Round trip airfare on this package is 071.00.  -- The rates quoted are effective today and are subject to change. Rates that are in effect as of your confirmation date will he held for 10 days and guaranteed. — Should you decide to make your own flight arrangements, hut stay with the group at the Hyatt Regency, Westland Travel can make those reservations for you as well.  Complete the following form, detach and mail no later than MARCH 5 : Please make reservations for me (us) for the Rth Annual wirth Washington Seminar. Fnclosed is a r).00 deposit per person. Name(s) Address Telephone Occunation(s) I will he traveling on one of the group flights. (Roarding passes will he issued with tickets.) Smoking  Non-smoking  will he staying at the Hyatt Regency Hotel for nouhle accommodations  Window seat  Aisle seat  nights.  Single accommodations  I understand that the balance of payment is due no later than March 19, and that the S50.00 deposit is not refundable after that date. nate  Signature  ki AIL Tn: Friends of the Wirth Washington Seminar Post Office ROX 15056 Lakewood, Coloracio 80715  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  L  d•  Rth ANNUAL WIRTH WASHINGTON SEMINAR April 78 - 'Vlav 1, 1 9g?  WEDNESDAY, APRIL 78 7:00 - 8:10 pm  Welcome Reception in the Lohhv and Courtyard of the Rayburn House Office Building  THI JR STIA Y, APRIL 19  9:00 am  Orientation, Tim Wirth THF FEDER AL MIDGET AND THE ECONnMY  1O:00 am  Dr. Alice 1? ivlin, Director, congressional Budget Office "Introduction to the Budget and the Fconomy"  11:00 am  Senator Pete V. Domenici (R-N.M.), Chairman, Senate Budget Committee.  11:45 am  Congressman lames lones(D-Okla.), Chairman, House Budget Committee  1:00 Dm  LI INCHFoN Hon. Paul Volcker, Chairman, Federal Reserve Board  FOREIC,N AND DEFENSE POLICY 2:10 pm  Hon. Walter Stoessel, Deputy Secretary of State  1:15 pp  General David C. lones, ISAF, chairman, loint Chiefs of Staff  4:110 pm  Hon. lames Woolsey, former 1 1nclersecretary of the Navy "1 Defense: Problems N Prospects"  5:00 Dm  "Theory An Alternative Management Style" (film introduction to Friday afternoon discussion)  6:OO - S:00 pm  Reception given by the Friends of the Wirth Washington Seminar lames Madison Building, Lihrary of congress  PRTnAY, APRIL in   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  POLITICAL PARTIES AND THE CONGRESS: no THFy WORK 9:00 am  Congressman Thomas P. O'Neill, 3r.(D-Mass.) Speaker of the House of Representatives  9:45 am  Congressman Robert Michel* (R-111.) Minority Leader, House of Representatives  10:30 am  Congressman lack Kemp (R-N.Y.1  11:15am  Ms. Marian Wright Edelman, President, The Children's Defense Fund "Budget Cuts: Another Perspective"  THE FUTURE OF THE AMERICAN ECoNOMY 12:30 pm  LUNCHE.ON Mr. John Naisbitt, President, Naisbitt Associates The U.S.: We Are Changing At Breathtaking Speed - And How"  2:15 pm  Mr. loji Arai, Manager, lapan Productivity Center "The U.S. and Japan: A Foreign View"  3:00 pm  Dr. Lewis M. Branscombe, Vice President ancf Chief Scientist, IRM "Imperatives for the Future of the Economy"  4:00 pm  Dr. David L. Birch, Massachusetts Institute of Technology "Small Business, Innovation and Our Future"  SATURDAY, MAY 1  (session to be held in the Capitol, on the Floor of the House of Representatives)  9:00 am  Dr. Arthur White, Vice President N Partner, Yankelovitch, Skelly & White "National Trends: The Economy and The Country's Mood"  10:00 am  Wrap-up with Tim Wirth  * Acceptance pending; all others speakers accepted and confirmed 2/8/82   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  t?"ttit**A"ir  g*,,  COLORADO  34100$0:  171  SECOND DISTRICT in 1974 many districts that had regularly elected Republican congressmen chose Democrats  ; 4  instead. Most of these Democrats have been reelected, even in the Republican year of 1980, and they changed the partisan balance and tone of the House notably in the late 1970s. One such constituency is the 2d district of Colorado which in the past four elections has chosen Congressman Timothy Wirth, who was one of the original leaders of the 1974 freshman class and in many ways personifies it. The 2d is a varied district, made up of three distinct parts. First there is Jefferson County, just west of Denver and its fastest-growing suburban area, a place where young engineers and accountants and office clerks and assembly line workers and their families have been settling within clear sight (on most days) of the Front Range. Affluent, upwardly mobile, home of the Reagan-boosting Coors brewery family, Jefferson County is usually solidly Republican. Second there is Boulder County, with the University of Colorado dominating the neat town just at the base of a mountain. In outward appearance Boulder is All-American enough to have been chosen as the home of Mork and Mindy,and is collegiate enough to be home to Celestial Seasonings tea; politically, it has been the scene of battles between Republicans, who traditionally carried it, and liberal Democrats, who can win when they mobilize and motivate the students. The third part of the district is a small Mexican-American neighborhood on the west side of Denver, which casts only 7% of the district's vote but produces large enough Democratic margins to make a political difference.  mow Mass1111116  timpowt  When Tim Wirth decided to run in 1974, it was apparent that the district was moving in his direction. Environmental issues —e.g., the 1972 referendum on the Winter Olympics- definitely favored the Democrats. With Boulder's newly enfranchised students suddenly ,and, capable of producing Democratic margins, the Republican incumbent was in trouble. although he knew it, there was not much he could do about it. Wirth,a 35-year-old rpanasement consultant and former White House fellow, was an attractive candidate and won. Once elected, Wirth was one of the leaders of the 1974 Freshman Cauct.1§. Previous freshman class organizations had been social; this one had a real effect. It insisted on better committee assignments and pushed for ouster ofsome committee chairmen. The effect continues to be felt in the House,even after the 1980 election; chairmen know that they are accountable to their fellow members and no longer feel free to act as arbitrarily as some did in the past.  '  Wirth, like many of the other 1974 freshmen, has not had the kind of voting record one expects from older northern DemociAb. On cultural or noneconomic issues, he is more dependably on what is called the liberal side; but on economic issues, he questions liberal ory( and can be convinced to line up with Re ublicans. Thus he has supported legislation backed by environmentalists, an he has also su orted deregulation of oil and s zigs. He opposed President Carter's energy mobilization board, ecause it would override state decisions. He is one of the few members to have support from both environmental activists and oil company political action committees. Wirth has been attacked by some Democrats for his positions on economic issues, but he sees no a ostasy on his part: his background is in business consulting, and he is quite prepare to believe that the free market may be the best means o a mating a scarce pro uct.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  1.1111111111111111111  11.11111111,  172  COLORADO  --Wirth's views on these matters are of considerable importance, because fle holds a pivot seat on the House Budget Committee. He is one of the younger Democrats who may or may • not go along with the Republicans on a given issue and who thus tend to determine the outcome in the House and probably the whole Congress as well. Wirth is chairman of one of what Budget calls its task forces rather than subcommittees, on Energy and the Environment, obviously a opular subject back home.  111111.11111111  Wirth has become one of the first 1974 freshmen to win a really important subcommittee chairmanship. He is fifth in rank among Democrats on the Commerce Committee—a bod • of reat.ill_nportance, and one_Qn which his views on oil deregulation were tested_—_;and after the 1980 election he unexpectedly succeeded to the chair of the Communications Sub" committee. This is the body that, with its Senate counterpart, writes the laws regulating the ..„---ItA" -041fr broadcast industry'. It is subject to close scrutiny by many very smart people,for broadcast licenses, which are granted by the Federal Communications Commission under laws drafte by this subcommittee are business assets worth hundreds of millions of dollar§rOne assumes that, as the news came in that Lionel Van Deerlin, the former chairman, was upset in his San Diego district, Wirth immediately started receiving invitations to broadcast industry. banquets and weekend seminars. Van Deerlin had proposed a major revision of communications laws, a measure that went nowhere because it had no support except from the chairman. Wirth seems more interested in reorganizing the committee's work along functional lines, to take into account technological changes,such as the development ofcable television, electronic record-keeping, and on-line computer systems. Like most 1974 freshmen, Wirth has had to work hard to hold his seat, returning to the district often, handling constituency requests, and keeping in touch with local opinion. In 1976 and 1978 he won by an uninspiring margin; in 1980 he did better, beating an uncharacteristically"(for Colorado) moderate Republican (a minister who opposes the death penalty) by a 56% to 41% margin. And for the first time, Wirth carried Jefferson County. Wirth's district has grown in population substantially since 1970, and he is going to have to lose some of his territory before 1982. Most likely the Denver portion of the district will go; and geographically it might be considered logical to let most of Boulder go as well. But that would leave Republican-leaning Jefferson as almost the entire district —a result Wirth would certainly fight and which would make it very difficult for him to have a secure seat in the 1980s. The alternative may be a plan more complex geographically but more congenial politically'. Census Data Pop. (1980 final) 629,034, up 43% in 1970s. Median family income, 1970, $11,201, 117% of U.S. The Voters Employment profile 1970 White collar, 60%. Blue collar, 28%. Service, 11%. Farm, I%. forEthnic groups Black 1980,8%. Hispanic 1980,9%. Am. Ind. 1980,1%. Asian 1980,2%. Total eign stock 1970, 12%. Germany, 2%; UK, USSR, I% each. Presidential Vote  1.1tioal 1976  (54%) (30%) 13%) (5 - (41%)  145,045 81,064 35,369 _.-----1-37,50-1 --100,538  Reagan (R) Carter(D) Anderson (I) Ford (R) Carter(D)  1980  f/ i  ' .?iittr.ergAtio44110,4,a,z3vs.,:  r  0111110))*,...ie:A.W.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  A!. ;*" r"'" • 90kte "  ,7  •  • *ii4.4, ii • 4266226201L:;41i  4' .  „Mt  .•  1.,  173  COLORADO  Denver; Harvard Rep. Timothy E. Wirth(D)Elected 1974; b. Sept. 22, 1939, Santa Fe, N.M.; home, 1973. Ph.D. U., U., A.B. 1961, M.Ed. 1964, Stanford , Si==77.7f HEW,1967Career White House Fellow,--sman, 68; Df_itly. Asst. Secy. of Educ.2 HEW, 1969-70; Busines D. Arthur Ofc., Mt. Rocky - Mgr., Grean7estern Unita C-757-p.; Little, Inc., consultants. Qffices 2454 R HOB, 202-225-2161. Also 9485 W. Colfax, Lakewood 80215, 303-234-5200. Committees Budget (8th). SynEnergy and Commerce (5th). Subcommittees: Fossil and and on Protecti thetic Fuels; Telecommunications, Consumer Finance (Chairman).  Group Ratings 1980 1979 1978  ADA 78 74 50  COPE 50 63 65  PC 57 58 73  LCV 79 68 77  CFA 71 37 55  RPN  NAB 25  NS1 0  75  20  22  NTU 19 31 29  ACA 22 16 23  ACU 21 23 9  Key Votes FOR I)Draft Registn $ 2)Ban $ to Nicrgua AGN 3)Dlay MX Missile FOR 4)Nuclr Mortorium FOR 5).Alaska Lands Bill FOR  6)Fair Hsg DOJ Enfrc 7) Lim PAC Contrbtns 8)Cap on Food Stmp $ 9)New US Dep Edcatn 10) Cut OSHA $  FOR FOR AGN FOR AGN  11)Cut Socl Incr Dfns $ 12) Hosptl Cost Controls 13)GasIn Ctrls & Allctns 14) Lim Wndfll Prof Tax 15)Chryslr Loan Grntee  AGN FOR AGN FOR AGN  ILL  ..wie:-i: .--,-.4,,e,-.44:Aiiik  Election Results 1980 general 1980 primary' 1978 general  Timothy E. Wirth (D) John McElderry (R) Timothy E. Wirth (D) Timothy E. Wirth (D) Ed Scott (R)  153,550 (56%) 111.868 (41%) 17,132 (100%) 98,889 (53%) 88,072 (47%)  ($548,261) ($193,072)  "';.t  ($396,798) ($554,538)  THIRD DISTRICT The 3d congressional district of Colorado is an odd geographical combination. It looks regular enough on the map, covering roughly the southern half of the state. But anyone who knows anything about Colorado knows that the 3d spans some of the most diverse terrain in the United States. The western half of the district is entirely mountainous. This is an area ‘ith its own special needs and inclinations and its own political traditions, the so-called Western Slope of the Rockies, where almost half the district's votes are cast. There is substantial variation here: there are skiing resorts, mining towns,Indian reservations,and places %here Spanish is the most commonly spoken language. East of the Front Range the mountains suddenly cease; there begin the flat plains that slope imperceptibly down hundreds of miles to the Mississippi River. Most of the voters here are concentrated in Pueblo, one of   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  Arril 27,  lor  Thc V;iltnr E. ravntrc Co,Rtittte on PonlAr7, Finerco ane Pr!,e.r! Affeirs Pot:se ef Permts4".rtOlves VPshfroltor, nflf; , Dezr Ueltpr: I vfNry armritclate ynur tr*.fre.. th• t , cHe;!;t. of tt7 Crrssiontil Eester mcess to cct.7.;: .t.r1 ed•iref45 t1, 4 Fees,rel Resrrve ls new rIrr,7trrr. Vot;r ae-I.rns! thci hill e* ritt-irc eur dirreters fueRrP of tht blitre OloicPs that lelisletrs inyolvert ir econoMc policy ttexisiorts fcce. it e errAt plokasurt tr 1;tve P C144n ht—n wr sil knvr, the *rrorturity 10Afft Soe)P, Sincorely,  tSilned Paul A. VolcVer]  REFcbirson/TEAllison:deb   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  t?,  wiP,  evlo I  J. WILLIAM STANTON  DISTRICT OFFICES:  11TH DISTRICT, OHIO  170 NORTH ST. CLAIR STREET PAINESVILLE, OHIO  2466 RAYBURN BUILDING  44077  PHONE- AREA CODE 216, 352-6167  WASHINGTON, D.C. 20515 PHONE: AREA CoDE 202, 225-5306  Congre555 of the Zittiteb  tate5  MANTUA POST OFFICE 10748 NORTH MAIN STREET  COM MITTEE ON BANKING, FINANCE AND  ji)ougie of AepresSentatibefS  URBAN AFFAIRS  MANTUA, OHIO  44255  PHONE AREA CoDE 216, 274-8444  tatington, 73.C. 20515  COMMITTEE ON SMALL BUSINESS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  April 26, 1982 "I"  (470 CO  PP)  2:1  —0  r""  -41.1 -1 c) Fr)  Mr. Paul A. Volcker, Chairman Federal Reserve System Washington, D. C. 20551  INJ C.0  f=" ` 7. 1 C.)0 (40 -71 rn ---t  c_ .  ( 7:rn  :Itc CA  Your interest and concern over the last couple of month-laze deeply appreciated. If I thought this was due only to my absence from Congress, then I would be the first to say, "No one is that important." However, if your admiration for me equals mine for you, then indeed I am truly blessed. Real friendships are rare. To both Peggy and me, you and Barbara are very special people. No matter what the future holds, I know we will be seeing a lot of each other. I hope to accomplish a hell of a lot in the next four months on the Hill. Please be assured I will be in touch with you in this regard. Best re ards,  • lam 5</ c6 Stanton WS:c P.S.: I am trying to get Freddie and Jake together on an omnibus bill. We will counter with the Reuss-Stanton amendment. No one would dare vote against this amendment for fear of being accused of having a weak heart!  r•-•  ( :4C)  tan  Dear Paul:  r1-7  ("7,  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ERNEST F. HOLLINGS SOUTH CAROLINA  'AlCuifeb Ztatez Zenate WASHINGTON. D.C.  20510  April 23, 1982  Dear Paul, Mhny thanks for sending along the Annual Report of the Board. I appreciate your thoughtfulness in doing this. With warm regards, I am Sincerely,  Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, DC 20551  CD -1")  rry  (C) CX) ^.0 SZ:3  C..: -  cry  rrn — C") ""*-: rr1 rry  rn C.)C3 -17-r)  N.) CT)  SI7E23 • <:". <  . .77;fry  -  fn  nq ••11.  •••••••• ••  . *1 / 4  e  e•• , -  804RO CF SILVIO  a  CONTE  HOUSE OF REPRESENTATIVES WASHINGTON FIRST DISTRICT MASSACHUSETTS  April 22, 1982  GOVefiNORS INe RCSERVE S',157f;' I98101? Fet041  27 411 3:00 Re orFicE or cover) nit c841RNAI  Dear Mr. Chairman: I want to thank you so much for opening my symposium on Wednesday for prominent officials and business leaders from Western Massachusetts. As with your presentation two years ago to a similar group, your remarks set the stage for the rest of the day. The attendees related to me that your ability to articulate in understandable terms the very complex workings of our fiscal and monetary systems made the entire program much easier and enjoyable to follow. Although I have listened to your presentations on many occasions, they never cease to be full of wisdom and updated information on which we can deliberate. This presentation was certainly no exception. As you know, we have some tough times ahead and your knowledge of this most critical area of our federal system is going to continue to be in the forefront. I certainly am assured by the fact that you are on board to assist us as we take the legislative actions to put our financial house in order. Again, I want to express my heartfelt appreciation for your taking the time to adjust your schedule to address my constituents. My job is made easier when they hear firsthand about the challenges facing us. With best wishes, I am Cordially yours,  ilvio O. Conte Member of Congress  The Honorable Paul A. Volcker Chairman The Federal Reserve System Constitution Avenue between 20th and 21st Streets Washington, D. C. 20551   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CARROLL HUBBARD  AT LARGE MAJORITY WHIP  CONG RESSMAN 1ST DISTRICT, KENTUCKY  2244 RAYBURN HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515    (202) 225-3115  Congre55ofthetinitebtate5 jbou5e of ReprefSentatitio5 Klazbington, ri.e. 20515 April 16, 1982  COMMITTEES: BANKING, FINANCE AND URBAN AFFAIRS MERCHANT MARINE AND FISHERIES CHAIRMAN, SUBCOMMITTEE ON PANAMA CANAL/OUTER CONTINENTAL SHELF 4:::) -ri 47, -1.: M 7 Gip . c-7 7....3. r...,• r,.1 CD MI :...) XV I> n:7 —12 i'-'...."'" XI -Tin " Z3 CD sir) r \ ) Fr'i C-D C:3 Z: ( "1 rry --t..0 ) "v1 rl Ca 'C rrl --.C. ) c:, rn .7zc.: t' '<I"', < I-v. lit in rv,  55 3" 2>. :?::  Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, DC 20551  9? gi  0 --c 0 — --4 c.r% pm —4P •...  Dear Paul: This is to acknowledge and thank you for your April 15 letter and copy of the 68th Annual Report of the Federal Reserve Board, 1981. Paul, please know how much I appreciate your thoughtfulness in sending me this report. I have stud ied the report with interest, and I am sure that it will prove usef ul to my staff and me. With best wisheq.for you, I am Sincerely yours, da/AAA4241, 1 Carroll Hubbard Member of Congress CH/bw  https://fraser.stlouisfed.org • Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF OF GOVERNC1RS 1HE FEDERAL RESERVE SYS TEtv  Tonareeix *use  3int plum  1981 APR -9 PM 9: 23 tIlralnitar ...tatrff Tvgpresrotatitirs  illasilington,  cq.  