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CONGRESSIONAL Sept. 24 through Oct. 31, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 411.110=00.10 Collection: Paul A. Volcker Papers Call Number: MC279 Box 12 Preferred Citation: Congressional Correspondence, September 24-October 31, 1982; Paul A. Volcker Papers, Box 12; Public Policy Papers, Department of Rare Books and Special Collections, Princeton University Library Find it online: http://findingaids.princeton.edu/collections/MC279/c456 and https://fraser.stlouisfed.org/archival/5297 The digitization ofthis collection was made possible by the Federal Reserve Bank of St. Louis. From the collections of the Seeley G. Mudd Manuscript Lthrary, 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) firstname.lastname@example.org https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Congressional Spet. 24-Oct. 31, 1982 ..•••ofGovi'•. fr. •40 •o • BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM H- • • c..0" RAL RE.••• WASHINGTON,•D. C. 20551 October 28, 1982 PAUL A. VOLCKER CHAIRMAN The Honorable William V. Roth, Jr. Chairman Committee on Governmental Affairs United States Senate 20510 Washington, D.C. Dear Chairman Roth: Pursuant to Section 236 of the Legislative Reorganization Act of 1970, the Board of Governors of the Federal Reserve System submits this statement on recommendations contained in the September 2, 1982, Report of the General Accounting Office ("GAO") entitled, "Bank Examination for Country Risk and International Lending." The Board's general comments on the report are set forth in its letter to the GAO of June 30, 1982. As noted in that letter, the Board appreciates the effort devoted by the GAO to analyze the country risk examination system and will utilize the report in conducting its own ongoing review of this relatively new system. The Board's comments on specific recommendations made by the GAO in the digest of the final report are addressed below. One recommendation is that the objectives of special comments be more clearly communicated to bankers. The Board's views concerning the function •of special comments are set forth in the second •paragraph of its letter of June 30, 1982. These views have been communicated to bankers at various times by Federal Reserve •staff and during examinations, when there is discussion between examiners and bank managements concerning the country risk exposures in the banks and the procedures used to manage those risks. However, we do not now have a document describing the country risk examination system and its objectives. The Board has instructed its staff to consult with the other agencies with a view toward developing written material that explains the procedures and objectives of the country risk examination system. The GAO makes specific recommendations toh yeu ss ct ed t eo e tedi u dC ebu n ct Mfi t wsni ppn toe he sC u teaidbaeR e t ors urp esi vatlsilti twpai e ao. f eaup ptbGaiyAHnrOgoi a ntteh eo an cons n y un d mereomr rev i stu dies rovdrc sltshuesredae. will be nrvcatEoxrriypecn eos id er tha art https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis fill =Mk % The Honorable William V. Roth, Jr. Page Two the information that GAO recommends to be included in the studies is already provided to the Committee through oral presentations by Treasury Department staff and by bank examiners that have discussed country developments with bank managements. There are several recommendations on improving the presentation of country risk information in a bank's examination report. The Federal Reserve is currently reviewing its instructions to examiners to increase the effectiveness of country risk presentations in the examination report. The final GAO recommendation is that "examiners routinely follow-up on all outstanding recommendation/criticisms with notations in subsequent examination reports." Examiners are instructed to follow-up on all recommendations made at the previous examination. However, only those deficiencies that have not been corrected are noted a second time. This is a policy applicable to bank examination in general, not just to country risk. While this procedure produces a somewhat different audit trail from that recommended by the GAO, it is complete and it saves examiner time and agency money. No change in this procedure is contemplated. Sincerely, MGM:NS:pjt bcc: Mike Martinson Mrs. Mallardi (2) Identical letter also sent to Chairman Brooks. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis BOARD 4r ' OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 October 26, 1982 PAUL A. VOLCKER CHAIRMAN The Honorable Bill Alexander House of Representatives 20515 Washington, D.C. Dear Mr. Alexander: Thank you for letting me know about the concerns of Mr. John Logan of Blytheville, Arkansas regarding Regulation Z (Truth in Lending). Mr. Logan believes that Regulation Z is too complex, particularly the requirements for calculating the annual percentage rate. In support he enclosed two pages from Appendix J to Regulation Z containing equations and related material. In delegating rulemaking authority to the Board, Congress directed us to prescribe rules for calculating the annual percentage rate. Appendix J contains the formulas for determining the annual percentage rate, which provides a standard measure for the cost of a credit transaction for use by consumers in comparing various credit sources. Mr. Logan is right--Appendix J is indeed quite technical and his response to it is readily understandable. However, the appendix is not I esigned for use directly by creditors in their day-to-day operations. Rather, it is used extensively by commercial manufacturers of calculation tools such as charts, tables and calculators, which are in turn used by the great majority of creditors. In other words, it is one part of the regulation that Mr. Logan probably won't have to be concerned about. Fortunately, those two pages are not representative of the overall content of Regulation Z, as you can see from the enclosed pamphlet. The regulation has been revised to implement the Congress' 1980 legislation to simplify Truth in Lending. Every effort was made to ensure that it would be easier to use and understand. The Official Staff Commentary on Regulation Z is a new feature that was added to the regulatory framework to provide further guidance to creditors on compliance. A copy of the commentary is enclosed, along with the regulation, for your information. Admittedly, Regulation Z is still a document that requires considerable study in order to understand its requirements; this is regrettably an inherent aspect of regulation. The Board, however, does offer the personal assistance of its staff when creditors have specific questions about the regulation's requirements. The staff does not have a toll-free number on which they can be reached, but they are https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Bill Alexander Page Two I. happy to respond to written or oral inquiries. Written inquiries should be directed to the Division of Consumer and Community Affairs, Federal Reserve Board, Washington, D.C. 20551. The staff may be reached by phone at (202) 452-3867 or (202) 452-2412. I hope this information is useful. if I can be of further assistance. Please let me know Sincerely, Enclosures S/Paul A. Volcker RS:CO:AFC:pjt (#V-234) bcc: Ms. Silver Mrs. Mallardi (2) ••• am mamma. • https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis L Action assigned Mr. Garwood t 201 CANNON HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 (202) 225-4076 BILL ALEXANDER, M.C. ARKANSAS CHIEF DEPUTY MAJORITY WHIP GArmip4os BUILDING. ROOM 211-A 615 ScArrN MAIN JONESBORO, ARKANSAS 72401 (501) 972-4600 COMMITTEE ON APPROPRIATIONS https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Congre55 of the Unita' 'tate. FEDERAL BUILDING, Room n2 BATESVILLE, ARKANSAS 72501 (501) 698-1761 September 28, 1982 L.42 '71 (') , • CD _— Mr. Paul A. Volcker Chairman Federal Reserve System 20th St. & Constitution Ave., N.W. Washington, D.C. 20551 Dear Mr. Chairman: Enclosed please find a letter from a constituent of mine expressing his confusion over the attached pages from the Regulation Z, Truth-in-lending book. Frankly, I must admit the two particular pages enclosed are confusing. Is there an instruction booklet or a toll-free number users may call for assistance. I would appreciate any help your staff might offer me on this matter. With kindest regards, I am Sincerely, BILL ALEXANDER Member of Congress BA/mjt Enclosure -I l'ot 7.:• "X+ rl' .1 L n , 201 CA•dp•oft House' Orrocr 8LH L.:31w. INASNiNGTON. D C. 20515 (202) 225-4076 BILL ALEXANDER. M.C. ARK ANSAS i'-1-11EF DEPUTY MAJORITY WHIP GATNINGI BUILDING Ft00.0 211-A 615 Sim MAIN JONESSORO. ARKANSAS 72401 (501) 972-4600 COMMITTEE ON APPROPRIATIONS https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Congt55 of tbr Einittb tatt5 FEDERAL Butuptma Room 202 ARKANSAS 72501 (501) 698-1761 BATESVILLE. September 28, 1982 Mr. John W. Logan President Logan Real Estate P.O. Box 551 Blytheville, AR 72315 Dear Mr. Logan: Thank you for your recent letter and the attached pages from the Regulation Z, Truth-in-lending book. I agree with you, it's all greek to me. I have written the Federal Reserve System asking whether there is an accompanying booklet of instructions or a toll-free number users might call for assistance. I will be back in touch when I receive a reply. With kindest regards, I am Sincerely, BILL ALEXANDER Member of Congress BA/mjt • , •1:)!.E (501)762-2033 LOGAN REAL ESTATE 520 Ctii:kasawna Avenue LOCANBUIDNO PostOffi:elBoxE61 BLATHEVILLE. ARKANSAS 72315 September 24, 1982 Representative Bill Alexander 201 Cannon House Office Bldg. Washington, D. C. 20510 Dear Congressman Alexander: I am enclosing a copy of paoes 60 and 61 of Regulation Z Truth-in-Lending book printed by the Federal Reserve System. The total booklet consists of 88 pages of similar gobbledygook. I am sure that the Federal Government in its infinite wisdom had good reason for protecting the consumer but for the life of me, I cannot understand this regulation and I doubt if anyone in your office or the consumer can understand it either. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis I know there is a need for federal regulations in many businesses including financial lending institutions but I think there should be some reason used when these regulations are drawn up. I challenge you to look over these two pages and after your examination, I would ask you to contact the proper department and ask them to simplify the instructions so that people other than Math majors and PHD's can figure them out. cerely J hn W. Log JWL/drb Enc. President https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ApperidA J Unit period 6 months. Unit periods per year (w) = 2. Advance, 7-15-78. Payment, 1-15-79 From 7-15-78 through 1-15-79 = 0 mos. (t = I; f = 0) Annual percentage rate (1) = wt = .0880 = 8.80%.(Use form 1 or 4.) Example (iii): Single-advance, single-payment (term of more than one year but less than two years, fraction measured in exact months) Amount advanced (A) = $1000. Payment (P) = $1135.19. Unit period = 1 year. Unit periods per year (w) = I. Advance, 7-17-78. Payment, 1-17-80. From 1-17-79 through 1-17-80 = 1 unit period. (t = 1) From 7-17-78 through 1-17-79 = 6 mos. (f = 6/12) Annual percentage rate (I) = wi = .0876 = 8.76%.(Use form 2 or 4.) Regulation Z i j p.-. It is to be repaid by 24 payments of $100 each. Payments are due every four weeks beginninf 2-20-78. However, in those months in which two payments would be due, only the first of „ the two payments is made and the following payment is delayed by two weeks to place it in the next month. Unit period = 4 weeks. Unit periods per year (w) = 52/4 = 13. First series-of payments begins 26 days after 1-25-78. (t 1 = 0; f1 = 26/28) Second series of payments begins nine unit periods plus two weeks after start of first series. (t2 = 10; f2 = 12/28) Third series of payments begins six unit periods plus two weeks after start of second series. (t3 = 16; f3 = 26/28) Last series of payments begins six unit periods plus two weeks after start of third series. (t4 = 23; f4 = 12/28) The general equation in paragraph (b)(8) of this section can be written in the special form: Regulation Z Appendix J each beginning 9-15-78, plus a single payment of $2000 on 3-15-79, plus three more monthly payments of $750 each beginning 9-15-79, plus a final payment of $1000 on 2-1-80. Unit period = 1 month. Unit periods per year (w) 12. First series of payments begins six unit periods plus 12 days after 3-3-78. (t1 = 6; f1 = 12/30) Second series of payments (single payment) occurs 12 unit periods plus 12 days after 3-3-78. (t2 = 12; f2 = 12/ 30) Third series of payments begins 18 unit periods plus 12 days after 3-3-78. = 18; f3 = 12/30) Final payment occurs 22 unit periods plus 29 days after 3-3-78. (t4 = 22; f4 = 29/30) The general equation in paragraph (b)(8) of this section can be written in the special form: 1000 a 7350 = (1+(12/30)00+06 + Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Monthly payment Year Monthly payment 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 $383.67 383.13 382.54 381.90 381.20 380.43 379.60 378.68 377.69 376.60 375.42 374.13 372.72 371.18 369.50 $291.81 300.18 308.78 317.61 326.65 335.92 345.42 355.15' 365.12 375.33 385.76 385.42 385.03 384.62 384.17 Unit period = 1 month. Unit periods per year (w) = 12. From 5-1-78 through 6-1-78 = 1 unit period. (t = 1) From 4-10-78 through 5-1-78 = 21 days. (f= 21/30) 2135= 11+(26/28)i) Example (iv): Single-advance, single-payment (term of exactly two years) Amount advanced (A) = $1000. Payment (P) = S1240. Unit period = 1 year. Unit periods per year (w) = I. Advance, 1-3-78. Payment, 1-3-80. From 1-3-78 through 1-3-79 = 1 unit period. (t = 2; f 0) Annual percentage rate (1) = wi = .1136 = 11.36%. (Use form 3 or 4.) 2000 (1+(12/30)0(1+012+ wo (1+(12/28)1)(1+016 + The general equation in paragraph (b)(8) of this section can be written in the special form: 750 (1+(12/30)0(1+0 18 + 100 a 61 (I Th(26/28)0(1+0" + 1000 (1+(29/30)i)(1-1-022 39,688.56 = [291.81 a 1°° n (1+(12/28)i)(1+i)2i (1-$-(21/30)0(1+1) 308 78 18 ' 3°°' 15 + .4.024 + (1 ,, 0 (1 + Annual percentage rate (I) = wi = .1022 = 10.22% •••+ Annual percentage rate (I) = wi .1200 = 12.00% Annual percentage rate (I) = wi (b) Complex single-advance transaction. Example payments Example OW Skipped-payment loan plus 369.50 I (1+)34g Inft.. Mortgage with varying .1 C10 QQ 4. "t 1 nn 4.lA7Q .0980 = 9.80% (7) Multiple-advance transactions. I. • BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 October 25, 1982 PAUL A. VOLCKER CHAIRMAN The Honorable Walter E. Fauntroy Chairman Subcommittee on Domestic Monetary Policy Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Walter: I apologize for the delay in answering your letter about possible Board action to discourage bank lending in connection with corporate takeovers. The delay does not reflect ambivalence on my part about whether the Federal Reserve is now equipped to undertake the responsibilities you suggest--I do not believe we are--or whether we should so equip ourselves--I do not believe we should. But I do well understand your concern about the appearance (and in some instances perhaps the reality) that considerations of efficiency, productivity, and technological improvement may be subsidiary, and that some merger activities seem to leave companies in a weakened, rather than strengthened, financial position. To the extent those concerns are justified, the remedy may ultimately lie only in fundamental changes in the attitudes and incentives that drive our corporate managers--and, as important, a more stable economic environment in which market incentives reward productive and innovative activities more clearly and fully than financial restructuring. Trying to approach these problems by a government agency making selective judgments about "good" and "bad" mergers would seem to me virtually unworkable in its particulars and an unfortunate precedent for governmental credit allocation more generally. Your main concern, in directing your letter to me, is the possibility that bank credit for takeover loans may reduce the volume or increase the cost of credit for other purposes. I recognize that in the short run, takeover loans can have some impact on the distribution of credit, particularly if such financing is focused heavily on a portion of the banking sector already under pressure. However, I do not believe this to be significant over a period of time because the funds raised by takeover loan credits would normally be recycled back into the financial system for reinvesting. Seen from the perspective of https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Walter E. Fauntroy Page Two the whole financial system, a corporate takeover would not typically be a drain on savings; the seller of the stock who has received funds that the buyer may have obtained by borrowing normally redeposits the funds with a financial intermediary or uses them to purchase other securities. These funds are then available for other purposes. Recent takeovers financed by credit have had the effect, in the first instance, of retiring equity capital from the economic system, and result in a more highly leveraged financial structure with large ratios of relatively short-term debt. That is not, to me, a desirable by-product, even if a new "equilibrium" will be restored in time. But it is hard to sustain a case that takeover loans reduce the total amount of credit available for housing, business investment, agriculture, and other needs. The availability of funds for these purposes is limited by the total amount of savings in the economy. The possible effects of large takeover financing on the financial strength of the companies involved is a major reason why banks should exercise sound prudential standards and caution in evaluating these types of loans, and the apparent speed with which some of this financing is arranged--or the fact that very large amounts may be extended under preexisting general commitments to lend--does sometimes raise questions in my mind. Concerns in this area, however, seem to me better handled through the supervisory process rather than through the methods you have suggested. I recognize that large corporate mergers and acquisitions--especially those rapidly conceived and implemented--have an appearance of unfairness in access to credit. The question is whether that appearance can or should be "controlled" without raising even more problems. In this regard, I do not believe that regulatory control over bank credit provides an appropriate approach. How much new credit, in what form, is required to finance a particular merger would not have any particular relation to the economic or social value of a merger--and blocking one financing channel would only open others, here or abroad. Even more fundamentally, the Federal Reserve has little or no basis for blessing one merger or discouraging another; indeed, there must be a presumption in our system that willing buyers and sellers exercising their business judgment will also serve the goals of efficiency and productivity. Indeed, a consensus on the definition of what https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Walter E. Fauntroy Page Three constitutes a speculative loan would be extremely difficult to achieve and it would soon be necessary to establish an elaborate administrative process with complex procedures for exceptions and dispensations--a process that would surely not achieve our shared goal of a more productive economy. We will, of course, continue to monitor developments in this area in order to assure that such transactions do not have an adverse effect upon the credit standards of banks and upon the availability of credit generally. Beyond that, at the risk of treading in areas beyond my expertise, the questions seem to me to fall more logically in the areas of antitrust, adequate disclosure, and appropriate time for evaluation and "cooling-off.' At any rate, I appreciate your concerns in this difficult area and wish that there were some simple and expeditious process for dealing with them. Sincerely, PAV:pjt (4V-211) bcc: Mr. Bradfield Mr. Schwartz Mrs. Mallardi (2) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis rFi WAI,YER E. FAUNTROY, D.C.. CHAIRMAN Action assigned Messrs. Bradfield and Ryan for coordination of reply PARRFF: J. MITCHELL. MD. STEPHEN L. NEAL. 1.4.C. 091.10 111A04NARD. JR.. GA. A ENRY S. REUSS. WIS. "AMES J. BLANCHARD. MICH. CARROLL HUBBARD, JR., KY. SILL PATMAN. TEX. GEORGE HANSEN, IDAHO RON PAUL. TLX. BILL McCOLLUM, FLA. PILL LOWERY. CALIF. ED WEBER. OHIO JAMES K. COYNE. PA. U.S. HOUSE OF REPRESENTATIVES tUBCOMMITTEE ON DOMESTIC MONETARY POLICY H2-170. ANNEX NO. 2 WASHINGTON. D.C. 205111 (202) 225-7315 OF THE CONIMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-SEVENTH CONGRESS WASHINGTON. D.C. 20515 September 13, 1982 ••• The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System 20th & Constitution Avenue, N.W. Washington, D. C. 20551 Dear Paul: As you know, I have been long concerned about the large impact which speculative lending for corporate takeovers has on economic activity. Large amounts of credit are needed for these mergers, thus substantially lowering the amount available for more productive uses. In addition, such large loan extensions can have a disruptive effect on the credit market as a whole. Firms subject to takeovers and those seeking to take over other firms tend to become more concerned with short-term goals, thereby neglecting long-term plans. This adversely affects our national security interests, our long-term international competitive position, and our strong and loyal workforce. Finally, these takeovers tend to foster a concentration of power among fewer firms, with loss of competition to the marketplace, and unforeseen consequences for inflation, employment, and productivity. The tender offer by Bendix for Martin-Marietta, the counteroffers by Martin -Marietta for Bendix, and the subsequent entry by United Technologies seeking control and possible dismemberment of Bendix reflect in a microcosm the problems I have noted. While this particular effort has been well publicized recently, other takeovers have been just as complicated. The takeover game continues to go on, with no end in sight. I am, therefore, requesting that the Board of Governors place on its calendar for their next meeting proposals such as outlined below and that they consider speedy implementation of a policy which would have a direct and immediate effect on those companies which seek to take over firms that do not need to be acquired for their survival and whose takeover or acquisition would not contribute to either the enhancement of productivity or the increase of employment. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Chairman Volcker - 2 - September 13, 1982 I have carefully reviewed existing regulations available to the Board. I would propose that the Board consider some combination of the following suggestions which, when used collectively, would diminish the continued merger mania which seems to possess so many corporate managers. Under Regulation "A," I would propose that banks which lend or have lending agreements for speculative purposes be barred from the use of the discount window for the duration of these agreements. For the purpose of determining extensions of credit by a Federal Reserve Bank, any loan made to an acquiring company in excess of the amount of funds outstanding to the company 30 days prior to the SEC filing would be considered to be made for a speculative takeover purpose. Further, I would propose that banks which lend or have loan provisions for speculative takeover purposes be considered to have violated the provisions of Regulation "BB" setting forth the community reinvestment standards, since such loans would constitute prima facie evidence of an intent to neglect local credit needs. Such banks should be denied, for a period of 5 years, applications for branches, other facilities, mergers, and bank holding company status. Additionally, I would propose that the stock of all companies involved in a takeover attempt be immediately subjected to a margin requirement substantially above that then in force. Such a provision would tend to diminish the speculative fever associated with such companies and it would discourage arbitrage. Furthermore, I would propose that, irrespective of the form of collateral used to secure loans made to a merging company, if the end use of the funds will be for acquisition of the stock of another company, the loans should be treated as margin loans secured by stock and then subjected to a margin requirement or equivalent, equal to 100% or more. Proper exercise of the authority under the Securities Act of 1934 and Regulations "G," "T," "U," and "X," can prevent and bar loans for speculative takeover purposes and bar both the use of generally unregulated credit and the use of foreign credit for such purposes. While your use of these provisions may have an immediate impact on the proposed Martin-Marietta, Bendix, United Technologies acquisition battle, I must note that I have not discussed this matter with any of these firms. I am, rather, quite displeased with the use of scarce credit resources for any such nonproductive endeavor as this. Accordingly, I would like your response as soon as possible. I fully understand the difficulty of my requests to you and the Board and the possible need for some exceptions. Nevertheless, I ask you to try to assure that whenever scarce credit is used, it be applied to assure that corporations survive, that employment be enhanced, and productivity increased. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Sincerely yours, Walter E. Fauntroy Chairman https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis *of GO • BOARD OF GOVERNORS OF THE • 40 FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551 61 • .RALRE October 22, 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 appreciate your desire, expressed in your October 6 letter, to be kept fully informed regarding the System's proposal for changes in Federal Reserve check collection services and fee schedules. You may be assured that I will keep you informed of our progress in resolving the issues associated with this proposal to improve the payments mechanism through more rapid check clearing. Sin erely, ,H7 0/ Wald ette:fa xe IDENTICAL LETTER e 0 SENATOR RIEGLE LSM:CO:vcd (V-231) bcc: Mr. Meeder Mrs. Mallardi (2) Mr. McEntee sie 5 Action assigned Messrs. Corrigan and Allison -0 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 "JACK" SCHMITT, N. MEX. NICHOLAS F. BRADY, N.J. DONALD W. RIEGLE, JR., MICH. WILLIAM PROX MIRE. WIS. ALAN CRANSTON. CALIF. PAUL S. SARSANES, MD. CHRISTOPHER J. DODD, CONN. ALAN J. DIXON. ILL. JIM SASSER. TENN. M. DANNY WALL, STAFF DIRECTOR ROBERT W. RUSSELL, MINORITY STAFF DIRECTOR https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 'ZICniteb Ziafez'Senate COMMITTEE ON BANKING, HOUSING. AND URBAN AFFAIRS WASHINGTON. D.C. 20510 October 6, 1982 fE2/15 The Honorable Paul A. Volcker Chairman The Board of Governors of the Federal Reserve System 20th & C Streets, NW Room B2125 Washington, D.C. 20551 Dear Chairman Volcker: We are writing to express our desire to be kept fully apprised of developments regarding the Federal Reserve Board's proposals for changes in its check processing and collection procedures and pricing schedules. Over the past several weeks our staffs have had numerous meetings with industry representatives who are concerned about some specific aspects of the Board's plans as well as the more general implications for the Federal Reserve's competitive role in the payments system. We have concluded that the proposed changes in deposit and presentment deadlines could have inequitable competitive effects on correspondent banks, clearinghouses and private couriers, and we doubt that such effects would be consistent with the mandate and objectives of the Monetary Control Act of 1980. In addition, we are concerned about the piecemeal nature of these proposals and believe that all aspects of the Board's check collection plan, including fee schedules and the plan for pricing or eliminating float, should be laid out before any changes are implemented. On September 27, 1982 our staffs met with Gerald Corrigan of the Minneapolis Federal Reserve Bank to discuss the proposals and the Board's implementation plans. As a result of that meeting, we are encouraged by the Board's sensitivity to the possible. adverse implications of the check collection proposals and by the Board's willingness to work out differences with the affected institutions and organizations. We understand that it will be at least six weeks before the Board completes its analysis of comments on the "noon presentment" proposal. We also understand that the complete plan for the Board's provision of check collection services will be set forth before the major elements of the plan are implemented and that there will be a delayed implementation. In view of the mandate of the Monetary Control Act and the importance of Honorable Paul A. Volcker October 6, 1982 Page 2 this proposal to the future of the payments system, we urge you to continue discussions with affected parties and formally request you to keep us apprised of the progress you make toward resolving the various issues that have been raised on this matter. Since ely, I C:1) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Jake Garn Donald W. Riegle GOVe;A:. • 42- BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20 551 October 19, 1982 PAUL A. VOLCKER CHAIRMAN The Honorable Roger W. Jepsen Vice Chairman Joint Economic Committee Washington, D.C. 20510 Dear Vice Chairman Jepsen: Thank you for your letter posing several questions regarding monetarism and the Federal Reserve's conduct of monetary policy. As we agreed, in the interests of an orderly process and to avoid unnecessary duplication of effort, I am responding on behalf of my colleagues in the Federal Reserve to whom you addressed your letter after consultation with them. The enclosed reply represents the consensus of views, with the exception of one member of the group who supplied alternative outline replies to your questions 1 and 2, which are attached at the end. I would also like to take this opportunity to comment on some very recent developments which have been the subject of considerable speculation in the press and which bear on your inquiry. As you know, pursuant to the Full Employment and Balanced Growth Act of 1978, the Federal Reserve establishes and reports to the Congress annual target growth ranges for several monetary and credit aggregates. Last February the Federal Reserve established a target range for each of the aggregates. In the course of the year, I have had several occasions to comment on the relationship of these target ranges to the financing needs of economic recovery consistent with continued progress toward price stability and on the need to take into account the behavior of several monetary aggregates and other variables in assessing the course of monetary policy. In restating the targets in July, I commented with some emphasis on developments in velocity and the possibility of exceptional demands for liquidity in a period of economic uncertainty and transition. I have indicated on a number of occasions that the Federal Open Market Committee would be satisfied with growth of the aggregates around the upper end of their ranges and would tolerate for a time growth at a faster pace if this appeared to be motivated by precautionary demands for money. In this regard, I would note that the level of M1 for the last week in September was within a few hundred million dollars of the level implied by growth through the year at a 5-1/2 percent rate. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Roger W. Jepsen Page Two At its last meeting, the FOMC was faced with the almost certain expectation that the measurement of M1 over much of the remainder of this year would be distorted first by the passage of funds in maturing All Savers Certificates through M1 transactions accounts on their way to other investments and later by the introduction of a new money market fund-type account at depository institutions pursuant to the GarnSt Germain legislation. While the impact of the All-Savers maturity should be transitory--a matter of a few weeks--the introduction of a new deposit instrument is still more problematical in amount and timing (although the probability seems to be that it will depress, not increase, M1 growth). In either case, relying directly on M1 to build the "path" for the provision of reserves would give arbitrary results for the current period. Hence, deemphasis for a period of time seemed the only practical approach. In view of all this, the Committee determined that for an interim period, while these distortions work themselves out, greater operational weight will be placed on M2 and lesser weight on Ml. Obviously, we will glean what evidence we can from the M1 data--for instance, if the early October bulge did not subside, that would need to be taken into account in providing reserves, but we had no way of estimating in advance just how large the bulge would be. Despite what the press has reported, that is all there is to it with respect to Ml, just an adjustment in operating procedures to take account of an expected series of technical developments. I have discussed these points at greater length in a recent speech, excerpts of which I've enclosed for your information. This series of events, in my view, is a concrete illustration of "the practical monetary-oriented targeting approach pursued by the System," that I refer to in reply to your question 3. If I can provide any additional information on this matter, please contact me. Sincerely, Enclosures MP:NS:PAV:pjt (#V-177) Mike Prell Mrs. Mallardi (2) (Encl. Excerpt from Informal Talk of Chrmn. to Business Council At hot Springs, Va. 10/9/82) bcc: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1. What is "monetarism"? I'm not aware of any generally accepted all-purpose definition of the term. As a practical matter, I believe it would be fair to characterize it as referring to a view that monetary policy should be framed solely or primarily in terms of growth of certain money stock measures, which are presumed to bear reasonably stable relationships to other key economic variables, especially--over the medium or longer run--prices. Monetarists often view relatively sustained acceleration versus deceleration in money growth as a key factor explaining major cyclical movements in the economy but emphasize that over time monetary growth will be reflected in prices rather than output. Within that general framework, "monetarists" may differ in emphasis on particular measures of money, on the length and nature of lags in effects on prices, on impacts on the "real" economy, and on relationships between money and interest rates. Whether a particular analyst considers himself, or is considered by others, to be "monetarist" often depends upon judgments on these matters. "Monetarism" is tyS ically associated with those giving little or no weight to factors bearing on the price level other than "money." "Monetarism" is also often associated with emphasis on techniques to control the money supply by controlling the growth of some aggregate of reserves, rather than by attempting to set the level of short-term interest rates. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 2. Are changes in the demand for money frequent enough, large enough, and sufficiently long lasting to vitiate the usefulness of "monetarist" monetary policy? What about changes in real output? Changes in the demand for money in relation to the nation's income, unless of moderate dimension and quickly reversed, would tend to vitiate the usefulness of what might be called a "strict" monetarist approach--that is, one in which the monetary authority sought to hold very precisely to a predetermined monetary growth path in both the short and long run. While there is some difference of professional opinion on this matter, research done by economists inside and outside the Federal Reserve System on the whole appears to confirm the common impression that in the past decade, which has been marked by major changes in financial institutions and cash management practices, there have been appreciable shifts from time to time in the public's demand for money to finance transactions or to hold for precautionary or liquidity reasons at given levels of income and interest rates. If ignored in the implementation of policy, these shifts would lead to a policy that was, depending on the direction of the shifts, either "tighter" or "easier" than intended in terms of impact on the real economy or prices. One significant consequence of an effort to enforce strictly predetermined money growth targets in the face of appreciable shifts in money demand would be https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3- greater instability in interest rates. However, as long as there is sufficient flexibility in implementation of policy to take account of ongoing changes in the public's attitude toward money, monetary aggregates within a reasonable range can provide a practicable long-run indicator of policy intent. When the demand for money changes because of changes in real output, adherence to a given monetary target path would tend to result in cyclical variations in interest rates that help to stabilize growth in economic activity. Interest rates would tend to rise as the pace of economic activity quickened and to fall as it slowed. In that respect, use of monetary targets may represent a relatively efficacious approach to stabilization policy when there may be unexpected shifts in the public's demand for goods and services at given interest rate levels. An adjustment of monetary targets might be desirable, however, when there are unanticipated "supply shocks" to the economy, such as an OPEC oil embargo--but this is a complex issue requiring attention to the particular circumstances. More generally, if price responses to monetary growth are long delayed and relatively weak, and output changes pronounced and lasting, the case for strict application of "monetarism" is weakened, at least unaccompanied by other policies directed towards those problems. Basic differences of opinion on this score underlie much of the controversy about "monetarism." https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -4- 3. Is it correct to say that the Federal Reserve has been following a "monetarist" policy since October 1979? The Federal Reserve has been focusing on the monetary aggregates as intermediate targets for policy since the early 1970s; since 1975, Congressional directives have required that the Board report objectives for monetary expansion. The change in October 1979 involved the means of implementing monetary policy; greater reliance was placed on control of the reserve base as the means of achieving desired monetary growth. That change was in a direction advocated by many "monetarists." The change in operating technique should not, by itself, necessarily be viewed as "monetarist" in the strict terms indicated earlier, however. Such a judgment depends upon the degree of flexibility with which monetary objectives are pursued, including efforts to take account of perceived shifts in the public's attitude toward money. In 1981, for example, the Federal Is Market Com- mittee, responding to indications that changes in cash management behavior were reducing the public's desired holdings of M1 at given levels of interest rates and GNP, lowered its sights at midyear to the lower end of the target range initially set for the year. More recently, the System did not seek to reverse immediately late-1981, early-1982 bulge in M1 that •a was concentrated in NOW accounts and s--med to be relatea https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5- largely to increased desires for liquidity on the part of the public during a period of economic uncertainty. Moreover, the FOMC has indicated its desire, in light of developments in the first half of the year, to see M1 grow at around the top end of its 1982 growth range; it also has indicated its willingness to tolerate movements above that range in the months ahead if economic and financial developments suggest a persistence of unusual precautionary demands for money. This sort of flexibility--the willingness to look at all of the available information and to alter the monetary growth objectives in the light of current judgments--does not accord with the usual views of "strict" monetarists, but it is fundamental to the practical monetary-oriented targeting approach pursued by the System. As indicated, the change that actually occurred in October 1979 was one involving the procedures employed in the pursuit of monetary targets. Up to that time the System focused on short-term interest rates, influenced through open market operations, as the day-to-day "operating target" for policy. We took action to raise or lower money market rates as needed to encourage the public to alter its cash holdings to the targeted level. In late 1979 we decided instead to employ nonborrowed reserves as the day-to-day operating target, and let interest rates fluctuate on their own. By focusing open market operations more directly on the growth of reserves in the banking system, we expected to attain a better control of https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 6 money growth over time. Thus this change could be said to be more "monetarist," but much depends on the manner and on the kind and degree of judgment used in applying the control techniques. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 7- 4. Did implementation of the Credit Control Act in March 1980 interrupt the "monetarist" policy announced in October 1979, and how would you characterize Fed policy since that time? The public's reaction to the credit control program was unexpectedly sharp. The marked contraction in borrowing after the program was instituted, and the resurgence in borrowing as it was unwound, led to sizable fluctuations in money balances and interest rates--first downward then upward. While the credit control program contributed to short run variability in money, our aim over the period was to keep money growth on track on average and over time. Certainly the use of explicit credit restraints was not, in itself, monetarist. While the monetary aggregates were in fact thrown off course for a period, those restraints in conception were considered supplementary to, rather than inconsistent with, the techniques announced in October 1979. Thus, that episode is not appro- priately viewed as an "interruption" in policy intentions with respect to control of the monetary aggregates. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis q% -8- 5. If not, then what change actually occurred in October 1979, and how would you characterize Fed policy since that time? As I noted above, in responding to question 3, what occurred in October 1979 was a change in operating procedures undertaken to improve monetary control. I would say that our policy has been, and remains, one of containing the growth of money and credit to a rate consistent with reducing inflationary pressures in the economy and laying the groundwork for a sustained, balanced economic expansion. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -9- 6. How do you feel about moving toward a "price rule" for monetary policy? I interpret "price rule" to involve the price of goods and services, rather than an interest rate or exchange rate. I think there is a good deal to be said in principle for placing a focus on the general level of prices over time as an ultimate guide for monetary policy. Economists of many theoretical persuasions would agree that, over the long run, the greatest impact of money is on the price level. The difficulty I see, as a practical matter, is that this relationship may be a long-term one, and that therefore current price movements-whether of broad price indexes, of limited "baskets" of commodities, or even of single commodities like gold--may not be uniquely useful as guides for policy in the short run. We certainly pay close attention to price movements and trends in assessing the impact and appropriateness of our actions, and some of us believe clear articulation of price stability as a basic long-run goal is helpful. However, the realities of the structure of the economy would make a rigid short-run price rule a potentially counterproductive approach-one that might result in greater monetary and economic instability. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis % e -10- 7. To what extent is monetary policy, as currently conducted by the Fed, responsible for high interest rates, as opposed to fiscal policy, and what policy changes, if any, should the Fed make today in order to reduce interest rates? Interest rates are determined by a complex interaction of many forces, including monetary and fiscal policy, but private behavior--including expectations of inflation--is often critically important. For instance, if at a time of strong inflationary concerns and high credit demands the Federal Reserve opened the monetary "tap" and poured reserves into the banking system, any resultant lowering interest rates would likely be short-lived. Perceptions that the Federal Reserve was abandoning anti-inflationary restraint would quickly lead to renewed upward pressures on interest rates as people came to expect more rapid price increases and acted accordingly, increasing credit demands in the process and reducing savings. Within the context of a longer-range policy of restraining money growth to damp inflation, fiscal policy looms large as a cause of high interest rates. The Treasury, in meeting the government's credit needs, must bid funds away from potential private borrowers and this competition for a limited pool of savings boosts interest rates above levels that would otherwise prevail. Moreover, intermediate- and long-term yields tend to reflect investors' expectations of future credit market pressures, so that the current prospect of large, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -11- perhaps growing, federal budget deficits as the economy recovers is a major factor holding rates in some sectors of the markets higher than they otherwise would be. At the same time, the prospect of such large deficits and of sustained tensions in credit markets causes some people to fear that at some point the Federal Reserve will deviate from its course of restraint and engage in an inflationary "monetization" of the debt, and this also tends to maintain a substantial inflation premium in long-term rates. These responses may be damped in degree when the economy is weak and inflation is perceived to be slowing. With more confidence in the medium- and longer-term price outlook, and with private credit demands sluggish, increases in the money supply might normally be associated, at least for a time, with lower interest rates, and future Treasury borrowing might then be a less acute concern. In particular circumstances, these potential reactions are a matter of judgment. In any event, lasting relief from high interest rates requires that the Federal Reserve maintain a credible posture of antiinflationary restraint. To the degree that is achieved, greater flexibility in management of the money supply in the short-run is possible, consistent with lower interest rates. Meanwhile, the Congress and the Administration can help to alleviate the pressures on rates by moving forward with their efforts to restore fiscal balance. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis V https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Question 1: "What is Monetarism?" Several journal articles have attempted to summarize the principal distinguishing scientific hypotheses that characterize a monetarist view. Generally, these hypotheses concern the effects of changes in money stock growth on economic performance. Some central hypotheses for monetary policy in the U.S. are detailed below. (1) Monetarists emphasize that inflation is a monetary phenomenon. An anti-inflation policy is inherently one that sustains a relatively lower rate of growth of narrow monetary aggregates. (2) Monetarists emphasize that accelerations or decelerations in money growth have relatively quick impacts on aggregate demand, with their permanent impact on inflation occurring with a longer lag. As a result, accelerations or decelerations in money growth are a key factor in cyclical movements in output and employment. (3) Monetarists emphasize the direct link between inflationary expectations and nominal interest rates. Since inflation is largely determined by the pace of monetary expansion, interest rates tend to fluctuate in the same direction as the growth rate of the money stock, rather than inversely. (4) Monetarism also involves the study of money stock control, since variations in money stock growth have important effects on economic performance. Such research tends toward the conclusion that central bank procedures that control the money stock directly (i.e., through manipulation of some part or all of reserves or the money stock provided by the central bank) rather than indirectly (through influences on short-term interest rates) are likely to be simpler, more successful, and therefore more credible. Question 2: "Are changes in the demand for money frequent enough, large enough, and sufficiently long lasting to vitiate the usefulness of "monetarist" monetary policy? What about changes in real output?" The answer to this question should include the following points: (1) The evidence on the nature of money demand shifts is not as conclusive as the response implies. There is, in fact, evidence indicating that the demand for money function has not been subjected to large, frequent nor unforseen shifts during the past few years. This evidence is found directly in formal studies on the money demand relationship and indirectly in studies that have shown the Ml-GNP link to be reliable during the past few years. I https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis (2) Although large, frequent, unforseen shifts in the demand for money may cause problems under a monetary aggregate targeting procedure, the alternative--interest rate targeting--is not necessarily preferrable. The relationship between interest rates and economic activity may have weakened at the same time. (3) Instability in the money demand relationship, to the extent it exists, is, in large part, the outcome of a reaction to high rates of inflation, interest rates and attempts by institutions to circumvent restrictive regulations on interest rate payments. A monetary targeting approach that reduces future inflation also reduces future interest rates and, consequently, the impetus to innovate. i4 ACTION ASSIGNED TO MR. KICHLINE Congrez of tbe tiniteb ...kir hi_ A!. REsE„:,„ tate5 JOINT ECONOMIC COMMITTEE • .1982 A IJC -6 PY E: E2 (CREATED PURSUANT TO SEC. 5(1)OF PUBLIC LAW 304. 11TH CONGRESS) WASHINGTON, D.C. 20510 August 5, 1982 RECEtVED OFFICE or THE Civiiizt.14.! / Mr. Paul Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Chairman Volcker: Recently, a number of commentators have suggested that monetary policy is the principal factor keeping interest rates high. It has been further suggested that this is due to the inherent weakness of the "quantity theory." It has been said that if the quantity of money is fixed, then it stands to reason that inflation and interest rates will fluctuate based on changes in the demand for money and the real output of the economy. Therefore, recent changes in the demand for money and in real output which have not been accommodated by faster money growth are responsible for high interest rates. These commentators have argued that the Federal Reserve's policy is essentially "monetarist' and that this "monetarist" policy is therefore largely responsible for high interest rates. They further argue for a "price rule," wherein the monetary authorities target the price level (or some proxy, such as gold or a sensitive commodity index) rather than the quantity of money itself. Such a policy, it is said, would cause interest rates to decline. I would appreciate your comments on these propositions. would appreciate your answers to the following questions: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis In particular, I 1. What is "monetarism"? 2. Are changes in the demand for money frequent enough, large enough, and sufficiently long lasting to vitiate the usefulness of "monetarist" monetary policy? What about changes in real output? 3. Is it correct to say that the Federal Reserve has been following a "monetarist" policy since October 1979? 4. Did implementation of the Credit Control Act in March 1980 interrupt the "monetarist" policy announced in October 1979? If so, how and for how long? 5. If not, then what change actually occurred in October 1979, and how would you characterize Fed policy since that time? - 40 r Mr. Paul Volcker August 5, 1982 Page Two 6. How do you feel about moving towards a "price rule" for monetary policy? F. To what extent is monetary policy, as currently conducted by the Fed, responsible for high interest rates, as opposed to fiscal policy, and what policy changes, if any, should the Fed make today in order to reduce interest rates? I would appreciate your response to these questions in preparation for a Joint Economic Committee report on the relationship between Federal Reserve policy and high interest rates. Your cooperation is most appreciated. Sincerely, w Roger Jepsen, U Vice Chairman RWJ:bbs https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis e.)ctober 19, 1982 Mr. Jerry Lewis, Chairman Task Force on Congressional and Regulatory keforni house Republican Research Committee U.S. House of Representatives Washington, D.C. 20515 Dear Chairman Leis: Chairman Volcker has asked that I responci to your letter of September 22, 1982, seeking input from tile Federal Reserve ano others in preparing a legislative agenda on regulatory reform for the 98th L-ongress. I have :rracie arrangements for our staff to assist your Task Force. I am enclosing a copy of our inost recent legislative recoitimenoations to the Congress, which were include* in our 198I Annual Report. Of the seven recommendations, those most directly relateo to relieving regulatory burciens are: (i) amendment of the Monetary Control Act to extibyt depository institutions with less than $5 million in deposits from reserve requirements or to exempt from reserve requirements the first $2 million of deposits for all depository institutions, (2) a variety of amendments to the Financial Institutions Regulatory and Interest kate Control Act of 1978, in oraer to ease requirements that are unnecessarily burdensome, to correct procedural problems, and to contribute to the efficient enforcement of the Act, and (3) ainendcrient of section 23A of the Feaeral Reserve Act regarding transactions with affiliates, to eliminate certain unnecessary complexities and restrictions. Legislation recently passeti by the congress substantially incluoes the above recorsimendations. In ads:talon, I am enclosing a copy of our initial report to the Congress under the Financial Regulation Simplification Act of 1980, which suggests some possibilities for reform. In particular, Part IV of that report contains suggested approaches that the Congress might consider adopting to assist regulatory agencies in minimizing burdens on regulated businesses. Lair staff contact for your 'Task Force will be Barbara R. Lowrey, Associate Secretary of the board, who inanages our Kegulatory Improvement Project. her office telephone number is 452-3742. Ill can personally be of further help in any way, please let me now. Sincerely yours, William ‘1, Iles Secretary of the boart; DK/BL/cf t221 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis JERRY LEWIS. CALLF4 WAYNE GRISHAM, CHAIRMAN DANIEL cAurCALJ. LUNOREN, F. JUDO OWEGO. N.H. 1616 LONG WORTH RUT LDI NG VICE CHAIRMAN JAMES T. iiir N.C. JOHN H. ROUSSELOT. CALIF. TASK FORCE ON CONGRESSIONAL AND REGULATORY REFORM HOUSE REPUBLICAN RESEARCH COMMITTEE U.S. HOUSE OF REPRESENTATIVES WASHINGTON. D.C. 20515 (202) 225-0871 R. RORERT 0/0.IN, DIRECTOR , r• r...- r- V.) r•4, , • fri ; September 22, 1982 Mr. Paul A. Volcker Chairman Federal Reserve System Twentieth St. and Constitution Ave., NW Washington, D.C. 20551 Dear Chairman Volcker: The House Task Force on Congressional and Regulatory Reform appreciated the opportunity to address you and the rest of the members of the Council of Independent Regulatory Agencies. I have communicated to the other Members of the House Task Force your willingness to contribute to our end of year "legislative mandate" on regulatory reform for the 98th Congress. The Members are most appreciative. For this project we will be seeking input from a variety of sources including academics, the Administration, congressional committees, industry, as well as individual regulatory agencies. As was discussed, our Task Force Director will call your office during the next week to contact your designated assistant, who can work with us on this program. In general we are interested in assessing the FTC's performance over the past two years, what successes were legislative ageny's your also remain, and what problems or achieved recommendations for the 98th Congress. I am enclosing several recent Task Force publications. Of course, we will include you on our mailing list for all future papers. In addition, we hope to arrange several meetings in the future among you, the Task Force and ranking members of committees with oversight for some of the regulatory agencies. Such an exchange on an informal basis promises to improve operations and understanding for all parties involved. If the Task Again, Chairman Volcker, thank you for your cooperation. I look Force can assist you in any way, please do not hesitate to call. forward to hearing from you. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Sincerely, 0440 is A • MPS. House Re i ublican Research Committee TELEPHONE NO. 202/225-0871 1616 LHOB, WASHINGTON, D.C. 20515 • WILLIAM E. O'CONNELL, JR. Executive Director ROBERT H. MICHEL Minorit) Leader Ex-Officio EDWARD R. MADIGAN Chairman August 16, 1982 TASK FORCE ON CONGRESSIONAL AND REGULATORY REFORM Bob Okun Director Jerry Lewis Chairman A Fact Sheet on Regulatory Reform The strength of our economy in the 1980's may well depend upon how willing we are to reconsider our investment in federal government regulation. Certainly some regulations are necessary and serve to protect the public. However, many other regulations promulgated in the past, have proven to be costly, while they Over the past decade government agencies have offered few if any benefits. have increased in cost and size and their regulations have forced higher The direct costs of federal regulatory activities to the consumer costs. taxpayer have nearly tripled, from $2.8 billion in fiscal 1974 to $7.1 billion for 1981. But the overall economic impact was far greater, estimated at $135 billion for this year by Murray Weidenbaum, former Chairman of the President's Council of Economic Advisors. 4 • I •• •• .' • &IC . )k . ,,e , ;741 ;•-i4/1 ... 7: • • • •• !:.'tY•SP,'."a https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis •• 1.1;.;.. 4 ; •( ." *. ' •c" 17 ' :s 6 t• . •• 3 . 1r • • : ; • • 2 Regulatory reform remains one of the four pillars of this Administration's The reform effort has proceeded steadily, behind economic recovery program. the scenes during the past eighteen months, but it has received little The regulatory publicity in relation to the budget and the tax program. reviews to date will save more than $70 billion over the next decade, and' this money will be available for more investment, increased productivity, and new jobs. Other benefits of reducing the regulatory burden such as elimination - of bureaucratic harassment, do not carry a price tag. As Vice President George Bush said recently, all of these savings "will not jeopardize either the environment or the safety of the workplace, but will lay the foundation for a stronger economic recovery..." This fact sheet examines the Administration's effort to reform regulation after a year and a half. Early Actions The Administration took early actions which signaled a major change in Shortly after taking office, the President federal regulatory activities. issued Executive Order (E.0.) 