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r   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Collection: Paul A. Volcker Papers Call Number: MC279  Box 12  Preferred Citation: Congressional Correspondence, November-December 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/c457 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. Muckl Nianuscript Library, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. They further agree to request permon of the Princeton University Library (and pay any fees, if applicable) if they plan to publish, broadcast, or otherwise disseminate this mateil. ra This includes all forms of electronic distribution.  Copyright The copyright law of the United States (Title 17, United States Code) governs the making of photocopies or other reproductions of copyrighted material. Under certain conditions specified in the law, libraries and archives are authorized to furnish a photocopy or other reproduction. One of these specified conditions is that the photocopy or other reproduction is not to be "used for any purpose other than private study, scholarship or research." If a user makes a request for, or later uses, a photocopy or other reproduction for purposes not permitted as fair use under the copyright law of the United States, that user may be liable for copyright infringement.  Policy on Digitized Collections Digitized collections are made accessible for research purposes. Princeton University has indicated ds what it knows about the copyrights and rights of privacy, publicity or trademark in its finding ai. However, due to the nature of archival collections, it is not always possible to identify this iI formation. Princeton University is eager to hear from any rights owners, so that it may provide accurate information. When a rights issue needs to be addressed, upon request Princeton University will remove the material from public view while it reviews the claim. Inquiries about this material can be directed to: Seeley G. Mudd Manuscript Library w.lden Street Princeton, NJ 08540 609-258-6345 609-258-3385 (fax) muddaprinceton.edu   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Congressional November-December 1982  December 29, 1982  The Honorable Edwin B. Forsythe House of Representatives Washington, D.C. 20515 Dear Mr. Forsythe: This letter is in response to your letter of December 15 concerning the status of an application by BCTC Corporation, Moorestown, New Jersey, to become bank holding company by the acquisition of Burlington County Trust Company, Moorestown, New Jersey. On October 6, 1982, BCTC .Corporation withdrew its application to become a bank holding company and thus the Board did not act on the proposal. Please let me know if I can be of further assistance. Sincerely,  William R. Maloni Special Assiotant to the Board  JVM:PGN:pjt (#V-277) bcc: Mr. Mattingly Ms. Nardolilli áI1ardt 1/ GC Log (#451) Legal Records (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Acti n assignei Mr. Bra-Mel-1 EDWIN B. FORSYTHE 2210 R ATEURN HOUSE OFFICE BUILDING WASHINGTON. D.C. 51t0  SIEMBER: COMM rrric OW atc:Luer M MUNE AI O FISHER,ES  102425-4763  Congrefili of the alniteb Aitateo out of epreantatibus giallgrigton. a.C. 20515  COMM rrrea ow SCIENCE AMD TECHNOLOGY COMM rrnat ON STANDARDS OF OFFICIAL CONDUCT  December 15, 1982  I  Mr. Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Washington, D. C. 20551  7213  Dear Chairman Volcker: I am again contacting you in behalf of Mr. C. B. Shingleton , Jr., President of the Burlington County Trust Company of Moorestown , New Jersey. According to my files, I received a letter from Donald J. Winn, Assistant to the Board of Governors of the Federal Reserve System dated June 3, 1982 regarding a final decision which would be made to an application submitted to the Philadelphia Federal Reser ve by the B.C.T.C. The application was submitted for the purpo se of buying back its bank from the Fidelity Union Bancorporation. I am now in the process of closing out my pending files and find this particular file incomplete. Therefore, if you would check your records and provide me with a status report, it would be most helpful. Thank you for your continuing cooperation in this matter. Sincerely,  . Forsythe Member of Congress EBF:pk   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  December 29, 1982  The Honorable Mark 0. Hatfield United States Senator 114 Pioneer Courthouse 97204 Portland, Oregon Dear Senator Hatfield: ng Thank you for your letter. of December 3 requesti L. comment on correspondence you received from Mr. Edward ion Rada. Mr. Rada is concerned with the federal prohibit tes to on surcharging credit card transactions as it rela supplier gasoline credit charges. As you know, Mr. Rada seat his letter to Chairman administraVolcker directly since the Board is responsible for the surcharge tion of the Truth in Lending Act which contains Rada on prohibition. Chairman Volcker responded to Mr. er. December 10, and I'm enclosing a copy of that lett Please let me know if I  an be of further assistance.  