RECEIVED OFFICE or FHE CH4liN4  iI31,5  .gsixtit •Pistrirt  April 8, 1982  The Honorable Paul A. Volcker, Chairman Board of Governors Federal Reserve Board Washington , D.C. 20551 Dear Mr. Volcker: I wanted to thank you for taking time out of your demanding schedule to address my constituents last Wednesday. Your participation helped make our Second Business Day in Washington a tremendous success. Many participants of Businessman's Day enjoyed your remarks and your special insight on current issues facing our nation. I am confident that every one went home with an increased awareness of the complexity of the problems our nation now faces. They have also gained a deep appreciation for your sincere and dedicated service for our great country. Again , many thanks for your time and effort. Sincerely, -1111  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20SSI  April 7, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable Henry S. Reuss house of Representatives Washington, D.C. 20515 Dear Mr. Reuss: I have reviewed the circumstances with respect to the Pabst Brewing Company, as raised in your letter of March 22 and March 25. So far as possible violation of margin requirement regulations are concerned, we have, as you can see from the enclosed letter to Mr. John M. Fedders, referred the matter to the Securities and Exchange Commission. That agency has enforcement authority for the relevant Regulations G and T. While we have expressed our opinion on the applicability of the regulations to a hypothetical situation, we have no independent knowledge of the factual situation with respect to the Pabst takeover effort. Our usual procedure is not to undertake independent investigation of a margin matter which is before a United States District Court. The point about the role of the Federal Reserve in the allocation of credit, as raised in your March 22 letter regarding Pabst and your April 5 letter regarding Schlitz, has been a troublesome one. In addition to the specific "takeover" negotiations mentioned in your letters, we have, of course, become aware of competing interests in the possibility of a takeover of Pabst, and apparently the Milwaukee firms have themselves considered acquisitions in the past, if not recently. The competing claims and difficulties in ascertaining both intentions and possible results illustrate in a concrete way the reservations we have about entering an area where we have no specific mandate or special competence. As a general matter, the Federal Reserve has neither the expertise nor the authority to intervene in the allocation of credit or decisions about the ownership, control, and direction of business firms in diverse industries throughout the economy. It is very difficult in most instances to distinguish takeover or other financial transactions that are "unproductive" from those that are "productive," either   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Henry S. Reuss Page Two  directly or indirectly. Decisions, inevitably arbitrary, imposed on such large and flexible financial markets as we have, probably result in more than minor confusion and could have unintended effects. You may recall some of the unanticipated reaction to the Special Credit Restraint Program in 1980. I was also interested at that time in the Congressional inquiries I had urging "sympathetic attention" to the need for bank credit to facilitate certain takeovers thought to be advantageous to a particular community. Use of the Federal Reserve's discount window and administrative procedures to influence banks that lend money to finance certain merger and acquisition activities is not contemplated by existing law or policy, assuming those activities are consistent with the safety and soundness of the institutions concerned. The Community Reinvestment Act does provide an opportunity--in connection with the applications process--to assess a bank's record in serving the credit needs of its community, which we do as the circumstances arise. This assessment relates to an institution's overall record so that judgments with regard to a specific loan or other activity must be made within the context of the total scope of the institution's policies and performance. Having said all of that--and those reasons have been persuasive to us in "staying our hand" in specific cases--I recognize the difficulty of reconciling high interest rates and credit restraint in the public mind with the use of large chunks of bank credit for purposes that, at least on the surface, would not seem to promote overall economic performance. I have indicated on a number of occasions my own concern about "merger fever" absorbing bank credit. We have attempted to monitor this activity, and have concluded that the amount of bank credit--and even more clearly, the net volume of total credit--absorbed have been limited in the context of our total capital and credit markets. I understand that that circumstance may offer small comfort to those concerned with a particular transaction at a particular time, in terms of the potential impact on a locality. But I am sure you understand that the Federal Reserve is not in a position to act as "judge and jury" in such individual cases--and given the variety of financing resources available at home and abroad, we could hardly be effective in turning down one particular source of funds. The basic answers to the kind of problems you outline must be in improved incentives for new productive investment and in a more satisfactory economic environment. As you know,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  4F .--  The honorable henry S. Reuss Page Tnree  I believe a more stable financial and price situation is an essential part of the effort to achieve that environment. I woula also emphasize the relevance of the effort to reduce tne Feaeral aeficit so that it absorbs less private savings, leaving more available for financing needed capital outlays for proauctive private sector purposes. Sincerely,  Enclosure (Ltr. dtd. 4/7/82 to Mr. Fedders from Jack Ryan) NMS:PAV:pjt (#V-76 & V-81) bcc: Mr. Axilrod Nr. Ryan Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  46,  •  April 7, 1982  Mr. John 1746 Fedders itirector Civisioh of Inforcement Securitios.and Exchange Cornission SOC North Capitol Street Washinuton, 20E.49 Dear tir. Fedders: Enclosed please find materials concernin7 elleed violation% of the Federal Reserve Board's securities credit regiolations by Mr. Irwin L. Jacobs oth:rs involvin: th•' stock of Patst Preyir7 Corr7lry, referred to you such action as you deem appropriate. Inforce-Aent authority for the regulation involved in this case resides with the Securities and Exchange CortAssion. Following our customary practice, Board staff made no independent investigation of the facts, as the controversy is before a United States Uistrict Court. It is the opinion of the staff, however, tt4at violations of f,.julation C. (12 CFR 20) and Reculation T (12 CFR 22n) have occurre under the facts as represented in the material supplied to the staff (copies en‘loseup, It iS my understandin9 that staff of the Board and staff of your Nvision huve bef!lt conferrir- on this natter. 6eard stff stanfis ready tc assist in any manner you feel will be helpful. Sincerely, (Signei) John E. Rynt John E. RYan Uirector Enclosures   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  an, Plotkin and Axilrod COMMFTTEES Action assigned Messrs. Ry ITTEE JOINT ECONOM IC COM M  HENRY S. REUSS  CHAMMAN  N 5TH D.aTRICT, WISCONSI WA-SHINGTON OFFICE: UR'n HOUSE OFFICE BUILDING RAYB 2413 5 ' WASHINGTON, D.C. 2051 3571 225202E: PHON  Congre55 of tbe Uniteb :::a tate5  MILWAUKEE OFFICE: FEDERAL BUILDING ROOM 400 UE 517 EAST WISCONSIN AVEN 2 5320 N PIA ILWAUKEE, WISCONSI 1331 291414PH0P4E:  BANKING. FINANCE AND MITTEE URBAN AFFAIRS COM  Pau5e of RepreOentatibeZ Lilattington, D.C. 20315  arCI: 2 rs  1P'C'  r ;r1r.1.-zilc. Paul A. Volcke Chairman e i.oarA of Co,?croors of th :eserve System r.c. 20551 Dear  Chairman?  t to you regarding the Pabs Er tt le 22 i rcl LcI tc) flurther nt an interesting and releva en be s Y,a e er th y, an rp Co of Pabst f'ttorney Paldvin r. liy coi a e os cl en I . nt ciit developmt. l Reserve Securities Cre ra de Fe to er tt le 17 rcn at Tuttle's ;.a Ler's rarch 23 reply. Th Nol . rs d an V:. a e Officer LEur s shown -- facts that ar ct fa e th on , at th s te ca rei-dy indi has dye -- Irwin L. Jacobs le ow kn my of st be e th accurate to relating cjulations G and Re d ar Eo e rv se Ae l ra de violated Fe ts. to stock Tt.arOn requirer- en ming Pabst matter -- the upco e th of y nc ge ur e th of on Vecause 3 the devastating effect an: on ti ec el ' rs de ol kh mpt April 13 stoc Mr. Jacobs' takeover atte ld ou sh rty no; eco d an hs e Vilwatkee's jo expeddtiously sening th ur yo te ia ec pr ap l Il sh I and succeec7 -ion to the Securities at in rm te de f aC st s e' rv e Federal rese vision and tc the Justic Ei t en em rc fo En 's on si Exchange Comnienforcement proceedinos of on ti 2a ic st in e th r Departrent fo 1,:ursuant to action in this latter. ur yo \\ of ea rm fo in me ep Please ke Sincerely.  Lenry S. Reuss Member of Congress  Enclosures cc: John M. Fedders rirector cf Enforcement Comrission Securities arki Exchanye   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  French Smitt, Hon. Attorney Gcneral  ; ;  Is ;  BOARD OF GOVERNORS DF THE  FEDERAL RESERVE SYSTEM :6/  WASO-IINCTON. D. C. 20551 DIVISIDN  •upLaluelor4  Dr DANKIND AND REDULATION  March 23, 1982  Mr. Baldwin B. Tuttle, Esq. Dechert Price & Rhoads 888 17th Street, N.W. Washington, D.C. 20006 Dear Mr. Tuttle: This responds to your letter of March 17, 1982 asking for our views as to the regulatory requirements of the Board's Regulation G (12 CFR 207) and Regulation T (12 CFR 220) under a set of facts contained in your letter. At the outset we would point out that the theory of the margin rules requires lenders to impound more collateral than prudent business judgment might demand. That extra collateral required by regulation is unavailable to support any other transaction. If a person knowingly permits the use of that extra collateral to support additional credit, that person violates the relevant margin rule. In the first paragraph of your letter, assuming the facts stated therein, the individual "A" would be a G lender under the regulation and, therefore, under section 207.1(a), would be required to register with the Federal Reserve Bank of the district in which the principal office of "A" wal is located. Your fact situation indicates that "A" permitted a withdra of the collateral without any reduction of the loan. Section 207.1(j) of . Regulation G would prohibit the withdrawal of any collateral from the loan unless the loan was paid down or the value of the collateral increased, and then only to the extent that the maximum loan value of the collateral exceeded the credit outstanding. We note that your fact situation indicates that the withdrawal of shares was accomplished by transferring stock held in the margin account of "A" to new customer accounts at the same broker/dealer. A broker/dealer under section 220.6(d) of Regulation T is permitted to transfer a margin account from one customer to others only "as a bona g fide incident to a transaction not undertaken for the purpose of avoidin "accepts 1-Fe—requirements of the regulation," and only if the broker/dealer nt in good faith and keeps with such transferee account a signed stateme r". of the transferor describing the circumstances giving rise to the transfe Obviously, any transfer aimed at circumventing the margin requirements would not be permitted under section 220.6(d) of Regulation T.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  fir  -2We are unable to express any views on the bank loans mentioned in your letter without facts which would indicate that in some way the bank lenders were indirectly secured by stock. Although Board staff is able to express views on the requirements of the Regulation G and T, we are unable to indicate the direction that enforcement of those rules would take because the Securities and Exchange Commission --- or the Justice Department in some cases --- has the statutory responsibility for enforcement. We trust this is responsive to your inquiry. Yours truly,  Laura Homer Securities Credit Officer  P•   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Law OIPICE• Of  . s•oo  110u•114 welt  DECHERT PRICE & RHOADS  isoo •••••47 4/110ET PmiLADCLP•ilA, PA  ••0•DwA7  BBB 17th STREET, N. W.  10004  1212) 423 3510  10102  (2 1 51 072 3400 1174 30 11.0uA11( DI 0144US. 1040 11111USSIELS. 11141.Giul• 102) Sii •O Ao  PaiNCIIS 140ySt •S 0111.1.4•164 170447 1.0110014, IIC2v 70,1(1, ENGL•ND 91 •06  141.•Vf  Nat" yoek,  WASHINGTON, D. C. 20006 TELEX 134 5324 • OARDEP  turr4 2100 DO•41 70w411 ie2S 11•0•Dway  (202) 872-1,600  March 17, 1982  DIL14v1111. C01.011•00 410202 13031 4123 1777  4100 14011704 7141110 470E1E7 •4•1401S•u•G. •• 17102 (7171 233 71147  111S011  Laura . M. Homer Securities Credit Officer Board of Governors of the Federal Reserve System 21st and C Street, N.W. Washington, DC 20551 Dear Ms. Homer: I am writing to obtain the views of the Board's Staff as to the applicability of the Board's Regulations G, T and U to an integrated series of transactions in a margin security (the "Shares"). The facts may be briefly described as follows. An individual ("A"), in the ordinary course of his business and in furtherance of a business purpose, extends credit in excess of $100,000 to his business associates ("C, D and E") for the purpose of their purchase of the Shares. A acts as agent for C, D & E, in the purchase, loans one hundred per cent of the purchase price and, es, further, takes a security interest in the margin securiti by agreement with respect to one such person, and by having them under his control, with respect to the others. A does not register as a G lender within the applicable time period. The purchases are effected through a registered broker-dealer who is A's securities broker (the "Broker") and who has full knowledge of the facts and circumstances. Subsequently A becomes concerned as to a possible violation of Regulation G and the following transactions Broker occur. First, C, D and E open margin accounts at the in which additional purchases of the Shares are effected. Secondly, A transfers to those accounts at the Broker the with previously purchased Shares at their maximum loan value red. a portion of C, D and E's debt to A being thereby reti ion of Finally, after an interval of time, the remaining port to C, D and E's purpose debt to A is retired through a loan bank to C and D by A's bank and by a loan from a third party D and E. A substantial portion of the assets of each of C, D is E consists of the Shares. However, the loan to C and to E purportedly secured by unrelated margin stock and that is stated to be unsecured.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  % .   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Laura M. Homer March 17, 1982 Page Two  We would be appreciative of receiving Staff confirmation of our view that under the foregoing fact situation several violations of the Board's regulations G and T and U have occurred and are continuing. First, it is our view that, upon the extension of the purpose loans, A became a "G lender" subject to registration within 30 days of the close of that calendar quarter regardless of subsequent developments (12 C.F.R. S 207.1(a)). That violation is, therefore, continuing. Further, it is our view that an additional violation of Regulation G occurred when A extended credit upon the Shares in excess of their maximum loan value (12 C.F.R. SS 207.1(c), 207.5). Finally regarding A, we are of the opinion that a Regulation G violation occurred, and a continuing violation exists, with respect to the transfer of the Shares to accounts of C, D and E at the Broker. As a Regulation G lender, A could not "permit any withdrawal or substitution of collateral" (emphasis added) except under very limited circumstances not applicable where the credit exceeds the maximum loan value by 100 percent (12 C.F.R. SS 207.1(j), 207.5). It is to be noted that a violation occurs by merely permitting the withdrawal of the collateral. Under the circumstances posited, the violation would be flagrant since the withdrawal was not only permitted but actively arranged. It is our view, which we ask the Staff to confirm, that violations of Regulation T by the Broker arise out of its participation in, and acts in furtherance of, the integrated transaction referred to above as well as its knowledge of the participation of the bank referred to below. This is a principle which the Board, not surprisingly, adopted and articulated quite some time ago. The Board stated  ,  "The matter is treated generally in section 7(a) of Regulation T, and is also subject to the general rule of law that any person who aids or abets a violation of law by another is himself guilty of a violation. It may be stated as a general principle that any person who arranges for credit to be extended by someone else has a responsibility so to conduct his activities as not to be a participant in a violation of Regulation T ... or Regulation U...." (1953 Fed. Res. Bull. 950)  %  •  •  ,  Laura M. Homer March 17, 1982 Page Three  Certainly no less can be said of a brokers knowing participation (as executor of the transactions) in a violation of Regulation G at its inception, compounded by its own extension of credit and its acceptance of an unlawful transfer of a security interest in the Shares in an apparent attempt to allow A to argue that, while the credit was margin credit, it was not at that point secured by margin stock (the Shares). Further, it is our view that violations of the Regulations continue after transfer of the excess indebtedness from A to the Banks. Ostensibly, in none of the three loans do the Shares directly secure the loan. However, the Shares remain in the hands of the Broker who has participated in the transactions from the first day of their purchase. Further, the Shares are a substantial part of the assets of C, D and E. Again, the Board focused some time ago upon the circumstance of a third party holding the stock and the fact that, although arguably margin stock was not pledged for a loan, in reality, it provided economic security. The Board there stated: "Here, even though the parties may purport to provide that the stock is not "security" for the loan (for example, by agreeing that the stock may not be sold and the proceeds applied to the debt if the borrower fails to pay), the mere fact that the stock is out of the borrower's control for the duration of the loan serves to some extent to protect the bank." (1961 Fed. Res. Bull. 657)  .  The net result, therefore, of the interrelated series of transactions is to preserve the borrowing of one hundred percent of the purchase price upon the security of the Shares, a situation which was illegal in its inception. Rather than one lender, there are now two different regulated lenders, each lending within the permissible loan value on the same shares. Were there only one lender, the transaction would be impermissible (see, for example, the "single credit rule" (1945 Fed. Res. Bull 1198)). A similar rule ought to apply here where, known to each other, two regulated lenders make a purpose loan on the same Shares as direct and indirect security.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Laura M. Homer March 17, 1982 Page Four  The above violations have all existed since the inception of the purchases of the shares and have all involved, in one manner or another, the participation of the Broker. Under these circumstances it is our view, which we wish the Staff to confirm, that existing violations may only be cured by elimination of the Broker's participation. Any other result would only allow the retention of the fruits of illegal activity (e.g., In the matter of American Security Corporation, 60 Fed. Res. Bull. 875 (1974)). As we have previously discussed, the foregoing fact situation is a short summary of those we believe to exist with respect to several ongoing violations of law which are seriously prejudicing the interests of one of our clients. We therefore request Staff confirmation of our views on an expeditious basis so that such action may be taken as necessary to protect our client's interests. Very truly yours, ' (2 Li 4x, • )6( ' Baldwin B. Tuttle BBT:slk  Referred to Steve Axilrod HENRY S. REUSS 5TH DISTRICT, WISCONSIN WAS tINGTON OFFICE: NG 241' 1-2•YEIL:RN HOUSE OFFICE BUILDI 20515 D.C. TON, Iry ASHING PHONE. 202-225-3571  Congra45 of the Einiteb *tatesS  MILWAUKEE OFFICE: FEDERAL BUILDING Room 400 517 EAST WISCONSIN AVENUE MILWAUKEE, WISCONSIN 53202  Wazijington,13.C. 20515  PHoriE: 414-291-1331  COM MITTEES: OMIC COMMITTEE ECON JOINT CHAIRMAN  BANKING, FINANCE AND E URBAN AFFAIRS COMMITTE  PotiZe of lepreZentatibet  March 22, 1982  Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: g beer in The Pabst Brewing Company has been brewin er American companies, Milwaukee since 1844. Like a lot of oth on the come-back it had a poor year in 1981, but it is now trail. of Minnesota Pabst is threatened. Irwin L. Jacobs 1.3 million shares of and his associates have acquired some . Pabst stock has Pabst's outstanding 8 million shares of so many other recently been selling, like the stock ce, in Pabst's case American companies, at a depressed pri currently attempting to around $13 a share. Mr. Jacobs is oming April 13 stocktake over control of Pabst at the upc kname of Iry the holders' meeting. He acquired the nic ota's Grain Belt Brewery Liquidator when he took over Minnes considerable profit, and in 1975, liquidated the assets at a ent rolls. threw its workers onto the unemploym gy with respect to Just last week, Mr. Jacobs strate Wall Street investment Pabst became clearer. Through his obs group hints that two banker, Bear, Stearns & Co., the Jac an interest in lending large, unnamed banks have expressed wins on April 13, in Pabst $40 million if the Jacobs slate of Pabst for Treasury stock. order to purchase 2 million shares ers will be tempted to vote Obviously, gullible Pabst stockhold ct of selling $13 a share for the Jacobs slate by this prospe stock for $20 a share. Grain Belt operation -Surely this previsages another employees, sell off the close the brewing operation, fire the million, pay back the brewery's assets of more than $400 fit to the banks, and leave $40 million bank loan at a tidy pro on the excess assets after the liquidator with a huge profit paying off the banks.