12291 to ensure that individual regulations were The E.O. required agencies to list well-reasoned and economically sound. alternatives--together with their benefits and costs--when publishing new regulations for public comment. The principal responsibility for regulation review resides with the Office of Management and Budget (OMB), under the direction of the Presidential Task Force on Regulatory Relief, chaired by Vice Furthermore, the President issued a 60 day freeze on 172 President Bush. "midnight" regulations issued in the final week of the Carter Administration. Subsequently, thirty-five of these "midnight" regulations were withdrawn. Some Agency Budget and Employment Facts The Reagan Administration has reversed the steady growth in both agency budgets and employment that occurred during previous administrations. (By 1979, well over $5 billion of taxpayers' revenues were spent to administer 57 regulatory agencies, employing more than 88,000 people). This administration's dramatic redirection of federal regulation has helped to streamline activities at the regulatory agencies. For example: • Regulatory agencies will be approximately 10 percent smaller overall for FY 1982 under the Reagan budget than they would have been under President Carter's budget. • During the 1970's, outlays of the 57 major federal regulatory agencies increased nearly 240 percent (in constant dollars). Expenditures increased by only 1 percent, in real terms, for 1981. • The 1983 budget shows an intent -to continue the rollback as constant dollar expenditures of these agencies are projected to decline by one-sixth from 1981 to 1983. As part of reforming the government's regulatory apparatus, there has been a substantial decline in staffing at the major agencies. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • Actual reductions in personnel in 1981 as compared to 1980 were four percent overall, from 90,50Q in 1980 to 86,700. Even sharper cutbacks are expected for 1983. • The curtailment in social regulation staffing between 1980 and 1983 is nearly 17 percent as compared to a 562% staffing increase form 1970 to 1979. This reigning-in is meant to force the bloated bureaucracies to areas of refocus their limited resources toward the truly important 3 regulation. • Ten percent fewer positions are projected for 1983 than there were in 1980 in areas of traditional economic regulation (e.g. industry specific activities such as airline and telephone service, along with finance and banking). These reductions are consistent with the Administration's goal of permitting the free market to operate with as little federal intervention as possible. Slowing the Flow of New Regulations Comparison with levels of activity in earlier years clearly indicates that the volume of new federal regulations declined markedly in 1981, and has continued to decline during the first six months of 1982. The OMB review process has placed the burden on agencies to document the impact of their major regulations, and has screened out regulations with large potential costs and smaller benefits. During this time period: • The number of final regulations declined by 22% as compared to the last year of the Carter Administration. • The number of proposed rules declined by 34%--from a monthly average of 669 during the last year of the Carter Administration to 519 during the first seventeen months of the Reagan Administration. • The number of new regulations being issued were cut by one-half. • The number of pages in the Federal Register decreased by one-third, as compared with the last 18 months of the Carter Administration. • The savings from withdrawl or revision of the regulatory programs designated so far for review has been estimated at $9-11 billion in private capital investment costs. • Savings in recurring costs annually to the private sector have been at least $6 billion. Reduced Paperwork Burdens When the Administration took office, Americans were spending one-and-ahalf billion hours a year filling out federal forms. This is a greater work load than what the entire workforce of the auto industry puts in during one year. • The cost of paperwork for small business alone comes to $12 billion a year. • Under the provisions of the Paperwork Reduction Act, most federal forms and record-keeping requirements must be approved by OMB. • By the end of 1982, the one and - one-half billion hours of paperwork will have been cut by 200 million hours. This is a 13% reduction from the paperwork burdens that were in existence when President Reagan took office. These man-hours no-longer wasted on filling out forms for the federal government will be available to improve overall productivity. Changes in Specific Existing Regulations Many of the regulatory revisions update or eliminate antiquated rules, use private markets rather than direct government controls to address the in flexibility more localities and states give problem, regulatory social administering federally funded programs, and make regulations with large costs and small social benefits less restrictive. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • 4 • The Reagan Administration so far has designated 111 existing regulatory programs and paperwork requirements for high-priority agency review. Special attention has been given to the problems facing small businesses, state and local governments, in addition to regulations with major economic impacts. The Administration has taken action on approximately 70% of those programs. Some of the notable Regulatory Relief include: reform actions announced by the Task Force on • USDA has revised forms to certify eligibility of food stamp recipients. For example, family members in one household who previously had to file separate forms can now use a single joint form. These changes resulted in a reduction in annual paperwork burden of almost 2 million hours. • The Department of Energy has relaxed federal requirements that instructed local electric and natural gas utility companies to give their residential customers an "energy audit" or inspections of their homes or apartments for $15 or less. DOE required detailed state plans and the high cost of inspections was reflected in rising utility bills. The revisions give states the greatest possible flexibility in overseeing the program, providing estimated annual savings to states and utilities of $100-150 million. • HHS has proposed to eliminate the requirement that most prescription drugs be accompanied by a flyer explaining the drug's effects since the regulations were an ineffective way to provide information to patients. In place of the regulation, FDA is working with physician groups in a program to improve the transmission of drug information to patients. Several drug store chains have made available at their counters compendia of drug-related information, so patients can be aware of any drug side-effects before they use them. Removal of this regulation will save pharmacies, drug suppliers and consumers between $20-100 million annually. actions other Federal agencies initiated deregulatory effects. Some of these include: resulting in significant • The Department of Labor removed employment restrictions for homeworkers in the knitted outerwear industry. The restrictions were imposed forty years ago to prevent citizens from working in their homes for less than the minimum wage. However, the rules curtailed employment opportunities and earning power, and were no longer necessary to safeguard the minimum wage. • OSHA has proposed to drop a regulation that does not allow self-service gasoline stations to offer locks on gas pumps (The locks permit customers to fill-up without having to hold on to the pump.) The regulation as it stands can- actually increase safety hazards because it induces consumers to wedge open gas pump handles with their tank caps, and can cause hand injuries in cold weather. • The Department of Transportation has simplified regulations dating back to the First Congress, which ships owners must follow to register their ships. New rules are expected to save the industry $5 million annually by greatly reducing the number and complexity of the forms and filing requirements. • Since President Reagan decontrolled domestic petroleum, the Department of Energy has stopped collecting data no longer necessary for regulatory purposes, and will collect only essential statistical data. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 "" I • P. These changes will save over 550 work-years which otherwise would have been spent meeting federal requirements. Other efforts to address burdensome federal regulations include: • The Task Force on Regulatory Relief requested (through the Department of Commerce) comments from industry leaders on the most onerous regulations currently in force. A year ago, the Task Force published a list of the so-called "Terrible Twenty" regulations. • A number of Congressional offices have done mailouts to their constituents soliciting burdensome regulations. The responses were then passed along to the President's Task Force on Regulatory Relief. Subsequently, the Task Force took actions that addressed many of the specific concerns. For example, OSHA has proposed to exempt over 500,000 employers in various non-hazardous industries such as retail trade, insurance and real estate, from having to fill out a log of occupational injuries and illnesses--particularly since these businesses have had historically few work-related injuries. In addition, the IRS and Department of Labor have taken steps to simplify ERISA regulations which govern pension plans. These overly complex requirements have tended to discourage private sector pension plans. Other Members have developed grass roots projects in their districts to . deal with regulatory problems of small businesses and other community members • On August 4, 1982 the Task Force on Regulatory Relief published a report summarizing the progress in reducing federal regulatory burdens on state and local governments. Cost savings from changing regulations that unduly constrain state and local decision-making and program administration are $2.0-2.1 billion in annually recurring costs and $4.1-6.1 billion in one-time capital investment costs. Some Major Legislative Deregulatory Actions Oil Decontrol One of President Reagan's first acts in office was to accelerate the of removal of domestic oil price and allocation controls. To date, the lifting oil these regulations has promoted greater conservation of petroleum, decreased While there was a imports, and helped to revive domestic production. the short-term gasoline price increase, as the price of oil rose to reflect free market value, gasoline prices dropped measurably, and have now stabilized. That decline in the price of gasoline has been one of the major factors contributing to the lower inflation rates. Telecommunications The Justice Department's anti-trust suit against AT&T, the world's largest The proposed settlement is an corporation, was 'settled in January, 1982. field, but its effort to introduce more competition into the telecommunications District Court full scope is unclear. The case is still pending in Federal comprehensive considering been has recently until House the while telecommunication legislation. Justice The same day on which the AT&T settlement was reached, the suit had Department dropped its anti-trust suit against IBM. The anti-trust in the become obsolete since technological advances and increased competition https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 6 data processing field had eroded much of IBM's alleged monopoly power. Together, the IBM suit and the settlement of the AT&T case (regardless of its outcome) promise to accelerate the worldwide "communications revolution". Airline Transportation Contrary to many critics of marketplace forces, airline deregulation *is working well. Most importantly, carriers are changing their routes to provide Most cities, including those in smaller communities, are better service. receiving improved service either through increased flights or more direct service. Local service airlines have expanded their networks to compete with the large airlines and have forced the big carriers to realign their routes. In addition, fares are now more cost-based than before. Promotional fares and reduced off-peak fares, for example, are commonplace. While fares in many cases are higher than they were under regulation, the growth of new entrants and the resulting competition has put downward pressure on costs and prices. According to the Civil Aeronautics Board (CAB), fares are lower now than they would have been had regulation continued. The Regulatory Reform Bills The Omnibus Regulatory Reform Bill now pending in Congress constitutes the first major overhaul of the Administrative Procedure Act of 1946, the statute that mandates specific methods for federal rulemaking. Among other provisions, the Bill would require a discussion of both costs and benefits for major new regulations (those with an economic impact of $100 million or more) and would constrain the ability of the courts to defer to the agencies during judicial review. On March 24,1982 the Senate passed by 94-0 the Regulatory Reform Act (S.1080), which would affect the procedures of all regulatory agencies in the The Senate bill contains a more broad version of the federal government. controversial legislative veto, which would enable Congress to turn down, by a majority vote in both Houses, nearly all new regulations issued by agencies. No presidential sign-off is needed for the veto. In addition, the Senate bill requires stricter presidential supervision of the independent agencies than does the House version, H.R.746. That House bill has a more strictly defined legislative veto provision and exempts nineteen independent agencies from OMB's regulatory oversight. With 251 co-sponsors, H.R.746 is awaiting floor action. Conclusion . Regulatory reform is one of the four cornerstones of the Administration's economic recovery plan for a very good reason: Americans were fed-up with being over regulated and there was a sense that the government was intruding into many aspects of life where it had no business. It is generally recognized that decreasing and costs adding by inflation fuels regulation excessive productivity, slows growth in production and employment, and impedes innovation and investment. During the past eighteen months, the Reagan Administration has been working for the most part behind the scenes to change the direction of federal regulation. Successful administrative reviews of specific regulations now underscore the need for the Congress and the Administration to pinpoint As President Reagan stated last where statutory change is most needed. February, "Not all of our regulatory problems can be solved satisfactorily Existing through more effective regulatory management and decision-making. regulatory statutes too often preclude effective regulatory decisions..." https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis louse Republican Research Committee 1616 LHOB, WASHINGTON, D.C. 20515 EDWARD R. MADIGAN Chairman • TELEPHONE NO. 202/225-0871 WILLIAM E. O'CONNER. JR. Executive Director ROBERT H. MICHEL Minorit) Leader Ex-Officio July 23, 1982 rm Task Force on Congressional and Regulatory Refo Jerry Lewis Chairman Bob Okun Director essions The Federal Trade Commission (FTC) and the Prof ous when anticompetitive The problem of monopoly in America is most seri State or Federal endorsements of practices are sanctioned by government. or other collusive activities can be barriers to entry, price fixing agreements Professional services have been highly resistant to marketplace pressures. the state level, and the FTC has affected by such activities, particularly at The the competitive situation. been increasing its involvement to improve promote competition and freedom Commission's goal regarding professionals is to regulation. Indeed, in a recent of choice as an alternative to "big-brother" cases, Professor Ernest Gellhorn article that is highly critical of many FTC s professionals as making good singled out the Commission's actions vis-a-vi s. economic sense and providing benefit to consumer ets for professional services Many economists have concluded that the mark local regulation of the quality of are not competitive. Certainly, state and highly desirable, as is much of health and other professional services is of professionals undoubtedly professional self-regulation. The vast majority However, an in their fields. oppose harmful anticompetitive practices government regulations control extensive array of private restrictions and little to do with , ethical aspects of professional practice which have effect on the market for standards, but have a significant economic r the These include dictating not only who may ente professional services. red to the public, but also how profession and what services may be offe cts of their practices. This is professionals may conduct the business aspe which have received most of the particularly true in the health professions, increasing expenditures for health attention because of the large and rapidly less regulation can help to stem care. Greater reliance on market forces and these rising health care costs. should not have scrutiny over There is a strong case that the FTC ists, lawyers and other groups. The "quality of care" aspects of doctors, dent ate organization to determine, for FTC is neither a competent nor the appropri physicians or other professional example, the medical qualifications of limited to the economic activities of standards. The case for any FTC role is boycotts or other restrictions on the these groups such as price fixing, group business aspects of professional practice. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -3- well as government regulation, Private restrictions on professionals, as of The FTC has built on a significant body create costly inefficiencies. types of professional regulation can economic evidence indicating that certain Restrictions by states on advertising impose substantial costs on consumers. estimated to cost consumers $134 the prices of prescription drugs have been advertising of eyeglasses resulted in million annually. Regulations restricting for prescription eyewear. consumers paying 25 to 40 percent more ssing the costs and benefits of Much more work remains to be done in asse onal practice. A 1979 study by the various types of restrictions on professi d that regulations limiting the way Commission's Bureau of Economics foun tices increased prices by 17 percent optometrists may organize their prac service. Since such restrictions are without increasing the quality of ($4 billion in annual sales) and widespread in markets such as vision care the economic loss to consumers is dentistry ($14 billion spent annually), Other studies have demonstrated that likely to amount to billions of dollars. obtaining needed services, which higher prices prevent some consumers from further injures the public welfare. cted at health professionals. In The FTC has adopted only one rule dire manner to preempt state regulations that rule the FTC acted in a deregulatory eye doctors. The economic case against that restricted truthful advertising by and market statistics following the these restrictions was overwhelming, ngs for consumers. Commission's action show substantial savi professions increase consumer Overall, the FTC activities regarding the operate without interference from welfare by permitting market forces to me government regulation. If the private collusive activity or burdenso at the state level or trampled on Commission's activities duplicated efforts e would be reason for concern. This states' legitimate prerogatives, then ther power Evidence suggests that the political does not appear to be the case. e level often protects themselves professional associations wield at the stat ce from state authorities. from competition, with little or no resistan competitive behavior undoubtedly Professional groups seeking to restrict However, the economic costs to ic. intend that their actions serve the publ and the public benefits claimed from consumers have been neglected too often, substantiated. In its early period restrictions on competition have not been , FTC exhibited some excessive rhetoric of involvement in the professions, the bases of professional regulation. which failed to acknowledge the traditional conspiracies. The Commission's more The FTC displayed overblown fears of evil gh. d and careful economic analysis, thou recent actions reflect a record of soun of consumers through improved the health and well-being Such actions have onal services, at lower cost. wider availability of quality professi Conclusion Journal stated: In a recent editorial,the Wall Street the federal government out of "In general, it's a good idea to keep and the FTC has meant more punitive things. Generally, more power to the Commission is on the side of the unnecessary regulation. But this time deregulation purpose of (this) And it bears repeating that the markets. (effort) is to let the market in..." https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis House lie ublican Research Committee 1616 LHOB, WASHINGTON, D.C. 20515 EDWARD R. MADIGAN Chairman • TELEPHONE NO. 202/225-0871 WILLIAM E. O'CONNER, JR. Executive Director ROBERT H. MICHEL Minorit) Leader Ex-Officio July 14, 1982 Reform Task Force on Congressional and Regulatory Jerry Lewis Chairman Bob Okun Director ion is Needed The U.S. Maritime Industry: More Competit time shipping proposals appear The Administration's recently announced mari petition approaches that have been to depart dramatically from recent pro-com allows increased plan s. The new pursued in other transportation area by permitting operators flying the cartelization of the U.S. shipping industry collectively, tree from anti-trust U.S. flag, as well as foreign flags, to act ely increased under the policy. Ship scrutiny. Indirect subsidies are ettectiv However, a second, ct subsidies.* operators would continue to receive dire would come from permitting groups of non-budgeted advantage tor U.S. carriers their service. them to set higher than competitive rates for ng merchant marine is a vital As President Reagan acknowledges, our stro U.S. interests abroad." However, "economic instrument for the support of en the U.S. shipping industry can increased cartelization in order to strength rters, importers and consumers are have serious economic consequences. Expo etitive policies through higher likely to bear the brunt of less comp rnational shipping industry is now transportation and product costs. The inte a free market approach should be increasingly competitive. More not less of marine and to otter the public high considered to ensure a viable U.S. merchant price. quality liner service at the lowest possible Background and cargo handling technology at During a period of slow changes in ship industry complained of excess shipping the turn of the century, the shipping s competed for inadequate supplies of capacity and destructive rate wars as ship ocean carriers needed to Amid these cries, Congress reasoned that cargo. certain cooperative activities such as organize collectively and to engage in ility. Policymakers also concluded that the setting of rates to ensure profitab be regulated in order to protect the this rate setting activity needed to ed Shipping Act,1916, as amended, restrict public from abuse. Consequently, The of ocean carriers known as conferences the organizational structure of groups engage. and the activities in which they could eight U.S steamship companies on * In 1981, operating subsidies paid to million. Outlays amounted to more international routes ballooned to $417 ships in the U.S. international fleet. than $2.53 million for each of the 165 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 "introduction of new intermodal transport have eroded route-wid vanced types of ships to be a cl and Baltic trades has ort technologies and the associated development of s." Such innovation and new forms- of competition rol by closed conferences. The number of new, adoubled since 1977 in the European/Far East trades, zation and competition from the Mediterranean rgani uslyconider challanged this closed conference. culty in Competition in the liner trades is enhanced by the lack of diffi There are several reasons for ease of entry into the entering new trades. market. from 1. Capital costs are not an overriding factor that prohibit firms New firms can charter technologically advanced entering the liner trades. al costs e I!iners on the open market. Some government guarantees also reduc capit ot U.S. flag vessels. into Large ship size is not a requirement for viable entry 2. liners which available markets. Shipping companies continue to use small scale New computer [.X. can confine service to a narrow range of ports and/or independently owned scheduling and cheap telephone communications can permit sized ships. and operated lines also to offer shippers a variety of ditterent ient lines 3. Extended price cutting intended to bankrupt other effic not enter is not likely to succeed. Some small financially weak lines might pted to raise trades because of cut-throat pricing. Yet, once a 'predator' attem w. In addiits prices, swift re-entry from other competing lines would follo established tion, it would be extremely costly for a 'predator' to undermine liner companies. -conference In the last tour years, the number ot sophisticated and powerful non As ased 130%. shipping lines entering international shipping has incre nces of new examples, a Europe to Middle East route reported 73 insta cited 30 cases competition from shipping companies and the U.K./Australia route ing In the European conference trades, total outsider shipp of new entry. competition will represent 30% of all business in 1982. through rapid Competition has soared because handling costs have decreased of cargo shipments technological change in communications and the introduction can reduce, packing in large standard-sized "containers." Container technology by 400-800%. U.S. costs by almost 40% and can increase tonnage loaded per hour and over the years flag operators pioneered the development ot containerization ily. (In 1970, there the intermodal vessel fleet in the U.S. has grown stead three sophisticated were 85 containerships, no barge carriers and only By 1980, there were 107 containerships, 16 roll-on/roll-off (Ro/Ro) ships. barge carriers and 20 Ro/Ro's). liner companies and Furthermore, Eastern bloc countries, independent ht transportation maintain improved transfer between land and sea modes of freig t, both closed and open constant pressure on conterence members. As a resul discounts from established conferences have responded to this competition with rates. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 ulate business and to work-ott excess will be price wars initially to stim s and which includes scrapping of some ship capacity. After this transition ght of trade should respond to adjusted frei me volu the nt, stme inve new less w competitive maritime industry can allo rate levels. A de-cartelized, freely of their resources and offer better shipping lines the most efficient use e nt's counterproductive regulation. Sinc service at lower cost without governme ting exchange rates, they should also be shippers have learned to deal with floa Indeed, 65% of shippers ght rates. able to adjust to fluctuating frei that open competition would lead to the questioned in a recent survey, believed ey indicate that rate levels were the lowest liner rates. Results of the surv deciding how to ship goods. most important factor considered when ional ocean commerce might lead to Some argue that competition in internat nation by foreign,state-owned-and-subdestructive rate wars and ultimate domi nts rtant to question what foreign governme sidized fleets. However, it is impo s order to transport other nations' good gain by subsidizing their carriers in and s are at least twice European costs* at lower prices. Since U.S. crew cost le that of foreign builders and take U.S shipbuilding costs are nearly trip the U.S should take advantage of this about two years longer to build, Soviet Union continues to carry less than generosity. Just as importantly, the rts(in part due to U.S sanctions against 5% of both U.S liner exports amd impo r ) and Soviet shipping rates are no lowe the Soviets for invading Afghanistan, , the "Russian threat" to U.S national than those of other independents. Thus l power and Rather than maximize their politica security seem exaggerated. rt rnments pay their carriers in an effo control through subsidies, foreign gove the United States. to bolster their merchant marine, as does Recommendations s to strengthen shipping cartels in The United States should ignore plea els ive profits. Strengthened shipping cart etit comp than ter grea it perm to r orde minimal regulation by the FMC to provide nt rnme gove y heav ire requ d woul Instead, the U.S. competitive practices. protection tor consumers from nonnity to U.S. trades, deny anti-trust immu in ces eren conf it perm not ld shou rely on the competitive forces of the and on lati regu FMC most ve remo s, operator on less costly oceanborne transportati and t cien effi more re ensu to ace marketpl ect time industry will no longer prot mari U.S. the of tion gula Dere service. rish. vative, cost conscious firms to flou inno it perm will and s line ent fici inef Service, Inc., the only unsubsidized d -Lan Sea as such ers lead l gica Technolo the most number of flagships(47) and the had 1981 FY in r, line U.S. flag In the liner trades, U.S. liner . ion) mill 7 413. ($1, nue reve s gros highest import share of the total U.S. export and 30% a y atel oxim appr have s anie comp can improve that position. markets, and advances in technology * As of April 1, 1981 Country United States Japan West Germany Sweden Denmark Korea Ghana https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Monthly Crew Costs Master $17,387 9,705 7,401 8,695 5,945 2,800 2,062 2nd Engineer $8,212 3,920 4,174 4,813 2,899 905 1,610 Seamen Able $3,301 3,643 2,200 2,605 2,428 644 422 House kiiui1lican Research Committee 1616 LH013, WASIIINGTON, D.C. 20515 • TE1EF'110NE NO. 202/225-0871 ROBERT H. MICHEL Minorit) Leader Ex-Officio EDWARD R. MADIGAN Chairman WILLIAM E. O'CONNER, JR. Executive Director 1`,"iay 4, 1982 TASK FORCE ON CONGRESSIONAL AND REGULATORY REFOPM Jerry Lewis Chairman Bob Okun Director Oil Decontrol: A Deregulation Policy that is Working The energy outlook for the United States has improved dramatically in the past two years. At the close of the 1970's, U.S. oil and gas reserves and production were dropping, energy consumption was rising, and this country was heavily dependent on imported oil. Today, exploration and drilling for oil and gas are at record highs. Production of oil has stabilized and even begun to increase, reversing a 10-year decline. Energy consumption has been reduced, oil imports have been slashed, and petroleum product prices have fallen. Reducing oil imports has improved America's balance of trade, thus strengthening the dollar and weakening inflation. A major share of credit for these improvements is due to the decontrol of domestic crude oil and petroleum products, along with world supply and demand developments. In his February,1982 Economic Report to the Congress, President Reagan commented on these advances arid added, "only skeptics of the free market system are surprised by the results." _Indeed, oil decontrol has reversed much of the counterproductive energy policies of the past decade and continues to be a deregulation effort that is working. History and Background The prices of domestic crude oil and refined petroleum products were subject to various federal controls from August 16, 1971 to January 28, 1981. Those controls kept prices below what they otherwise would have been. Controls began when President Nixon introduced what later became a four-phase program to combat inflation. At first, most goods in the economy, were subject to controls. Subsequently, controls were removed from other segments of the economy, while those affecting petroleum were extended. The Emergency Petroleum Allocation Act of 1973(EPAA) se.t up a two-tier system of price controls. "Olc1" or "lower tier" oil prices were set at $5.25 a barrel, while prices of "new" or "upper tier" oil were allowed to go to worldmarket levels. Small "stripper" oil wells producing 10 barrels a day or less were exempted from controls. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 As reserves shrank, so did production. Oil output declined 11% during the 1970's. In the lower 48 states, the year-to-year decline in the 1970's amounted to about 300,000 barrels a day. Natural gas production dropped by 10 percent in the same years. Meanwhile, energy consumption continued to increase. With less domestic oil available, Americans became ever more dependent on foreign oil sources. In 1970, the United States used 14.7 million barrels of oil a day and imported 23 percent of it. In 1979, the nation used 18.5 million barrels a day and imported 45 percent of it. Oil imports rose during the decade from 3.4 million barrels a day to 8.4 million barrels a day. Thus, at the end of the 1970's the outlook for U.S. oil and natural gas appeared to be growing steadily worse. Many people were convinced that this country would have to import ever larger amounts of oil to fill the gap between rising energy consumption and declining oil and gas production. The Rise of World Oil Prices Because the United States and other industrial nations became more dependent on imported oil during the 1970's, OPEC was able to keep raising its prices. Other nations with oil to sell followed OPEC's lead. The average cost of imported crude oil to U.S. refiners in 1970, including transportation charges, was $2.96 a barrel. The cost jumped from about $4 a barrel in 1973 to more than $12.50 a barrel in 1974. The Iranian revolution led to another sudden major increase in 1979, and the price continued to rise. In 1980 the average cost was nearly $34 a barrel, and by February 1981 it was $39. These price jumps were like excise tax increases that drove up world oil prices, while at the same time reduced real economic growth because oil users had less money to spend on other goods. By contrast, domestic prices were held much lower. In 1980, the average cost of acquiring a barrel of domestic crude oil was about $24. More than half of the oil produced in the United States in 1980 was controlled at prices ranging from about $6.50 to a little over $14 a barrel. Domestic oil price controls continued to depress U.S. oil production,which tended to elevate the world price of crude oil,along with consumer prices of gasoline, fuel oil and other refined products. Controls on domestic crude oil prices also increased U.S. consumption and confirmed America's reliance on more expensive and politically unstable foreign oil supplies. Oil Decontrol Turns the Tide President Carter was criticized sharply for beginning the phased removal of oil price control in June 1979. President Reagan received the same kind of criticism for ending all price and allocation controls in January 1981. The critics argued that decontrol would not increase U.S. oil production, would not encourage energy conservation and would lead to much higher prices, thus • harming consumers. Experience to date has shown that the critics were wrong. Predictably, consumers, as well as producers, have adjusted to freely changing oil prices over the long term. Here are some developments in connection with the decontrol of domestic oil and recent trends in world oil prices: -- A ten year decline in U.S. oil production has been reversed. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • 4 , 16 5 -- Wells completed: A record total of about 78,450 wells were drilled in the United States during 1981 in search of oil and natural gas. The number has more than doubled since 1976 and has more than tripled since 1971. Drillers completed more than twice as many oil wells in 1981 as gas wells. The number of oil wells completed in 1981 increased by about 39 percent over the 1980 total,while gas wells increased by less than 14 percent. • -- Crude oil price: Nations around the world are cutting their oil prices because of the current oversupply. Some exporting countries have announced two price cuts within a month, and Iran recently was reported to have reduced prices three times during February. U.S. oil producers also are reducing their prices. In mid-February, The Oil Daily reported that domestic crude oil prices had fallen to the lowest level since October 1979. -- Product prices: Prices of gasoline and heating oil did not rise nearly as much after decontrol as some opponents of decontrol had predicted. The increases that did occur reflected, in large part, a December 1980 OPEC price hike and higher costs of refining and delivering products. As crude oil prices have come down, retail product prices also have fallen. For example, the Bureau of Labor Statistics has reported that the average price of leaded gasoline dropped by 6.7 cents a gallon from March 1981 through January 1982. Since then, prices have continued to fall. The Oil and Gas Journal survey showed a decline of nearly 9 cents a gallon in gasoline prices from March 1981 through mid-February 1982. Home heating oil was more than $1.10 a gallon on New York spot markets a year ago; however, heating oil was available in April, 1982 on commodity futures markets, considered to be a reliable indicator of price movements, for about 74 cents a gallon. Conclusion Gil decontrol appears to be providing consumers with a variety of benefits that would not have been possible under continued controls. Of course, not all of the benefits mentioned can be credited entirely to decontrol. For example, the oversupply of oil on world markets has helped reduce prices. The economic slowdown has reduced America's need for imported oil. But many of these factors are interrelated. Clearly, more oil production and less consumption in this country helped bring about the worldwide oversupply, which in turn led to lower prices for petroleum products. Many analysts have concluded that even after economic conditions improve and the demand for petroleum begins to rise, this country's energy situation will be more secure than it would have been under continued price controls. Furthermore, many of the price-induced efficiencies and conservation measures adopted by American homeowners, businesses and factories will continue to have a long-range beneficial impact. Estimates are that nearly half of the fall in energy demand is now built into peoples' attics, as well as cars' and companies' capital equipment. The February, 1982 Report of the Council of Economic Advisors contains this statement about oil decontrol: "The entitlements regulations provided artificial incentives to import crude oil and residual fuel oil; the abolition of the regulatory framework has removed that incentive. The end of artificially high oil import levels had a favorable effect upon exchange rates, and thus upon the prices of foreign https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 PAUL A. VOLCKER CHAIRMAN October 19, 1982 The Honorable Berkley Bedell House of Representatives Washington, D. C. 20515 Door Mr. Bedell: Recently I responded to your earlier letter concerning the number of copies of applications filed with the Federal Reserve System by bank holding company applicants. I indicated that, on the basis of your calling the subject to my attention, I asked stnff to review System policies regarding the number of copies of applications filed with the System. I further indicated that when the review was completed, the results would be shared with you. As a result of our review, we plan to reduce the number of copies of applications required, but the reduction is limited by essential needs. The exact number of copies will depend on the type of application, the charter status of the bank or nature of the company to be acquired, and the organizational structure of the Reserve Bank handling the application. As an illustration, applicants to the Federal Reserve Bank of Chicago will be required generally to file an original and six copies of an application to acquire an additional state-chartered bank, for a total of seven, instead of the ten copies referred to in your letter. Of the seven copies, one is used for official record and public inspection purposes, two are required by other regulatory agencies in order to carry out their responsibilities to review and comment to the Board on the application, and four are used by financial analysts, economists and lawyers at the Reserve Bank and Board staff level to review, analyze and prepare recommendations for System action on the application. In the Federal Reserve System we are seeking to achieve two major goals in our processing of applications. On the one hand, we are committed to a fair and honest appraisal of the applications by various functions at the Board and the Federal Reserve Banks staff levels prior to presentation of the application for final action. At the same time, we are equally committed to expeditious processing of all applications https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Berkley Bedell - 2 submitted. We believe both of these objectives are supported by applicants. To require below same minimal number of copies of applications would effectively stymie one or the other objective. Too few copies means that one function must wait to carry out its review until another function completes its work and can pass on the copy of the application, therefore, timeliness is difficult to achieve. The alternative of reducing the scope of the review to fewer functions within the System, would run counter to the effective administration of various relevant statutes. Generally, it appears to us that the applicant is in the best position from an efficiency point of view, to provide the required number of copies. Nevertheless, I appreciate your reminding us of the necessity to constantly monitor our procedures and remain alert to the possibility that we are imposing burdens on applicants beyond that necessary to carry out our responsibilities. I can assure you that we will continue to monitor and review our requirements on a regular basis. For your information, I am enclosing a copy of a letter addressed to each of the Federal Reserve Banks setting forth the commitments made during this review and reminding than of the need to minimize the paperwork burden an applicants commensurate with their ability to achieve fairness and timeliness in the processing of applications. Sincerely, todJ Enclosure • https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM AD 82-35 (S'iR) WASHINGTON, D. C. 20551 DIVISION OF NANKING SUPERVISION AND REGULATION October 15, 1982 TO THE OFFICERS IN CHARGE OF EXAMINATIONS, LEGAL, AND RESEARCH DEPAR TMENTS AT ALL FEDERAL RESERVE BANKS Subject: Number of copies of applications Board staff recently conducted a survey of the number of copies of applications that are used in the application process. This surve y was conducted in an effort to reduce the number of copies required, witho ut diminishing the effectiveness and timeliness of our analysis. Gener ally, copies of applications are required for use by other state and federal regulatory agencies, as well as the Reserve Bank and Board. The surve y determined that while reductions may not be appropriate for copies suppl ied for the use of other agencies because of statutory review requiremen ts, certain reductions by Reserve Bank and Board staff could be accomplish ed. As part of this effort, Board staff will reduce by one the number of copies of applications that are processed for Board action applications. Reser ve Banks are requested to implement the reductions in the copies of appli cations that they indicated were possible without affecting the timeliness and adequacy of each Reserve Bank's review process. Please implement these reductions for all applications accepted after November 1, 1982. Enclosed are revised pages for the Manual on Procedures for Processing Bank Holdi ng Company Applications that reflect the foregoing changes. DIRECTOR Enclosures S • •• of GOlit • R4 . ,• -1 0• BOARD OF GOVERNORS OFTHF FEDERAL RESERVE SYSTEM WASHINGTON, O.C. 20551 faRALRo.. October 19, 1982 The Honorable Norman D. Dicks House of Representatives Washington, D. C. 20515 Dear Mr. Dicks: Thank you for your letter of September 7 asking for comment on correspondence you received from Mr. Roger Harpel of Renton, Washington. Mr. Harpel refers to Article I, section 8, clause 5 of the United States Constitution, section 371 of Title 31 of the United States Code, and the Coinage Act of 1792 and asks a number of questions concerning the value of a dollar. As provided in the Coinage Act of 1792, this country's earliest monetary statute, the "money of account" of the United States is expressed in dollars or units of dollars. In this connection, section 371 of Title 31 of the United States Code specifically states that the money of account shall be in terms of dollars. The dollar, therefore, is the standard unit of value in our monetary system. Although the dollar has been defined in the past in terms of gold or silver content, there is no requirement that the monetary system of this country consist of currency backed by gold or silver. As Mr. Harpel notes in his letter, Article I, section 8, clause 5 of our Constitution gives Congress the power to regulate the value of money. The Congress, in turn, has delegated its monetary power to the Federal Reserve System through the Federal Reserve Act of 1913 and subsequent amendments. The value of money relates to the goods and services that it will purchase. Neither paper currency nor deposits have value as commodities. Intrinsically, a dollar bill is just a piece of paper. Deposits are merely book entries. Coins do have some intrinsic value as metal, but typically far less than their face amount. The main factor which makes these instruments--checks, paper money, and coins--acceptable at face value in payment of all debts and for other monetary uses is the confidence people have that they will be able to exchange such money for real goods and services whenever they choose to do so. This is partly a matter of law; currency has been designated "legal https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Norman D. Dicks Page Two tender" by the government, and paper currency is a liability of the government. Deposits are liabilities of the commercial banks. The banks stand ready to - convert such deposits into currency or transfer their ownership at the request of depositors. Confidence in these forms of money also seems to be tied in some way to the fact that assets exist on the books of the government and the banks equal to the amount of money outstanding. But the real source of money's value is neither its commodity content nor what people think stands behind it. Money, like anything else, derives its value from its scarcity in relation to its usefulness. Money's usefulness is its unique ability to command other goods and services. In other words, money's value can be measured only in terms of what it will buy; its value varies inversely with the general level of prices. Of course, it would be possible to establish a fixed value for the dollar in terms of other currencies or other commodities, like gold or silver. However, historical experience suggests that to do so severely limits the flexibility of policy-makers to respond to economic shocks, and it thereby risks serious dislocations in the economy. Moreover, the transition to such an approach involves innumerable technical difficulties--notably, in choosing the appropriate value of the dollar. For these and other reasons, the United States Gold Commission recently concluded that ". . . under present circumstances, restoring the gold standard does not appear to be a fruitful method for dealing with the continuing problem of inflation." Therefore, the value of the dollar is allowed to float. The Federal Reserve, by influencing the supply of money, does affect the value of the dollar. But the amount of goods and services that the dollar can command is determined through complex interactions of supply and demand in many domestic and foreign markets, a process which is inherently difficult to predict. Moreover, the goal of price stability must be balanced against other objectives set forth by Congress in the Employment Act of 1946 and elsewhere--namely, general economic stability and growth, a high level of employment, and reasonable balance in transactions with foreign countries. I understand and sympathize with the problems that inflation has caused. The Federal Reserve, responding to the mandate for a return to price stability, has committed itself to reduce the rate of growth of the money supply as an essential element in the battle against inflation. Success in this endeavor would be facilitated and hastened by continued efforts to reduce federal spending and budget deficits and to eliminate unnecessary or inefficient regulation. • The Honorable Norman D. Dicks Page Three Finally, Mr. Harpel's comments seem to indicate a belief that a return to a hard money standard would prevent inflation. Historically, this has not been true. Indeed, throughout most of the 1800's, the United States was on some sort of gold standard. Yet this standard did not prevent prices from fluctuating widely even though the value of a dollar as measured in gold stayed relatively stable. Further, since gold is a raw material that has commercial, industrial, and decorative uses, the supply of gold available for use in the economy as well as for these other purposes also fluctuated, depending upon how much gold was being discovered and processed from ore compared to the price the public was willing to pay to hold it or to use it. Several financial panics occurred in the 1800's and early 1900's while we were nominally on the gold standard. The country has not had such a panic since we left that standard. One of the panics, in 1869, was caused when two financiers attempted to corner the commercial gold market. Thus, even when dollars are backed by gold and silver, private market forces may upset the stability in the government-specified price between dollars and gold. I hope this information is helpful. if I can be of further assistance. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Please let me know Sincerely, Anthony F. Cole Special Assistant to the Board GTS:AFC:vcd (#V-210) bcc: Gil Schwartz Mrs. MallardiLegal Files (2) Action assigned Mr. Bradfield MTN/CT OPTIC= PIERCE COUNTY Bum 802 Slccuierry BusLomo 2PACT/IC AING4Ult 1 915/ HINGTON 98402 WAS A, TACC*A 38 Pwsm (206) 593-65 S NORMAN D. DICK WAsHipaGrroN Comm --1:8: DNS /WPMPR I ATI samoomad rTnizsi i Congre5s5 of tbe Eniteb kr?tatet MDITMSE OMUlloR NG Housz Opricr BUILDI 1122 LoNGwonni 15 WASHINGTON. D.C. 205 16 -59 225 2) (20 PNoNira KITSAP COUNTY Ilkyrra 3 IMO PAerric AVLNUIE ArroN 98310 BacmorroN. WAsHip (2.06) 479-4011 jboute of Repretentatibeci Rlafsbington,)D.C. 20515 September 7, 1982 KING COUNTY Suns 101 tier025 r:4Arrikipterm .IMSHINGVDN 31003 F11014. WAY 6 1 1 " 402 7382 : 1 94€ ' PIM rnco ▪•0 • • lcker, Chairman The Honorable Paul Vo d Federal Reserve Boar tution, NW Twentieth and Consti 551 Washington, D.C. 20 Dear Mr. Chairman: ger my constituent, Mr. Ro om fr er tt le a g in e and I am enclos ons concerning coinag ti es qu of es ri se a Harpel, who has value of money. s ers to these question sw an th wi me e id ov I hope you will pr th my constituent. wi e ar sh n ca I h ic wh sistance. Thank you for your as Sincerely, fiCA61. NcRMAN D. DICKS Member of Congress NDD:gwp Enclosure https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • Roger Harpel SEP 2 1982 August 29, 1982 s of Representative e us Ho s ck Di rm Congressman No 20515 DC https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Dicks: Dear Congressman Washington, s of convince the member to rd ha so g in rk of O-5B. Thank you for wo o planes in place rg ca 7 74 ng ei Bo in Congress to buy sted much treasure wa y ad re al s ha begin Our great nation didn't do right to ed he ck Lo at th e for rebuilding a plan debt be created ch mu so e se b a shame to u did the best jo with. It is such Yo r. ai sp de t n' Please do a smaller inferior product. tional defense for na r ou en th ng you could to stre er afford. debt we could bett 7, lates to an qugust re u yo g in it wr am entagon The reason that I d on page Al, "P ie rr ca e cl ti ar s this 1982 Seattle Time until 19073." In st co B -5 C in se ri ed -Georgia hoped to conceal esident of Lockhe pr , by ms Or B. rt owth in article, Mr. Robe ere has been no gr th e iz as ph em to nt .." Co. said, "We wa in 1980 dollars. d se es pr ex as , it can Lockheed's prices doing everything is e rc Fo r Ai he "T mped $2.1 Countered Dicks, ogram has just ju pr e th t Bu . ay to explain this aw billion." ates of the United St 5 se au cl 8, wer n all have the po Article I, Sectio sh s es gr on "C , ares that reign Constitution decl ereof, and of fo th e lu va e th regulate Has to...coin money, and measures;". s ht ig we of rd da stan t coin, and fix the ney to be differen mo of e lu va e th rve d the Federal Rese Congress regulate ,.s ha' en th t, no today? If these two between 1980 and the monEy between of e lu va e th d e te System regula ?gulating the valu rc is o wh t, no ent? If dates to be differ ing regLAltcd? is it even be or y ne mo r ou of ction 371 Code Titic 31 Se es at St ed it Un at I understand th ure of the money as me of it un e to be th at a declares the dollar In the same way th . es at St ed it Un e measures a of account of th quid, a dollar li of ty ti an qu a ates. Has quart measures of the United St t un co ac of y ne that quantity of the mo hts and measures ig we of rd da an st they Congress fixed a ? If so, ho A are is ch in an or t define what a quar defined? .ar defined the doll,. 92 17 or t Ac e the Coinag silver I understand that , n fine7less of certi.:i a of ht ic we n anged as being a certai llar quantity ch do a of on ti ni substancle coin. Has the defi , what is now the so If w? no d an at-Id between that time e United States th of t un co ac e money of antity of a dollar of th it? Is a dollar qu of ty ti an qu ar ll how much iF 1 do by volume? or is it now measured ht ig we by ed ur as me 'still nation and g the interests of our in rv se r fo n ai ag u yo Thank is that nt. Our great republic se re ep 'r u yo at th e at the st le. May God men represent the peop le ab en wh er ng ro st much curiosity to om to be just and the sd wi e th th wi u yo s es bl seek the truth. Regards, Roger Harper" https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis BOARD OF GOVERNORS OF THE 4.• FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20 551 October 18, 1982 PAUL A. VOLCKER CHAIRMAN The Honorable Glenn M. Anderson House of Representatives Washington, D.C. 20515 Dear Mr. Anderson: Thank you for your letter concerning your constituent's "Mortgage Turnover Plan" to assist the housing industry. Under this plan, banks and thrift institutions could collateralize discount-window borrowing with older low-rate mortgages, thereby obtaining loanable funds that would be earmarked for new mortgage loans to be made with interest rates of 13 percent or below. The advances from the Federal Reserve would be repaid at the same pace as the underlying collateral is amortized. Such a plan would represent a substantial recasting of the purpose of the discount window. Discount-window credit, now available to thrift institutions as well as banks, is provided primarily on a short-term basis as a source of temporary funds to help individual depository institutions with large, unexpected deposit or portfolio adjustments. Somewhat longer-term credit may be provided when institutions lacking ready access to money markets need help in covering recurring seasonal needs for funds, or on an extended credit basis in cases of a more protracted liquidity need. The Federal Home Loan Bank System, of course, already functions as a provider of longer-term funds to savings and loan institutions. To that extent, it would appear redundant to designate the Federal Reserve for a similar role. On the other hand, the FHLB advances are generally made at some markup over the FHLB System's own cost of raising funds, not at the sort of preferential rate envisioned in your constituent's Mortgage Turnover Plan. This aspect of the plan raises the general question of the wisdom of subsidizing particular segments of the credit markets. The discount window is not intended to serve as a means to achieve credit allocation, which it would become under the "Mortgage Turnover Plan." In general, the Federal Reserve has maintained that resources are deployed most efficiently and equitably when credit markets are allowed to operate as freely as possible. Our brief experience with selective credit controls in the spring of 1980 demonstrated how difficult it is to achieve fair treatment for all participants in the credit markets, and the potential that exists for counterproductive market distortions, when a central authority attempts to allocate credit directly and in detail. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Fonorable Glenn M. Anderson Page Two I am acutely aware of the severe problems that high interest rates create for the housing industry and other interest-sensitive areas of the economy. But recent high interest rates have in large part reflected the antic ipation of sizable government deficits and the adverse implications that large deficits carry for inflation and interest rates in future periods. The Congress and the Administration took meaningful action this summer to bring the structural component of the federal budget deficit under better control, although more needs to be done in this regard. The only enduring remedy for high interest rates in this situation is for the federal gover nment to continue deficit-reducing measures and for the Feder al Reserve to adhere to its anti-inflationary policy of moder ation in the overall growth of money and credit. As the funda mental long-range success of such policies has become recognized, interest rates have moderated and over time seem likely to moderate further, benefiting all sectors of the economy. I hope you find these comments helpful. Sincerely, iJaul A. Vo!ch& CAL:RMF:JLK:NS:vcd (V-181) bcc: Mr. Luckett Mr. Fisher Ms. Wing Mrs. Mallardi (2) GLENN M. ANDERSON COMMITTEES: 32.o DISTRICT, CAUFORNIA PUBLIC WORKS AND TRANSPORTATION • CHAIRMAN, AVIATION SUBCOMMITTEE 2410 RAYISURN HOUSE OFFICE ButuDo4G WASHINGTON, D.C. 20515 TELEPHONE: (202) 225-6676 Congre55 of the tiniteb iptate5 WOLoNoBEAcHBout_EvArto iboute ot RepresSentatibefS (P.O. Box 2349) 90801 LONG BEACH, CALIFORNIA TELEPHONE- (213) 548-2721 • MEMBER, SURFACE TRANSPORTATION SUBCOM M ITTEE • MEMBER, WATER RESOURCES SUBCOMMITTEE MERCHANT MARINE AND FISHERIES taassbington, MC. 20515 • MEMBER, FISHERIES AND WILDLIFE CONSERVATION AND THE ENV I RONM ET N SUBCOM M ITTEE August 9, 1982 • MEMBER, MERCANT H MARINE SUBCOMMITTEE • MEMBER, PANAMA CANAL SUBCOMMITTEE PLEASE ADDRESS REPLY TO MY: 1 0 WASHINGTON OFFICE 0 LONG BEACH OFFICE I • MEMBER, NATIONAL TRANSPORTATION POLICY STUDY COMMISSION • MEMBER, PORT CAUCUS • MEMBER, SHIPBUILDING CAUCUS The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th and C Streets, N.W. Washington, D.C. 20551 Dear Chairman Volcker: Mr. Al Valentine, of the National Gypsum Company, was visiting my office recently and stated they had developed a plan which they felt would be a great assist in getting the construction industry moving again. As we have discussed in previous correspondence, the slump in the housing industry caused by high interest rates has had a highly deleterious effect upon our economy in general. National Gypsum is one of the major suppliers of building materials, and has a plant located in my District. I am enclosing a copy of the "Mortgage Turnover Plan". As its primary thesis is to modify the Federal Reserve Act to make home real estate mortgages eligible collateral for loans at the Federal Reserve discount window, I would appreciate having your staff review it and give me their opinion of its practicality from the financial viewpoint and its potential to assist our housing industry. With warmest personal regards, arr "4— Verr sincerely, aer . Lai L.L.4 IDERSON GLENN•M. Member of Congress cp flf t L43 C.) al 114.1 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis GIA/W4 Enclosure THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections. Citation Information Document Type: Research paper/proposal Citations: Number of Pages Removed: 7 National Gypsum Company. "Mortgage Turnover Plan: A Proposal to Revive Housing Activity and the National Economy," 1982. Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org 'gem BOARD OF GOVERNORS OF THE S FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 PAUL A. VOLCKER October 18, 1982 CHAIRMAN The Honorable Stephen L. Neal House of Representatives Washington, D.C. 20515 Dear Mr. Neal: Thank you for your telegram of October 8 asking about recent press reports that the Federal Reserve has determined to raise the 1982 growth target for Ml. As you know, last February the Federal Reserve established a target range for each of the aggregates. In the course of the year, I have had several occasions to comment on the relationship of these targets to the financing needs of economic recovery consistent with continued progress toward price stability and on the need to take into account the behavior of several monetary aggregates and other variables in assessing the course of monetary policy. In restating the targets in July, I commented with some emphasis on developments in velocity and the possibility of exceptional demands for liquidity in a period of economic uncertainty and transition. I have indicated on a number of occasions that the Federal Open Market Committee would be satisfied with growth of the aggregates around the upper end of their ranges and would tolerate for a time growth at a faster pace if this appeared to be motivated by precautionary demands for money. In this regard, I would note that the level of M1 for the last week in September was within a few hundred million dollars of the level implied by growth through the year at a 5-1/2 percent rate. At its last meeting, the FOMC was faced with the almost certain expectation that the measurement of M1 over much of the remainder of this year would be distorted first by the passage of funds in maturing All Savers Certificates through M1 transactions accounts on their way to other investments and later by the introduction of a new money market fund-type account at depository institutions pursuant to the GarnSt Germain legislation. While the impact of the All-Savers maturity should be transitory--a matter of a few weeks--the introduction of a new deposit instrument is still more problematical in amount and timing (although the probability seems to be that it will depress, not increase, M1 growth). In either case, relying directly on M1 to build the "path" for the provision of reserves would give arbitrary results for the current period. Hence, deemphasis for a period of time seemed the only practical approach. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mh • The Honorable Stephen L. Neal Page Two In view of all this, the Committee determined that for an interim period, while these distortions work themselves out, greater operational weight will be placed on M2 and lesser weight on Ml. Obviously, we will glean what evidence we can from the Ml data--for instance, if the early October bulge did not subside, that would need to be taken into account in providing reserves, but we had no way of estimating in advance just how large the bulge would be. Despite what the press has reported, that is all there is to it with respect to Ml, just an adjustment in operating procedures to take account of an expected series of technical developments. I have discussed these points at greater length in a recent speech, excerpts of which I've enclosed for your information. I repeat there what I said in July--that, in certain specified circumstances, we would tolerate above path growth in the aggregates. In the circumstances, I did not, and do not, consider any of the steps taken at the last meeting outside either the substance or spirit of my reports to the Congress. If I can provide any additional information on this matter, please contact me. Enclosure (Informal Talk to Buisness Council at Hot Springs, Va. on 10/9/82) cc: Congressman Reuss NS:PAV:pjt (41V-236) Lcc: Mrs. Mallardi (2) Oft https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Action assigned Mr. Axilrod ."5 t MESSAGE: REC12 VOCT WES BD DC OFF/CE OFiTC(.7:1;,' Th-1 FOMASTER 1-023252A281 10/08/82 PMWGWC WSH 10-08 0617P EST 108229235 FED RES BD DC 2980A281 1k)/08/82 PMWGWJ WSH 461000 GOVT BUWASHINGTON DC 82 10-08 609P EDT MS THE HONORABLE PAUL A. VOLCKER HORMAN. BOARD OF GOVERNORS elipAL RESERVE SYSTEM haBINGTON DC 20551 UNDERSTAND THE LAW. IT REQUIRES THAT YOU NOTIFY THE CONGRESS U CHANGE THE TARGETS FOR MONEY GROWTH. ARE MANY STORIES IN THE PRESS TO THE EFFECT THAT YOU HAVE ACT DECIDED TO RAISE THE TARGETS FOR M-1 GROWTH. OR TO EXCEED XISTING TARGETS WHICH. PRACTICALLY SPEAKING. AMOUNTS TO THE THING. USE OF THE STORIES, IT SEEMS APPROPRIATE THAT YOU INFORM US ETHER OR NOT YOU INTEND TO STAY WITH THE EXISTING TARGETS, OR, IF T TO INFORM US OF YOUR NEW PLANS. ESPECTFULLY. TEPHEN L. NEAL . S. CONGRESSMAN 20 EST EST limpRES BD DC *:4: :4: *ea 111 *** c)3 611 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • '' : \ 1 41iir 1, '4** MESAGE : Qocri7 REC12 FED RES BD DC 1-0232!J24281 10/08/82 WU INFGmASTER i . ICS IPmWGWC WSH ‘. (7491 10--)8 061,7P ESI / 10822923 FED RES BD DC it TX 75 .• 1-022990AqE;1 1C,XC6/82 IPMWGWJ WSH :::1CS t E, 0400 GOVI BUWASH]NciTON DC 8;7 10-08 609P EDT oHlr• VMS THE WINO 't7: i : .kOK Ur ._.:U.,'-', , ..1fC ° AIRMAN. " i F-DERAL RESERVE SYSTEM VSH:i4GTON DC 20`)51 i THE CONGRviSS e I UNDERSTAND THE LAW, IT REOU11 ES THAT YOU 4C TI! ir YOU CHANGE THE TARGETS FOR MONEY GROWTH. THERE ARE MANY STORIES IN THE PRESS FO THE EFFECT THAT YOU HAVE IN Ff4,CT DECIDED TO RAISE IHE TARGETS POP M-1 GROWTH. OR TO EXCEED THE EXISTING TARGE1S WHICH. PRACTICALLY SPEAKING. AmOUNTS TO THE ,bAME THIN6. ,. IT SEEmS APPROPIAIE THAI YOU INtIORm U$ BECAUSE OF THE '.;TORIES, Tr; STAY WITH THE EXISTING IARGETS. OR. IF WHETHER OP NOT YOU INTEND ., OUR NEW PLANS. TO INFORM US OF NOTp RESPECTFuLLY, STEPHEN L. NEAL U. S. CONGRESSMAN 1720 EST 1 FED RES BD DC ••,': DO N E. •+ 4 .1. • https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ita)ipt, "Tt t • " *ISO MESSAGE REC12 *** OCT 12 Pfrf 12: 07 WRES BD DC PE:cci v.;:f7 FOMASTER 1-023 252A2 81 10/08 /82 PMWGW WSH 10-08C 0617P EST 10822 9235 FED RES BD DC 980A2 81 PMWGW J BUWAS WSH HINGT GOVT 82 ER10-08 609P EDT MS THE HONORABLE PAULONA. DCVOLCK RMAN. BOARD OF GOVER NORS AL RESER VE SYSTEM NGTON :1E DC 20551 S UNDERSTAND THE LAW. IT REOUIRES THAT YOU NOTIFY THE CONGRESS U ARE CHANG E THE TARGE TS FOR MONEY GROWT H. MANY STORI ES IN THE PRESS TO THE EFFECT THAT YOU HAVE CT DECID ED TO RAISE THE TARGE TS FOR M-1 GROWT H. OR TO EXCEE D XISTI NG TARGE TS WHICH . PRACT ICALL Y SPEAK ING. AMOUN TS TO THE THING . USE OF THE STOR IES. IT SEEMS APPRO PRIAT E THAT YOU INFOR M US NETHE R OR NOT YOU INTEN D TO STAY WITH THE EXIST ING TARGE1S, OR. IF T ESPEC TO INFOR M US OF YOUR NEW PLAN S. IFULL Y. TEPHE N L. NEAL S. CONGR ESSMA N EST fig OP ilk: &1y' 1v/08/82 4000 1A 20 p EST RES BD DC :4..4. .4: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 0 3 3 40' ittlz MESE:IfIGE FED REC12 **.4 :ES BD DI' 1-02322,4281 1(/08/82 WU INFOMASiER ICS IPmW6WC WSH 0617P ES1 (9491 7108229235 FED RES BD DC 1-.)22980A2.S1 1/00/92 IPMWGWJ WSH • 00400 GOVT BUWASH]N;:iTON DC 8;7 10-08 609P EDT HONT .4660F P'..iirekilffl ipm. F MS THE ion. uuLtJR ;. C-1AIRMAN. • F:TDERAL RESERVE SYSTEM I,,SHINGTON DC 20551 I U.NDERSTAND THE LAW, IT REUUIRES THAT In NOTIFY THE CONGRESS IF YOU CHANGE THE TARGETS FOR MONEY GROWTH. THERE ARE MANY STORIES iN THE PRESS FO THE EFFECT THAT YOU HIVE 3N FACT DECIDED TO RAISE IHE TARGETS FOP M-1 GROWTH. OR TO EXCEED 7HE EXISTING TARGETS WHICH. PRACTICALLY SPEAKING. AmOUNTS TO THE tiAME THING. ,, IT SEEmS ARPROPRIAIE THAT YOU INI:fiRh u$ DECAUSE OF IHE :fORIES, WHETHER OR NGT YOU INTEND TO STAY WITH THE EXISTING IARGEIS. OR. IF NOT, TO INFORM US OF YOUR NEW PLANS. RESPECTFULLY, STEPHEN L. NEAL U. S. CONGRESSMAN %72) EST 1729 EST FED REE BD DC N https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis *oft.oir•- 07 October 15, 1982 The Honorable Benjamin S. Rosenthal Chairman Subcommittee on Commerce, Consumer and Monetary Affairs Committee on Government Operations House of Representatives Washington, D.C. 20515 Dear Chairman Rosenthal: Thank you for your letter of October 1, in which you asked for our present timetable for Board consideration of deleting Section 211.23(h)(3) of Regulation K. The Legal Division, along with the Division of Supervision and Regulation, has begun preparing a number of technical amendments to Board regulations in the international banking area for consideration by the Board. Among these technical changes is the proposed deletion of Section 211.23(h)(3). The Board expects to take action on these matters within the next month. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Sincerely, NPJ:CO:AFC:pjt (#V- 227) bcc: Nancy Jacklin Legal Records (2) Mrs. Mallardi (2) / 41e 2 APP. BENJAMIN S. ROSENTHAL. N.Y., CHAIRMAN JR., MICH. PA. V.L.ATKINSON, IGENECONYERS, FSTEPHEN N.C. NEAL, DOUG BARNARD, JR.,N.Y.GA. PETER A. PEYSER, BARBARA B. KENNELLY, CONN. Action assigne-1 Mr. Brar1tiel.-1; into copy to Mr. Dahl. 4.11.• NINETY-SEVENTH CONGRESS Concgre55 of tbe Einiteb tatos WILLJAMS, OHIO LYLIEDAUB, NEBR. HAL F. CLINGER, WILLIAMHILER. JOHN IMP. JR PA, MAJORITY —(202) 2-25-4407 jt)oufStotReprefSentatibeii COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING, ROOM 6-977 WASHINGTON,D.C. 20515 v1/1 '71 •-t October 1, 1982 Hon. Paul A. Volcker Chairman Federal Reserve Board Washington, D. C. 20551 Dear Mr. Chairman: On June 30 I wrote to you requesting information on foreign banking organization reports to the Federal Reserve filed under Section 211.23(h) of the Federal Reserve's Regulation K. I was particularly concerned at that time about the meaning and consequences of the exemption currently provided in Section 211.23(h)(3) that appears to create an exception applicable to foreign governments. Your response of August 12 provided copies of recent filings under this section of Regulation K and extensive background material regarding the origin and reasons for this section of Regulation K. Regarding the exemption applicable to foreign governments, your letter stated the following: "The foregoing provisions were first adopted as part of the 1971 amendments to Regulation Y implementing the provisions of Section 4(c)(9) of the Bank Holding Company Act. As the enclosed staff memorandum indicates, there is no history explaining the specific need for the exception (described in (c) above) now contained in Section 211.23(h)(3) of Regulation K. In practice, the exception does not appear to have been utilized by any foreign banking organization. Thus, the provision appears to be unnecessary. Consequently, the Board will consider deletion of Section 211.23(h)(3) from Regulation K." I am writing at this time to inquire as to what steps the Board has already taken or will soon take to implement the intention stated above to "consider deletion of Section 211.23(h)(3)." Please state your present timetable for the various procedural steps for accomplishing this deletion. Si,erely, enjamin S. Rosenthal Chairman BSR:dtb https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis r" r- October 14, 1982 The Honorable Trent Lott House of Representatives Washington, D.C. 20515 Dear Mr. Lott: We appreciate the opportunity to comment on the remarks of Mr. John Mozingo, Jr., who sent you a copy of a letter he wrote to the Internal Revenue Service. Mr. Mozingo seems to link the IRS and the Federal Reserve. As you know, other than as fiscal agents for the government, the System has no role in matters of taxation. I believe that implicit in Mr. Mozingo's letter is, however, a general complaint regarding the state of the economy, • b responsiility to the System. for which he may be attributing As you know, the Federal Reserve has been attempting over the S. st few years to turn back a rising tide of inflation, which reached dangerous proportions as this decade began. Unfortunately, this effort has not been painless, and financial pressures have been intensed by rising federal deficits. However, we are seeing major progress on the inflation front and interest rates have been trending downward -- aided by recent deficit-reducing action by the Congress. I think there is every reason to look forward to an improving economy in the year ahead. As regards loans to sovereign foreign borrowers, I can well understand the reaction of many people to what seems the more lenient treatment countries receive than is accorded consumers who are having difficulty meeting their debt obligations. This is a very complicated matter, but I would simply note that, in many instances, the terms on which loans are "rescheduled" involve -- especially when they are linked to the International Monetary Fund assistance programs -- rather stringent plans for economic entrenchment. I hope that these comments are useful. know if I can be of further assistance. Please let me Sincerely, MJP:JLK:pjt (#V-230) bcc: Mike Prell Jim Kichline Mrs. Mallardi https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis (71snod) R. Maloni William R. Maloni Special Assistant to the Board p Action assigned Mr. Kichline SrRENT LOTT 51-1-i DISTRICT. Mississippi 2400 RAYBURN BUILDING WASHINGTON, D.C. 20515 202-225-5772 REPUBLICAN WHIP Congre55 of tbe aniteb RULES COMMITTEE ADMINISTRA nvE ASSISTANT TOM H. ANDERSON, tea; DI STRICT OFF I CES GULFPORT, MISSISSIPPI 311501 601-864-7670 HATTIESBURG, MISSISSIPPI 311401 Aptige of Representatibes JR. Ulattington, 25 o CtOber°41 ,51982 601-582-3246 LAUREL, MISSISSIPPI 39440 1101-646-1231 01,15 4' Honorable Paul A. Volcker Chairman Federal Reserve System 20th and Constitution, NW Washington, DC 20551 Dear Mr. Volcker: I have recently received correspondence from Mr. John C. Mozingo, Jr., who contacted me regarding his feeling that the Federal Reserve Board manipulates the economy. Enclosed for your information is a copy of this correspondence, which details the nature of the problem. I would appreciate very much your providing information which would be of assistance in responding to this inquiry. Thank you for your assistance in this matter. With best regards, I am Since ly yours, Trent Lott TL/fom Enclosure https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ca rei Mto r-- •• LA) rz ; I'. ( ;( '4;1 1 ,i. I , t 1. 1:;, St ‘1)I •,•;.). •1 1 it it)l) • 1 :1 ,• i• t t• 1 1 • i I f`\ I I tiiI t SI !)1)- 1 ./(".) .()1 1)i) ••%':t lit :1 1 1),1•:; t1(.11 (%)! I, (11 i C:11•", )5111 1'1 : . I :11111)0(1 t yott hecaw-“, your rnhh( r 1 I \'(.(I 1,111 ,:t r„,(1 (In a Fo rm .1',-;.10 \4:11 i ch I rocoti 1 1 y .1 01 I iii We; :1111 n It 1' )1 1c 1.)..1 1 ;I 14 .11 .111 ( 1 1 1( •. ;A '!•\ t • :1 1 I'd t V.:: •; 111)1 t !wt. 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Yrrti https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis October 13, 1982 The Honorable Jerry M. Patterson House of Representatives Washington, D. C. 20515 Dear Mr. Patterson: In Chairman Volcker's absence, I want to thank you for your letter of September 28 con cerning the application by Citicorp to acquire Fideli ty Federal Savings and Loan Association of Califo rnia. Although your letter was not received until Octobe r 4, subsequent to the Board's action on the applicati on, the concerns expressed in the letter were raised by other commenters on the application and were considered by the Board in reaching its decision. A copy of the Board's Order of September 28, 1982, approving Cit icorp's acquisition of Fidelity has previously been furnis hed to your office. The Board appreciates the benefit of your views on this matter. Sincerely, /s Preston Martin IDENTICAL LETTER SENT TO SENATOR ALAN CRANSTON MAG:CO:vcd (V-229) bcc: Ms. Gadziala Mr. Mattingly Mrs. Mallardi' Ms. P. O'Brien Legal Files (2) Action assigned Mr. Bradfield JAKE GARN, UTAH, CHAIRMAN JOHN TOWER, TEX. JOHN HEINZ, PA. • WILLIAM L. ARMSTRONG, COLO. RICHARD G. LUGAR, IND. ALrONSE M. D AMATO, N.Y. CHAFEE, R.I. ILEIN HARRISON ''JACK" SCHMITT, N. MEX. NICHOLAS F. BRADY, N.J. DONALD W. RIEGLE, JR.. MICH. WILLIAM PROXMIRE. WIS. ALAN CRANSTON, CALIF. PAUL S. SARBANES, MD. CHRISTOPHER J. DODD, CONN. ALAN J. DIXON. ILL. JIM SASSER, TENN. PA. DANNY WALL, STAFF DIRECTOR ROBERT W. RUSSELL, MINORITY STAFF DIRECTOR 'ZICniteb Zicifez Zenate COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS WASHINGTON. D.C. 20510 September 28, 1982 Honorable Paul Volker Chairman Federal Reserve Board 20th & Consitution Ave., N.W. Washington, D.C. 20551 4. Dear Paul: This letter is in regard to the application of Citicorp to acquire Fidelity Savings and Loan Association as a non-banking subsidiary pursuant to 4(c)(8) of the Bank Holding Company Act. This application raises significant issues of facts that should be fully explored by the Board before a final decision is made on this application. Some of the issues involved are addressed in S. 2879 as it passed the Senate Friday, September 24th. Conference is expected shortly on this legislation and final passage before the end of this week. We feel that the issues raised by this acquisition are best addressed by Congress, rather than a regulatory agency acting on uncertain authority. Neither Congress nor the State of California has approved interstate or interindustry mergers, yet the Federal Home Loan Bank Board would have the Board of Governors of the Federal Reserve do so under supposed emergency condition. It would appear that the decline in interest rates, and the stabilization of Fidelity since the takeover, does not support the arguments for swift emergency action on this proposal. Additionally by the end of this Congress within a week or so net worth guarantees will be available to handle situations of this kind obviating the need for an emergency breach of the public policy against interstate, interindustry mergers. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1. (LI 4 Honorable Paul Volker September 28, 1982 Page 2 It is imperative that the Board exercise its full responsibility to examine all issues of policy and fact inherent in this proposed acquisition including a full review and cost comparison of the bids rather than rely on previous determinations made by the Federal Home Loan Bank Board. We urge that the Federal Reserve Board move cautiously with full review and consider any new options that will be available under S. 2879 before a decision is made on this application. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Sincerely, y M. Patterson la1 Cran ton .••• • • GC)VP https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis BOARD OF GOVERNORS • 0 • CF THE s FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 t.„ • •.<0 - • • AAL RES;•' •.,• PAUL A. VOLCKER October 8, 1982 CHAIRMAN The Honorable Norman D. Shumway House of Representatives Washington, D. C. 20515 Dear Norm: Thank you for your letter of September 24 regarding the proposal by Citicorp to acquire Fidelity Federal Savings and Loan Association of San Francisco, and suggesting that formal hearings be held regarding that application. On September 28, 1982, the Board determined that the public interest factors associated with the application outweighed any adverse effects and approved the application. A copy of the Board's Order and the Appendix thereto approving the application is enclosed. ,As indicated in its Order'in the case, the Board made evry attempt to provide a full' opportunity for public comment on the application, including ordering two informal hearings in Washington, D. C., and San Francisco, California. After carefully considering the comments and requests for a formal hearing, the Board determined that to defer action on the Citicorp application and hold such a hearing was neither required nor appropriate under the Bank Holding Company Act. The Board's Order contains a detailed discussion of the factors that led the Board to deny the requests of a number of commenters for a formal hearing, including the Board's finding that there were no material facts in dispute regarding the application. The Board appreciates your interest in this matter. Sincerely, SZlayi Enclosure MAG:CO:vcd (V-223) bcc: Ms. Gadziala G.C. Log #339 Legal Files (2) Mrs. Mallardi (2), ' 6-11. --""" • Action assignei Mr.•Braifieli ORM AN D. SHUMWAY 14114Di11.icr%Ckup-opmm 1228 LONGWORTH HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 (202) 223-2511 COMM rTTEES: COMMITTEE ON BANKING, FINANCE, AND URBAN AFFAIRS CHRISTOPHER C. SEEGER ADM INISTRATIVE ASSISTANT MERCHANT MARINE AND FISHERIES Congref‘l of tbe Einiteb tate5 Pouge of Reprefientatibe5S 1045 NORTH EL DORADO, Room 5 STOCKTON, CALIFORNIA 95202 (209) 454-7612 Matbington,ID.C. 20515 LOIS SAHYOUN DISTRICT COORDINATOR SELECT COMMITTEE ON AGING September 24, 1982 The Honorable Paul Volcker Chairman Federal Reserve Board 20th Street and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Paul: 00 -• As you know, the proposed acquisition of Fidelity Savings and Loan AssocIAation by Citicorp has generated a great deal of controversy and confusion, particularly in my home state of California. Although the Fed has already held informal hearings on the Bank Board's approval of this acquisition, the issues involved are of such importance that formal hearings may well be warranted. Due to the improvement in Fidelity's financial situation, the need for immediate action by the Fed is not now apparent; Congress is expected to shortly pass the Garn bill, which establishes specific guidelines for mergers and acquisitions of the type being contemplated here. I would therefore respectfully suggest that formal hearings be scheduled to be held after Congress adjourns in October. Such hearings will provide the opportunity of developing a formal record; all parties interested in this precedent-setting case will, in this context, be certain that their views are given adequate attention in the decision-making process. With best personal regards, Sincerely, NORMAN D. SHUMWAY Member of Congress NDS: dp https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 RAL RE-S • •... • • October 8, 1982 PAUL A. VOLCKER CHAIRMAN The Honorable Bruce F. Vento House of Representatives Washington, D. C, 20515 Dear Mr. Vento: Thank you for your letter of September 22 concerning the application by Citicorp to acquire Fidelity Federal Savings and Loan Association of San Francisco, San Francisco, California. The Board, on September 28, 1982, after careful consideration of all the relevant issues, including those discussed in your letter, conditionally approved this application. A copy of the Board's Order, and the Appendix thereto, approving Citicorp's application is enclosed. Your letter expresses concern that the Board should make its awn findings under the public benefits balancing test of section 4(c)(8) of the Bank Holding Company Act ("BHC Act"), regardless of any determination of the Federal Home Loan Bank Board. In particular, you noted the competitive implications of the proposal relating to the concentration of resources and interstate expansion. As is explained in detail in the Board's Order, the Board carefully assessed all relevant competitive considerations and found that any potential adverse effects would be offset by the substantial public benefits expected through the restoration of Fidelity as an effective competitor. To guard against the potential for unfair competition and other adverse effects raised by the commenters, the Board placed numerous restrictions on Fidelity's future expansion and interaffiliate transactions. In acting on the application, the Board also carefully considered requests that the Board await legislative action on bills pending in Congress concerning the acquisition by bank holding companies of failing thrifts, but concluded that a deferral of action would be contrary to the public interest in view of Fidelity's financial condition. The Board noted in the Order that the FHLBB had advised the Board that the basic concepts contained in the relevant bills were embodied in the procedure by which the FSLIC decided to accept the Citicorp bid. With regard to the request that the Board provide the House Committee on Banking, Finance and Urban Affairs with its analysis of the Fidelity bids, the Board concluded in its Order that such an evaluation is reserved to the FHLBB and is not a proper issue for Board consideration under section 4(c)(8) of the BHC Act. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Bruce F. Vento Page Two With regard to restrictions on Fidelity's transactions with other banks, the Board did impose conditions that require Fidelity to be operated as a separate, independent, profitoriented corporate entity and that prohibit Fidelity from being operated in tandem with any Citicorp subsidiary. The Board stated that these conditions were imposed to ensure that Fidelity is "not utilized to further or enhance the activities of any Citicorp subsidiary." With regard to the Board's authority to permit bank holding companies to acquire savings and loan associations, the Board has consistently held that it did have such authority under existing law to approve such an acquisition and in fact approved several thrift acquisitions in Rhode Island and New Hampshire. Over the past year, the Board has informed Congress that the exigencies of a particular situation might require that the Board approve a bank holding company acquisition of a thrift, and earlier this year the Board did approve an acquisition in such a situation involving a failing thrift. The Board's Order contains a detailed discussion of the Board's practice in this area. • The Board appreciates having the benefit of your views. Sincerely, S/Paul A. Volcker Enclosure MAG:VM:vcd (V-220) bcc: Ms. Gadziala Mr. Mattingly Mr. Ryan G.C. Log #332 Legal Files (2) Mrs. Mallardi (2)- HOUSE COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS BRUCE F. VENTO *TN DISTRICT. MueasoTA • 250 CANNON Heusi Orrict BUILDING WARM mwrom, D.C. 20515 (202) 225-4631 Dtrrrucr Orims: Room 150 Mums PmRsc PLACC 405 SiaLry STRErr Sayer PAUL. H noicscrrA 115101 (612) 725-7724 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis HOUSE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS Congrtcsss of Mc Uniteb &tato jDouve ot ReprefSentatibtl HOUSE SELECT COMMITTEE ON AGING Effassbingtott,;D.C. 20515 September 22, 1982 Chairman Paul A. Volcker Board of Governors Federal Reserve System 20th and Constitution Avenue, N. W. Washington, D. C.. 20551 4 177.'1) um c) -411 rrt =Pm) inv,„ _..r, ....,x2 F"...-' rilt Dear Chairman Volcker: ftst . BO rftto , (Z rn -ti 70 er C-' IP 3: - C5 :Jr, r)741-ei N.)PO —0 3K .."-!.....,7.1 A,r -• • •. 1L.) . • As a member of the House Committee on Banking, Finance and Urban Aftairsa, Feder I am writing to register my concern over the issue of whether the Reserve Board should approve the proposed acquisition of Fidelity Savings and Loan of San Francisco by Citicorp of New York. In particular, I would like to call your attention to the Board's obligation under Section 4 (C) (8) of the Bank Holding Company Act of 1956, 12 USC §1843 (C) (8) which requires it (i)n determining whether a particular activity is a proper incident to banking or managing or controlling banks...