Sincerely,  William R. Maloni. Special Assistant to the. Board  Enclosure bdC-t---*LEAturst Mrs. Mallardi   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •N,  .**  •  GOv •. •  BOARD OF GOVERNORS OF THE  •co .. •0 —", ' ..4 ft, ..".  2: ,-.. 6,. Ll 44...  FEDERAL RESERVE SYSTEM  • •&AL RE.S' • • ..• •  WASHINGTON, 0. C. 20551  PAUL A. VOLCKER CI-1AI RMAN  December 10, 1982  Edward L. Rada Executive Vice President RADACORP 751 N.W. Santiam Boulevard Mill City, Oregon 97360 Dear Mr. Rada: Thank you very much for your letter concerning your desire to add the credit card charge imposed on retail dealers by oil companies onto customers' credit card slips. Adding an additional charge to the "regular price" of a product when payment is made by credit card is considered a "surcharge" and, as you pointed out, is prohibited by a provision in the federal Truth in Lending Act. I must say that I, as well as other members of the Board, have a great deal of difficulty with this prohibition. In fact, the Board testified against continuing the surcharge prohibition last year in hearings on the Cash Discount Act of 1981. One of the problems we had was the same one you have, that is, determining what the difference is between a discount and a surcharge. We felt they were economically similar and that the distinction between discounts and surcharges was, at best, uncertain. Because of this and in the interest of reducing regulatory burdens on merchants, we recommended that surcharges as well as discounts be permitted. (A copy of the Board's testimony is enclosed.) Congress, however, did not agree with our view, and in passing the Cash Discount Act of 1981 extended the surcharge prohibition through February 27, 1984, at which time Congress may review the issue again. Until the prohibition expires or Congress takes some action to remove the prohibition, the only way to recover the fees imposed by the oil companiq_s--(Oherthah—passing them on to all customers by simply raising prices) n'to establish a cash discount program. This can be done through a pricing policy which gives cash customers a discount from the price charged to credit card customers.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2 If you would like to discuss this issue further or if you need assistance in how to structure a cash discount program to comply with the law, please contact Gerald Hurst, a staff attorney in the Division of Consumer and Community Affairs, at (202)452-3667. Sincerely, ;  Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -. •  _  December 29, 1982  The Honorable Henry S. Reuss Chairman Joint Economic Committee Washington, D.C. 20510 Dear Chairman Reuss: Your letter of December 10 suggests that the Federal Reserve publish monthly data for total credit on our H.6 release along with the monthly figures on bank credit that are currently made available. However, we do not now have a monthly total credit series sufficiently developed for publication. We have been experimenting with possibilities for some time, and have recently intensified these investigations, including analysis of estimation and seasonal adjustment problems and other factors influencing the statistical properties of a monthly series and its quality as a gauge of underlying trends. We do publish quarterly data on total credit flows through our flow-of-funds accounts. Figures are published four times a year, with a lag of six weeks after the most recent quarter. Such a time schedule permits the full integration on a consistent basis of aggregate credit data with data on spending, assets, and liabilities for the various sectors of the economy. In that context, one would need to examine the behavioral properties of a monthly series partly in terms of its relationship to a more comprehensively developed total, particularly after seasonal