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2 4,500 personal tragedy for the a be d ul wo it e, il wh an Me ady a ft jobless in what is alre le be d ul wo o wh s ee oy town Pabst empl devastation for my home an me d ul wo It n. io ss d. We severe rece ing capital of the worl ew br e th as n ow kn e, ke of Milwau riving, but Schlitz th is er ll Mi s. ie er ew eration. are now down to three br its Milwaukee brewing op wn do ed os cl ly te le mp recently co ve one brewery left. If Pabst goes, we shall ha leaders rk at Pabst, and civic wo o wh n me wo d an n me e Th ed my to help. I have promis me to ed al pe ap ve ha e, in Milwauke best efforts. der the the responsibility un s ha e rv se Re l ra de Fe e Th kins Act of 1977 to aw -H ey hr mp Hu e th d an Employment Act of 1946 at it needs. Clearly th th ow gr d an bs jo e th see that America has collides with both of t bs Pa of t mp te at er a bank-financed takeov e two banks who are es th e ar o wh l, al of an? these goals. First ng the $40 million lo ki ma in st re te in an at allegedly expressing en't they lending th ar y wh , do ey th If Do they exist at all? d farmers who want to an n me ss ne si bu ed ss $40 million to hard-pre ulators who want to ec sp to an th er th ra e improve the economy, discount window of th e th ll Wi s? ie it un destroy jobs and comm procedures, be open to ve ti ra st ni mi ad s on, Federal Reserve, and it nner? By timely acti ma is th in es lv se em banks who conduct th deterioration of our r he rt fu t en ev pr n the Federal Reserve ca economy. reaction to my plea, ur yo ly pt om pr ow kn me Please let lp I can give. and call on me for any he Sincerely,  Henry S. Reuss Member of Congress Enclosures   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  commti-TErs:  • HENRY S. REUSS 5ra, cousrmici. wiscoNsupt  JOINT ECONOMIC COMMITTEE CHAIRMAN  ,HINGTON OFFICE, WA.  2413 RArauFeir Housr OFFICE Bum:Hr./0 WASHINGTON, D C. 20515 Pmowir... 202-225-3571 MILWAUKEE OFFICE, FEDERAL EUILDING  Congre55of tije Unite° F.:/tatecS potie of ilepretntatibrZ  BANKING. FINANCE AND URE.3AN AFFAIRS COMMITTEE  Room 400  517 EAsT WiscoNsiN  AVENUE  MILWAUKEE, WISCONSIN  53202  taa5bington, .(C. 20515  PHONE: 414-291-1331  March 22, 1982  Honorable Donald T. Regan Secretary Department of the Treasury Washington, D.C. 20220 Dear Mr. Secretary: The Pabst Brewing Company has been brewing beer in Milwaukee since 1844. Like a lot of other American companies, it had a poor year in 1981, but it is now on the come-back trail. Pabst is threatened. Irwin L. Jacobs of Minnesota and his associates have acquired some 1.3 million shares of Pabst's outstanding 8 million shares. Pabst stock has recently been selling, like the stock of so many other American companies, at a depressed price, in Pabst's case around $13 a share. Mr. Jacobs is currently attempting to take over control of Pabst at the upcoming April 13 stockholders' meeting. He acquired the nickname of Iry the Liquidator when he took over Minnesota's Grain Belt Brewery in 1975, liquidated the assets at a considerable profit, and threw its workers onto the unemployment rolls. Just last week, Mr. Jacobs' strategy with respect to Pabst became clearer. Through his Wall Street investment banker, Bear, Stearns & Co., the Jacobs group hints that two large, unnamed banks have expressed an interest in lending Pabst $40 million if the Jacobs slate wins on April 13, in order to purchase 2 million shares of Pabst for Treasury stock. Obviously, gullible Pabst stockholders will be tempted to vote for the Jacobs slate by this prospect of selling $13 a share stock for $20 a share. Surely this previsages another Grain Belt operation -close the brewing operation, fire the employees, sell off the brewery's assets of more than $400 million, pay back the $40 million bank loan at a tidy profit to the banks, and leave the liquidator with a huge profit on the excess assets after paying off the banks.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2 • Meanwhile, it would be a personal tragedy for the 4,500 Pabst employees who would be left jobless in what is already a severe recession. It would mean devastation for my home town of Milwaukee, known as the brewing capital of the world. We are now down to three breweries. Miller is thriving, but Schlitz recently completely closed down its Milwaukee brewing operation. If Pabst goes, we shall have one brewery left. The men and women who work at Pabst, and civic leaders in Milwaukee, have appealed to me to help. I have promised my best efforts. As Secretary of the Treasury you encompass the Comptroller of the Currency, who is supervisor of our national banking system. If either of the two banks mentioned by the Jacobs group -- if they exist at all -- are national banks, they aresubject to the authority of the Comptroller of the Currency. What use of the administrative and examination powers of the Comptroller of the Currency can be availed of in the case of the Jacobs takeover attempt? As one of the President's chief economic advisers, and as one with previous Wall Street experience as head of Merrill Lynch, you would be rendering a public service if you undertook coordinated action with respect to the Jacobs takeover attempt. I enclose copies of my letters to the Federal Reserve, to the Securities and Exchange Commission, and to the Department of Justice. Please let me know promptly your reaction to my plea, and call on me for any help I can give. Sincerely,  Henry S. Reuss Member of Congress Enclosures   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  HENRY. S. REUSS -3T)4 DiSTIRICT. WISCONSIN  JOINT ECONOMIC COMMITTEE criaiwmArd  wAsiAtwcycs./ orr$cr: 2413 RAYBuRra HOUSC Or ICI' BUILDING WAANINGTO.V. D C. 20515 Poio.a. 202-225-3571  CongrtScs  16411.WAUKCC OF F. ICE AAL BUILDING FiI000.4 400 F 517 EAST WISCONSIN AVI NUC MILWALWCC. WISCONSIN 53202 PwaNit 414-29)-1331  tfic Unitai ei-)tatc5  DANK ORLJAN Alr  r:NANcr.: ANn AIUS COM M ITT CC  R)ou5c of 3arpre5entatiincS -. 20315 ELTIa5binrston, 73.C. March 22, 1982  Mr. John M. Fedders Director of Enforcement Securities and Exchange Commission 500 North Capitol Street Washington, D.C. 20549 Dear Mr. Fedders: The Pabst Brewing Company has been brewing beer in Milwaukee since 1844. Like a lot of other American companies, it had a poor year in 1981, but it is now on the come -back trail. Pabst is threatened. Irwin L. Jacobs of Minnesota and his associates have acquired some 1.3 million shares of Pabst's outstanding 8 million shares. Pabst stock has recently been selling, like the stock of so many other American companies, at a depressed price, in Pabst's case around $13 a share. Mr. Jacobs is currently attempting to take over control of Pabst at the upcoming April 13 stockholders' meeting. He acquired the nickname of Iry the Liquidator when he took over Minnesota's Grain Belt Brewery in 1975, liquidated the assets at a considerable profit, and threw its workers onto the unemployment rolls. Just last week, Mr. Jacobs' strategy with respect to Pabst became clearer. Through his Wall Street investment banker, Bear, Stearns & Co., the Jacobs group hints that two large, unnamed banks have expressed an interest in lending Pabst $40 million if the Jacobs slate wins on April 13, in order to purchase 2 million shares of Pabst for Treasury stock. Obviously, gullible Pabst stockholders will be tempted to vote for the Jacobs slate by this prospect of selling $13 a share stock for $20 a share. Surely this previsages another Grain Belt operation -close the brewing operation, fire the employees, sell off the brewery's assets of more than $400 million, pay back the $40 million bank loan at a tidy profit to the banks, and leave the liquidator with a huge profit on the excess assets after paying off the banks.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  0  •  2  Meanwhile, it would be a personal tragedy for the 4,500 Pabst employees who would be left jobless in what is already a severe recession. It would mean devastation for my home town of Milwaukee, known as the brewing capital of the world. We are now down to three breweries. Miller is thriving, but Schlitz recently completely closed down its Milwaukee brewing operation. If Pabst goes, we shall have one brewery left. The men and women who work at Pabst, and civic leaders in Milwaukee, have appealed to me to help. I have promised my best efforts. I was impressed by your record when you assumed the office of Director of Enforcement for the SEC last year, and by your listing stock manipulation as a major threat to our economy. Accordingly, I request your help in the matter of the Pabst takeover. Your stock manipulation authority under Section 14 (a)(9) of the Exchange Act of 1934, as amended, gives you ample power to see that justice is done, and promptly in view of the April 13 meeting. Specifically, is Bear, Stearns conducting itself as a responsible securities company? Have the two banks really expressed an interest in making this $40 million loan, or is this just an attempt to buffalo the stockholders into voting for the Jacobs slate? Who, by the way, are the two banks, and why aren't they lending the $40 million to hard-pressed businessmen and farmers who want to improve the economy, rather than to speculators who want to destroy jobs and communities? Are the representations of Mr. Jacobs and Bear, Stearns full, fair, and truthful, as the law requires? Should not securities law be concerned with the need of Americans for jobs, and the need of cities for survival? You have before you an exciting opportunity for public service, one which can, if properly conducted, help put our nation back upon a sensible economic course. Please let me know promptly your reaction to my plea, and call on me for any help I can give.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  Henry S. Reuss Member of Congress  COMMITTEES: JOINT ECONOM IC COM M ITTEE CHAIRMAN  HENRY S. REUSS 5TH DISTRICT. WISCONSIN WAsHINGTON orricr, 2413 RAYBURN HOUSE- Or F ICE CUILDINO WAS.AINGT0'4. D.C. 20515 • PHONE: 202-225-3571 MILV1AUKEL  OFFICE  FEDERAL EUILDING Room 400 517 EAsr WISCONSIN AVENUE MILWAUKEE. WISCONSIN 53202 PHONE: 414-291-1331  CongraLs'of tlic Zianiteb tatc5 T.-)otig.lc of rapre5rntatibt  SANK!NG. FINANCE: AND URBAN AFFAIRS COMMITTEE  Llastington, n.C. 20315 March 22, 1982  Honorable William French Smith Attorney General Department of Justice Washington, D.C. 20530 Dear Mr. Attorney General: The Pabst Brewing Company has been brewing beer in Milwaukee since 1844. Like a lot of other American companies, it had a poor year in 1981, but it is now on the come-back trail. Pabst is threatened. Irwin L. Jacobs of Minnesota and his associates have acquired some 1.3 million shares of Pabst's outstanding 8 million shares. Pabst stock has recently been selling, like the stock of so many other American companies, at a depressed price, in Pabst's case around $13 a share. Mr. Jacobs is currently attempting to take over control of Pabst at the upcoming April 13 stockholders' meeting. He acquired the nickname of Iry the Liquidator when he took over Minnesota's Grain Belt Brewery in 1975, liquidated the assets at a considerable profit, and threw its workers onto the unemployment rolls. Just last week, Mr. Jacobs' strategy with respect to Pabst became clearer. Through his Wall Street investment banker, Bear, Stearns & Co., the Jacobs group hints that two large, unnamed banks have expressed an interest in lending Pabst $40 million if the Jacobs slate wins on April 13, in order to purchase 2 million shares of Pabst for Treasury stock. Obviously, gullible Pabst stockholders will be tempted to vote for the Jacobs slate by this prospect of selling $13 a share stock for $20 a share. Surely this previsages another Grain Belt operation -close the brewing operation, fire the employees, sell off the brewery's assets of more than $400 million, pay back the $40 million bank loan at a tidy profit to the banks, and leave the liquidator with a huge profit on the excess assets after paying off the banks.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I  . . 2 Meanwhile, it would be a personal tragedy for the 4,500 Pabst employees who would be left jobless in what is already a severe recession. It would mean devastation for my home town of Milwaukee, known as the brewing capital of the world. We tz are now down to three breweries. Miller is thriving, but Schli tion. recently completely closed down its Milwaukee brewing opera If Pabst goes, we shall have one brewery left. The men and women who work at Pabst, and civic leaders sed my in Milwaukee, have appealed to me to help. I have promi best efforts. sed Your Antitrust Division last September blocked a propo Schlitz, merger between two Wisconsin breweries, Heileman's and merged by threatening to sue under the antitrust laws. Since the companies would have controlled only 14 percent of beer competition production, and since the merger would have given some at this to the giants, Anheuser-Busch and Miller, I was amazed ion has Antitrust Division action, particularly since the Divis giants, been approving at a rapid rate mergers of the industrial such as Dupont and Conoco. il Equally amazed, apparently, was the President's Counc Report, of Economic Advisers. In its 1982 President's Economic issued just last month, the Council said (p. 32): "This Administration has already made some changes in policy in the administration of federal antitrust laws, changes based on economic analysis. First, a merger between two firms which have a relatively small share of the market should be allowed, for there is little danger of monopoly." I asked the three CEA members -- Chairman Weidenbaum and Mr. Jordan and Mr. Niskanen -- at a February 18 Joint decision Economic Committee hearing about the Heileman Schlitz Department of in view of that language. None would defend the Justice's position. Mr. Niskanen said: "We do not understand the position of the Justice Department in this particular case." will wish It may be that in the light of all this, you Antitrust to review the September threat to sue by your Division, and I hope reverse it.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  . 3 .  s  II  But, more immediately, the Department of Justice has a role to play in the proposed Pabst takeover. I enclose copies of my letters of today to Chairman Volcker, Director Fedders, and Secretary Regan. As the nation's chief law enforcement officer, you can coordinate and expedite activities with regard to the Jacobs acquisition attempt. It is the duty of the Department of Justice to foster a competitive economy and to fight monopoly. What becomes of competition if the Jacobs group wins, and deprives the industry of a dynamic competitive force? You can help. Please let me know promptly your reaction to my proposal, and call on me for any assistance I can give. Sincerely, /  /  / L_ Henry S. Reuss Member of Congress  Enclosures   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  April 70 1982  The Honorable Charles E. Bennett House of Representatives washinqton, D. C. 20515 Dear Mr. P:ennett: Let me try a short answer to your constituent's letter about "what is a dollar." the bill in your pocket and your ban% The dollar certainly serves as a nedium of exchange. checking account It can be used directly to buy things, pay debts, and the like. The dollar is also a unit of account -- a reasure of the value of other things, such as an investment. In a sense, when you hold dollars -- in your pocket or in a bank -you hold a mediun of exchange that could also be part of your "investment" assets, even though that terminology is usually reserved for other assets. I hope that helps. Sincerely,  PPV:colt r  4  • • CHARIES E. BENNETT  Action assigned Mr. 13radfield TRACY D. CONNORS ADMINISTRATIVE ASSISTANT  MEMBER 011  30 DISTRICT. FLORIDA  ARMED SERVICES COMMITTEE CHAIRMAN OF SEAPOWER SUBCOMMITTEE  W. DEKLE DAY LEGISLATIVE ASSISTANT  Congre55 of tbe Viniteb ihateg  3iptust of RepreantatibesS  JACKSONVILLE OFFICE: 352 FEDERAL BUILDING 32202 TELEPHONE 904-791-2587  SHARON H. SIEGEL LAURA M. COWAN PATRICIA A. GOODING  Mastington,13.C. 20515  BARBARA L.. FETHEROLF DARLA E. SMALLWOOD  March 31, 1982  JOHN W. POLLARD. JR. BRENDA DONALDSON  WENDY S. LEAVITT JUDSON E. McNEIL STAFF  Office of the Chairman The Federal Reserve System Federal Reserve Building Constitution Avenue Between 20th and 21st Streets Washington, D.C. 20551  C) 'Ti TT C , . rn  ........  "Ti  rs j Cp kg:.  9 r.r F"  1:1  I).  ci rry_ 1,.  9 r1 rrI ) =3 .--° , r- 6 1 -.-•C, - -1 -- - Pe 0 l0 MP" c.„ )""r; -71  Gentlemen: 1:0  3:2 :71Z  r*-,--4c, :--1/4)'..-__- c...: ...:-. f-, 1 .<. rri rri fn  I write to you to ask that you give me an answer to the que&t. ion GO -‹ C3 put by Mr. Poitevent, because he is a man who studies money, and— he cn :7 is also a very close personal friend of mine, and I almost have to give him an answer. I do not know how to answer him mysel f. Can you help me? With kindest regards, I am // incerel  (" Charles E. Bennett CEB:cf Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  THIS STATIONERY PRINTED ON PAPER 1144Anr wITH RECYCLED FIBERS  •  Earl S. Poitevent, Jr.  *It'r  75,,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  /114it al/  14-(--/6$40 /4/,L)Z:  ,c)  •  "2.00.1.44.40‘...404.0   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CONGRESS OF THE UNITED STATES HOTJSE OF REPRESEN TATIVES WASHINGTON, D. C. 20 515  LAO CO  rri  CI  CZ  f 1  C") 2:=1  MICHAEL G. OXLEY Fou RTH DISTRICT OHIO  rz ) . r71  •  April 6, 1982  ts•  •r-  "0  D3  -.1fZet:› ;  =:rn  r-1—.r") c•-; T't  The Honorable Paul A. Volcke r Chairman, Board of Governor s Federal Reserve Board Washington, D.C. 20511  35  CO • 1  1.11: CID  —C. t Cie "1.•  Dear MT. Volcker: Your participation in my jo int Business Day in Washington last Wednesday wa s outstanding. I especial ly enjoyed your comments and vi ews on money supply and inte rest rates. my fellow Ohioans we re very impressed with you an d the candor in which you addres sed many of the questions. I would like to convey my si ncere thanks for taking the time out of your demanding schedule to meet with us. Your presence helped ma ke the day a resounding succ ess. Sincerely,  Mich el G. Oxley, M.C. Fourth Ohio District MGO:dd  fr.*  .72  C4/1  .111111,• • •• • GOVE • • 0  BOARD OF GOVERNORS  • dr .  OFTHE  .6 • -n • -\ • co  A\ , \  w•  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  , -4 •• - • ?AL Re.).• • • •..• • •  PAUL A. VO LC K ER  April 2, 1982  CHAIRmAN  The Honorable Frank Annunzio Chairman Subcommittee on Consumer Affairs and Coinage Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Mr. Chairman: I have your letter of March 25, 1982 concerning the approval by the California Savings and Loan Commissioner for the acquisition of Kern Savings and Loan by Central Pacific Corporation. I would like to assure you that there was no prior agreement by the Federal Reserve to the decision by Commissioner Yang of California. While circumstances may change, the Board has no plans at this time to take up the proposed merger. I would like to point out that the Board is considering the acquisition by a bank holding company of an Ohio savings and loan association insured by the Ohio Deposit Guarantee Fund, a private insurance fund. I would be pleased to brief you on the unique facts and circumstances of this case that compel Board consideration of this merger at the present time. I would like to emphasize that Board consideration of this proposed merger in no way diminishes and, in fact underscores, the need for urgent congressional action on the Regulators Bill. The Board believes that the Regulators Bill provides the necessary framework for an orderly consideration by all of the bank regulatory agencies of the major financial problems faced by the thrift industry.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  s Action assigned Mr. Bradfielri RON PAUL. TEX. THOMAS B. EVANS. JR., DEL. CHALMERS P. WYLIE, OHIO GREGORY W. CARMAN, N.Y.  FRANK ANNUNZIO. ILL., CHAIRMAN FERNAND J. ST GERMAIN, R.I. HENRY B. GONZALEZ, TEX. JOSEPH G. MINISH, N._!. BILL PATMAN, TEX. STENY H. MOYER, MD.  U.S. HOUSE OF REPRESENTATIVES N INETY-SEVENTH CONGRESS  CURTIS A. PRINS, STAFF DIRECTOR  SUBCOMMITTEE ON CONSUMER AFFAIRS AND COINAGE OF THE  TELEPHONE: 225-9181  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS -.I  ROOM 212 HOUSE OFFICE BUILDING ANNEX No.1  WASHINGTON, D.C. 20515  CD -11 -71 r3  m  March 25, 1982  C)mj -TIm  -...,r) =r^  LL,  m  co  C) 1-TI  ../ , f" = 1:=2  = r•.) CAO  P^  Co C.) 1,-,. 73 C:3  r.-....c, r---,1 -T1  CY> . ) rri --,C  rTl< r:rn .. t=, ...-7:-  Honorable Paul A. Volcker Chairman Federal Reserve Board 20th Street and Constitution Avenue, N.W. 20551 Washington, D.C.  > 73 3 1".. Z  1::11  3C  ../.7:: M  1-1) < c_-. . ) C= . -,._. SD -  M  .