(to)...consider whether its performance by an affiliate of a holding company can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices. of That section requires the Board to make its own findings, regardless particularly any determination by the Federal Home Loan Bank Board. It is important that the Board do so in this case because this could be the financial beginning of a very undesirable concentration in the banking and institutions industry in this country. It would be a momentous first nation's decision to permit a bank holding company, and in particular the state second largest bank holding company, to obtain a foothold across lines. the legislation I would recommend that you at least wait until we see what a detailed now pending before Congress will contain. Then you can make in addition finding as to whether the criteria that must be considered complied with. to price, such as the competitive situation, have been MADE WITH RECYCLED FIBERS THIS STATIONERY PRINTED ON PAPER 10 114 r' s;11 c...1 4 • https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis September 22, 1982 Chairman Paul Volcker Page Two known to my office and to the In the meantime, the Board should make s it to the conclusion that Committee in general the analysis which lead ral Savings and Loan Association Citicorp's bid exceeds that of Fidelity Fede med by the Federal Home Loan Bank of Glendale, California, by the amount clai been released by the Federal Board. As of today this information has not Home Loan Bank Board. this acquisition, it should do so However, should the Board decide to approve is acquired by Citicorp, be only upon the condition that Fidelity, once it ates of Deposit from or in absolutely prohibited from purchasing Certific the United States which parany other way doing business with any bank in large loans or in any other ticipates with Citicorp in the syndication of would indirectly benefit way does business with Citicorp in a way that Citicorp. the fact that the Board has I would also like to call your attention to e of general language in held on numerous occasions in the past, in spit ority to the Board, that the current law which appears to give this auth policy questions which should questions such as the one at hand are public Reserve Board. Therefore, be decided by Congress and not by the Federal law, the Board should not now pursuant to its own interpretation of the authority to permit bank take the position that it has always had the association. To do so now holding companies to acquire a savings and loan past holdings. would in effect constitute a reversal of its ely ce F. Vento Member of Congress BFV:mad cc: Lyle E. Gramley, Board Member J. Charles Partee, Board Member Emmett Rice, Board Member Nancy Teeters, Board Member Henry Wallich, Board Member October 8, 1gR2 The Honorable Frank Annunzio Chairman Subcommittee on Consumer A'fairs and Coinage Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. Dear Chairman Annunzio: Thank you for your letter of September 28 expressing your views on the proper treatment of seller's points under the Board's Truth in Lending Regulation Z. This has been one of the most difficult consumer issues the float-a has faced in some time. Although, as indicated by the enclosed Federal Register document,.. the Board decided to leave tIle current rule in place (by split vote), you can he confident that the Board had a thorough and probing discussion of the issue--includinq the factors raised in your letter. We were aided by many very good public comments, including an unusually large number from consumers. Although the course chosen by the malority of the Board is not the one you favored, I can assure you that we appreciate having your views. With the thought that you might find it interesting, I have enclosed a cony of a memorandum from our staff which summarizes the comments we received. Sincerely, 5/Paul A. Vo!cket Fnclosures (Memo dtd. 8/28/82 to Board of Governors from Division of Consumer and Community Affairs) GLG:CO:pjt (#V-225) bcc: Mr. Garwood Mrs. Mallardi (2) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ._ Action assigned M.-ta.%.'rwbod; info copy to Governor Teeters RON PAUL, TEX. THOMAS B. EVANS. JR, D. CHALMERS P. WYLIE. OHIO GREGORY W. CARMAN, N.Y. STANK ANNUNZIO. ILL.. CHAIRMAN krERNAND J. ST GERMAIN. R.I. HENRY B. GONZALEZ. TEX. JOSEPH G. MINISH. N.J. SILL PATMAN. TEX. STENY H. HOVER. MD. U.S. HOUSE OF REPRESENTATIVES NINETY-SEVENTH CONGRESS CURTIS A. PRINS. STAF7 DIRECTOR TELSPHOHS: SUBCOMMITTEE ON CONSUMER AFFAIRS AND COINAGE OF THE Lt111-12S0 COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS ROOM 212 HOUSE OFFICE BUILDING ANNEX No. 1 WASHINGTON, D.C. 20515 September 28, 1982 Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Re: Docket No. R-0413 Dear Mr. Chairman: I am writing in response to the Federal Reserve Board's request for comments on possible changes in the treatment of seller's points under Truth in Lending Regulation Z. Revised Regulation Z, approved by the Board March 28, 1981, provides that seller's points are excluded from the calculation of the finance charge and the annual percentage rate that must be disclosed under the Truth in Lending Act. This rule changed the Board's long-standing position under the original Truth in Lending Act that seller's points, when passed along to the consumer through an increase in the selling price, were part of the finance charge and must be disclosed (Board Interpretation 226.406, October 23, 1970). The Board Interpretation further took the position that the inclusion of seller's points is in the finance charge would be a correct disclosure under Regulation Z. This position now contained in Alternative One of the new proposal. In the past two years, interest rates on home mortgages have been at record levels. The high rates have had a severe impact on consumers. High mortgage rates have not only priced consumers out of the housing market, but have also discouraged many consumers from even shopping for homes. In an to provide has had to charged to can easily effort to attract buyers, many housing developers have arranged with lenders for financing below the market rate. To obtain this financing, the developer pay the lender a fee to compensate the lender for the lower interest rate the consumer. These fees can be a significant expense to the developer and rearh $10,000 or more per loan. g The developer in turn, recovers part or all of the fee from the consumer by increasin the sales price of the home. Under the Board's original interpretation concerning the treatment of seller's points, the amount of increase in the sale price would have to be revealed as part of the finance charge and taken into account in calculating the annual pass percentage rate. Only those sellers who arranged below market financing and did not the cost of it along to the consumer were able to truthfully advertise that the consumer would get advantageous financing. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -2,!1,0,_ • Honorable Paul A. Volcker Page Two Under the revised below market financing the cost. The Board's financing and pass the Board regulation, without revealing decision actually hidden cost on to however, all developers can offer so-called that the consumers will actually have to bear encourages sellers to arrange law interest consumers. ngton Post. Consider the enclosed advertisement liana recent edition of The Washi s will arrange The seller offered a condominium at a cash price of $98,400 if the buyer w' market financing" their own financing. The advertisement then goes on to state that "belo The advertisement is available but that the price of the condominium is then $110,700. years is available.* prominently states that 12 1/2 percent financing for the first two are as According to the sales office of the developer the full terms of the offer nt interest for follows: 12 1/2 percent interest for the first two years, 13 1/2 perce three years, with a the next two years, and 15 1/2 percent interest for the following demand feature at the end of seven years. the annual percentage Assuming 100 percent financing for the sake of simplicity, I had the revised rates calculated under the original and the revised Regulation Z. Under l percentage rate would Regulation Z, the amount financed would be $110,700 and the annua e that he was getting be 13.75 percent. A consumer being shown these figures would assum below market financing. rent story. In that Calculations under the original Board interpretation tell a diffe a prepaid finance charge case, the amount financed would be $98,400, and there would be and the credit sale of $12,300 (the difference between the cash sale price of $98,400 16.37 percent. This price of $110,700). The annual percentage rate would be a whopping account the inflated rate is the consumer's real cost of credit because it takes into higher than the rate that price due to the seller's points. It is 2.62 percentage points ls clearly to the consumer is required to be disclosed under revised Regulation Z. It revea s. that the financing is not "below market" as the advertisement claim make informed credit The Truth in Lending Act was passed in 1968 so consumers could the findings and declaration decisions. Section 102(a) of the Truth in Lending Act states of purpose for the Act. In part the section states: ced and "The Congress finds that economic stabilization would be enhan other the competition among the various financial institutions and gthened firms engaged in the extension of consumer credit would be stren ts from by the informed use of credit. The informed use of credit resul se of an awareness of the cost thereof by consumers. It is the purpo osure this title [the Truth in Lending Act.] to insure a meaningful discl readily of credit terms so that the consumer will be able to compare more ." terms available to him and avoid the uninformed use of credit . . * https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis the advertising I note that the advertisement violates several aspects of to 12 1/2 percent provisions under the Truth in Lending Act, as the reference s. financing is a "trigger term" that mandates additional disclosure --suesinawake Fanorable Paul A. Volcker Page Three The Board's revision of its original interpretation moved away from those goals. We have seen how the exclusion of seller's points that are passed on to the consumer has resulted in confusion and deception of the consumer who seeks the true cost of credit. Financial institutions and others offering credit are placed at a competitive disadvantage as a result of the misleading and deceptive annual percentage rates that sellers can advertise as a result of the revised regulation. I urge the Board to reinstate its original interpretation concerning the treatment of seller's points by adopting Alternative One, and thereby restore accurate and meaningful disclosures to the home finance business. With every best wish, Sincerely, Frank Annunzio Chairman Enclosure 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: Advertisement Citations: Number of Pages Removed: 1 "We Couldn't Improve Our Location..." Hyde Park Condominiums, undated. Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org October 6, 1982 The Honorable Carroll Hubbard House of Representatives Washington, D.C. 20515 Dear Carroll: Thank you for your letter of September 15 recommending Mr. Kenneth Henshaw for appointment as a possible Federal Reserve Bank Director in our Eighth District. I will see that Mr. Henshaw's name is added to our "pool" of potential directors, both here and at the District Bank. As you know, we are very much interested in a diversity of background and variety of points of view among directors of the Federal Reserve Banks and Branches and are particularly aware of the need for directors who are knowledgeable about the agricultural sector. Mr. Henshaw's extensive involvement in agricultural matters and organizations is impressive. The Board appreciates your bringing his qualifications to our attention. Sincerely, RER:CO:NS:pjt (#V-215) bcc: Vice Chrmn. Martin President Roos (w/copy of incoming) Ruth Robinson Ted Allison • Mrs. Mallardi .(2)„, , https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IDENTICAL LETTER TO SEN. WENDELL H. FORD (4V-226) Action assigned Mr. Allison; info copy to Vice Chairman Martin AT LARGE MAJORITY WHIP "CARROLL. HUBBARD CONGRESSMAN COMMITTEES I 1ST DISTRICT, KENTUCKY 2244 RAYBURN HOUSE OFFICE BUILDING WAkHING. D.C. 20515 BANKING. FINANCE AND URBAN AFFAIRS Congreczoftbetiniteb tate5 MERCHANT MARINE AND FISHERIES :0 (202)2253115 jbouiSe of Repretentatibet as'bington, ID.C. 20515 CHAIRMAN. SUBCOMMITTEE ON PANAMA CANAL/OUTER CONTINENTAL-SHELF --ri m za 411* v., C., Pede (1) c;?tc-1 September 15, 1982 rn -o 7C:11 K ••••• • • Hon. Paul A. Volcker Chairman Board of Governors Federal Reserve System 20th and Constitution Avenue, N.W. 20551 Washington, DC Dear Paul: I am writing today to request your support for Kenneth Henshaw of Sturgis, Kentucky, as Director of the Federal Reserve Bank for the Louisville District in Kentucky. It is my understanding that Dr. James F. Thompson, a professor at Murray State University in Murray, Kentucky, is retiring as the Director and has recommended Kenneth for the position. It is further my understanding that Kenneth has the respect and support of his peers in Union County and is the only individual of the three who will be nominated who is from western Kentucky. Enclosed is a copy of Kenneth's resume for your purusal. I believe you will agree that Kenneth Henshaw is well qualified for the position, and I trust that he will be given every consideration. Thank vov for your attention to this matter. With best wishes for you, I am Sincerely yours, a eti" " 4 Carroll Hubbard Member of Congress CH:lmg https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 40 ji, 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 personally identifiable information. Citation Information Document Type: Resume Citations: Number of Pages Removed: 1 Resume, Kenneth Henshaw, 1982. Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org October 6, 1982 The Honorable Doug Barnard House of Representatives Washington, D.C. 20519 Dear Mr. Barnard: Thank you for your letter of September 21, 1982, concerning proposed modifications to the Federal Reserve Bank check collection services. The Federal Reserve Banks have restructured their interdistrict transportation system (ITS) in order to improve the speed with which checks are collected. With the modifications to ITS, the Federal Reserve is proposing to accept checks at later hours than they currently are accepted. In addition, the Reserve Banks propose to establish 12:00 noon as the uniform presentment time for checks drawn on Reserve city depository institutions and certain large institutions located outside Reserve cities. The combination of these changes is expected to increase the number of checks collected in one day, thus improving availability for depository institutions and their customers. The comment period has lust ended. Our staff reports a very large number of public comments from commercial banks, savings and loan associations, credit unions, trade associations, consumer groups and members of the public.. It is too soon to have even a preliminary assessment of these comments. Once the comments have been analyzed and summarized by the staff, the Board will carefully evaluate them in the further consideration of this proposal. We appreciate the efforts of all those who commented on this proposal. The Federal Reserve System is committed to the full implementation of the Monetary Control Act of 1980. We believe our actions, including the essential elements of the current proposal, will continue to demonstrate our commitment to the spirit and intent of the Act. We will advise you of the action taken on this proposal. Sincerely, ECMcL:LSM:CO:pjt (#V-219) bcc: Mr. McEntee Mrs. Mallardi (2) Mr. Meeder https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 444 Action assigned Mr. Allison DOU DISTRICT OFFICES: STEPHENS FEDERAL BUILDING ROOM 128, Box 3 ATHENS, GEORGIA 30601 (404) 546-2194 BARNARD, JR. 10TH DISTRICT, GEORGIA COMMITTEES: BANKING, FINANCE AND URBAN AFFAIRS GOVERNMENT OPERATIONS https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Come55 of tbe Ziniteb tate5 3[pm:it of 11epresSentatibe5 filacsbington, 30.C. 20515 407 TELFAIR STREET P.O. Box 10123 AUGUSTA, GEORGIA 30903 (404) 724-0739 NEWTON COUNTY EXECUTIVE OFFICE BUILDING COVINGTON, GEORGIA 30209 (404) 787-2110 September 21, 1982 a f cr ) CI CS Cr. The Honorable Paul A. Volcker Chairman of the. Board of Governors Federal Reserve System Twentieth Street and Constitution Avenue, NW 20551 Washington, D.C. Dear Mr. Chairman: The proposed changes in times and conditions for As now check clearances concerns me a great deal. formulated, these proposals give a clear competitive advantage to the Federal Reserve's check clearing activities and courier service over those offered by correspondent banks and private courier services. While the entire issue of granting the Federal Reserve a competitive imbalance over its commerical rivals is very serious, I am especially concerned with the effect the flexibile delivery schedules will have on private dispatch services, including one that is headquartered in my area, the Dispatch Courier Group. Allowing Federal Reserve transportation services later presentment deadlines than its private competitors is both unfair and likely to have a severe impact on If this proposal is approved their future viability. without including delivery schedules that are uniform for both Federal Reserve Banks and private service providers in both price and time, many jobs will be unnecessarily lost as private dispatch services that are unable to compete are forced out of business. When I moved to include the provision in P.L. 96-221 which mandated that the Federal Reserve cut float, there was no intention to allow it to price its services in such a way that private competitors would be forced out of I urge you to alter this proposal to allow equal business. conditions, times and pricing with private competitors including private dispatch services. Sincerely, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis October 6, 1982 The Honorable Lloyd Bentsen United States Senator 912 Federal Building Austin, Texas 78701 Dear Senator Bentsen: Thank you for your letter of September 3 enclosing correspondence from your constituent, Ms. Jill Ann Jones, regarding employment with the Federal Reserve Bank of Dallas. As a matter of operating policy, each Federal Reserve Bank handles its own employment program. We have forwarded a copy of your letter and Ms. Jones' correspondence to the Federal Reserve Bank of Dallas. Therefore, Ms. Jones may wish to contact: Ms. Carla M. Warberg Vice President Federal Reserve Bank of Dallas Dallas, Texas 75222 I hope this information is helpful to you. let me know if I can be of further assistance. Please Sincerely, William R. Maloni Special Assistant to the Board UNx CWW:CO:pjt (#V-207) bcc: Ms. Carla M. Warberg (FRB, Dallas; w/copy of incoming) Mr. Wood Mrs. Mallardig Action assigned Mr. Shannon ILLOYD BENTSEN Ti XAS COMMITTEES: FINANCE ENVIRONMENT AND PUBLIC WORKS JOINT ECONOMIC 'Unita)Zfates Zenate WASHINGTON, D.C. SELECT COMMITTEE ON INTELLIGENCE 20510 September 3, 1982 Mr. Paul S. Volcker, Chairman Federal Reserve System Constitution Avenue between 20th and 21st Streets, N.W. Washington, D.C. 20551 Dear Mr. Chairman: I recently received the enclosed constituent inquiry, and I would very much appreciate your providing me with any pertinent information you might have regarding the matter. Your kind assistance is greatly appreciated. Sincerely, ntsen Encl re PLEASE REPLY TO: 912 Federal Building Austin, Texas 78701 ATTN: Robert Block https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis r ; , ' L• AUG 3 V . https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SEP 14P9 1 192 August 24, 1982 Senator Loyd Bentsen 1100 Commerce Dallas, Texas 75202 Dear Senator Bentsen, Upon graduation from Texas Tech University this December, I would like to work for the Federal Reserve Board in Dallas, Texas as a bank examiner. If you would provide me with any information which might enhance my possibilities of being hired by this prestigious and honorable branch of the United States Government, I would be eternally grateful. Please direct any correspondence to: Jill Ann Jones 4630 55th Street #237 79414 Lubbock, Texas Thank you for your help in this matter. Sincerely, Jill Ann Jones JAJ/jv 111/4 LLOYD BENTSEN TEXAS https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis CON M ITT E ES: FINANCE ENVIRONMENT AND PUBLIC WORKS JOINT ECONOMIC 'ZICnifeb ,...%tafez -.Senate WASHINGTON. D.C. SELECT COMMITTEE ON INTELLIGENCE 20510 October 8, 1982 Mr. Paul S. Volcker, Chairman Federal Reserve System Constitution Avenue between 20th and 21st Streets, N.W. Washington, D.C. 20551 :',.. -.r.• I am writing in reference to my inquiry to which I have received no reply. I have enclosed a copy of my constituent's letter for your reference. Sincerely, ntsen Enclo ure PLEASE REPLY TO: 912 Federal Building Austin, Texas 78701 li , r... :r! Dear Mr. Chairman: I would appreciate any information you can provide in this regard. my arc (.4) .. -4* .... -. ;7: L https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis AUG 30 10P9 sEp 1 1982 August 24, 1982 Senator Loyd Bentsen 1100 Commerce Dallas, Texas 75202 Dear Senator Bentsen, Upon graduation from Texas Tech University this December, I would like to work for the Federal Reserve Board in Dallas, Texas as a bank examiner. If you would provide me with any information which might enhance my possibilities of being hired by this prestigious and honorable branch of the United States Government, I would be eternally grateful. Please direct any correspondence to: Jill Ann Jones 4630 55th Street #237 Lubbock, Texas 79414 Thank you for your help in this matter. Sincerely, Jill Ann Jones JAJ/jv ..... f• GOvt • BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551 October 6, 1982 PAUL A. VOLCKER CHAIRMAN The Honorable Glenn English Chairman Subcommittee on Government Information and Individual Rights Committee on Government Operations House of Representatives Washington, D. C. 20515 Dear Chairman English: Thank you for bringing to my attention Ms. Susan A. Meyer's complaint about being charged for photocopies of Federal Reserve documents she requests on behalf of her newsletters. I want to emphasize at the outset that the Federal Reserve staff makes a very determined effort to provide excellent service and cooperation not only to the press but to all who exercise their rights under the Freedom of Information Act to inspect or copy our records. We take our responsibilities under the Act seriously, and I think that attitude is reflected in our good reputation in this area. Federal Reserve regulations prescribe fees for search and for photocopying work done on behalf of the public; but the fees that are collected recover less than ten percent of the estimated costs associated with Freedom of Information requests. By this measure we subsidize requests to an extraordinarily generous degree. Copying charges are waived chiefly in three situations. First, a great many releases, reports, and other agency documents of current public interest are provided free to anyone requesting them. In addition, the Federal Reserve fills, without charge, all orders involving fewer than 20 pages. For larger requests the staff waives photocopy charges if it determines that furnishing the information can be considered as primarily benefiting the general public. As a matter of administration, we generally do not charge search fees in connection with relatively routine requests. Also as a matter of administration, we have not closely scrutinized requests for waiver of fees by publications whose information requests are relatively small and infrequent. On this basis, we have provided documents to Ms. Meyer and her staff from time to time in the past without charge. Recently, however, the question of their entitlement to such waivers was raised by the staff when it appeared that https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Glenn English Page Two requests from that company were becoming more frequent and more substantial. After review of a particular request, the staff concluded that the records that were retrieved and copied in that case could not be considered as primarily benefiting the general public, but instead would chiefly benefit the commercial interests of a narrow and specialized clientele. The Federal Reserve considers its fee waiver practices liberal, but any public agency also has a duty to see that its resources are devoted to public purposes. As the staff has explained to Ms. Meyer, both in writing and in conversation, the Federal Reserve is happy to examine each of her requests and to consider seriously any information she provides about possible benefits to the general public. We also would regard favorably efforts she may make to tailor requests that minimize costs to the Board. We are not, however, willing to waive automatically, as she wants us to do, all costs that this agency incurs on her behalf. Ms. Meyer's case is the first fee waiver denial that has been formally contested by a publication before this agency. For that reason, it received an exceptional amount of staff time and attention. The decision does not represent a change in policy, however. The list you requested of press requests for the last year is enclosed, and you will see that, in fact, it has been our practice to charge special interest publications. In addition, a number of trade associations, law firms, and consulting firms provide services like Ms. Meyer's to similar clients, and they are expected to pay their costs. We regard our fee practices as faithful to the law, but I appreciate your calling complaints about our performance in this area to my attention. Sincerely, Enclosure JM:SLS:CO:WWW:pjt (#V-212) bcc: Gov. Partee Messrs. Siciliano, Wiles, McAfee, Coyne, Garwood Ms. Arnold Mrs. Mallardi (2) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Rh. FEDERAL RESERVE BOARD PRESS FREEDOM OF INFORMATION REQUESTS July 1, 1981 - September 20, 1982 This list has been compiled principally from the log of the Board's Freedom of Information Office. The log is maintained to enforce compliance with statutory time limits, and therefore does not include requests that are made in person at the office and filled immediately from supplies on hand. Most of these unlogged over-the-counter requests involve current public material, such as press releases and documents related to open Board meetings, which are distributed without charge. It is not the Office's usual practice to waive fees for other material delivered over the counter, except when the requested material is under 20 pages. To the extent they could be identified, unlogged orders by publications for materials exceeding 20 pages are included in this list, in addition to all logged orders, regardless of size. 1981 Publication July 1 EFT Report July 23 St. Louis Post -Dispatch July 27 Fortune July 29 Commerce Clearing House July 29 Amount $ . Remarks 4.20 8.00 36.20 .20 (waived) under 20 pages American Banker 1.30 (waived) under 20 pages July 29 Wall Street Letter 1.60 (waived) under 20 pages Aug. 5 Newsday 9.00 Aug. 10 Bank Focus Newsletter Aug. 14 .80 (waived) under 20 pages American Banker 1.90 (waived) under 20 pages Aug. 18 Bank Letter 2.00 Aug. 18 Bureau of National Affairs 12.40 Sep. 25 Washington Financial Reports 15.20 Sep. 30 Capitol Reports 14.60 Oct. 13 International Banking News Service 2.20 Oct. 16 Capitol Reports 3.00 Oct. 19 Forbes , Dec. 2 Capitol Reports 27.10 Dec. 11 American Banker 11.40 Dec. 16 Casper Star Tribune •• 19.30 (waived) press release 1982 Jan. 7 Capitol Reports 131.20 Jan. 20 Capitol Reports 10.00 Jan. 21 EFT Report 31.80 Jan. 21 Bureau of National Affairs https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis public interest 5.30 11••• https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1982 Publication Amount Remarks Feb. 2 Washington Credit Letter Feb. 5 Pace Communications Feb. 3 Capitol Reports Feb. 5 Publications Feb. 16 Washington Post 7.70 (waived) Feb. 17 EFT Report 3.70 Feb. 17 American Banker 5.60 Feb. 22 EFT Report 8.80 Mar. 2 American Banker 5.20 (waived) public interest Apr. 1 Telecommunications Report 5.70 (waived) public interest Apr. 2 Communications Daily 5.70 (waived) public interest Apr. 2 Financial Services Newsletter 5.70 (waived) public interest Apr. 5 Fairchild Publications 5.70 (waived) public interest Apr. 6 Prentice-Hall Apr. 20 Bureau of National Affairs 9.90 Apr. 26 Bureau of National Affairs 15.20 Apr. 28 Market Timing Report May 11 Bureau of National Affairs 12.70 May 12 Capitol Reports 14.20 (reduced) May 25 Commerce Clearing House 13.80 May 25 Bureau of National Affairs 2.40 June 29 Capitol Reports 2.70 July 6 American Banker 13.40 July 6 American Banker 2.80 July 9 American Banker 2.60 Jul 19 Bureau of National Affairs 8.00 July 20 Bureau of National Affars July 23 Commerce Clearing House 2.20 July 27 American Banker 3.40 July 28 Bureau of National Affairs Aug. 6 New York Times 3.40 Aug. 13 American Banker 13.70 Aug. 16 San Antonio Express News 18.10 Aug. 30 PSI Publications 9.50 Sept. 8 Daily Bond Buyer 25.10 Sept. 14 New York Times 3.10 15.10 3.70 15.10 public interest Board order 2.20 public interest 17.50 11.30 1.50 (waived) under 20 pages DIN Action assigned Mr. Wiles GLISI4, OKLA.. CHAIRMAN I WE JLS.' N.Y. 4RY A.ShXMAN. CALIF. N L BURTON, CAUF. JOHN CONYERS, JR., MICH. THOMAS N. KINDNESS, OHIO JOHN N. ERLENDORN, ILL. HIENDEU- BAILEY, MO. NINETY-SEVENTH CONGRESS 225-3741 Congrews of tbe Elniteb 'tate jijoucie of Repregentatiba GOVERNMENT INFORMATION AND INDIVIDUAL RIGHTS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING, ROOM B-349-B-C WASHINGTON, D.C. 20515 -ktv 11110 ryl , or % ) C' September 8, 1982 The Honorable Paul A. Volcker Chairman, Board of Governors The Federal Reserve System Federal Reserve Building Washington, D.C. 20551 Dear Mr. Chairman: Susan A. Meyer, the publisher of Capitol Reports, Inc., has written to me complaining of a recent change in Federal Reserve policy with respect to fee waivers under the Freedom of Information Act. Until recently, the Federal Reserve routinely granted fee waivers to members of the press who used the FOIA to obtain information. According to Ms. Meyer, there has apparently been a change of policy, and the Federal Reserve is now denying fee waivers to at least some bona fide members of the press. I would appreciate it if you would explain to me what the current policies of the Federal Reserve are with respect to fee waivers for the press. I would also like to know if there have been any recent changes in policy and, if there have, the reasons for the changes. Finally, I would like a list of all FOIA 1 requests where fee waivers were denied members of the press in the last year. Let me make clear my own view that it was Congress' intent that fee waivers should be granted liberally by agencies. It was also Congress' intent that fee waivers should be granted as a matter of course for FOIA reauests submitted by legitimate press representatives. There is no more effective way to further the Act's goals of informing the public of the operation of the government than to allow the press maximum access to agency documents. Any significant deviations from the policy intended by Congress will be the subject of scrutiny from this Subcommittee. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -2- A. Volcker The Honorable Viiu. September 8, 1982 Thank you for your attention. I would like to have your response within two weeks of the receipt of this letter. If LIII you or your staff have any questions, please contact Subcommittee counsel Robert Gellman. Sincerely) lenn Chairm n GLE:rg:kar https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ish October 6, 1982 The Honorable William Proxmire United States Senate 20510 Washington, D.C. Dear Senator Proxmire: Thank you for your letter of September 17 forwarding correspondence you received from your constituent, Mr. Helge S. Christensen, of the Wisconsin Independent Bank. As you are aware, on August 4, 1982, the Federal Reserve Board published for public comment a proposal to improve the speed and efficiency of the nation's payments mechanism by speeding up the collection of checks. More specifically, the Federal Reserve Banks have restructured their interdistrict transportation system (ITS) in order to improve the speed with which checks are collected. With the modifications to ITS, the Federal Reserve is proposing to accept checks at later hours than they currently are accepted. In addition, the Reserve Banks propose to establish 12:00 noon as the uniform presentment time for checks drawn on Reserve city depository institutions and certain large institutions located outside Reserve cities. The combination of these chanoes is expected to increase the number of checks collected in one day, thus improving availability for depository institutions and their customers. The comment period has just ended. Our staff reports a very large number of public comments from commercial banks, savings and loan associations, credit unions, trade associations, consumer groups and members of the public. It is too soon to have even a preliminary assessment of these comments. Once the comments have been analyzed and summarized by the staff, the Board will carefully evaluate them in the further consideration of this proposal. We appreciate the efforts of all those who commented on this proposal. The Federal Reserve System is committed to the full implementation of the Monetary Control Act of 1980. We believe our actions, including the essential elements of the current proposal, will continue to demonstrate our commitment to the spirit and intent of the Act. We will advise you of the action taken on this proposal. Sincerely, LSM:CO:pjt (#V-217) bcc: Mr. Meeder Mrs. Mallardi (2) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Sgaul A. Volckec Action assign.e4 Mr. Allison; into copy to Vice Chairman Martin JAKE OAR/4, UTAH, CHAIRMAN JOHN TOVar''.., TEX. JOHN HEINZ, PA. .,,,WILLIAM I— ARMSTRONG, COLO. RICHARD G. LUGO" RIO. ALFONSE N. DAMATO, N.Y. JOHN H. CHAFES, R.I. HARRISON "JACK** SCHMITT, N. M. NICHOLAS F. BRADY. N.J. M. DANNY WAI.J„, STAFF DIRECTOR 110111EAT W. RUSSELL, MINORITY STAFF DIRECTOR https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • DONAL—D W. RIEGLE, JR, MICH. WILLIAM PROXMIRE. WIS. ALAN CRANSTON. C.ALJF. PAUL S. SARS.041.S. MD. CHRISTOPHER J. DODO, CONN. ALAN J. DIXON, ILL. JIM SASSER, TENN. 11Cnifeb Ziatez .Senate COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS WASHINGTON. D.C. 10510 September 17, 1982 ttio -.Vrn .1,•-•••• Fr 4f711 The Honorable Paul Volcker Chairman Federal Reserve Board 20th and C Streets, N.W. Washington, D.C. 20551 Dear Mr. Chairman: I am forwarding to you a copy of a letter from a community banker in my home state of Wisconsin in support of improved check collection times and services. I would appreciate your providing me with your comments so that I may respond to Mr. Christensen. sincerely, lam WP/ hg enclosure r'.x 1 ry-4 - i i-44 Wisconsin Indepa: g'griVA3r 30 West Mifflin Box 2238 Madison, Wisconsin 53701 608-251-2001 September 8, 1982 Senator William Proxmire 5241 Dirksen Senate Office Building Washington, D.C. 20510 Dear Senator: ing the role of community banking You and I have spoken before regard and related subjects. king is under pressure and needs Currently, an ally of community ban ss, tem, responding to the will of Congre direction. The Federal Reserve Sys Control Act is proposing implementing as established by the 1980 Monetary being services. In doing so, the Fed is improved check collection times and banking deeper in the area of correspondent accused by large banks of entering d. and litigation is being threatene al to the check collection process We regard the Federal Reserve as vit Monetary vice enhancement. Also, the 1980 ser g uin tin con its age our enc and colthe Fed to act to improve the check n upo ent umb inc it e mad Act l tro Con improve efficiency. lection process, reduce float and it important that a government During this comment period, we feel e eral Reserve Board of the 1980 mandat Fed the ind rem e tur sta r you of der lea a. efforts in the check collection are 's Fed the age our enc and ss gre Con of Thank you. Sincerely, Helge S. Christensen President also Secretary-Treasurer Independent Bankers Association of Wisconsin me https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Member of Federal Deposit Insurance Corporation. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20 551 October 1, 1982 PAUL A. VOLCKER CHAIRMAN The Honorable Benjamin S. Rosenthal Chairman Subcommittee on Commerce, Consumer and Monetary Affairs Committee on Government Operations House of Representatives Washington, D.C. 20515 Dear Chairman Rosenthal: Your letter to me of September 2 requested that I provide a status report on the proposal of the Federal Financial Institutions Examination Council that all insured commercial banks be required to report quarterly to the federal banking supervisory agencies the amounts of their past-due, non-accrual and renegotiated "troubled" loans and lease financing receivables. The proposal, as originally submitted to the Office of Management and Budget, called for this information to be reported beginning with the Report of Condition for September 30, 1982, and for the information to be made available to the public beginning with the Report for March 31, 1983. (Inclusion of information on past-due loans in the quarterly Report of Condition is a new requirement for state banks supervised by the FDIC and the Federal Reserve, but for several years National banks have had to report to the Comptroller of the Currency a somewhat similar schedule, which has not been made available to the public.) OMB disapproved the original proposal, but after some discussion has subsequently approved the proposal with a one quarter delay in implementation--i.e., reporting will begin with the Report for December 31, 1982, and the information will be made available to the public beginning with the Report for June 30, 1983. This one quarter delay in implementation, which is acceptable to the agencies, will provide banks more time to prepare for the new requirements. There is also a change in the substance of the public disclosure provision. The information on loans past due 30-89 days will not be disclosed but all the other information--90 days past-due, non-accrual, and renegotiated loans--will be made available to the public on request. This meets the industry's most serious and persuasive complaints about the dangers of possible public misinterpretation of the information and brings this disclosure into closer conformity with SEC standards. A few changes were also made in the details of the information to be reported in order to ease the reporting burden on banks. The precise nature of the information that will be collected is indicated in the enclosed draft forms for the new schedule. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Benjamin S. Rosenthal Page Two Given OMB final approval of the proposal, the question of overriding OMB's decision, authority for which is given to "independent regulatory" agencies in section 3507(c) of the Paperwork Reduction Act of 1980, does not arise. As there was some confusion in the press accounts, I should also note that the Council proposal on past-due loans wSs the first stage of a more comprehensive proposed revision of the quarterly Reports of Condition and Income and the only stage that has so far been submitted to OMB. The second stage provides for (a) the adon of schedules on interest-rate sensitivity and on contingent liabes and other off-balance sheet items bearing on the condon of banks; (b) the quarterly reporting of income by smaller banks that now report on a less frequent basis; and (c) the deletion of certain schedules currently required. This second stage has been approved by the Council for implementation with the Reports for March 31, 1983, with a number of changes from the original proposal stemming from the comment letters received and from further discussions with the industry, and will shortly be submitted to OMB. The third stage--involving both additions to and deletions of reporting requirements, as well as a number of changes in the structure of the reporting format—is scheduled Srmp e aton with the Reports for March 31, 1984. Submission of the third stage to OMB is a few months off. A version of the entire package of proposals was distributed for public comment earlier this summer and a large number of comments were received from the banking industry and from others. I hope that this information is useful. know if I can be of further assistance. Sincerely, Wad rt. VO.ckec Enclosures SS:pjt (#V-204) bcc: Stan Sigel Mrs. Mallardi (2) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Please let me FFTEC 021a—reporting form for banks with foreign offices or Edge Act or Agreement subsidiaries , Na. Supervisory Supplement 1: Past Due, Nonaccrual, and Renegotiated Loans and Lease Financing Receivables A Past due 30 thru 89 days & still accruing Type of Loans and Lease Financing Receivables 1. Past due 90 days or more and still accruing Nonaccrual Renegotia "trouble debt In domestic offices a. b. C. d. e. Real estate loans . . • . • • . • XXX XXX XXX XXX Commercial and industrial loans. • . XXX XXX XXX XXX Loans to individuals for household, family and other personal expenditures . . • XXX XXX XXX XXX Loans to finance agricultural production and other loans to farmers 1/. XXX XXX XXX XXX All other loans and all lease financing receivables . . . . XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX 2. In foreign offices 3. TOTAL (sum of items la through le and 2). . • • • 1/ To be reported separately only if agricultural loans in the domestic offices of the bank exceed one percent of total loans. If less than one percent, include in line e. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4- ' ITIEL: 021b—reporting form for banks with domestic offices only and with total assets of $100 million or =re Supervisory Supplement 1: Past Due, Nonaccrual, and Renegotiated Loans and Lease Financing Receivables A Type of Loans and Lease Financing Receivables Past due 30 thru 89 days and still accruing 1. Real estate loans . • • 2. Commercial and industrial loans 3. 4. 6. • Nonaccrual Renegotia "trouble debt • Loans to individuals for household, family and other personal expenditures • . • • XXX XXX XXX XXX XXX XXX XXX XXX Loans to finance agricultural production and other loans to farmers , 5. • Past due 90 days or more and still accruing t. • All other loans and lease financing receivables . • . . . . • TOTAL (sum of items 1 thru 5) \y TO be reported separately only if agricultural loans in the domestic offices of the bank exceed one percent of total loans. If less than one percent, include in line e, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis FFIEC 021c—reporting form for banks with domestic offices only and total assets of less than $100 million Supervisory Supplement 1: Past Due, Nbnaccrual, and Renegotiated Loans and Lease Financing Receivables A Types of Loans and Lease Financing Receivables Past due 30 thru 89 days and still accruing Past due 90 days or more and still accruing 1. Real estate loans . • . • XXX XXX 2. Commercial and industrial loans XXX XXX Loans to individuals for household, family, and other personal expenditures ... XXX XXX Loans to finance agricultural production and other loans to farmers I/. . XXX XXX All other loans and all lease financing receivables .. XXX XXX TOTAL (sum of items 1 thru 5) . . . • . . XXX XXX 3. • • . • Nonaccrual XXX 1/ To be reported separately only if agri cultural loans in the domestic offices of the bank exceed one percent of total loans. If less than one percent, inclnatin line e. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Renegotia "trouble( debt XXX P,ENJ/,M/AK ROSENTHAL. N.Y., CHAIRMAN JOHN CONYERS, JR., MICH. EUGENE V. ATK I NSON, PA. STEPHEN 1..„ NEAL, N.C. DCMJL BARNARD, JR., GA. PETER A. PEYSER. N.Y. BARBARA B. KENNELLY, CONN. _Action assignel IkedifiTve441"/ ; info copy sent GOV. Partee NINETY-SEVENTH CONGRESS Congroz of tbe tiniteb'11)tact LYLE WILLIAMS, OHIO NAL DAUB, NEBR. WILLIAM F. CLINGL • JOHN MILER, IND. MAJORITY—(20. jiptuseofileprezentatibez COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING. ROOM B-977 WASHINGTON. D.C. 20515 September 2, 1982 r,"1 c?? Hon. Paul A. Volcker Chairman Federal Reserve Board Washington, D.C. 20551 Dear Mr. Chairman: On Tuesday, August 31, the press reported that the Office of Management and Budget had disapproved new reporting requirements, recommended by the Federal Financial Institutions Examination Council, that would have resulted in the collection and public disclosure of past due and rescheduled loans and other data reflecting the condition of our nation's banking institutions. These press accounts indicated that the Federal Reserve Board and the FDIC possess authority to override the OMB decision. I am writing for your assessment of and a status report on this situation. In providing the assessment and status report to the subcommittee, please include answers to the following questions: 1. 2 a. Describe the precise nature of the information that your agency would obtain and/or publish under the Examination Council's proposal; b. To what extent, if any, does your agency presently receive or have easy future access to this information? a. What specific impact, if any, will the OMB decision have on your plans for gathering and making public this information? b. State your agency's present plans for going forward with the data gathering and publication effort. If you plan to implement the Council's proposal, please state when. If you do not plan to do so, set forth the reasons why. A response by September 15 would be appreciated. Si cerely enjamin S. Rosenthal Chairman BSR:psb:v https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis (i, R/1, • ''(-)• 0 •• • , . tAlia- A :2-: BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551 • t'▪ '' _, _ .c.o. •-fRAL itF.-' ••.•••• PAUL A. VOLCKER September 30, 1982 CHAIRMAN The Honorable Steny H. Hoyer House of Representatives Washington, D.C. 20515 Dear Mr. Hoyer: Thank you for sending me a copy of the letter from Louis Goldstein, Controller of the Treasury of the State of Maryland. I agree with you that he raises some important issues regarding differences between federal and state government budgeting problems. His comment that "high-lev elemployment revenue estimates should be the basis for the balanced federal budget" parallels, as I remember it, some comments I made to you in our conversation. When discussing the need for reducing the size of the federal budget deficit, I try to stress the importance of differentiating between the cyclical component of the defi cit and the structural component. When deliberating on fisca l policy for long periods ahead, it is the latter which matte rs most. Indeed, the greatest concern now is that the struc tural deficit--that which would persist even after the econ omy returned to a satisfactory level--remains so large. Unfortunately, there is no general agreement on precisely what level of economic activity to use. Mr. Goldstein, for example, stresses that the high-employment level used for federal fiscal policy decisions should be lower than the current concept of full employment, which is around a 5 percent unemployment rate. In the 1960s a lower unemployment rate was considered to be the proper figure. More recently, many have thought (along with Mr. Goldstein) that a level even high er than 5 percent--perhaps 6 or 6-1/2 percent--is more appropriate. While not arbitrary, it appears that the high-level unemployment figure is still not a neutral estimate which remains fixed over time, and becomes in turn part of the political (as well as "scientific") debate. Unfortunately, projections of federal receipts and outlays, even at an agreed upon high-employment level, would contain considerable uncertainty. The state of the art for making forecasts remains such that the difference between policy views and projections is frequently difficult to discern. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Steny H. Hoyer Page Two As you know, the Congress already receives estimates of high-employment budget revenues and expenditures. The Congressional Budget Office provides these figures in their regular and special reports on Administration budget reouests. The Bureau of Economic Analysis (in the Commerce Department) also prepares such estimates. These estimates are not binding on budget resolutions or on appropriations that must be set in terms of actual expenditures. They do, however, provide an alternative assessment of outlays and revenues, on a basis similar to that suggested by Mr. Goldstein. They are independent of forecasts of actual unemployment and may be a useful planning guide. There, I think Mr. Goldstein is on the right track. Of course, as we have discussed, the idea of creating an independent board to estimate revenues also has some obvious attractions. Powever, substantial Capability and expertise already exist within Congress and the Fxecutive branch. Uence, a basic framework for some type of agreement on economic projections of the structural deficit would appear to be already at hand. In summary, I agree with Mr. Goldstein's stress on the need to consider structural revenues and to find ways in which the government can improve the federal budgeting process. I remain somewhat doubtful that an independent revenue board would add significantly to Congressional budget deliberations. In any event, the deficit is now large enough by any definition that the need for decisive action to deal with the budget dilemma should be evident without procedural reforms, although this doesn't take away from the value of continued work on procedures. Sincerely, AT:SL:JLK:NS:PAV:vcd (V-183) bcc: Mr. Teplin Ms. Lepper Mr. Kichline Mrs. Mallardi (2)-/ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Action assigned Mr. Kichline Congrefs5 of Me tiniteb tate5 jboulie of 1eprefentatibe5 COMMITTEES: POST OFFICE AND CIVIL SERVICE STEN Y H. HOVER 5TH Durnucr. MARYLAND https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis bautington,10.e. 20515 August 12, 1982 RANKING. FINANCE AND URBAN AFFAIRS ( cD --,1 --,1 Fi ..... un 3::31 = nrfl „r1 .....:TT1 F7-1, =c; The Honorable Paul Volcker Federal Reserve Board 2000 Constitution Avenue Washington, D.C. r•-• __ 77-ms <I' ,•'-.. . ..... r.. — :_c Is. ...-: LA) I am enclosing herewith a copy of a letter that I have received from Louis Goldstein, the Comptroller of the Treasury of the State of Maryland. I thought the letter was well done and makes some excellent points with respect to the proposals for a Board of Revenue Estimators and the definition of "revenues." I therefore thought you would find it of interest. I would appreciate any comments that you might have. Sincerely yous, /STENY H HOYER MemberJf Congress c-; 0) Dear Chairwan Volcker: SHH:lcin re. -4 — ...... , .v• • LOUIS L. GOLDSTEIN COMPTROLLER OF THE TREASURY STATE TREASURY BUILDING P. 0. BOX 466 ANNAPOLIS. MARYLAND 21404 269-3801 August 5, 1982 Honorable Steny H. Hoyer Member of Congress House of Representatives 1513 Longworth House Office Building Washington, D.C. 20515 Dear Steny: This is which proposes to heartedly support Maryland for many in response to your request for my comments regarding HR6866, establish a federal Board of Revenue Estimates. I wholethis concept, which as you know has worked extremely well in years. There are several problems arising from the basic differences in federal and state budgeting environments which I wish to note. These differences may dictate a modification in the definition of revenues to be forecast by the proposed Board. First, as you are aware, federal budget policy goes beyond state budget policy by addressing the need for countercyclical fiscal stimulus and/or restraint. Thus, it is desirable that the federal budget run appropriate deficits during recessionary periods and appropriate surpluses during peak periods of economic growth and full employment. Assuming the economy's turning points between recessions and recoveries arE correctly forecast in the revenue estimating process, constraining the federal budget to estimated revenues would convert it into a pro-cyclical instrument whereby high budget growth would accompany expansion periods and slow budget growth and/or budget cutbacks would accompany recessionary periods. Second, for numerous economic, geographic, sociologic and legal reasons, the economy of a state is much more "open" than the U.S. economy. This means that the economic impacts of internal occurances (e.g., building a road in Maryland) tend to diffuse beyond state boundaries much more so than beyond national borders. Conversely, the impacts of external occurances (e.g., building a road in Virginia) tend to be felt much more within a state than https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis My t•Isphon• numb•r is (301) - 269-3801 AN EQUAL OPPORTUNITY EMPLOYER • Honorable-Steny H. Hoyer Page Two August 5, 1982 within a nation. Put another way, the nation is more sensitive to "feedbacks" than any of its component states. Thus, while revenues may be estimated independently of expenditures in a state, the level of budgeted expenditures must be considered in estimating federally-collected revenues due to the inherent feedbacks between government expenditures, economic activity, the tax base and revenues. Third, the requirement for quarterly revisions -- while unavoidable in today's complex and fast-changing economy -- will inevitably create problems in the protracted federal budget process. While states generally adopt budgets fairly quickly and as a complete package, the federal budget evolves in stages throughout the fiscal year. This means that as many as three quarterly revisions in revenue estimates could be prepared before the entire federal budget is adopted. Significant changes in these revenue estimates (which are indeed likely to occur) could wreak havoc in this process by discovering revenue windfalls or shortfalls which may entail reopening those portions of the budget which had already been enacted. These problems may be overcome by changing the definition of revenues. Instead of forecasting actual revenues (i.e., the amounts to be collected and available for funding the budget), the Board should be charged with estimating the actual and potential revenues associated with a reasonably high level of employment. Such a level should not be the current concept of full employment, but should be somewhat less, perhaps 6 percent to 7 percent unemployment. This would provide the following advantages: (1) It would allow the full range of federal countercyclical policies (deficits in recessions and surpluses in boom periods) to be used to alternatively stimulate or restrain national economic growth; (2) It would minimize the incremental impact of pending government spending policies on future economic growth, thereby removing much of this uncertainty from the underlying forecast assumptions; (3) It should minimize the disruptive impact of fast-changing economic scenarios on future revenue prospects, thereby minimizing the size of the revisions in revenue estimates (which otherwise may wreak havoc on the budget process itself). Ordinarily, the "high-level -employment" assumption should not change significantly over the course of a year, and therefore the resulting revenue estimates should remain relatively stable On the other hand, the transition of the economy from recession to recovery or recovery to recession can occur rather abruptly, with significant implications for revenue prospects. In summary, I believe that high-level -employment revenue estimates should be the basis for the balanced federal budget instead of actual revenue forecasts. This substitution would probably blunt most of the serious criticisms of this approach. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • Honorable-Steny H. Hoyer Page Three August 5, 1982 Again, I am wholeheartedly in support of a federal Board of Revenue Estimates. I believe this concept would go far in restoring discipline to the federal budgeting process, and I am glad you have introduced legislation to implement it. If I can furnish additional information concerning this subject, please let me know. With kindest personal regards and best wishes, I remain Cordial yours, Goldstein Comptroller of the Treasury LLG:RDR:doj cc: Robert D. Rader https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis HOUSE OF REPRESENTATIVES WASHINGTON, D. C. 20515 TOBY ROTH WISCONSIN https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis September 29, 1982 Dear Mr. Chairman: Thank you for taking time to meet with me today. I greatly appreciated the chance to hear your assessment of our economic problems and your forecast for the future. I was pleased to learn that we are in basic agreement about the goals for our nation's economy. You can be certain that I will keep your points in mind while traveling in my District. As you well know, many Americans are distressed by high interest rates, yet they do not fully understand all of the underlying economic problems that have lead to the current high rates. Your assessment was therefore particularly beneficial and will be useful to me when talking about this issue with my constituents. Again, I want to thank you for meeting with me. I look forward to working with you in the future on other issues which are of mutual concern. Since e tti/ , TOBY poTH Memb'r of Congress Hon. Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th & Constitution, NW Washington, D.C. 20551 4 September 29, 1982 The Honorable Benjamin S. Rosenthal Chairman Subcommittee on Commerce, Consumer and Monetary Affairs Committee on Covernment Operations Washington, D.C. 20515 Dear Chairman Rosenthal: In your letter to Chairman Volcker of September 28 you asked for information in the possession of the Federal Reserve identifying the individual majority controlled business interests of IRI, together with the nature of the business activity of each and the size of each. In addition, you asked for all information in the possession of the Federal Reserve regarlinq the U.S. business activities of each of these business entities. As to IRI's activities in the United States, we have enclosed data on foreign investments in the United States compiled by the Commerce Department for 1977, 1978, and 1979 as well as tables from IRI Annual Reports listing all controlled companies. Additional information is contained in the most recent IRI Annual Report, a copy of which is enclosed. Sincerely, (Signed) Donald 1. Winn Donald J. Winn Assistant to the Board Enclosures NJ:MB:pjt (#V-224) bcc: Ms. Jacklin Mr. Bradfield Mrs. Mallardiv/ Legal Records (2) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Action assigned to Jacklin, Dahl, Gemmill IBENJAM.‘5. ROSENTHAL. N.Y., CHAIRMAN JOHN COP:YERS. JR.. MICH. EUGEN'•/. ATKINSON, PA. STEPre N L NEAL. N.C. DOUG BARNARD, JR., GA. PETER A. PEYSER, N.Y. BARBARA B. KENNELLY, CONN. LYLE WILLIAMS, OHIO HAL DAUB, NEBR. WILLIAM F. CLINGER, JR., PA, JOHN HILER, IND. NINETY-SEVENTH CONGRESS Congre55 of the Uniteb gptatO MAJORITY—(202) Pottle of 1epre5entatibel COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING. ROOM B-377 WASHINGTON, D.C. 20515 -11 September 28, 1982 Hon. Paul A. Volcker Chairman Federal Reserve Board Washington, D. C. 20551 Dear Mr. Chairman: The Commerce, Consumer, and Monetary Affairs Subcommittee, in preparation for its forthcoming hearing on September 30 on foreign investment in U.S. banks, needs background information on the nature of the commercial business interests with which the Long Island Trust has become indirectly affiliated through the Italian Government holding company IRI. You have already supplied to the subcommittee the IRI organization chart that was attached as appendix 2 to the May 21, 1982, memorandum to the Board from the Division of Banking Supervision and Regulation. This chart does not provide any information, however, on the U.S. activities of IRI's affiliates and subsidiaries, or on the sizes of the affiliates and subsidiaries. Please provide, therefore, at least 24 hours prior to the hearing, all additional information in the possession of the Federal Reserve identifying the individual majority controlled business interests of IRI, together with the nature of the business activity of each and the size of each. In addition, please provide all information in the possession of the Federal Reserve regarding the U.S. business activities of each of these business entities. Si cerely, amin BSR:dtb https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Rosenthal 225-4407 4, .•••Of GOvi'••. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551 PAUL A. VOLCKER CHAIRMAN September 29, 1982 The Honorable Robert J. Dole Chairman Subcommittee on Courts Committee on the Judiciary United States Senate Washington, D.C. 20510 Dear Mr. Chairman: I am writing to convey my views concerning proposed technical amendments to the Bankruptcy Reform Act of 1978 ("Code") that I understand will be considered by the Senate Judiciary Committee to exempt repurchase transactions (repos") from the automatic stay provisions of the Code. These amendments are being proposed because recent developments in the repo market--including the bankruptcy of a dealer in this market--have pointed up a number of legal inconsistencies concerning risks involved in what had been thought to be a riskless transaction. Repos are contractual agreements for the sale or loan of a security which include a provision requiring the seller or lender to take back the security at a fixed price plus, in many cases, an additional sum representing a yield on the investment. They are especially attractive to market participants because of their flexibility as to maturity and the amount that may be invested. Repos are used by a wide range of entities in addition to government securities dealers, including states, municipalities and other public bodies, financial institutions, and pension funds, to employ funds on a secure basis through temporary acquisitions of various kinds of securities, including U.S. government and agency securities, bankers' acceptances and CDs. In addition, repos are a very important tool used in Federal Reserve open market operations and in financing the national debt. Therefore, because of this widespread use in very large amounts, it is important that the repo market be protected from unnecessary disruption. A recent decision of the Bankruptcy Court highlights the need to review the structure of the rules affecting the treatment of repos under the Code. In a proceeding arising out of the failure of LombardWall, Inc., the Bankruptcy Court in the Southern District of New York held that the holder of securities subject to a repurchase agreement was covered by the automatic stay of the Code, and that this holder was precluded from closing out its position with the debtor. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4 • The Honorable Robert J. Dole -2- This decision casts doubt, in a bankruptcy context, on the liquidity and safety of repos. The decision not only subjected the repo participant involved in that case to unanticipated liquidity pressures, but it also exposed that participant to an increased risk of capital loss because of potential changes in interest rates. If repos are subject to the automatic stay in bankruptcy, the rippling effect of the potential loss of liquidity or capital on market participants could generally disrupt the repo market and cause an otherwise manageable and isolated problem to become generalized. The proposed technical amendments would resolve these legal uncertainties by exempting repo transactions from the automatic stay in bankruptcy. A similar approach was taken under legislation enacted earlier this year which exempts stock brokers, security clearing agencies, commodity brokers and forward contract merchants from the automatic stay. These recent amendments, according to the House Report (NO. 97420), were intended to minimize the disruptive effects arising out of the "insolvency of one commodity or security firm," and to prevent such effects "from leading to the insolvency of other firms and possibly threatening the collapse of the affected market." The proposed legislation has the same objective but would take a somewhat different approach. Instead of protecting certain classes of market participants, it would exempt a particular class of transactions-the repo. Because of the uniqueness of this market, I believe this is a reasonable approach. The normal process in evaluating legislation of this kind would involve a great deal more public discussion, including an opportunity for the public to be heard at Congressional hearings, and I would usually prefer that changes of the kind now under consideration follow this route. I also believe that we should act in a manner that maintains market discipline on participants to assure the creditworthiness of the entities with which they deal. On balance, I believe it is important to take the present opportunity to enact legislation to clarify the rules applicable to repos and to avoid what I believe to be major possibilities for disruption in the repo market. However, in this context, I believe that it would be preferable to draw the legislation in a relatively narrow manner and to confine its application to the key repo markets in U.S. government and agency securities, bankers' acceptances and certificates of deposits. A technical amendment to the Code limited in this manner would, in my view, be justified and should be enacted at the present time. Sincerely, firedlaffel MB:mam bcc; Mr. Bradfield Mrs. Mallardi (2) ,/ Legal Records (2) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis •''of GOvi•. '0 •i- BOARD •• OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 PAUL A. VOLCKER September 27, 1982 CHAIRMAN The Honorable Fernand J. St Germain Chairman Committee on Banking, Finance, and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Mr. Chairman: I appreciate the opportunity to provide my views on S. 2879, the Depository Institutions Amendments of 1982, a bill which was passed by the Senate on September 24, 1982 and on which your Committee held hearings on September 20 and 21, 1982. The bill contains eight major parts encompassing the so-called Regulator's Bill, capital assistance for depository institutions, expanded powers for thrift institutions, amendments to the National Bank Act and the Federal Credit Union Act, a limitation on the insurance activities of banks, a miscellaneous title, as well as a title on alternative mortgage transactions. On October 29, 1981 I testified before the Senate Banking Committee on a bill containing many of the same provisions. Because the views I expressed then are still relevant to the new bill I have included a copy of this testimony for inclusion in your record. The comments that follow are guided by the criteria cited in that testimony and are limited to the major provisions of the bill that are of concern to the Federal Reserve. I would also like to note that I have not had an opportunity to review in detail the changes made in the bill on the Senate floor. The Regulator's Bill The Board has been a consistent strong supporter of the Regulator's Bill. This legislation was conceived mainly as a vehicle for providing a greater flexibility for the regulators to deal with the severe problems currently facing thrift institutions. It is still vitally important for that reason. Increased flexibility for the regulators to deal with troubled depository institutions has become equally important in the light of recent problems faced by certain banks. This long sought and long delayed legislation should be enacted as soon as possible. Capital Assistance Title II, the capital assistance provision, enables the depository institution insurance funds to develop a program calling for the issuance https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Fernand J. St Germain Page Two of capital instruments by depository institutions in exchange for notes of the insurance agencies. These transactions are designed to bolster net worth and partially offset the effects of financial losses. The section carefully prescribes the circumstances under which institutions are to be assisted in order to assure that assistance is provided only to those institutions that have reasonable prospects of longer-term viability. Without a capital infusion program, the number of assisted mergers and perhaps even liquidations would likely involve, in the end, commitments by the insurance funds. We believe, looked at as a budgetary matter or in terms of probable ultimate commitment of funds, capital infusion in selected instances is likely to be substantially more economical than other approaches. That result would be achieved by forestalling the need for mergers or liquidations of institutions that can be viable in the long run. At the same time, the bill should prevent the need to merge or liquidate institutions that can stand on their own feet over time, but would otherwise be required to be closed. Together with the Regulator's Bill, the Federal Reserve supports the capital assistance legislation and urges its prompt enactment; we find the approach incorporated in S. 2879 substantially preferable to the approach in the House passed bill. These two Titles, taken together, meet one of my basic criteria for new legislation--the flexibility they provide will provide the regulators with the authority that will assist in maintaining a safe and sound banking system. Increased Powers For Thrifts Title III broadens the asset and liability powers of thrift institutions by permitting Federal savings and loans to make commercial loans to businesses and accept demand deposits from those that possess a business connection with the institution. In addition, it also allows overdrafts, larger limits for commercial real estate loans, leasing, and the ability to carry out these and other activities through service corporations. Consistent with the criteria outlined in my testimony, I believe it is important to maintain thrifts as specialized lenders with a focus on meeting housing, community and smaller business needs. The scope of the powers contained in this Title providing for commercial lending in various forms is somewhat broader than necessary to meet what I envisage as the desired purpose. It follows that in my view the powers provided for in S. 2879 should not be considered as a first step toward still broader commercial lending authorities, but as a sufficient (or more than sufficient) grant of power necessary to round out their existing housing finance authorities to allow them greater flexibility to manage in a more complex financial environment and to offer more complete community financial services. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Fernand J. St Germain Page Three Thrifts, after passage of Title III, will continue to have a separate, different, and in some important ways more flexible regulatory environment. This arrangement can maintain any validity only so long as thrifts perform a specialized role among depository institutions; and it would be inconsistent with a safe and sound banking system to create in the future a new variety of commercial banking institutions with different powers and a separate regulatory structure. The bill, as it stands, does not fully address these issues of branching, nonfinancial ownership links, and the like reflected in my earlier testimony. The Differential and Mandate to DIDC Title III also speeds up the process of deregulation of interest rate ceilings now being administered by the DIDC. It would, as amended by a joint proposal of Senators Garn and Riegle, call for the elimination of all interest rate differentials no later than January 1, 1984. This proposal is fully consistent with the actions taken by the DIDC on its most recently established new deposits to eliminate the differential as interest rates decline. Now that the Treasury bill rate has declined below 9 per cent the differential has been substantially eliminated on the two most recently established by the DIDC. The proposal also calls for the DIDC to create a new deposit instrument, not subject to a differential, that would be "directly equivalent to and competitive with" money market mutual funds. While the details of the new instrument are not explicitly provided for, it is understood that an initial minimum denomination of $5,000 is considered appropriate and that a rate ceiling, if one is imposed, should be high enough to enable depository institutions to compete effectively with alternatives available in the market. To the extent the instrument can be used for transactions purposes, considerations of competitive equity, financial structure, and monetary control raise difficult questions with respect to transaction account reserve requirements. As you know, I have been concerned that changes in deposit instrument characteristics that could result in substantial and accelerated outflows of funds from low cost savings accounts would have major adverse consequences for thrift and bank earnings and ultimately for the financial system at a time of other economic pressures on earnings capacity and capital positions of depository institutions. In our view, there is a likelihood that any additional earnings obtained from attracting new funds to a competitive instrument and investing them at a small spread would be much more than offset by the effect of having to pay far more for the funds now in savings accounts, much of which would surely shift if a high yielding, high liquidity, low minimum balance instrument were offered by banks and thrifts. This shifting would have been all the more serious and disruptive in a high interest rate environment, but its potential consequences would be less troubling and less significant assuming a sustained decline in rates. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • The Honorable Fernand J. St Germain Page Four The concern about shifting is also relevant with respect to demand deposits, which currently may not be interest-bearing pursuant to law. To the extent the new account contemplated by the bill has transaction capability and universal eligibility, the incentives for businesses to switch over, with further adverse effects on earnings, are clear. I am also concerned that the DIDC retain flexibility to take into acount the effects of its actions on the financial structure as well as on monetary policy. I am, for example, concerned about the stabty of a financial structure which comes increasingly to rely S n variable market rate financing on a demand basis, and I believe it is appropriate for the DIDC to take such topics into consideration. Moreover, the creation of a market rate transaction account is likely to induce depositors to mix their transaction balances and investment funds into one account. Such a mixing will make it much more difficult to interpret movements in the monetary aggregates. Thus--for all these reasons--if Congress should decide to act in this area, we would prefer the legislative language which maintains the greatest degree of flexibility for the DIDC. In this context I would like to emphasize that I fully recognize the dilemma faced by the banking industry--limited in the ability to compete for consumer deposits at money market rates and restrained in the geographic exercise of banking powers, while at the same time facing competitors who are entirely free from these impediments. Some of these restrictions have been necessary for reasons of public policy or are inherent in the business of banking. But stating the dilemma is not enough--solutions both administrative and legislative are required. Carefully crafted legislative solutions addressing both the problems of banks and of banks' unregulated competitors, and consistent with the criteria outlined in my October testimony, are essential. In that connection I would like to recall that legislative action dealing with depository institution liabty powers only addresses a part of the competitive problem. For example, money market funds, in addition to freedom from interest rate cegs, are also not subject to reserve requirements and other regulatory constraints on bank and thrift powers. For reserve requirements in particular, not only competitive equality but also the effective conduct of monetary policy argue that all funds being used for transactions purposes be subject to similar rules. We have previously asked Congress to grant the Federal Reserve authority to impose reserve requirements on money fund shares with transactions -apabty; we again wish to request this legislative action. In this sense we believe the bill reflects unfinished business on the legislative agenda. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • The Honorable Fernand J. St Germain Page Five Due on Sale Title III contains provisions for federal preemption of state laws relating to enforcement of due-on-sale clauses. In my testimony in October 1981 a majority of the Board supported federal preemption because of its importance to the health of depository institutions. The subsequent Supreme Court decision allowing enforcement of due-onsale for federally chartered savings and loan associations creates an unequal situation that emphasizes the desirability of a uniform rule applicable to all depository institutions. National and Member Bank Provisions Title IV contains a variety of provisions affecting national and member banks. The Board generally supports the provisions of this Title. I would like, however, to comment separately on three of the provisions. Lending Limits Section 401 of this Title increases the current 10 per cent limit on loans to one borrower by national banks to 15 per cent of capital and surplus. The Board continues to oppose this expanded lending limit because of its focus on the importance of risk diversification and the need for banks to increase their capital ratios. It seems all the more inappropriate to take this step at a time when stresses on the economy are exposing the dangers of loan concentrations. The Board believes, however, that an increase to 15 per cent to one borrower is appropriate where a bank is in a strong capital position. Thus, banks that have a relatively high capital ratio of perhaps 7 or 8 per cent would be in a better position to assume greater risk. Such a change would be especially relevant in rural areas where bank capital ratios tend to be high and the requirement of larger sized loans to individual borrowers relative to the absolute size of banks is more prevelant. I would have no objection to a specific and separate lending limit of up to 10 per cent of capital and surplus as proposed in the bill where the loan is secured, as provided in Section 401, "by readily marketable collateral having a market value, as determined by reliable and continuously available price quotations at least equal to the amount of funds outstanding. . . ." The legislative history should be clear that the Congress is referring to loans backed by strong and stable collateral and that this provision will not, for example, expand the scope for takeover luans granted against rapidly fluctuating stock values. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Fernand J. St Germain Page Six Bankers Acceptances The Board supports an increase in the limit on the amount of eligible bankers acceptances that may be issued by member banks. In the interests of competitive equality, the Board recommends that the proposal also be applied to nonmember banks just as it would be applied to branches and agencies of foreign banks. Further, it should be made clear that the Board could establish the appropriate terms and conditions for determining what constitutes participations in eligible acceptances. Insurance Activities of Bank Holding Companies Under the proposed legislation, bank holding companies would be prohibited from providing insurance as a principal, agent, or broker. I see no basis in the public interest to exclude or limit banks or any other depository institutions from participation in this field. On the contrary, in terms of increased competition and customer convenience, depository institution participation is very much in the public interest. I am aware of the concern expressed by some that banks, because of their crucial position in financial dealings, have a major advantage over other underwriters and sellers of insurance. However, the Board now has the flexibility to authorize bank holding company entry into the insurance business only if it is satisfied that the standards of the Bank Holding Company Act, requiring the Board to prevent unfair competition and avoid undue concentration of resources, are fulfilled. This requirement presents fully adequate safeguards and, at this time, allows the public the full benefits of an increased variety of insurance services. Finally, at a time when I am concerned, as I have described, about the problems posed by the competitive limitations on banks, particularly as compared with unregulated financial entities, a new statutory limitation on the activities of banking institutions seems to set a most undesirable precedent. Bank Service Corporations I understand that an amendment introduced on the Senate floor would increase the powers of bank service corporations, allowing them, subject to state and federal branching restrictions, to offer all customers the same services, other than deposit taking, that can be offered under existing law by banks and by bank holding companies, subject to appropriate regulatory approval. The Boar(3 has no objection to this proposal providing a flexible vehicle for banks to offer services that are presently authorized. However, the Board feels that it should be clear, and requests Congress to make it clear, that this arrangement should not establish a precedent for future decisions on the proper vehicle for the offering of any new bank services that may be authorized by regulation or legislation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Fernand J. St Germain Page Seven Other Provisions I have no comment on the amendments to the Federal Credit Union Act contained in Title V, and we have no objection to the Title VI amendments to Truth-in-Lending. Moreover, the Board endorses the proposal to allow public funds to be eligible for NOW accounts. On the other hand, three provisions of Title VII raise serious questions of fairness. Section 435 and Section 705 extend an already very prolonged delay in compliance with the basic rules separating banking and commerce. Section 711 provides an exception to laws concerning the phase-in of reserve requirements. I believe that these three provisions should not be enacted since they would provide exemptions for selected institutions from legislative requirements with which other banks have long since complied. I am also concerned about what is omitted--authority for depository institutions to underwrite municipal revenue bonds and offer stock and bond mutual funds. In the debate of form over substance and on the scope of perceived competitive encroachments, I believe we have lost an opportunity to allow banking institutions to offer services that are fully consistent with safe and sound banking practices and with positive public benefits in terms of increased competition and a broader variety of products. • It is my hope that Congress will address these concerns and the other issues I have raised in this letter at an early time. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Sincerely, atge,e, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551 September 24, 1982 PAUL A. VOLCKER CHAIRMAN The Honorable Henry B. Gonzalez House of Representatives 20515 Washington, D.C. Dear Mr. Gonzalez: Thank you for your letter of September 10 describing the current circumstances faced by merchants in the border area with Mexico because of Mexican exchange controls and the rapidly changing value of the peso. In your letter, you proposed that exchange facilities be provided by the Federal Reserve and U.S. Treasury to aid U.S. businessmen and their Mexican customers in the border area who have traditionally transacted business in pesos. Even with limitations on conversion to historic levels of bank peso acquisitions, it would be extremely difficult to determine whether the pesos presented for conversion were acquired through bona fide business transactions. Thus, the facility could become a vehicle for the kind of currency speculation that already has exacerbated some of the financial difficulties in the border areas and would be, I am advised, of doubtful legality under the Federal Reserve Act because, unlike the swap facilities entered into by the Federal Reserve with foreign central banks, the Federal Reserve would have no reasonable assurance of the liquidity of the foreign currency balances it acquires. More basically, in situations of fundamental imbalances, short term and specific measures cannot substitute for the economic policies that must be adopted. The United States already has undertaken significant efforts to seek to resolve the serious problems created by Mexico's current financial situation. The Federal Reserve and the Treasury have joined eleven other central banks, acting through the Bank for International Settlements, in providing substantial, immediate assistance to Mexico as a means of allowing development of a sound economic adjustment program in cooperation with the International Monetary Fund. Implementation of policies to stabilize the Mexican economy and its currency is the key to a return to orderly trade relations between our two countries, within the border areas and more generally. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Henry P. Gonzalez Par12 Two T fully share your concern about the economic din boaLions caused by exico's current problems and the particularly severe impact on the border areas. rlut I am convinced that a solution of practical value must be found within the framework of our relationships with !lexico gen erally, including common agreement as to appropriate handli ng of the border area with respect to !!exican exchange contro ls. As opportunities arise in the next few days and weeks, I believe this subject might appropriately 1-.%t3 discussed in that lar ger context; without that background, I am doubtful that nct ion alon7 the lines you propose could he successful even in its immediate purpose of restorin7 more normal trade condition s. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Sincerely, S/Paul L Votc,I4 MB:NPJ:AFC:PAV:pjt (#V-213) bcc: Mr. Bradfield Ms. Jacklin Mrs. Mallardi (2) Legal Records (2) .1. WILLIAM STANTON 11m DISTRICT, OHIO DISTRICT OFFICES, 170 NORTH Sr. CLAIR STREET PAINESVILLE, OHIO 44077 PHONE AREA Coo. 216, 352-6167 2468 RAYBURN BUILDING WASHINGTON, D.C. 20515 PHONE: AREA CODE 202. 225-5305 Congre55 of tbe Ziniteb COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS 3i)outie of ileprelentatibes4 MANTUA POST OFFICE 10748 NORTH MAIN STREET MANTUA, OHIO 44255 PHONE. AREA CODE 216, 274-8444 eithusbington, 30.e. 20515 COMMITTEE ON SMALL. BUSINESS https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis tater; September 24, 1982 MEMORANDUM TO: Chairman Volcker FROM: J. William Stanton RE: National Commission on the Federal Reserve System The following is a rough outline of the Commission referred to in the September 14th memo (attached). 1. Establishment of the Commission The Commission is envisioned as an independent instrument of the Federal Government. Membership of the Commission (Obviously, the membership of 2. the Commission is a key to its final report; thus you may wish to closely review or restructure this provision.) The Commission shall be comprised of 13 members appointed as follows: (a) The Chairman and Ranking Minority Members of the House and Senate Banking Committees; (b) The Secretary of the Treasury; (c) The Chairman of the Council of Economic Advisers; (d) The Chairman of the Federal Reserve Board; (e) The President of the New York Federal Reserve Bank; (f) Five persons from the private sector who shall be selected by the President; the Chairman and Vice Chairman from of the Commission shall be selected by the President among the five persons from the private sector. ••• • Memorandum L. - 2 - September 24, 1982 Reports of the Commission The Commission shall report to the President and Congress 18 months after the date of enactment of this law. 4. Expenses The expenses of the Commission shall be taken from the operating budget of the Board of Governors of the Federal Reserve System. (Alternatively, it would be necessary to authorize and appropriate approximately $2.5 million.) 5. Functions of the Commission (This is another key 1ij1F1. We have included numerous possible issues for the Commission to study, including some regulatory matters. These should be refined and possibly limited.) It is the purpose of this Commission to conduct a study of the policies, procedures, and structure of the Federal Reserve System with respect to: (a) the formulation and implementation of monetary policy; (b) the supervision and examination of financial institutions; (c) the provision of services provided by the System to financial institutiSns; (d) the relationship between the System, the Congress, and the executive branch; (e) the membership of the Board of Governors and the Federal Open Market Committee; (f) the structure of the district reserve banks; (g) the relationship of the Federal Reserve to other countries' central banks; (h) the relationship between the Federal Reserve System and the S ther Federal financial supervisory agencies; and (i) such other subjects the Commission deems appropriate to the stuIy. Attachment https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis >Iy TOM TAUKE 24D DISTRICT, IOWA CONGRESS OF THE UNITED STATES 4.44, COMM ITTEES AND SUBCOM M ITTEES ENERGY AND COMMERCE FOSSIL AND SYNTHETIC FUELS ENERGY CONSERVATION AND POWER TELECOMMUNICATIONS, CONSUMER PROTECTION, AND FINANCE SELECT COMMITTEE ON AGING HUMAN SERVICES July 27, 1982 Mr. Paul A. Volcker Chairman Federal Reserve System 20th Street and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Chairman: Last year, representatives of the Iowa Savings and Loan League had the privilege of meeting with David Stockman to discuss interest rates, the state of the economy, and other issues of particular importance to the savings and loan industry. This year, the Iowa Savings and Loan League is deeply interested in arranging a similar meeting with you to discuss these and other concerns. Specifically, representatives of the Iowa Savings and Loan League would like to meet with yrui_tiPxp in Washinaton at your convenience for approximately thirty minutes. If OS e arranged7Y- would be deeply appreciative, such a and I am sure that the representatives of the Savings and Loan a. n. ..ague would greatly benefit f Mb Mk esitIt at Vichser nformation about this request, plee, don't r my Administrative Assistant, Mrs. tact m at 225-2911. looking forward to your response, and I appreciat your consideration of this request. Best wishes. Sinc z il - LoA Tom Ta e Member of Congress Li- TT: jw COMMUNICATIONS SHOULD BE DIRECTED TO THE OFFICE INDICATED. 0 319 CANNON HOUSE OFFICE BUILDING WASH!nicrom, D.C. 20515 (202)225-2911 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 0 698 CENrrreAL. AVEblUE DUBUQUE, IOWA 52001 (319)557-7740 0 1756 FiRsT AVENUE, N.E. CEDAR RAPIDS, IOWA 52402 (319) 366-8709 0 116 SOUTH SECOND STREE C.1.0froN, IOWA 52732 (319)242-6180 (LI< t