adjustment. We will be continuing with our efforts to develop monthly figures on total credit. Meanwhile, the published quarterly data made available will provide a basis for evaluating the trends of aggregate credit flows during the course of a year. Sincere)y,  SHA:pjt (#V-275) bcc: Mr. Axilrod Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  HOUSIVF REPRESENTATIVES Hrpoqy S. REUSS, WIS., CHAIRMAN RICHARD BOLLING, 1440. LEE H. HAMILTON, NO. GILLIS W. LONG, LA. PARREN J. MITCHELL, MD. C1.ARENCEJ.OIROWK0.00 MARGARET M. HECKLER, MASS. JOHN N. ROuSSELOT, CALIF. CHALMERS P. WyLIE, OHIO  Action assigne-1 Mr. Axilrod; info copy to Mr. Coyne  Congrezz of the Zilniteb  tatez  JOINT ECONOMIC COMMITTEE (CREATED PURSUANT TO SEC. Es) OF PUBUC LAW 304, 75TH CONGRESS)  JAMES K. GALBRAITH, COLCUTIVE DIRECTOR  WASHINGTON. D.C. 20510  ROGER W. JEPSEN, IOWA, VICE CHAIRMAN WILLIAM V. ROTH, JR., DEL. JAMES ABDNoix, S. OAK. STEVEN D. symMS, IDAHO PAULA HAwK1NS, FLA. MACK MATTINGLY, GA. LLOYD BENTSEN, TEX. WILLIAM PROx MIRE, WIS. EDWARD N. KENNEDY, MASS. PAUL S. SARSANES, MD.  December 10, 1982  The Honorable Paul Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Chairman Volcker: your appearance before the In view of our discussion during er 23, I believe certain useful emb Nov on tee mit Com ic nom Eco nt Joi flow of statistical informathe in e mad be now ld cou nts eme rov imp e to Congress and the public. erv Res l era Fed the by ed vid pro n tio l Reserve Board will now Following our agreement, the Federa the monetary aggregates (Ml, M2, for ges ran get tar ual ann ce oun ann al credit -- bank and non-bank. tot for and , dit cre k ban for , M3) a on if the most recent available dat l pfu hel ely rem ext be ld wou It be included in the weekly "11.6" to e wer s ate reg agg se the of all a ss release includes weekly dat pre t tha tly ren Cur e. eas rel press M3. To facilitate review of and M2 on a dat y thl mon and Ml, on , I ing its various target ranges ain att ard tow ss gre pro 's Fed the bank credit and on total credit on a dat y thl mon t tha e pos pro ld wou t 6" release. I understand tha "H. the in hed lis pub be o als uld sho can be made after the fourth dit cre al tot on tes ima est e abl reason tes the data apply. These estima ch whi to th mon the ing low fol k wee noseofm 2 and the higher monefor s nes eli tim in m for con s will thu tary aggregates. as far as I know, the only The Federal Reserve System is, bers s not publish telephone num doe t tha ncy age al tic tis sta l Federa releases. This is a nuisance its on on ati orm inf l ona iti add for l Rea, and I believe the Federa dat e erv Res l era Fed of rs use for publish ce of other agencies and cti pra the low fol uld sho ve ser such numbers. I attention to this matter which I greatly appreciate your le step toward the more flexib nt ica nif sig a es tut sti con relathink dit conditions and their cre ut abo on ati orm inf of provision are both working. we ch whi s ard tow icy pol y tion to Federal Reserve of these matters is alread all to ng ati rel a dat raw t of Since the I understand that the cos e erv Res l era Fed the by assembled lly zero. the changes would be virtua incerelys   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Henry S. Reuss Chairman   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  December 29, 1982  The Honorable David Pryor United States Senate Washington, D.C. 20510 Dear Senator Pryor: Thank you for your letter endorsing the invitation of the Arkansas Bankers Association to speak at its annual meeting in Little Rock next May. Unfortunately, I have been forced by my calendar to send regrets. I have already accepted an invitation to participate in the International Monetary Conference in Brussels which has been scheduled for the same week. With kind regards. Sincerely,  Paul A. •Voiker  JRC:mrk CC: Mrs. Mallardi  cJAVID PRYOR  COMM ITT EES:  ARKANSAS  AGRICULTURE, NUTRITION, AND FORESTRY  248 RUSSELL SENATE OFFICE BUILDING WASHINGTON, D.C. 20510 (202) 224-2353  GOVERNMENTAL AFFAIRS  ?Anita)Zfatez -.Senate  SPECIAL COMMITTEE ON AGING SELECT COMMITTEE ON ETHICS  WASHINGTON. D.C. 20510 ARKANSAS OFFICE: 3030 FEDERAL BUILDING 72201  LITTLE ROCK, ARKANSAS (501) 378-6336  December 27, 1982  The Honorable Paul A. Volcker Chairman, Federal Reserve Board 20th and Constitution, N.W. Washington, D.C. 20551 Dear Mr. Chairman: I'd like to join with the Arkansas Bankers Association in inviting you to speak before the group at its annual meeting, May 16 or 17. As you know, Bill Kennedy from Pine Bluff, Arkansas, is now president of the American Bankers Association, and so this year's meeting has a special significance for us. Your appearance would be a great honor for our state, and I know that you would find a receptive and sympathetic audience. I hope you will be able to arrange your schedule to visit Little Rock this May. We will do our best to make your trip an enjoyable one. Sincerely, a.  