-.,e r-a., -  Dear Mr. Chairman: I was greatly disturbed to read in today's WASHINGTON POST that California financial regulators have approved the acquisition of Kern Savings and Loan by the Central Pacific Corporation, a bank holding company. This proposed merger and acquisition must be approved by the Federal Home Loan Bank Board and the Federal Reserve Board. I sincerely hope that there was no agreement prior to the announcement by California officials of this acquisition and merger that the Federal Reserve would automatically grant its approval. I hope that the Board has an open mind in this area. I am certain you are aware of my opposition to bank holding companies purchasing thrift institutions. I feel that such acquisitions tend to concentrate too much financial power in a single source and tend to destroy the unique home mortgage lending character of the savings and loans. arrange According to the WASHINGTON POST, California officials had tried to l. It is a merger with another savings and loan association but were unsuccessfu strange to me that in a State with some 200 savings and loan associations a merger between two thrift associations could not be accomplished. Perhaps we are facing a situation similar to a jury which tells a judge that it is hopelessly deadlocked in a case and cannot reach a verdict. When the judge persuades the jury to try a little longer, the jury finds that it is able to reach a verdict. I would hope that in this Kern case the Federal Reserve Board will tell the California officials to try a little harder to find a thrift merger partner. I also note that the California General Assembly is currently considering legislation on an active basis that would prohibit the acquisition of thrift institutions by bank holding companies. It is my understanding that the legislation has an extremely strong chance of passing in the very near future. I feel strongly that the California General Assembly should have an opportunity to deal with this legislation before action is taken by the Federal Reserve Board. I think it would put your agency in a very awkward position to approve such a merger just days before the California General Assembly prohibits such acquisitions.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  o  .  Honorable Paul A. Volcker Page Two  I realize that you are unhappy that Congress has not passed the so-called "regulators bill", and that the legislation is being held up by the Senate because that body wants to broaden the scope of the bill rather than dealing only with supervisory problems. Certainly the House acted in good faith in passing a regulators' bill which would go a long way towards helping Federal financial institution regulators solve the problems of failing institutions. I would hope that you would not move to allow the Kern merger based on the Senate's inaction. I strongly urge you to review carefully the implications of allowing a bank is allowed, holding company to acquire a thrift institution. If such an acquisition utions, it is the beginning of the end for our small and medium size financial instit is a and may well be the end of the thrift institutions as we know them. This the decision that must not be rushed and one that should be delayed to allow California legislature to deal with the problem. I feel confident that if California tries harder it can find a thrift partner for Kern Savings and Loan.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  With every best wish, •  Sincerely,  hei.,a/#4..44...mr-t) Frank Annunzio Chairman  41.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  April 2, 1982  The Honorable Henry S. Reuss Chairman Joint Economic Committee Washington, D. C. 20510 Dear Chairman Reuss: I have your letter of March 29 concerning the documents relating to the refinancing of certain loans made by private banks to Placid Oil Company. I have requested my staff to be in contact with yours to see if the staffs can develop mutually satisfactory arrangements concerning these documents along the lines mentioned in our telephone conversation earlier. Sincerely,  MB:PAV:vcd (#V-87) bcc:  Mr. Bradfield Mr. Wm. Taylor Mrs. Mallardi (2)/  HOUSE OF REPRESENTATIVES  Action assignel Mr. Brarifie1, 1  SENATE  (ntR  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, OH:0 mARGARET M. HECKLER, MASS. JCHN H. ROUSSELOT, CALIF, CHALMERS P. WYLIE, OHIO  Congrem7') of the Unittb *tate5 JOINT ECONOMIC COMMITTEE (CREATED PURSUANT TO SEC. S(a) OF PLYEILIC LAW 304, 71TH CONGRESS)  WASHINGTON, D.C. 20510  JAMES K. GALBRAITH, EXECUTIVE DIRECTOR  -n  ROGER W. JEPSEN, IOWA, VICE CHAiRMAN WILLIAm V. ROTH, JR., DEL. JAMES ABONOR. S. DAK. STEVEN D. SYMMS IDAHO PAULA HAWKINS, FLA. MACK MATTINGLY, GA. LLOYD BENTSEN, TEX. WILLIAm PROXMIRE, WIS. EDWARD M. K E NNL[Yr mAsS. PAUL S. SARBAMES, MD. frl LAD CD  March 29, 1982 ron  n73 -*1 rn  r" rn < c--,  The Honorable Paul Volcker Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551  co  co  • 3:21  VJ ••••••11  77 7:3▪  779; rn  n  r1 -4 r 4:1  u, ••  =  cf)  CO  Dear Mr. Chairman: Thank you for your letter of March 26, and the attached "Summary of Agreement Supplemental to Credit Agreement and Escrow Agreement." This document, however, contains only a small part of the information which I need in order to evaluate reasonably the terms of the Hunt/Placid restructuring. I, therefore, repeat my request for the documents mentioned in the letter of March 10, 1982. Specifically, I would appreciate receiving at your earliest convenience copies of the credit agreement, the escrow agreement, and the agreement supplemental to the credit and escrow agreements. Your observations regarding the confidentiality of these agreements are noted.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  73 C7  Sincerely,  S. Henry S. Reuss Chairman  rn =  ..• • • •••  .-  •FGC11/k-4:..  BOARD OF GOVERNORS OF THE  /-, •• l '0 g ftm:-. .... ••TI 'A 14*' . .1vl' N'CIEUI ..'''  11  FEDERAL RESERVE SYSTEM  F-• Z:  WASHINGTON, D. C. 205S1  ‘,. L.) •  .•  PAUL A. VOLCKER  RAL RES .• • •..•  CHAIRMAN  April 1, 1982  The Honorable Joseph F. Smith House of Representatives Washington, D. C. 20515 Dear Mr. Smith: I am writing in response to your letter of March 19, 1982, requesting the Board to consider the petition from Kensington Action Now ("KAN") asking the Board to review the approval by the Federal Reserve Bank of Philadelphia of the application of Philadelphia National Corporation, Philadelphia, Pennsylvania ("PNC"), to acquire The Philadelphia Bank (Delaware), Wilmington, Delaware. Enclosed is a copy of the Board's letter responding to KAN's petition. Please note that while the Board declined to review the Reserve Bank's action approving PNC's applications, it relied on PNC's willingness to meet privately with representatives of KAN under the auspices of the Reserve Bank. During the discussions between KAN's representatives and the Board's Secretary, KAN indicated that one of its primary objectives in filing the original complaint was to obtain a meeting with PNC's management with the Reserve Bank staff acting as mediators. Although the Board has decided not to grant further review of the application, the Board has asked the Reserve Bank to set up private meetings between the representatives of KAN and PNC under the auspices of the Federal Reserve Bank. In addition, Board staff has provided KAN with a copy of the Board's protest procedures and KAN can submit another protest next time PNC files an application with the Board. I hope this information is helpful. I can be of further assistance. Sincerely,  S/Paul A. Volcker  Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Please let me know if  BOARD OF GOVERNORS  N.  0 F TH E •,c)of G01/e;  FEDERAL RESERVE SYSTEM •0  14  .  WASHINGTON, O. C. 20551  w ••  ADDRESS  ...,10N1111 -  orrictAL  CORRESPONDENCE  TO THE BOARD  ..• •  March 26, 1982  Kensington Action Now 3160 Frankford Avenue Philadelphia, Pennsylvania Atri'ENTION:  19134  Betty Jones  Dear Ms. Jones: This letter concerns the petition by Kensington Action Now ("KAN"), dated March 9, 1982, and hand-delivered to the Board's Secretary on March 12, 1982, concerning applications filed by Philadelphia National Corporation ("PNC'). In particular, the petition requests that the Board review the March 5, 1982, action of the Federal Reserve Bank of Philadelphia approving applications by PNC to acquire a de novo Delaware bank under section 3 of the Bank Holding Company Act and for membership of the Delaware bank in the Federal Reserve System. In approving PNC's applications, the Reserve Bank found that a protest by KAN based on PNC's record under the Community Investment Act was nonsubstantive. KAN's petition for review of the Reserve Bank's action was presented to each member of the Board of Governors. Under the Board's Rules Regarding Delegation of Authority, if any Board member requests review within ten days of submission of the petition, the Reserve Bank's action would be rescinded, and the case would be reviewed by the Board. In view of the fact that PNC has an exemplary overall record under CRA, and has been praised by other community groups for its positive community programs, the Board members decided that it would not be appropriate to delay the PNC applications further. The Chairman and several Board members expressed their concern that differences in procedures for filing protests with the various Federal banking agencies may have resulted in KAN experiencing some confusion about the information it was required to submit in its initial protest of PNC's applications, and they noted that KAN had submitted additional relevant information with its petition. In view of this consideration and their desire to foster effective communications between financial institutions and community groups, these Board members expressed their hope that discussions between KAN and PNC would continue under the auspices of the Reserve Bank. Accordingly, the Board members' decision not to review the Reserve Bank's action was made in reliance   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2-  on PNC's willingness to continue the discussion through private meetings with representatives of KAN to be arranged by the Federal Reserve Bank of Philadelphia. Very truly yours,  William W. Wiles Secretary of the Board cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Philadelphia National Corporation FRBk of Philadelphia  JOSEPH F. SMITH 3') DliTRICT, PENNSYLVANIA  COM MITTEE ON AFISIEO SeRVICES  1630 LONG WORTH SU,LDI WASHINGTON. D.C. 20515 (242) 2.25-6271  Congre55 of tbe Zinittb  DIST R ICT orricEs:  tatt5  806 U.S. CUSTOM H OUSE 2ND AND CH EST NUT STREET S  R)otie of ikepreentatibt5 tillastingtort,  PHILADELPHIA. PA. 19106 (215) 597-3037 2630 MV.C.H111 STREET PHI LA D ELPH IA. PA. 1 9 1 25 (215) 597-8012  20515  March 19, 1982 uD co r".4  m CD T>  m  JK r-  The Honorable Paul Bolker Chairman The Board of Governors Federal Reserve System 21st and Constitution Avenue, N.W. Washington, D. C. 20551  C) ""r1r,  0 I-n IN)  rr  <  f"?.  —.4  Members of the Kensington Action Now have asked me to contact you about their application before the Federal Reserve Bank opposing the Philadelphia National Bank's application to acquire shares of a Delawa re Bank. They advise me that for the last six years Kensington residents have annually maintained dep osits over $75 million dollars in the Kensington Philadelphia National Bank Branches but that the Bank has only put $1.8 mil lion dollars back into the Kensington community in the form of mortgages and home improvement loans during this time. I am a Kensington resident and, of cou rse, am concerned that funds be put back into the econom y in our area, especially in home mortgages and -home improveme nt loans. I understand that in the past the Philadelphia Nation al Bank has met the requirements of the Community Reinvestm ent Act and that you are now reviewing Kensington Action Now's application and information you have received from the Philadelphia National Bank and the Federal Reserve Bank of Philadelphia as a result of this application. Any consideration and information you can give me in response to the appeal made by the Ken sington Action Now group will be appreciated.  Jo Me S:K   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  eel  ph F. mith er of Congress  C) rn -v• •-°-  <r • rn cf)  rrl =  Dear Mr. Chairman:  Sincerely , ve ,4 0000ii e  CD cp  rri  . V. J.(JAKE) GARN  COMMITTEES:  UTAH  APPROPRIATIONS  •••  BANKING, HOUSING AND  5207 DIRKSEN SENATE OFFICE BUILDING TELEPlioNE,202-224-54414  URBAN AFFAIRS  /11Crtifeb Zialez Zerrate  INTELLIGENCE  JEFF M. BINGHAM  ADMINISTRATIVE ASSISTANT  WASH I NG TON. D.C. 205 10  -II  March 8, 1982 Sit "101  4.4* CO l'INJ  C-7  Zit  VA  c:5 23 -vim ....4r)  Honorable Paul A. Volcker Chairman - Board of Governors of the Federal Reserve System Federal Reserve Building 20551 Washington, D. C.  =rn moc c-:rn 2C3 , 2 7,) M  P.  TZ• =I 1 CD 22 Jilt 00 • .  IA fra  M T*9 73  7.3.  frl --ri"Ti on (11  rn.--,,,3=`-'_, <rtl-Pi rrs ..A0 , -"‹ (.11 •-4  i am deliyhted that you have agreed to be the guest speaker at the RAMS meeting on March 25, 1982. The meeting will be at the Capitol Hill Club, 300 First Street, S.E., in the Private Dining Rooms. As I explained to Don Winn the luncheon meetings are very informal and completely off the record. By way of background, the RAMS was founded in late 1960, as a means of providing an opportunity for senior Republican staff members on the Hill to get together and discuss vital issues of mutual interest. Traditionally, Republican Administrative Assistants and Committee Staff Directors are eligible to join. Many members continue their affiliation after leaving the Hill, however, so today's membership includes many who are in private business--usually as governmental affairs types--or in appointed positions in the Executive Branch. Though the group remains predominantly Hill-oriented, there is a valuable exchange of perspectives with this hybrid sort of membership which gives the organization a unique personality. I should also add, they are a fun-loving group of people as well, as you will see.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Cocktails are served as the members arrive, between 11:30 and noon. The lunch will be served very shortly after noon. Just before 1:00 p.m., I will begin the program with self-introductions, asking each individual to introduce themselves and any guests they may have. At maybe 1:00 p.m., I will introduce Dan Wall, whom you know is Staff Director of the Banking Housing and Urban Affairs Committee, and who is the Treasurer of RAMS, for the purpose of introducing you. From then until 2:00, the format is at your disposal. You can speak the entire time, make a statement and take questions, or simply take questions for the entire period. Naturally, the group prefers to have some opportunity for question, but whether or not, and for how long, is entirely up to you.  V. 7..)  r— c) zc,a>  Dear Mr. Chairman:  The format for the luncheon will be as follows:  C.7 ("  Mt x G tf;  do. •••  page 2, Chairman Volcker  I hope this gives you adequate background on the group and orientation to our proceedings. We expect a good turn-out -we average around 75 members and guests -- and I know the members are vitally interested in anything you may have to say. Once again, I am pleased and honored that you have taken time from your busy schedule to accept our invitation. If you need any further information before the meeting, please don't hesitate to call. Sincerely,  Jef Bingham RAMShead JB:k   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  February 17, 1982  To:  Chairman  o  From:  Don Winn  1.111  ker  ked Senator Garn's AA has as for the Rams to be a luncheon speaker staffers and of top Republican Senate the Capitol once a month for lunch at  if you would be willing Group--an organization ex -staffers that meets Hill Club.  tended to ask you to do in rn Ga at th ys sa ll Wa Danny but forgot to mention m hi th wi ed lk ta u yo this the last time r point advantage to present ou an be d ul wo e er th , so Al it. f aides. l senior Republican staf ia nt ue fl in me so to ew vi of you for March 25 or They would like to invite have a clear on the 25th. You is le du he sc u Yo . 18 h Marc evening of March 18. speech in Cincinnati the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  do this on March 25? Would you be willing to fed 414,2.1.tg }9,111.,  74)  jp '41"."*"'"'  . /11  cc:  Neal Soss  .• 'co *0  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  ••, .,<,c) • RE-•)" •• •• fkAL •• • • • • •  March 30, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable Lawrence Coughlin House of Representatives Washington, D. C. 20515 Dear Mr. Coughlin: Thank you for writing to express your concern about high interest rates and monetary policy. I am sure you are aware that my colleagues and I are also concerned about the toll that high interest rates are taking throughout the economy, especially in the most credit-sensitive sectors. We at the Board would certainly welcome a relaxation of financial pressures, but the question is: how to get interest rates down, not just for a month or two, but permanently? In our judgment, the only way the Federal Reserve can help bring about lower interest rates on a lasting basis is by continuing to restrain the growth of money and credit in an effort to combat the underlying problem of inflation. As you point out in your letter, we have made considerable progress in the battle against inflation, but it is too soon to claim victory. Eliminating the effects of more than a decade of spiraling price increases and inflationary expectations will require the persistent application of monetary discipline. Backing away from our commitment at this time would at best bring only temporary relief and ultimately would produce a resurgence of inflationary expectations, pushing interest rates back up. The achievement of lower inflation, and the credible prospect of continued containment of price pressures, are the only way to permanently lower interest rates. On the fiscal side, an easing of interest rates can be prompted by reducing the federal government's demands on the financial markets. Large prospective budgetary deficits have weighed heavily on market sentiment in recent months, and signs of strong action to reduce government spending or to enhance revenues would be welcomed. I hope that you and your colleagues in the Congress will support the President in this direction and even surpass his goals for deficit reduction. I thank you again for taking the time to share your views with me, and I look forward to working together to promote the return to a stable, prosperous economy. CH:JLK:WRM:NS:vcd (V-67) bcc: Ms. Headly Ms. Wing Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely, OW A.MGM.  Action assignei Mr. Kichline WASHINGTON OrriCE: 2467 RAYBURN BuiLoiNG (202) 225-6111  LAWRENCE COUGHLIN • KiTH DISTRICT, PENNSYLVANIA  COM M I TTEE ON APPROPRIATIONS  DiSTRICT OFFICE: 607 ONE MONTGOMERY PLAZA NORRISTOWN, PENNSYLVANIA 19401 (215) 277-4040 596-1755  Congroz of tbe Ziniteb EptateEi 30cou of Reprelentatibef  RANKING MINORITY MEMBER SUBCOMMITTEE ON TRANSPORTATION SUBCOMMITTEE ON DISTRICT OF COLUMBIA  44,67  Watbington, Ni.e. 20515  MEMBER SUBCOMMITTEE ON HUD-INDEPENCENT AGENCIES  March 15, 1982  tvi EMBER  SELECT COM M ITTEE ON NARCOTICS  --n  4713 co  c, -rt -rt  Honorable Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System Federal Reserve Building 20551 Washington, D.C.  N4  711C Ma CD ,z) C-1  CO  CI 1-T1  =  CD Cy P =  ca) ci) rn ,Z3  2rj;  Dear Mr. Volcker:  =a .1.11111.1.  'a'  my High interest rates continue to plague the econo impedimFnt 4t In fact, they appear to be the most significant to economic recovery.  <r:< = = = c.n  to the Prohibitively high interest rates are a disaster esses and homebuilding industry, savings and loans, small busin large corporations, to say nothing of consumers. indicate Both the reality and the prognosis for inflation The reality is reflected in a decline a significant decline. to 8.9 percent in the rate of inflation from 13.3 percent in 1979 7 percent The prognosis of an inflation rate close to in 1981. It is supported by declines in the in 1982 is realistic. a permanent drop "inflation hedges" such as gold which indicate in inflationary expectations. est rate," the Under these circumstances the "real inter We have arily high. market rate minus inflation, is extraordin in the 19 percent experienced an era in which the prime rate was in a "real range and inflation was at 13 percent, resulting We are now in a period in which a interest rate" of 6 percent. underlying inflation prime rate around 17 percent combined with an real interest rate" of rate of about 7 percent produces a 10 percent. to economic II real interest rate" is critically important The personal decisions recovery since it governs business as well as case Under the circumstances there is a compelling to invest. allow market interest for adopting monetary policies which will rates" will attain a more rates to fall so that "real interest urge you to take steps now to achieve this customary level. objective.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  With all best wishes, al c_ LAWRE C RLC:rb  A UGHLIN  "‘P'   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 30, 1982  Mr. John E. B. Merriman  Dear Mr. Merriman: Thank you for your postcard forwarded to me by Congressman Lagomarsino and your expression of support.  In the face of problems we both recognize, your  words of encouragement are particularly appreciated. It was thoughtful of you to take the time to write. Sincerely, S/Paul A VIlicket  cc:  The Honorable Robert J. Lagomarsino  CO:vcd (V-77) bcc:  Mrs. Mallardi (2)  COM M I TTEE ON FOREIGN AFFAIRS  ROBERT J. LAGOMARSINO 19ThigralISTRICT, CALIFORNIA  SUBCOM MITTEES:  2332 RAYBURN BUILDING WASHINGTON, D.C. 20515 202-225-3601  Congreil5 of tbe Elniteb  ASSISTANT REGIONAL WHIP, PLAINS AND WESTERN STATES   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  tate5  30oui‘e of Reprefientatibui Eliacsbington,;Mt. 20515  INTERNATIONAL ECONOMIC POLICY AND TRADE RANKING M INORITY MEMBER INTER-AMERICAN AFFAIRS COM M ITTEE ON INTERIOR AND INSULAR AFFAIRS BuEscommITTErs:  March 23, 1982  INSULAR AFFAIRS RANKING MINORITY MEMBER PUBLIC LANDS AND NATIONAL PARKS  -11 . Fi III t2/ A::$ 7.1r-r)  Honorable Paul Volker Chairman Federal Reserve System Washington, D.C. Dear Mr. Chariman:  prl CDO INA at  Merriman, which he asked that I mail to you. Sinc rely, /1 " EWA M mbei/ of Con RJL:klm encl.  