David Pryor DP:aml   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  atk,41644z.,  Oa  ..••• of •  : 4:,o  O  ..  GOvi •  4,W,  BOARD OF GOVERNORS  li •f•  1.  FEDERAL RESERVE SYSTEM  /- • 4n • A.  WASH1NGTON.O.C. 20551  •0 •-r,  OFTHE  \,,  • -4  .1<,,,  '.1',  ..itALREs. ••••••  December 28, 1982  The Honorable Ron Paul House of Representatives Washington, D.C. 20515 Dear Mr. Paul: Thank you for your recent letter asking that we provide information on Federal Reserve Bank stock for your use in responding to a constituent. You wish to know the current value of such stock and the names of the origi nal owners of the stock issued in 1914. You indicate that the stock was valued at $145 million in 1914 and at $45 billion in 1949. As you are aware, the Federal Reserve Banks are organized like private corporations, but their stock, as provided for by the Federal Reserve Act, is held entirely by comme rcial banks that are members of the Federal Reserve System. Ownership of Federal Reserve Bank stock is in the nature of an obligation incident to membership and does not carry the attributes of control and financial interest ordinarily attached to stock ownership in other corporations. Every national bank is required to subscribe to the capital stock of the Federal Reserve Bank for the Federal Reserve District in which it is located. Each subscription shall be equal to 6 percent of the subscribing bank's paid -up capital stock and surplus. The law requires that one-half of the subscription actually be paid for and the other half shall be paid for when deemed necessary by the Board (12 U.S.C. S 287). State chartered banks are not required to join the System. If they voluntarily choose to join the System, they must comply with all requirements applicable to national banks regarding the amount of capital stock they must buy from their Federal Reserve Bank (12 U.S.C. S 321). The capital stock of each Federal Reserve Bank is divided into shares of $100 each, and banks pay $100 per share 4ii. they bacome-members. If a member bank increases or decreases--i-ts capital, it must increase or decrease its subscription of Federal Reserve Bank stock by 6 percent of the increase or decrease in its own capital (12 U.S.C. S 288), one half of which must actually be paid for. According to the Board's 1981 Annual Report, the value of the stock of all Reserve Banks on December 31, 1981, was $1.279 billion. As of October 31, 1982, this figure was $1.350 billion. A review of similar data for previous years indicates   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Ron Paul Page Two  that the value of Federal Reserve Bank stock for 1914 was $18 million and for 1949 it was $210.6 million. (Total Reserve Bank assets for 1914 were about $2R6, and $45.4 billion at year-end 1949.) You have also asked for the names of the original owners of Federal Reserve Bank stock. The paid-up shareholders as of May of 1915 consisted of all 7,605 national banks operating under charter from the Comptroller of the Currency and 17 trust companies and state chartered banks, for a total shareholder list of 7,622 institutions. There were no other shareholders of Reserve Banks stock. While we do not have a list of the 7,605 national banks from 1915 readily available, we have listed below the 17 state chartered banks and trust companies that were members in 1915. They are: Continental Trust Co., Washington, DC The Savings Bank of Richmond, Richmond, VA Bank of Woodruff, Woodruff, SC Sullivan Bank & Trust Co., Montgomery, AL Central Trust Co., Chicago, IL Rank of Wisconsin, Madison, WI Merchantile Trust Co., St. Louis, MO First State Bank, Dallas, TX First State Bank, Bonham, TX The Citizens State Bank, Memphis, TN First Guaranty State Bank, Pittsburg, TX Farmers & Merchants State Bank, Edgewood, TX Bank of Enfaula, Enfaula, AL First State Bank, Savay, TX First State Bank, Hamlin, TX First State Bank, Wolfe City, TX First State Bank, Bremond, TX I hope this information is helpful. know if I can be of further assistance.  Please let me  Sincerely,  (Signed) -Witham R.' Maiui •  ••  William R. Maloni Special Assistant to the Board HJ:GTS:pjt (#V-249) bcc: Harry Jorgenson Gil Schwartz GC Log (#388) Legal Records (2) Mrs. Mallardi   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action assignei Mr. BrarlfieH  RON PAUL  DISTRICT OFFICES:  22ND Minium TEXAS  Room 1234 LONGWORTH HOUSE OFFICE BUILDING (202) 225-5951  COMMITTEE ON BANKING. FINANCE, AND URBAN AFFAIRS  Congrefsz of the Elniteb btatefi jipuze of RepreZentatibesi Mastington,0.C. 20515  RANKING REPUBLICAN SUOCX)MMITTEE ON CONSUMER AFFAIRS AND COINAGE  MEMBER. UNITED STATES GOLD PouCY COMMISSION  October 26, 1982  1110 NASA Rood) 1, Surrt 100 Hourrom,Toms 77058 (713) 486-8583 6711 Bra_a_rowr AVENUE., Surrc 307 Houtrrom. Toms 77087 (713) 226-4636 101 OYSTER CALEX DRIVE LJUCE JACKSON. TIDCAS 77586 (713) 2974961 CONGRESSIONAL MOTUNES: HOUSTON:(713)237-1550 (713) 297-0202 LAKE JACKS  r  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System 20th St. & Constitution Ave., NW Washington, D.C. 20551  7  CD -7r  -4 r•.) CO  . (11  11D  If it would be possible also to ascertain the names of the original owners of the $145 million worth of stock in 1914, that would be helpful, too. Thank you for responding to this request. Sincerely,  e, eALA-V Ron Paul Member of Congress RP/jr   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  r• -  "/i • ...11  Dear Chairman Volcker: A constituent has requested that I determine the current value of the Federal Reserve System's Class A stock which was originally valued at $145 million in 1914, and later at $45 billion in 1949.  tr r .  00  JP BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551  December 28, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable David Boren United States Senate Washington, D.C. 20510 Dear Senator Boren: Thank you for your letter concerning the provisions of Title VIII of the Financial Institutions Regulatory and Interest Rate Control Act of 1978 as they relate to permissible interest rates for bank stock loans. Title VIII prohibits an insured bank from making a loan or extending credit to a principal shareholder of another bank that maintains a correspondence account at the insured bank unless the extension of credit is made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions by the bank with other persons who are not affiliated with the bank, and does not involve more than the normal risk of repayment or present other unfavorable features. Regarding your suggestion that the Board should exclude bank holding companies from the definition of principal shareholder, under Title VIII a principal shareholder is defined as any individual or company that controls, directly or indirectly, more than 10 percent of the voting shares of a bank. The statute is clear that companies as well as individuals are to be considered principal shareholders and subject to the preferential lending restrictions of Title VIII. Thus, the Board does not have the regulatory authority to modify the definition of principal shareholder to exempt bank holding companies. Furthermore, we believe that many of the potential abuses that result from preferential lending on bank stock are present in the case of bank holding companies. As you note, the purpose of the law requiring substantially equal terms for a bank stock note is to protect the interest of the bank and minority stockholders against the possibility of a majority stockholder -obtaining favorable rates through the use of other relationships which are detrimental to the bank or its minority stockholders. We agree, but would emphasize that the banks can and have been harmed by their sole owners. As you are aware, there is an extensive body of banking law that governs the terms and conditions under which shareholders may take value from banks. If the shareholders of the bank--whether they be corporate or private--are able to use the resources of the bank so as to benefit themselves there is always a danger that the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  A -S^  The Honorable David Boren Page Two  bank will be seriously disadvantaged in the process. We, therefore, would be reluctant to support an exemption from the present rule for bank holding companies. Concerning your view that bank stock loans should be considered a separate category of loan for purposes of determining