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  •tb  Zs  pw  .:r N.)  CO C., 2::. A.,  C:7  Cil  C:21  Enclosed is a post card from my constituent, John  rrl ,)  IL;/14-1 CI C3 fa, --T7-T) r-F-1--4C1 ,O.Z-CI Crv- n< , tvv rn u/ .40 ( ...< 2 t.;. C-= ,--;  ."(-)  2r/-1 rq -•< ir'; rf-7 C" 2 .....N. Z ,,.• /-2. .._  -,  ......  CD  -n  -   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 26, 1982  Tne honorable Malcolm Wallop United States Senate Washington, D.C. 20510 Dear Senator Wallop: As requested, I am pleased to enclose responses to the written questions you submitted to me in connection with my appearance before the Senate Finance Committee on February 24. I hope these responses will be useful to you. Please let me know if I can be of further assistance. 'Sincerely,  S/Faul A.1c14  Enclosure boox CO:pjt (#W86) bcc: Stuart Dorsey (w/Senate Finance Comm.) Larry Slifman Mrs. Mallardi (2)  Question No. 1: Mr. Volcker, a recent Congressional Budget Office study entitled Tne Prospects of Economic Recovery, states that tne Economic Recovery Tax Act is expected to boost economic growth by stimulating consumer demand and raising incentives to save. And noting that it may take a little longer for the savings and investing effects to develop, they are vitally important to economic growth and productivity. In almost the same breath, the report goes on to note that monetary policy is expected to ,e exactly opposite to that of fiscal policy--that high intert rates will restrain c nsumer spending and that "there is considerable risk th.it ti credit conditions will offset the investment icentive act." Tnis study furtner notes that the fiscal policy _ _xpected to have much of an effect on inflation, but that wages are the critical factor in that area. With that in mind, could you expalin to me, what interest is being served, by monetary policy which restricts, at the very least, the Economic Recovery program the Congress put in place last year?  Answer:  The objective of the Administration's economic  program announced February 18, 1981, is to support economic growth while reducing inflation.  Recognizing the critical role  of monetary policy in the fight against inflation, this program calls for a consistent policy of monetary restraint.  The Federal  Reserve's objectives for growth of money and credit in 1981 and tnose for tnis year--announced on February 10, 1982, in the Board's Monetary Policy Report to Congress--are consistent with the Administration's program for economic recovery.  The objective  of monetary policy is to slow the expansion of money over time to rates consistent witn the needs of an economy growing in line with its productive potential at reasonably stable prices.  But  I snould emphasize that a program of restrained money growth is not synonymous with a hign interest rate policy.  The level of  interest rates, especially long-term rates, is influenced by a variety of factors besides the supply of money, including prominently expectations about inflation.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2  While recent credit market conditions have had a damping effect on economic activity, a relaxation of money growth would exacerbate--not cure--the problem.  Economic theory and  experience alike indicate that progress toward price stability cannot be obtained without adequate restraint on the growth of money and credit.  Failure to persist in the effort to lower  the trend of monetary growth would have long-lasting and damaging consequences for the performance of the economy.  The recent  improvement in inflation--which is beginning to be translated into expectations--would be reversed, with potentially adverse effects on financial markets, particularly long-term rates. Indeed, continuing doubts and skepticism that anti-inflation efforts will be carried through--especially in light of the large federal deficits expected in the coming years--is a significant factor exerting upward pressure on interest rates today.  Thus, the Federal Reserve's announced policy of restraint  on the growth of the monetary aggregates, rather than hindering the economic recovery program, is a key element in the nation's attempt to reduce inflation, restore greater stability to financial markets, and improve the prospects for sustained economic progress.  Question No. 2: Mr. Volcker, I have a chart in front of me that shows the percentage increases and decreases in Ml-B since 1978. Of particular interest to me is the incredible change in the consistency in the fluctuations of Ml-B beginning right around the first part of 1980. It seemed that on several occasions last year, and this year, I heard reports that the basic supply of money unexpectedly dropped or increased more than projected, and no one had an explanation. How can there be a consistent monetary policy when there does not appear to be any mechanism by which Ml-B can be controlled, or anyone who can explain it in any event? Is it proper that something which you cannot control, should have such control over the direction interest rates take?  Answer:  Let me first observe that your chart depicts  money growth on a monthly basis, which I do not believe is a significant factor in economic performance or inflation.  However,  we are mindful of the need to understand the pattern of money growth over time and have done considerable research on the matter.  A Federal Reserve staff study of the first year  of the new monetary control procedures (February 1981) identified several factors which contribute to variability in short-term money growth.  It was found, for example, that comparisons of  money stock variability for different years are importantly affected by the seasonal adjustment process.  Seasonal factors  applied during the current year--and, to a lesser extent, in recent earlier years as well--are not able fully to reflect changing seasonal patterns.  Annual reestimation of seasonal  factors--as money supply data for subsequent years make possible better estimates of the changing seasonal patterns--gradually tends to smooth some of the initially observed variation in money. Even after allowing for distorting effects of seasonal factors, there apparently has been a rise in the short-run   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2-  variability of money growth since the introduction of the new operating procedures.  Evidence suggests, however, that swings  in monetary growth in the first year of the new control procedures importantly reflected large variations in money demand associated with the imposition and subsequent removal of the credit control program.  Further, in early 1981, the rapid shifts of funds  into the NOW accounts introduced nationwide at the end of 1980 significantly affected variability in Ml-B growth.  Finally,  during the period since October 1979, the demand for money occasionally has been buffeted by the rapid but erratic pace of financial innovations, which have arisen as money holders have responded to high market interest rates by seeking ways to pare their transactions balances. Apart from these special developments, movements in the money stock over short periods naturally reflect the underlying volatility in the public's demand for money.  The enormous volume  of transactions that occur each day in our complex economy, involving financial assets as well as goods and services, is associated with considerable short-run variation in measures of money.  Efforts to eliminate such short-run fluctuations, which  tend to be largely self-reversing, would necessarily be at the expense of even greater volatility in interest rates. But to restate the more important point, there is no empirical evidence that month-to-month fluctuations have any significant impact on the course of the economy.  In evaluating  the experience with monetary control, the focus therefore should   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  .   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -3-  be on long-term trends.  In this regard, the Federal Reserve has  had a considerable degree of success, slowing the growth of M1 over the past two years consistent with the needs of antiinflation policy.  Question No. 3: Mr. Volcker, I realize that there have been modifications to the formula used to compute Ml-B, but does that explain the extreme deviations from what was a rather consistent pattern before 1980? Are those deviations at least in part attributable to policies which you have followed--policies which may in large part explain the large risk premium in interest rates now? I also have another chart in front of me which traces the yield on 3-month Treasury bills from 1976 thru 81. At the same point in time that Ml-B started to fluctuate greatly, Treasury bills started to show the same erratic behavior with rates fluctuating between 7 and 16%--what kind of consistent monetary policy can such behavior possibly demonstrate?  Answer:  Ml-B was introduced in February 1980 when the  monetary aggregates were redefined.  It differed from Ml-A by  the inclusion of other checkable deposits (OCD), containing interest-bearing NOW and similar accounts.  Growth in OCD has  significantly affected the growth of Ml-B on several occasions both before 1980 and since.  The major impact already has been  referred to in the response to the previous question, namely the rapid growth following the nationwide authorization of NOW accounts at year-end 1980.  In recognition of the public's  adjustment to NOW accounts, the Federal Reserve published a "snift adjusted" M1-B in 1981, calculated as Ml-B less estimated shifts into new NOW accounts from sources other than demand deposits. Because Ml-B, which as of January 1982 has been relabeled Ml, now has a substantial OCD component, it likely will respond somewhat differently to interest rates than it did when its OCD component was less important.  Because OCD can serve as  a savings medium as well as a medium of exchange, variations in savings preferences can affect the public's holdings of OCD.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I  Elk.  _  2-  In particular, OCD--together with traditional savings deposits themselves and other liquid instruments--represent a more attractive temporary store of wealth in times of heightened uncertainties regarding the future course of interest rates or economic activity.  For example, in the July to August 1980  period and again in the November 1981 to January 1982 period, OCD growth accelerated along with savings and certain other liquid assets.  Thus it may be that the changing composition of  M1 has tended to make it more variable.  In view of the changing  nature of Ml, the Federal Reserve monitors closely the behavior of each of its components. The variations in interest rates and monetary growth you refer to do not indicate a lack of consistency in monetary policy.  Rather, they primarily reflect variations in the amount  of money demanded by the public and the accompanying financial market pressures implied by an effort to keep the money supply close to a targeted path.  Thus, the sharp run-up in rates in  late 1979 occurred as both M1 and M2 threatened to exceed the upper bounds of their growth rate ranges for that year.  Sub-  sequently, as the monetary aggregates began to decelerate, credit controls were introduced in March 1980.  The profound effects  on economic activity and financial conditions led both to sharply reduced demands for money and credit and to considerable downward pressure on interest rates.  The extreme sharpness of the  economic contraction at that time was followed by an unusually prompt and vigorous rebound in economic activity and demands   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  II  •  -3-  .  for money and credit.  As a result, the money stock began again  to move rapidly toward the upper end of its target range. Policies to resist this movement were accompanied by upward movements in interest rates during the second half of 1980. Interest rates began 1981 at record levels.  However,  shortly into the year money demands began to subside and financial market pressures eased for a time.  A subsequent bulge in  money in the second quarter resulted in a growth in required reserves that exceeded the growth of nonborrowed reserves provided by Federal Reserve open market operations, and short-term interest rates moved back toward their earlier highs.  By mid-  summer, demands for money and credit weakened, while the Federal Reserve provided reserves in an effort to maintain adequate monetary growth.  Accordingly, interest rates declined until  the final month of 1981, when money demand again picked up, apparently in part as a result of heightened precautionary motives.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  %   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Question No. 4: Mr. Volcker, it is not unusual for me to hear in Wyoming, as well as here, that the high interest rates are killing us, and that the person who is the most responsible for keeping them at those intolerable levels is a man I didn't even get the opportunity to vote for. Mr. Volcker, I am not suggesting that the Chairman of the Federal Reserve should be an elected office, but I wonder what your opinion would be of making the Chairman of the Federal Reserve a member of the President's cabinet with the responsibility to take those actions which the President feels are consistent with his or her economic program?  Answer:  As you know, the Federal Reserve was created  by the Congress in 1913 as an independent agency in order to insulate monetary policy decisions from short-term political pressures.  One of the main ideas in the minds of the framers  of the original Federal Reserve Act was that the System should be a distinctly nonpartisan organization whose functions are divorced from partisan political considerations. Although the Federal Reserve, as an independent agency, is responsible for reaching judgments in the monetary policy area, the Board is accountable to the Congress and maintains close communications with both the Congress and the Administration. Designating the Chairman of the Federal Reserve a member of the President's cabinet, however, could result in some erosion of this carefully constructed independence--an independence that I regard as essential if monetary policy is to be free from day-to-day political pressures and play its proper role in achieving economic stability.  There is also an issue here of  credibility, which is a vital, even if intangible, component of successful monetary policy.  We must be concerned about the  market's perception of our will to continue a disciplined monetary policy, and this perception could be undermined by an erosion of the Fed's independence within the government.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Question No. 5: Mr. Volcker certainly the Congress has a responsibility ahead of it to deal with the budget and make significant reductions in the projected deficits figures. However, if the Congress makes significant progress in reducing the deficit figures as you say we must, and I think we will, what assurance is there that your policies will not be so restrictive as to stifle any possible significant recovery by this economy?  Answer:  The central objective of monetary policy  currently is to return the economy to growth in line with its productive potential at reasonably stable prices.  For the  past two years, in particular, Federal Reserve policy has been directed toward the achievement of this objective by slowing the growth of money over time.  In my opinion, the prospects  for inflation are now improving significantly, although the battle is far from won.  Given these prospects for slowing  of inflation, the monetary targets for 1982 will "leave room" for economic recovery later this year.  Accelerating the growth  of the money supply in an effort to bring interest rates down quickly runs the risk of rekindling inflationary expectations and therefore being self-defeating.  In such an event, the  "inflation premium" in interest rates would rise, and the progress on inflation itself could be reversed. In regard to the longer-run period for which Congress will be attempting to control and reduce budget deficits, let me note again the scale of the problem.  In the absence of  deficit-reducing measures at least as large as the President has proposed, the unified deficits in FY 1983 and 1984 are projected to be over 4 percent of GNP (that is, larger than the post-war record in the recession year of 1976) and over 20 percent of total gross saving provided by the private domestic,  •  l•  _  .   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2-  foreign, and state and local sectors combined.  Potential deficits  of this magnitude suggest an intense competition between the federal government and private borrowers for the limited pool of saving and, hence, continuing pressures of interest rates, especially on the assumption of renewed economic growth and recovery in private demand to finance business fixed investment, housing, and so forth.  In contrast, a significant reduction in  the deficit within the context of a moderate anti-inflationary monetary policy would result in more credit being available to the private sector at lower interest rates.  ...0of (love *.  .•q. ••:o ..  •o  • -n  • .4 • 1. ..1(‘   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ...r,  BOARD OF GOVERNORS •  i:  1..• • 65 • . 1.. • 41.  F THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 213551  A,. .RAL RES.• . ••..• •  PAu L A. VOLCKER CHAIRMAN  March 26, 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: Thank you for your letter of March 25 inviti ng all members of the Federal Open Market Commit tee to testify at the semi-annual hearings on the conduc t of monetary policy on Tuesday, March 30. Because of the short notice, a number of members of the Committee, including myself, hav e commitments that conflict with the time of the hearing and , thus, it would not be possible to appear at that time. As you know, I have a question about the desirability of the full Committee testifying, but in any case, if you wish to proceed, I would hope that another date might be arrang ed--perhaps sometime prior to our mid-year Monetary Policy Report--that would be convenient for the members of the House Banking Committee as well as the members of the FOMC. Sincerely,  ded  FERNAND J. St GERMAIN. R.I., CHAIRMAN HENRY S. REUSS. WIS. HENRY B. GONZALEZ, TEX. JOSEPH G. MINISH. N.J. FRANK ANNUNZIO. ILL. PARREN J. MITCHELL, MD. WALTER E. FAUNTROY, D.C. STEPHEN L. NEAL, N.C. JERRY M. PATTERSON. !AMES J. BLANCHARD, MICH.  cAur.  CARROLL HUBBARD. JR., KY. JOHN J LAFALCE. N.Y. DAVID W. EVANS. IND. NORMAN E. D'AMOURS. N.H. STANLEY N. LUNDINE. N.Y.  BOARD CF GOVERNORS OF THE  U.S. HOUSE OF REpRgiaEINEEKTIVt m COMMITTEE ON BANKING, FINAMtphfiinNiwy2,67  ED WEBER. OHIO  NINETY-SEVENTH CONGRESS 2129 RAYBURN HOUSE OFFICEcot  E.F1  WASHINGTON, EPt...  MARY ROSE OAKAR. OHIO JIM MATTOX, TEX. BRUCE F. VENTO, mINN. DOUG BARNARD. JR.. GA. ROBERT GARCIA, N.Y.  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.  VED CHAIRMAH  ..)15  BILL MCCOLLUM. FLA. GREGORY W. CARMAN. N.Y. GEORGE C. WORTLEY. N.Y. MARGE ROUKEMA. N.J. BILL LOWERY. CALIF. JAMES K. COYNE. PA. DOUGLAS K. BEREUTER, NEBR. DAVID DREIER, CALIF.  March 25, 1982  Z2S-4247  MIKE LOWRY, WASH, CHARLES E. SCHUMER, N.Y. BARNEY FRANK, MASS. BILL PATMAN, TEX. WILLIAM J. COYNE PA. STENY H. HOYER, MD.  The Honorable Paul A. Volcker Chairman Federal Open Market Committee 20th and Constitution, N.W. Washington, D.C. 20551 Dear Mr. Chairman: The Chairman of the Joint Economic Committee and the ranking majority member of this Committee has requested that the testimony of the members of the Federal Open Market Committee be heard as part of the Committee's semi-annual monetary policy hearings. I am in accord with this request and have scheduled a hearing at 5:00 p.m. on March 30, 1982, in Room 2128 of the Rayburn House Office Building. All members of the Federal Open Market Committee are requested to appear as witnesses at this hearing to testify on monetary policy design and implementation.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  eart  26o 10.iv„,  littc liessnalaAr Mewl 1. ammo Chaisson Joint Sconosie Cemssittee assaing,tono D. C. 201U Does Mr. Chairman: io rum latter ad atatot., 10* 1142, you *liked he fee 000*% of dowmants related to ttie refinancing of sestets loan& mode by Placid 01.1 tesperor. Is my letter to yea et febromry 24. 