whether a rate is preferential, memb ers of the Board's staff recently have met with representati ves of several Oklahoma banking organizations at their request to discuss this question. At that meeting, the Board staff indicated that the Board would consider any petition for rule making filed with respect to this question. In order to prop erly evaluate the matter, staff also requested certain info rmation on bank stock loans, including terms, prevailing interest rates, function, and detailed reasons why this type of loan should be considered separately from other types of bank loans. I appreciate having received the benefit of your views on this matter. Sincerely,  SAK:JVM:JR:pjt (#V-256) bcc: Ms. Kelsey Mr. Mattingly Mr. Ryan GC Log #410 Legal Records (2) Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  HOUSE OF REPREIBIDITATIVES  SENATE  WNW/ S. NEUSS. WIS.. CHAIRMAN RICHARD BOLLING. MO. LEE H. HAMILTON,I. GILLIS W. LONG. LA. FARMER J. sirroaci.t.  MOWER W. JETSZN, IOWA, VMS CHAIRMAN WILLIAM V. ROM JR, DEL. JAMES AIRDROP, S. DAK. STEVEN D. SYMIAS, IDAHO PAULA HAWKINS. FLA. MACS MATTINGLY, GA. LLOYD earn-sax. TEX. WILLIAM PROX M IRE. WI.. EDWARD M. KFMHZDY. MASS. PAUL IL SASSAMES. MD.  CLAPil RICE J. sa-: ,woi. OHIO MARGARET M. HECKLER, MASS. JOHN H. woussaLor. C.AUF. CMALMERIS P. WYLIt. OHIO  Congre55 of the Unita' Otate5  JAMES K. SALIMATTM, CILSCUTIVI DUISCTOR  JOINT ECONOMIC COMMITTEE (cotasrED russusxr ro sac. s(&) or rusLoc LAW  Mt. 7vng  comastass)  WASHINGTON. D.C. 20510  C  • .71t - 4 7 1  November 17, 1982  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. Dear Mr. Chairman: This week, the Joint Economic Committee is concluding a series of hearings on how we can enhance coordination and cooperation between the separate branches of our government in order to improve the effectiveness of economic policy. Within that spirit, I would like to make a number of suggestions for strengthening the working relationship between Congress and the Federal Reserve Board and the Federal Open Market Committee, which I hope we can discuss during your appearance before the Joint Economic Committee next Tuesday. As you know, a number of bills have been introduced recently which would mandate changes in the procedures of the Federal Reserve and alter the nature of the dialogue between the Fed and Congress on the conduct of monetary policy. I believe we could accomplish under existing law many of the improvements sought by Members of Congress in these bills. The highest level of Federal Reserve decision-making concern is the national goals -- "maximum employment, production and purchasing power" under the Employment Act of 1946 and "full employment and production...(and) price stability" under the Full Employment and Balanced Growth (Humphrey-Hawkins) Act of 1978. PresenIly, the Federal Reserve in its February 20 and July 20 Monetary Policy Reports sets forth the range of forecasts of the 12 "individual members of the FOMC" with respect to the year's goals for employment, production and purchasing power. We would be better served if the FOMC would present Congress with a single composite forecast of its members, if such a forecast differs from that of the President or of the Congress in its Budget Resolution, we in the Congress can then take account of such important differences between the Federal Reserve and the executive and legislative branches! z At the second level, constructive changes could also be made in the way in which the Federal Reserve reports on its intermediate targets -- "the ranges...of the monetary and credit aggregates" --   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Paul A. Volcker November 17, 1982 Page  Two  mandated by present law. Here I have two suggestions. First, present Congress with a single numerical target for each of the aggregates, along with the upper and lower boundaries that you think would be consistent with the goals delineated and set forth in the previous paragraph. Second, "credit aggregates" includes not just bank credit, which you currently target, but the entire range of credit by lenders other than banks as well. We should appreciate your including total credit in your report. Long-term interest rates fall somewhere between the ultimate objectives of policy and the intermediate targets discussed in the previous two paragraphs. You should include in your report your best estimate of the array of long-term interest rates that is both