1542. I had described tbe scope mod effect of thee* trameactioet from the point ad 'view of their impact as the covermete that he4 wesioesly beers 00441 by Plecic: and the dent hvottwrill with respect to salsa of their saver holdings god 4voit4sn's of epecastiom is commodities. *1 we eiweseed em the telephone* I me ettcloeisg a ampy of a smemery of tte Agreement SeppAcmemtal to the rredit and Escrow A4M04nott4o, This documeat MAWS* oomeerolel/fleamrtal information that ves submitted to us ift contideese sod I woeld ipfreta*tilt it if Wne ctutflifestielity of tide latereation would to maintained. Again se we discussed, I would Lite to $tA**2 that the credit egrooment aContallt* only the normal torahs etat4 owito4Viorto a A pcivato asemecatal loaot egteamont whose (*roe are cuntidaattal tostness inflatesties for the parties upheave**. Tbe only ptcovieiona of Ow ,tedit *are.meet rolawent to the ememitmemte oo sliver mod spowulatioti are tee em the part of the leadieg hanks to call %soil Imen tit the ea** get m default by Placid az the lents in vteit commitweets utif4er the Snpplemeotsry ftrwomeat aad Stesteopaquewomot. Mile the greatest part et the liscrow agreement is oftmormed vitt the beemehompla, detail.* of the arrangements kletefatb the 011140ditms trustee and Placid* it oleo astehtlishes the flemewort for liguldstiag pleat, ogainfigclia initarootione the 'Placid snipes* which ie ti cevoaleu, Was intecaetiot fp.ould hove SWAIM adverse floarecial ommiquemass fee placid mr14. th* silver market gemorailly. I believe the docomotitaticAo that I hive suawided to you will allow yoo ta oee the full wipe of Ole sammdtmosts lammtvw4 from tbe point at visv of that, impact ell the.polSoy lossawas 1111411 Uri to the original prewisiona a the 1900 lesdlime agrasses4,  issairay• • 4-•  ilmeator.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  6.s.;.;•,;(  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 internal or confidential information.  Citation Information Document Type: Legal document Citations:  Number of Pages Removed: 2  "Summary of Agreement Supplemental to Credit Agreement and Escrow Agreement." 1982.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  1  LEE H. I  ROGER W. JIEPSEN, IOWA. VICE CHAIRMAN WILLIAM V. ROTH. JR.. DEL. JAMES ABIDNOR, S. DAK.  Action assignei Mr. BraifieH  HENRY S. REUSS, WIS., CHAIRMAN RICHARD BOLLING, MO. ILTON, IND.  GILLIS W. LONG. LA. 4 CRREN J. MITCHELL, MD. FREDERICK W. RICHMOND. N.Y. CLARENCE J. BROWN 0I-00 MARGARET M. HECKLER, MASS. JOHN H. ROUSSELOT, CALiF.  STEVEN SYmMS. IDAHO PAULA HAWKINS, FLA.  Congre55 of the tiniteb  CHALMERS P. WYLIE, OHIO JAMES K. GALBRAITH, EXECUTIVE DIRECTOR  MACK MATTINGLY, GA. LLOYD BENTSEN, TEX. WILLIAm PROXMIRE. WIS.  tate5  JO I NT ECONOM IC COM M ITTEE  EDWARD M. KENNEDY. MASS. PAUL S. SARBANES, MD.  (CREATED PURSUANT TO SEC. 5,a) OF PUBLIC LAW 304, 71ITH CONGRESS)  WASH INGTON, D.C. 20510  ..gr•  11.0 0 0  o ..ri  March 10, 1982  -VI ...** 0  rn  0 rn -n'0  r4  ?II 0 r"  VII Vg  -,1 .....-  73  ea.  15 .......  17  r  C)  0 -n 0 tin --11 ) tn „AC  .r" ._ v)...,0 r.r1 rrl ... — 1,1 rn v.: t"" c:r" Zc) lig 0 (--.4 -'3: cr> t.0 ' . ...4 • 73 3 (.0 1--; To* .41, z  ...4C)  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C.  tit  Dear Mr. Chairman: provided I appreciated your letter of February 26, 1982 which unt brothers advance notice of the refinancing of the Placid Oil/H debt restructuring loan. specifiAs you know, my concerns in this matter have extended this refically to two questions which are directly affected by from furnancing: the requirement that the Hunt brothers be barred of silver be ther speculation, and the requirement that their stock pleased to see liquidated in an orderly and expeditious way. I am concerns. your assurance that the new agreements meet these e copies I would appreciate receiving at your earliest convenienc from the of the relevant documents mentioned in the lettersto you SpecifiPlacid Oil and Barclays Bank/Republicbank Dallas, N.A. t agreement, cally, I would appreciate seeing a copy of the credi Supplemental to and of the "Supplemental Agreements": the Agreement w Agreement Credit Agreement and Escrow Agreement, and the Escro Barclays/Republicwhich are described in detail on page 2 of the direct bearing bank letter. If there are further agreements with g of this loan, on the issues of public interest in the refinancin I would appreciate your calling them to my attention.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  jz,  Sincerely, 1 ( C1-14'"A"  "4-ti--' "  Henry S. Reuss Chairman   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 26, 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: Thank you for your letter of March 25 inviting all members of the Federal Open Market Committee to testify at the semi-annual hearings on the conduct of monetary policy on Tuesday, March 30. Because of the short notice, a number of members of the Committee, including myself, have commitments that conflict with the time of the hearing and, thus, it would not be possible to appear at that time. As you know, I have a question about the desirability of the full Committee testifying, but in any case, if you wish to proceed, I would hope that another date might be arranged--perhaps sometime prior to our mid-year Monetary Policy Report--that would be convenient for the members of the House Banking Committee as well as the members of the FOMC. Sincerely,  Don Winn will iiscuss with Chairman CHAIRMAN FERMAN "'J. ST GERMAIN, R.I„ REUSS, VVIS. Her.r HE'oRY B. GONZALEZ, TEX. JOSEPH G. MINISH, N.J. FRANK ANNUNZIO. ILJ-. 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.  GOVERNORS BOARD OF OF "NE  U.S. HOUSE OF REIN3FaEhErATIVES-' COMMITTEE ON BANKING, FINAMCOMNIAFF12667 NINETY-SEVENTH CONGRESS  VED t. CNAIRMAP  2129 RAYBURN HOUSE OFFICE  EFI  WASHINGTON, CL.  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.  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.  15  DAVID DREIER, CALIF.  March 25, 1982  Z25-4247  BARNEY FRANK. MASS. BILL PATMAN. TEX. WILLIAM J. COYNE PA. STENY H. HOYER, MD.  The Honorable Paul A. Volcker Chairman Federal Open Market Committee 20th and Constitution, N.W. Washington, D.C. 20551 Dear Mr. Chairman: The Chairman of the Joint Economic Committee and the ranking majority members of the member of this Committee has requested that the testimony of the -annual Federal Open Market Committee be heard as part of the Committee's semi scheduled a monetary policy hearings. I am in accord with this request and have e Office hearing at 5:00 p.m. on March 30, 1982, in Room 2128 of the Rayburn Hous e are requested to Building. All members of the Federal Open Market Committe and appear as witnesses at this hearing to testify on monetary policy design implementation.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 24, 1982  The Honorable Mark 0. Hatfield Chairman Committee on Appropriations United States Senate Washington, D.C. 20510 Dear Chairman Hatfield: As requested in your letter of Yarch 3, I am pleased to enclose my responses to the written questions from you and Senator Stennis for inclusion in the record of your Committee's hearing on March 4. Sincerely,  Enclosure cc:  Senator Stennis  CO:pjt (#V-59) bcc: Mr. Kichline Mr. Prell  Chairman Hatfield: Reacting to criticism that money growth has not been stable, you recently stated that "we pay too much attention to stability. What counts is the trend over time." What do you believe is a fair period of time to expect stability? A year? A quarter? Chairman Volcker: There's no simple, clear-cut answer to this quesce tion. It should be stressed, first of all, that there is no eviden that offsetting fluctuations in the growth of money over a period of a quarter or two leaves any significant imprint on the economy. Thus, it makes sense to focus on longer periods of time in gauging the "stability" of monetary growth --or perhaps more aptly, the steadiness of monetary policy. But the monetary growth trends that are truly of greatest importance in the present environment probably relate to spans measured in years. What we need is money growth on average over the next few years at a rate below the average pace of expansion in the past few years--and a confidence on the part of the public that before very long this sort of measure of the trend growth of money will match the requirements of an economy growing in line with potential output with stable prices. With such confidence, the wage inflation premia in interest rates will disappear and nominal labor demands will subside toward rates consistent with the growth of productivity. on Chairman Hatfield: You have suggested that a "sustained" attack What peinflation is required to reduce inflationary expectations. riod of time meets your "sustained" test? point to be Chairman Volcker: I have no fixed timetable. The main maae is that any shifting away from anti-inflation effort is likely to lead quickly to a reversal of the progress we've made toward a moderation of wage and price increases. Moreover, our next attempt to rein nd in inflationary pressures is likely to prove even more difficult--a more costly in terms of economic disruption--because another episode of stop-go will have caused inflationary expectations to become more deeply entrenched. investment Chairman Hatfield: The Chief economist for a Wall Street action is company recently made this statement: "Unless immediate st taken to narrow current and prospective budget deficits, intere depresrates and the dollar could climb to a point where a worldwide t recession would become a serious possibility. Because the curren more dangerous sion stems largely from an overvalued dollar, it is far statement? than previous downturns." What is your reaction to this to reduce Chairman Volcker: The assertion that action is needed not budget deficits seems completely accurate to me, but I would uences attach such particular importance to the exchange rate conseq high level or see as likely a worldwide depression. The relatively th of the dollar of U.S. interest rates and the foreign exchange streng n officials do have international implications, and a number of foreig U.S. budget have spoken out about the link between large prospective t recession, deficits and high interest rates. As regards the curren exports and while a rising dollar has tended to weaken demand for U.S. helped to damp to increase demand for imports (and at the same time atement to domestic inflationary pressures), I think it an overst attribute the slump largely to an "overvalued dollar." the increased Chairman Hatfield: The Administration has argued that y to absavings made possible by the tax cut will enable the econom 1981, one sorb the record federal deficits being projected. For  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2estimate is that individuals saved $100 billion, and businesses $372 billion. The federal deficit was 12% of the total of business and individual savings. The President's Council of Economic Advisers projects that individual savings will rise to $170 billion in 1983, and business savings to $470 billion in 1983. Do you believe these are realistic figures? Would they support the projected federal deficit without denying needed credit to private borrowers? Chairman Volcker: I think it would be fair to say that the Administration's projections of savings are on the optimistic side, given historical patterns. Any projections of this kind have a considerable margin for error, and I recognize that reduced inflation, lower taxes, and other factors are likely to result in a higher savings rate than in recent years. However, I do not believe it prudent to assume so dramatic a change in a relatively short period of time at the edge of, or beyond, historical experience. In light of these uncertainties, I have argued that the Congress and the Administration should address the budget question with a view towards preserving a reasonable "safety margin", to provide assurance that there will be enough private savings left over to support the kind of capital formation we need to achieve better levels of productivity. Chairman Hatfield: Washington columnists recently suggested that supply-siders in the White House had pressed the President to call on you to "end overt Fed efforts to control the money supply, curtail Fed purchases of government bonds and dust off the discount rate as the principal instrument to maintain an adequate supply of credit." What do you believe would be the result of such a policy? Chairman Volcker: The brief quotation is not adequate to provide understanding of the particular mechanism of control that the "supplyside" commentators may have in mind. If the implication is to abandon the quantitative control of growth of monetary and credit aggregates over time, I believe there would be serious adverse consequences for the credibility and success of our efforts to deal with inflation, and potentially for interest rates and economic activity. The more technical question of the relative emphasis on the discount rate and open market operations is a matter of continuing judgment, but in general we have believed more vigorous use of the discount rate instrument in seeking monetary control would result in greater instability in market rates. Chairman Hatfield: Yale professor James Tobin recently made this statement: "It is not that monetary policy is colliding with fiscal policy, it is colliding with the economy. Monetary policy would block full recovery whether the demand fuel for recovery were government spending for defense, private spending of tax cuts, or entitle ments, or spontaneously buoyant private investment or consumption." What is your reaction to this statement? and Chairman Volcker: There is no doubt that restraint on monetary credit growth imposes same general limits on the growth in nominal GNP. Monetary policy concerned with inflation inevitably has that consequence. The purpose, of course, is to the extent possible, to restrain inflation rather than real growth, in the conviction that, environover time, the economy will not prosper in an inflationary ment. We do feel that our monetary growth targets are consistent with recovery, and a resumption of sustained economic expansion so long as inflation does continue to trend lower. Far from inhibiting "full recovery", I would question whether full recovery is possible  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  g with inflation. without simultaneously dealin lesson of recent history.  That seems to me the  icy may be said to be colThe sense in which monetary pol icits-prospect of growing budget def the t tha is ng thi any h wit liding nds to gress and the Administration--te Con the by ion act or maj absent l , inhibiting the private capita res ssu pre ket mar t edi -cr ify intens . formation we'd all like to see that irman Lee Iococca has argued Cha er ysl Chr ld: fie Hat an Chairm and the U.S. Treasury to borrow, for ey mon of nty ple is re the while there and Sears to buy Dean Whitter, oco Con buy to ont DuP for plenty a chase of autos and housing. As pur the for ble ila ava ey mon is no are ate jobs by additional sales, cre ch whi s, rie ust ind se the result, n, and believes in credit allocatio he So . ion dit con ate per in des to uld nudge the banking community sho e erv Res l era Fed the t argues tha s such rates to job -creating industrie ble ora fav e mor at dit cre supply w? is your response to this vie as housing and autos. What allocation e that no system of credit not uld sho One r: cke Vol Chairman ial claim on the nation's financ s ry' asu Tre the uce red to is going iimplicit in control of the def on" ati loc "al t tha ept exc , resources credit, for a small fraction of bank t oun acc ns loa on iti uis cit. Acq et of funds from one set of ass er nsf tra a t lec ref lly ica and typ ources ivalent drain on the net res equ an t hou wit r, the ano to holders kets. Consequently, I do not mar dit cre and l ita cap in available a signifns would in itself represent loa er eov tak of l tro con e believ er capit in housing or autos--or oth men est inv to ion but tri con icant tal goods, for that matter. particular uses, especially in to dit cre ect dir to s ort Eff ated financial system like tic his sop d, ize ral ent dec hly a complex, hig s by the d in their potential effectivenes ours, are severely limite not offer much support to the s doe e enc eri Exp ey. mon of fungibility l market nificant contribution to capita idea they would make a sig effectiveness or efficiency.  t while eet economist has stated tha Str l Wal One ld: fie Hat Chairman policy is icy is expansive, monetary pol cal fis of ust thr le the who punishing diction has resulted in the tra con s thi t tha and h, anti-growt believe present recession. Do you the and es rat st ere int level of ment? this is an accurate assess c terms, I'd put it in those specfi nk thi 't don I r: cke Vol Chairman has been nt that excessive reliance poi the e mad y edl eat rep but I have e reht inflation and that a mor fig to icy pol ry eta mon placed on strains much to ease the financial do ld wou e tur pos cal strained fis effort. that have accompanied this are in effect on the economy es enc fer dif t Wha ld: fie by Chairman Hat economy by borrowing, and the m fro ey mon ng ovi rem there between taxing? oves substantial. Taxation rem is e enc fer dif The r: s (deChairman Volcke ly, with important effect ect dir eam str ng ndi spe ect of funds from the on consumption. The eff ) tax the of ure nat the s that pending upon potentially absorbing saving is s ket mar ial anc fin borrowing on advantages investment. The relative for ble ila ava be ise would otherw   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -4-  nd on particular economic and disadvantages of the two approaches depe ngs would otherwise not be circumstances. When potential private savi The circumstances are fully employed, deficits may be appropriate. s is evident, high quite different when congestion in credit market cy should be directed interest rates restrain growth, and when poli ent and foreseeable cirtoward facilitating more investment. In pres h the deficit (and actual cumstances, the importance of dealing wit to me evident. and potential capital market congestion) seems the National Journal indiChairman Hatfield: A recent article in ey growth in 1980 and 1981 cated that some economists have tracked mon essed wishes of execaccording to the political calendar and the expr October 1981 Secretary utive branch officials. For example, in too tightly on the monetary Regan's statement that the Fed has "held when a change has to be reigns" and that "We are coming to a time money in the last weeks of made" preceded the much larger growth of nges? 1981. What is your reaction to these cha between such remarks made Chairman Volcker: There was no connection s of the Federal Reserve. by executive branch officials and the action ks of 1981 was quite conThe stronger growth of M1 over the last wee Federal Open Market Comsistent with the annual target set by the FOMC's range and mittee--since that aggregate had been below the indeed ended the year below the range. the second and larger cut in Chairman Hatfield: On July 1 this year, . Since the beginning of personal income tax rates goes into effect t the debate over tax cuts the Reagan Administration and throughou on witnesses this year, last year and the testimony of Administrati d increase the pool of savthe idea has been that these tax cuts woul your target for their savings ings. How can Americans save more if th in M2 prior to the tax accounts is the same as the rate of grow cuts? a portion of the savings of the Chairman Volcker: M2 does encompass as well. We have indicated public. But there are many other forms et preferences warrant it, we that, should changes in the public's ass ranges for the monetary aggrewould be quite prepared to reassess our of following slavishly any gates; we certainly have no intention lities indicate that they are particular numerical target if the rea of slowing inflation and inconsistent with the basic objectives umption of sustainable fostering conditions conducive to a res ets are consistent with the growth. At present, we believe those targ likely increase in savings. indicated that you intend to keep Chairman Hatfield: Lately you have % target range for Ml. Can we to the high side of your 2.5% to 5.5 for the rest of this year? expect that you will keep M1 above 5% growth for the year, we have not M1 the s ard reg As r: cke Vol an irm Cha percent zone; rather, we have /2 5-1 to 5 the to hts sig our ed narrow ications regarding the public's said that, in light of recent ind low growth last year, we would y vel ati rel the and or avi beh ial financ 2-1/2 to 5-1/2 percent range its of part er upp the in e com out an find e, such as "above 5 percent," com out er row nar a y cif spe To e. acceptabl ision in monetary control than in would imply a greater degree of prec fact exists.  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  5-  Chairman Hatfield: Under your monetary policies, it is rational for everyone to minimize their holdings of cash, demand deposits and passbook savings and maximize their use of money market funds and small denomination time deposits at market rates. The record shows that people are being rational. Between September 1979 and December 1981, currency and checkable deposits (M1) have declined as a percentage of M2 from 25.4% to 24.0%. Passbook savings accounts have declined absolutely - by $110 billion dollars, and as a percentage of M2 from 29.6% to 18.2%. Meanwhile money market funds have grown by $150 billion dollars and small denomination time deposits have grown by $234 billion dollars. Thus, people are getting market interest rate returns for more of their idle funds. Aside from changes in interest rates, this reallocation of assets from non-yielding or low yielding accounts to high yielding accounts is estimated to have increased the overall return on all of M2 by at least 1%. My question is this: Doesn't this shift in the composition of M2 mean that M2 is automatically growing faster now due to higher payments of interest on this different allocation of deposits? Chairman Volcker: It is indeed the case that, with the emergence of money market funds as an important investment outlet and with the liberalization of the ceiling rates on small denomination time deposits, M2 now contains a number of assets whose returns move with market rates of interest. In an environment of relatively high returns in the market, M2 growth is faster than would be the case if deposit interest ceilings were held below market rates. This change in the performance of M2 is only one of a number of influences that the Federal Open Market Committee considered in its deliberations regarding setting of the long-run monetary targets. Senator Stennis: I have heard that if our money supply were increased at a higher rate than we have in the past year, that interest rates would fall and that there wculd not be a significant increase in inflation if we were careful to increase the money supply gradually. I would very much like to hear your comments on this. Chairman Volcker: I cannot say whether interest rates would fall or not in the short run. This would depend on a number of factors besides the growth of money--such as the size of current and prospective federal credit requirements. The Federal Open Market Committee has indicated that--based on what we know at this juncture--a faster growth of the narrow money stock (M1) this year than last would be consistent with our longer range program for slowing inflation and revitalizing the economy. We have indicated that growth of M1 in the upper part of our 2-1/2 to 5-1/2 percent range for 1982 would be acceptable; last year M1 grew 2-1/4 percent on a fourth-quarter to fourth-quarter basis (after adjustment for the effects of shifting into new NOW accounts). Senator Stennis: Mr. Volcker, in your estimation how much of a reduction in the deficit this year and future years will be required to bring down long-term interest rates to a level which would permit economic recovery. Chairman Volcker: I have recommended that the Congress enact deficitreduction measures that total at least as much as the President has recommended in his FY 1983 budget, if not more. This is a necessary action in its own right and is also a precondition for setting the budget on a better course for 1984, '85 and beyond. Such action would provide much encouragement to the financial markets and help to  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -6-  foster the private capital formation we need for a sustained, balanced recovery and expansion. I am less concerned about the deficit for the current year because it is to a considerable extent a reflection of the recession. The concern is properly with regard to the budget situation once the economy begins to recover.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action assigned Mr. Kichline  sp.  Na-t..A.A.A)-ttk MARK O. HATFIELD, OREG., CHAIRMAN  TED STEVENS, ALASKA LOWELL P. WEICKER, JR., CONN. JAMES A. MC CLURE, IDAHO PAUL LAXALT, NE/. JAKE GARN, UTAH HARRISON SCHMITT. N. ME.X. THAD COCHRAN, MISS. MARK ANDREWS, N. DAK. JAMES ABDNOR. S. DAK. ROBERT W. KASTEN. JR., WIS. ALFONSE M. D AMATO, N.Y. MACK MATTINGLY, GA. WARREN RUDMAN, N.H. ARLEN SPE_CTER, PA.  WILLIAM PROXMIRE. WIS. JOHN C. STENNIS, MISS. ROBERT C. BYRD, W. VA. DANIEL K. INOLYE, HAWAII ERNEST F. HOLLINGS. S.C. T1-10MAS F. EAGLETON, MO. LAWTON CHILES, FLA. J. BENNETT JOHNSTON, LA. WALTER D. HUDDLESTON, KY. QUEKTIN N. BURDICK, N. DAK. PATRICK J. LEAHY, VT. JIM SASSER. TENN. DENNIS DE CONCINI, ARIZ. DALE BUMPERS. ARK.  /Z1Cnifeb „Stales Zonate COM M ITTEE ON APPROPRIATIONS WASHINGTON,  D.C. 20510  March 3, 1982  J. KEITH KENNEDY, STAFF DIRECTOR THOMAS L. VAN DER VOORT, MINORITY STAFF DIRECTOR  Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Constitution, N.W. 20th Washington, D.C. 20551   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Dear Mr. Volcker: your I want to express my sincere thanks to you for regarding testimony before the Committee on Appropriations nsely our current economic climate. You contributed imme rearranging to our hearings. I particularly appreciate you your schedule to accommodate us. I Your testimony brought several questions to mind. answered have enclosed these questions, and ask that they be ings within a week. We are most anxious to have the hear of the printed, and these questions and answers will be part followed printed record. Please have each question retyped, r, when by your answer, on the enclosed paper. This pape completed, is ready for camera-copying and production. Thank you again for appearing before the Committee. Sincerely,  Mark 0. Hatfield Chairman enc. MOH:DMk  .s  OP.  PAUL VOLCKER QUESTIONS SUBMITTED BY CHAIRMAN MARK 0. HATFIELD TO been Reacting to criticism that money growth has not attention stable, you recently stated that "we pay too much ." What do to stability. What counts is the trend over time ility? you believe is a fair period of time to expect stab A year? A quarter? ation You have suggested that a "sustained" attack on infl . What period is required to reduce inflationary expectations of time meets your "sustained" test? nt company The chief economist for a Wall Street investme diate action is recently made this statement: "Unless imme deficits, interest taken to narrow current and prospective budget where a worldwide rates and the dollar could climb to a point Because the depression would become a serious possibility. valued dollar, current recession stems largely from an over s." What is it is far more dangerous than previous downturn your reaction to this statement? eased savings The Administration has argued that the incr economy to absorb made possible by the tax cut will enable the d. For 1981, one the record federal deficits being projecte ion, and businesses estimate is that individuals saved $100 bill the total of $372 billion. The federal deficit was 12% of t's Council of business and individual savings. The Presiden savings will rise Economic Advisers projects that individual ngs to $470 billion in to $170 billion in 1983, and business savi figures? Would they 1983. Do you believe these are realistic out denying needed support the projected federal deficit with credit to private borrowers? supplyWashington columnists recently suggested that President to call siders in the White House had pressed the the money supply, on you to "end overt Fed efforts to control and dust off the curtail Fed purchases of government bonds to maintain an discount rate as the principal instrument believe would be the adequate supply of credit." What do you result of such a policy? this statement: Yale professor James Tobin recently made iding with fiscal policy, "It is not that monetary policy is coll policy would block it is colliding with the economy. Monetary for recovery were governfull recovery whether the demand fuel spending of tax cuts, or ment spending for defense, private private investment or entitlements, or spontaneously buoyant this statement? consumption." What is your reaction to   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  HATFIELD TO VOLCKER  -2  there Chrysler Chairman Lee Iococca has argued that while and plenty is plenty of money for the U.S. Treasury to borrow, there for DuPont to buy Conoco and Sears to buy Dean Whitter, housing. is no money available for the purchase of autos and additional As a result, these industries, which create jobs by in credit sales, are in desperate condition. So he believes d nudge allocation, and argues that the Federal Reserve shoul favorable rates the banking community to supply credit at more . What is to job -creating industries such as housing and autos your response to this view? whole One Wall Street economist has stated that while the policy is antithrust of fiscal policy is expansive, monetary in the punishing growth, and that this contradiction has resulted Do you believe level of interest rates and the present recession. this is an accurate assessment? there between What differences in effect on the economy are by taxing? removing money from the economy by borrowing, and ated that A recent article in the National Journal indic and 1981 some economists have tracked money growth in 1980 expressed wishes according to the political calendar and the October, 1981, of executive branch officials. For example, in d too tightly Secretary Regan's statement that the Fed had "hel to a time when on the monetary reigns" and that "We are coming r growth of a change has to be made" preceded the much large reaction to money in the last weeks of 1981. What is your these charges? On July 1 this year, the second and larger cut in personal income tax rates goes into effect. Since the beginning of the Reagan Administration and throughout the debate over tax cuts last year and the testimony of Administration witnesses this year, the idea has been that these tax cuts would increase the pool of savings. How can Americans save more if your target for their savings accounts is the same as the rate of growth in M2 prior to the tax cuts? Lately you have indicated that you intend to keep to the high side of your 2.5% to 5.5% target range for Ml. Can we expect that you will keep M1 above 5% for the rest of this year?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ..  . HATFIELD TO VOLCKER  - 3 -  Under your monetary policies, it is rational for everyone ook to minimize their holdings of cash, demand deposits and passb savings and maximize their use of money market funds and small denomination time deposits at market rates. The record shows and that people are being rational. Between September 1979 ned December 1981, currency and checkable deposits (M1) have decli as a percentage of M2 from 25.4% to 24.0%. Passbook savings and accounts have declined absolutely by $110 billion dollars, t as a percentage of M2 from 29.6% to 18.2%. Meanwhile money marke on funds have grown by $150 billion dollars and small denominati e time deposits have grown by $234 billion dollars. Thus, peopl are getting market interest rate returns for more of their idle funds. Aside from changes in interest rates, this reallocation of assets from non-yielding or low yielding accounts to high yielding accounts is estimated to have increased the overall return on all of M2 by at least 1%. My question is this: Doesn't this shift in the composition of M2 mean that M2 is est automatically growing faster now due to higher payments of inter on this different allocation of deposits? (Follow-up if "yes" to above question): Therefore, doesn't a target of 9% now actually provide less room for new savings deposits than a target of 9% did in 1979?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -I  .  QUESTIONS SUBMITTED BY SENATOR JOHN C. STENNIS TO PAUL VOLCKER I have heard that if our money supply were increased at a higher rate than we have in the past year, that interest rates would fall and that there would not be a significant increase in inflation if we were careful to increase the money supply gradually. I would very much like to hear your comments on this. Mr. Volcker, in your estimation how much of a reduction in the deficit this year and future years will be required to bring down long-term interest rates to a level which would permit economic recovery?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 23, 1932  The Honorable Jake Garn Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. 20510 Dear Chairman Garn: In response to your letter of March 9, I am pleased to enclose responses to the questions submitted by Senators Heinz and Riegle in connection with the hearing before your Committee on February 11. Please let me know if I can be of further assistance. Sincerely, t'aul A. IlitcJcp4  Enclosures cc:  Senators Heinz and Riegle  CO:vcd (#V-63) bcc:  Mr. Kichline Mr. Kohn Mr. Gemmill Mrs. Mallardi (2)  #  NI  Chairman Volcker subsequently submitted the following responses to questions from Senator Heinz in connection with the hearing held before the Senate Banking Committee on February 11, 1982:  Question No. 1: Have wire transfer and money market funds expanded the marketing of U.S. savings to foreign customers?  Answer:  of deposits at foreign branches of U.S. banks, mostly in the form of negotiable Eurodollar certificates of deposit.  Foreign  branches have used funds raised from these deposits to help finance their overall banking operations.  Such deposits have  been increasingly important sources of funds to foreign branches over the past few years--in part substituting for financing obtained from U.S. offices.  In 1981, net financing by U.S.  banks of their foreign branches was reduced by about $5 billion, and in addition the branches extended credits amounting to almost $10 billion to nonbank customers in the United States.  As the  question implies, the development of wire transfer facilities has improved the ability of money market funds to offer attractive services.  Question No. 2: Is the demand for U.S. savings asserted from abroad affecting availability of funds and the interest rates in the United States? Question No. 7: Does foreign demand for U.S. savings have an impact on U.S. residential mortgage rates to the extent that foreign demand for U.S. savings drives up mortgage rates in the U.S.?  Answer:  U.S. international transactions on merchandise  trade and services (the current account) have been roughly in   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  r  U.S. money market funds hold about $22 billion  2-  _  balance in the past three years, indicating a near balance in the capital account on a net basis.  Within this net balance  there have been sizable increases in U.S. private assets abroad (capital outflow) and in foreign assets in the United States (capital inflow).  The latter includes a new inflow on unidenti-  fied transactions, which may in part represent foreign credits to U.S. residents that are not recorded in our statistics. This net balance on capital account is the most appropriate statistical measure of the extent to which the United States is a net exporter or importer of savings.  As  noted above, the United States has not been investing substantial amounts abroad on a net basis in the past three years, and in 1977 and 1978, the United States had deficits on current account, which were financed through net foreign investment in this country. More generally, net capital flows to or from abroad (less than $10 billion annually in recent years) are relatively small compared to total U.S. credit flows ($400 billion in 1981), and net foreign demand for funds would not be expected to have a significant effect on interest rates or overall availability of credit in the United States.  Thus, foreign demand does  not appear to be a significant factor affecting U.S. mortgage rates.  Question No. 8: Does this adversely affect the economic recovery in the U.S. and the flow of revenue to the Treasury?  Answer:  Economic recovery would be assisted by an  increase in U.S. exports and an improvement in our current   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  . N  z  -3-  account position, and recovery would contribute to U.S. Treasury revenues.  However, the outlook is for rising U.S. current  account deficit.  As noted in the answer to questions 2 ans 7,  this deficit would be associated with a rise in the flow of net foreign investment into the United States.  Question No. 3: Are foreign governments borrowing directly in the U.S. through the issuance of bonds and notes? Are these bonds and notes being purchased by tax free pension funds?  Answer:  Yes, foreign governments borrow directly  in U.S. capital markets, as they have for many years.  In 1981  bonds issued by foreign governments and businesses together represented less than 3 percent of total long term borrowing in the U.S. market in that year.  Available information shows  small holdings of foreign government securities by pension funds.  Question No. 4: Are foreign banks and businesses borrowing directly in the U.S. and is their debt being sold to pension funds?  Answer:  Foreign banks and businesses (including  government-owned businesses) do borrow in the United States through issuance of bonds and notes and of commercial paper. Foreign borrowing in the form of commercial paper has been growing, but it is still less than 10 percent of the total amount of commercial paper issued in the United States. Present information suggests that pension funds are not active purchasers of such short-term debt instruments.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Question No. 5: Are U.S. and foreign branches of Money Center Banks using certificates of deposits sold to money market funds as a source of funds for foreign loans?  Answer:  Money market mutual funds currently hold  about $45 billion in domestic CDs and approximately $22 billion in Eurodollar CDs.  Since banks raise funds from a variety of  sources and make loans to a wide range of customers, it is not possible to trace the specific uses of a particular source of funds to the banks.  However, the following data can help put  these figures in perspective. As of September 1981, U.S. chartered banks held about $400 billion in total claims on foreigners, mainly in the form of loans and credits extended by their foreign branches.  This  is an amount six times as large as their sales of domestic office and Eurodollar CDs to money market mutual funds.  Most  of the funding for these foreign loans has come from foreign deposits and interbank borrowings from foreign banks.  Question No. 6: Is the consumer of shelter in the U.S. now competing in an international money market for the use of U.S. savings?  Answer:  Over the last several years participation  by U.S. residents in international financial markets has grown, and U.S. and international money markets have become more closely integrated.  The closer integration of these markets has meant  that all users of funds, including those who seek new mortgages, now compete for funds more actively than before.  The more  significant effect on the cost and availability of mortgage   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  z  -5-  credit in the U.S., however, has come from the effects of inflation on interest rates, especially long-term rates, and the greater competition and deregulation in our domestic financial system.  Question No. 9: Are foreign governments transferring their deficits and the expenses of their social programs to the U.S. economy by borrowing in the U.S. capital market and by borrowing from foreign branches of banks dollars raised in the U.S.?  Answer:  Foreign governments finance budget deficits  through borrowings in both domestic and foreign markets. Generally, the amount of governmental borrowing undertaken in external markets is related to the external position of the country in question.  A country with a large deficit on current  account (perhaps attributable in part to sizable purchases of oil) will have to borrow abroad net in order to finance the current account deficit if it is to avoid drawing on its international reserves; some of the external borrowing may be private and some may be governmental. Foreign governments borrowed $10 billion in 1981 from U.S. banking offices compared with $7 billion in 1980. (Their total borrowing from foreign branches in the two years combined was about $1 billion.)  These figures are small in  relation to the aggregate budget deficits of the borrowing countries, and also small in relation to the total external borrowings of these countries.  Foreign governments have also  borrowed relatively small amounts in U.S. capital markets.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -6  -  Net U.S. investment abroad in 1980 and 1981 increased by less than the above-cited figures on foreign government borrowings, reflecting net capital inflows on other transactions.  .   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Or   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Chairman Volcker subsequently submitted the following responses to questions from Senator Riegle in connection with the hearing he'd before the Senate Banking Committee on February 11, 1982:  Question No. 1: Mr. Chairman, you are quoted in this morning's Wall Street Journal as desiring to continue "a steady trend of diminution" in growth of the money supply in order to reduce inflation. If this is your long term objective wouldn't it be desirable to have a 3-year target for money growth rather than a 1-year target? Wouldn't that create greater stability--if your long run goals were numerically explicit?  Answer:  As you noted, I believe that money growth  must moderate over a period of time in order to achieve a lasting reduction in inflation.  However, I do not think that  it would be wise for the Federal Reserve to establish or announce numerical goals it would pursue for several years into the future to achieve this goal.  Within the context of a basic  policy to slow money growth, the Federal Reserve needs to maintain flexibility in setting each year's targets for monetary expansion so that it can adjust for developments in the economy and financial markets.  For example, innovation in financial  instruments and practices in our economy, that is, in the way people choose to hold their money, makes it difficult to formulate monetary targets over extended periods that can be relied on confidently to achieve their intended effects.  If multi-  year targets were established, inevitably it would be necessary to revise them if financial practices evolved (in response to changing incentives or regulations), a process that could confuse the public about the basic thrust of monetary policy.  Question No. 2: What would be the practical and economic consequences of following the type of stable money growth policy-week-to-week--desired by Mr. Regan and Mr. Sprinkel? Would interest rates behave differently? Would real economic activity be affected?  Answer:  Efforts to achieve stable week-to-week or  even month-to-month expansion in money growth would in my view give rise to even more sizable short-term swings in interest rates than we are now experiencing.  The Federal Reserve recognizes  that money stock growth has been volatile over short periods, and we are constantly reviewing suggestions for changes in our techniques or regulations that would help improve our control over money.  For each suggestion, we weigh the gains from the  potential for greater stability of short-run money growth against the possible drawbacks to financial markets or the economy. The weekly money stock numbers are a highly erratic series, subject to substantial revision, heavily influenced by uncertain adjustment for seasonal patterns, and influenced by a variety of short-term factors, including shifts in demand for money, that often are subsequently reversed.  To force this series  to follow a rigid path might necessitate wrenching adjustments in financial markets to counteract inherently short-term fluctuations.  Moreover, movements in money generally must  persist for some period of time to have a lasting effect on economic activity or inflation, so there would seem to be little to be gained in terms of improved performance of the economy from strict adherence to a fixed weekly or monthly path for money.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  3-  Question No. 3: It is my understanding that you have a choice of controlling money growth or short term interest rates, and that prior to October 1979 you paid more attention to interest rate stability. Have your new procedures helped to stabilize overall economic performance? What effects have they had on the real--as opposed to the financial economy?  Answer:  October 1979 did not mark a change in the  targets the Federal Reserve was trying to achieve; both before and after that date we were trying to meet our nation's economic goals by attaining growth rates for the monetary aggregates within specified target ranges.  Prior to October 1979, however,  we were attempting to attain our money stock targets by manipulating short-term interest rates; since then we have put primary emphasis on changes in the volume of bank reserves to achieve our money stock objectives.  The former method did tend  to be associated with fairly smooth patterns of short-run movements in money market interest rates, but it also tended to produce growth in money and credit that sometimes deviated appreciably from Federal Reserve intentions.  The new technique  increases the probability that the Federal Reserve will achieve its money growth objectives, but at some cost in greater shortrun volatility of interest rates. The effects of the Federal Reserve's new operating procedures on aggregate economic activity are difficult to assess.  Many other factors have also had an important impact  on activity in the last two years, and it is not possible to separate the effects of one or another of these influences. By speeding the response of interest rates to changing conditions in the economy the new procedures should help to damp fluctuations   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  _  4-  in economic activity--allowing rates to decline more rapidly when conditions weaken and to pick up faster as the economy expands.  The new procedures have contributed to the welcome  slowing in inflation we have experienced in recent months because they have enhanced the Federal Reserve's ability to achieve desired money growth.  Further moderation in cost and  price pressures will be necessary to establish the noninflationary environment that is a precondition for sustained growth in economic activity.  By making progress toward this  goal more likely, the new techniques contribute to enhancing our prospects for sustained growth in incomes and living standards.  %   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -5-  Question No. 4: Mr. Chairman, monetary policy has had rather severe effects on housing and autos and the types of products that are complementary to them. Manufacturing capacity is now at 73 percent. Unemployment is at 8.5 percent. We have some evidence that from July to December of last year while the number of jobs in goods-producing industries declined, the number in service industries actually increased. A pattern similar to this--decreasing jobs in goods and increasing jobs in services--occurred during each of the previous three recessions. Does your analysis of the intended effects of monetary policy on the economy--your judgment or your models--take into account the structural shift in the economy from manufacturing to services? Does tight monetary policy have the same effects on goods production as on service production?  Answer:  In analyzing the effects of monetary policy  on the economy, the Federal Reserve pays close attention to the varying responses of different sectors of the economy.  As you  noted, goods-producing industries have experienced much wider swings in activity than service industries through recent business cycles--expanding more rapidly in upswings and contracting more severely in recessions.  In the case of recessions, for example,  when consumers experience sluggish income growth, they postpone purchases of many goods to the extent they can continue to use previously purchased items; consumption of most services generally cannot be so readily put off.  Second, houses and  durable goods are more often purchased on credit than are services, so that the rise in interest rates that often occurs as inflation accelerates in the late stages of a business cycle tends to discourage subsequent sales of these goods relative to services.  Because of their sensitivity to interest rate  -6  -  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  movements, goods-producing industries have been especially affected in recent years by the over-reliance on monetary policy to curb inflationary pressures.  A more balanced policy mix  that included a less expansionary budget posture would help moderate interest rate pressures and permit the burden of reducing inflation to be borne more equitably by different sectors of the economy.  .  -7-  Question No. 5: Why are interest rates so much higher now than they were in 1975-76 when the deficit as a percentage of GNP was about the same?  Answer:  One important difference between 1975-76  and the current situation is the outlook for federal government borrowing in the foreseeable future.  Although the deficits  in the earlier periods were very high, there was every expectation that they would decline substantially as the economy resumed expansion.  In contrast, today many are predicting  even higher budget deficits for coming years even on the assumption of a resumption in economic growth.  Concern that massive  federal government borrowing will continue even as private credit demands once again begin to climb as a result of economic recovery has contributed significantly to the current elevated level of interest rates, especially long-term rates. A second difference is in investor attitudes towards future inflation.  Currently, investors have not yet been con-  vinced that we have made lasting progress against inflation-that a reemergence of price pressures will not occur in association with renewed economic growth.  This skepticism  was not as evident in the mid-1970s, and stems I believe largely from past developments when gains against inflation were subsequently reversed, and the pace of price increases rose to new heights.  Because of this experience, savers and  borrowers apparently do not believe that the government will carry through on its anti-inflation policies.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Lasting declines  .  .   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -8-  in interest rates therefore seem to require that we demonstrate our intention to persist on our policy course.  In this context,  a more responsible budget policy would help to reduce rates both by directly reducing actual and prospective credit demands and also by demonstrating that all facets of economic policy were working towards the same goals.  Action assigned Mr. Kichline 4.  JAKE DARN. UTAH. CHAIRMAN  JOHN TOWER, TEX. JOHN HEINZ, pA. • WILLIAM L. ARMSTRONG, COLO. RICHARD G. LUGAR, IND. ALFONSE M. D•AMATO, N.Y. JOHN H. CHAFEE. R.I. HARRISON SC-HMITT, N. MEX.  HARRISON A. WILLIAMS, JR.. NJ. WILLIAM PROXMIRE. WIS. ALANCRANSTON,CALM DONALD W. RIEGLE, JR., MICH. PAUL S. SARBANES, MD. CHRISTOPHER J. DODD, CONN. ALAN J. DIXON, ILL.  M. DANNY WALL, tSTAFF DIRECTOR HOWARD A. MENELL, MINORITY STAFF DIRECTOR AHD COUNSEL  11Cilifeb Zfalez „Senate COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS WASHINGTON, D.C. 20510  BOARD OF OF GOVERNORS TUE FEDERAL RESERVE SYS TE MU MAR I 1  RECEIVED OFFICE OF THE CHAIRMAN  March 9, 1982  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System 20th & Constitution Avenue, N.W. Washington, D.C. 20551 Dear Chairman Volcker: Subsequent to your appearance before the Senate Banking Committee last month presenting the Federal Reserve's current plans for the conduct of monetary policy during 1982, Senators Heinz and Riegle submitted the enclosed questions for you to answer for the record. Would you please submit your responses to these questions to the Committee at your earliest convenience so that they may be included in the official transcript of the hearing.  Sincerely  Jake Garn Chairman JG:lsp Enclosures   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ny 8: 52  • '  QUESTIONS FOR CHAIRMAN PAUL VOLCKER SENATOR HEINZ 1.  Have wire transfer and money market funds expanded the marketing of U.S. savings to foreign customers?  2.  Is the demand for U.S. savings asserted from abroad affecting the availability of funds and the interest rates in the United States?  3.  Are foreign governments borrowing directly in the U.S. through the issuance of bonds and notes? Are these bonds and notes being purchased by tax free pension funds?  4.  Are foreign banks and businesses borrowing directly in the U.S. and is their debt being sold to pension funds?  5.  Are U.S. and foreign branches of Money Center Banks using certificates of deposits sold to money market funds as a source of funds for foreign loans?  6.  Is the consumer of shelter in the U.S. now competing in an international money market for the use of U.S. savings?  7.  Does foreign demand for U.S. savings have an impact on U.S. residential mortgage rates to the extent that foreign demand for U.S. savings drives up mortgage rates in the U.S.?  8.  Does this adversely affect the economic recovery in the U.S. and the flow of revenue to the Treasury?  9.  Are foreign governments transferring their deficits and the expenses of their social programs to the U.S. economy by borrowing in the U.S. capital market and by borrowing from foreign branches of banks dollars raised in the U.S.?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  QUESTIONS FOR THE RECORD SENATOR DONALD W. RIEGLE  1.  Mr. Chairman, you are quoted in this morning's Wall Street Journal as desiring to continue "a steady trend of diminution" in the growth of the money supply in order to reduce inflation. If this is your long term objective wouldn't it be desirable to have a 3-year target for money growth rather than a 1-year target?  Wouldn't that create greater stability -- if your long run goals were numerically explicit?  2.  What would be the practical and economic consequences of following the type of stable money growth policy -- week-to-week -- desired by Mr. Regan and Mr. Sprinkel? behave differently?  3.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Would interest rates  Would real economic activity be affected?  It is my understanding that you have a choice of controlling money growth or short term interest rates, and that prior to October 1979 you paid more attention to interest rate stability. Have your new procedures helped to stabilize overall economic performance?  What effects have they had on the real -- as  opposed to the financial economy?  - 2  4.  aim  Mr. Chairman, monetary policy has had rather severe, effects on housing and autos and the types of products that are complementary to them. percent.  Manufacturing capacity is now at 73  Unemployment is at 8.5 percent.  We have some  evidence that from July to December of last year while the number of jobs in goods-producing industries declined, the number in service industries actually increased.  A pattern  similar to this -- decreasing jobs in goods and increasing jobs in services -- occurred during each of the previous three recessions. Does your analysis of the intended effects of monetary policy on the economy -- your judgment or your models -- take into account the structural shift in the economy from manufacturing to services?  Does tight monetary policy have the same effects  on goods production as on service production? •••  5.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Why are interest rates so much higher now than they were in 1975-76 when the deficit as a percentage of GNP was about the same?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  April 5, 1982  PAUL A. VOLCKER CHMRMAN  The Honorable Norman F. Lent House of Representatives Washington, D. C. 20515 Dear Mr. Lent: the invitation of Thank you for your letter endorsing a luncheon on Long Island Commissioner Cacciatore to speak at next June 23. condition of my Unfortunately because of the crowded regrets to the Commissioner's calendar, I have been forced to send its endeavor to promote invitation. I wish the county well in Island. stable business conditions on Long With best regards. Sincerely,  bcc:  Mrs. Mallardi  # qi  COPY JRC:tjf  ..0 *0 • f GOvii. . ,,,:4. 1-1 % •. co . •0 :. •;•,,\ : .,..,.:`''_'-e4.1,:ii, • .4 ':..,&1111r100: %le' ,. L!1 "-- /,-.-7'.* ..<,,.0 ‘.. 4,z- ; cz,..4.‘,..  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20SSI  • April 1, 1982  ' •fRAL iti•S ' "• • ••• • • •  PAUL A. VOLCKER CHAIRMAN  The Honorable Richard G. Lugar Chairman Subcommittee on Housing and Urban Affairs Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Lugar: I am pleased to take this opportunity to clarify my position on S. 2226, your housing stimulus bill. It was not my purpose, or the position expressed in my letter, to either oppose or support your bill. Indeed, we in the Federal Reserve generally regard measures affecting the subsidization of particular forms of credit as political decisions to be taken by the Administration and the Congress. My letter did express judgments on particular questions asked by Senator Proxmire. I noted the program would have the likely effect--in the context of a federal budget deficit already preempting a large share of our savings--of adding further to the total demand for credit, and other things equal, to the general strain in financial markets. Presumably, a large share of credit would move toward the subsidized activities, but at the expense of diverting some credit (not necessarily an identical amount) from others. Proposals analogous to yours, regarding other industries or sectors of the economy, would in principle have similar effects, with credit market strains becoming even more intense in the non-subsidized areas. I have repeatedly expressed the view that substantial action by the Congress and the Administration to reduce prospective budget deficits and the total of Federal demands on credit demands would have a salutary impact on financial markets generally and greatly facilitate interest rates coming down on a sustainable basis. Thus, action on the deficit itself would be a very favorable step in support of your bill's goal of stimulating housing, and I believe your proposal should be viewed in that context. Si cerely,  NS:PAv:pjt (#V-86) bcc: Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  he,e,/gdeiw‘_ wringmpron-pirmwomorrw—nr  se~... •  .10.4•1  RICHARD G. LUGAF/ IND cmAtotmAN HARRISON A WILLIAMS, JR N..; JAKE GARN, UTAH WILLIAM PROYM'RE ''•AN TOWER, TEX. ALAN CRANS"-ON C.ALIF JOHN HEINZ, PA. PAUL S. SARBANES, MD. WILLIAM L. ARMSTFtONG, COLO. DONALD W. RIEGLE, JR.. MICH. ALFONSE M. OAMATO, N.Y.  'Ziertiteb Zfates ,-Sertate  PETER B. HARKINS, STAFF DIRECTOR ALBERT C. EISENBERG, MINORITY STAFF DIRECTOR  SUBCOM MITTEE ON HOUSING AND URBAN AFFAIRS WASHINGTON.  D.C. 20510  March 31, 1982  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D. C. 20551 Dear Mr. Chairman: There has been some confusion regarding the intent of your March 17 letter to Senator William Proxmire which responds to a question put to you by Senator Proxmire on the monetary policy impact of my housing stimulus bill, S. 2226. It has apparently been assumed that you oppose the bill even though I don't draw that conclusion myself. My interpretation of the letter indicates that in the absence of some strong reason to change monetary policy, you do not believe the credit markets could not accommodate the impact of the mortgages generated by my bill without displacing activity elsewhere in the markets. If, in fact, you intended to take a policy position, I would appreciate your clarification of that position. Thank you for your help.  Sincerely,  Richard G.  RGL:phn   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  J. WILLIAM STANTON iiTH  DISTRICT OFFICES:  DISTRICT, OHIO  170 NoRTH ST. CLAIR STREET PAINESVILLE, OHIO 44077 PHONE AREA CODE 216,352-6167  2466 RAYBURN BUILDING •  WASHINGTON, D.C. 20515 PHONE: AREA CoDE 202, 225-5306  Congre55 of the tiniteb  COMMITTEE ON BANKING, FINANCE AND  tate5  Pou5Se of ikepretentatibui  URBAN AFFAIRS COMMITTEE ON SMALL BUSINESS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  MANTUA POST OFFICF. 10748 NORTH MAIN STREET M ANTUA, OHIO 44255 PHONE. AREA CoDE 216. 274-8444  Magbington,ae. 20515 April 1, 1982  Honorable Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System Washington, D. C. 20551 Dear Mr. Chairman: Congressman Stanton asked me to notify several people of whom he is particularly fond with regard to the message contained in the enclosed press release. It is my personal opinion, along with his and Peggy's, that chances for full recovery are excellent by early summer. Sincerely,  Shirlee McGloon Administrative Assistant co  Enclosure  =,  rn cp  CD M 7'0  CO  r•  r-  T/ryl  • I •,-1 Cr )  rrt<  ;4.5 <  rrl  CD  XI CJ1 Cfl  f.e) I•  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: News release Citations:  Number of Pages Removed: 1  Representative J. William Stanton. Press release, April 2, 1982.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  EVO)11`.> GOV OF BO ARO OF A VIC. '51 T.V g.SEIV E. EOER  V18/1026 t\tA 0 REalvE0-10;14 OFFICE Or  Congrez5 of the Matti &tato vouot of Repreoentatibto  VIE   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  taattington,33.e. 20515  March 26, 1982  The Honorable Paul Volcker Chairman Board of Governors Federal Reserve Board Washington, D.C. 20551 Dear Mr. Volcker: Thank you for accepting our invitation to speak at Business/Professional Day in Washington on March 31st from 10:45 a.m. to 11:30 a.m. in Room 345 Cannon House Office Building. Your participation in Business/Professional Day will surely contribute to a most informative and enlightening program for our participants. Enclosed, please find a copy of the program for your files. If you should have any questions, please feel free to contact either of us. Again, thank you for accepting our invitation. We both are looking forward to seeing you on Wednesday. Sincerely,  Jim D Membe of Congress Sixth Michigan District  Enclosure  chael G. Oxley Member of Congress Fourth Ohio District