consistent with your intermediate targets and conducive to achieving the ultimate objectives of policy. Long-term interest rates have a critical effect on our economic performance, and they should be part of the dialogue between Congress and the Federal Reserve on monetary policy. Finally, we should agree that the Federal Reserve should be more flexible in its operating procedures. The present exclusive focus on reserves as an operating procedure has produced significantly worse short-run interest rate volatility. Why not an operating procedure which focuses either on reserves or short-term interest rates whichever currently works best? In the event that the Federal Reserve's projections as to the monetary aggregates, credit aggregates or long-term interest rates should change after its February 20 or July 20 reporting dates, the Federal Reserve should promptly report such changes to the Congress.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  Henry S. Reuss Chairman  teisiv) -1A941.1"41.;„ BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM wASHINGTON. 0.C. 20551  December 28, 1982  The Honorable Malcolm Wallop United States Senate Washington, D.C. 20510 Dear Senator Wallop: Thank you for your recent letter asking for our comments on a series of questions from Mr. Rodney Skurdal of Gillette, Wyoming. Mr. Skurdal has asked three questions concerning Federal Reserve notes and one question concerning the relationship between federal income tax law and the United States Code. Mr. Skurdal first asks, "Where is it stated that Congress can 'emit bills of credit' by the Constitution? (Federal Reserve notes." Article I, section 10 of the Constitution says, "No State shall...coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of The Supreme Court of the United States determined that "bills of credit" refers to a paper medium of exchange, that is "currency," and that states cannot issue currency. Craig v. Missouri, 4 Pet.410, 425 (1830); Byrne v. Missouri, 8 Pet.Supreme Court also determined, in the Legal Tender Cases (Julliard v. Greenman, 110 U.S. 421 at 436 (1884)) that Article I, section 10 applies only to the states and not to the federal government. In this connection, it should be noted that Article I, section 8, clause 5 of the Constitution grants to the federal government the exclusive power to coin money and regulate its value. Consequently, while no state government may "emit bills of credit" or make anything other than gold or silver coin a legal tender in payment of debts, the federal government is not limited in what it may designate as legal tender. The power to coin money and regulate the value thereof has been broadly construed by the Supreme Court of the United States to authorize regulation of every phase of the subject of cprrency. _Forj_nstance, in 1819, the Supreme Court said that CorigresCJI4d the:poVer to charter banks and to give those banks the power to issue currency, McCulloch v. Maryland, 4 Wheat, 316 (17 U.S. 316). Federal Reserve notes, issued pursuant to section 16 411), are obligations of the Federal Reserve Act (12 U.S.C. of the United States. These notes are issued at the discretion of the Board of Governors of the Federal Reserve System and, as 5103, are legal tender for all debts. provided in 31 U.S.C.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  '  The Honorable Malcolm Wallop Page Two  Federal Reserve notes are the chief form of currency in circulation today and, as legal tender, may be used to pay all debts. Several federal courts have rules that Federal Reserve notes are constitutional and are legal tender for all debts: U.S. v. Anderson, 584 F.2d 369 (10th Cir., 1978); U.S. V. Wan ru1, 533 F.21 495 (9th Cir., 1976), cert. denied 429 U.S. 18 (1976); Milam v. U.S.; 524 F.2d 629 (9th Cir., 1975). Mr. Skurdal also requests a copy of the Federal Reserve Act as passed on December 23, 1913. Enclosed is a copy of the original Federal Reserve Act. Mr. Skurdal next asks for the definition of a Federal Reserve note. We believe the enclosed booklet, U.S. Currency" is responsive to this question. As his fourth question, Mr. Skurdal asks, 'Is title 26, IRS Code, positive law by Title I U.S. Code Section 204(A)?° Section 204(a) of Title I of the U.S. Code says that, as a general matter, language found in an official copy of the United States Code (as printed by the Government Printing Office) is only prima facie evidence, not conclusive evidence, of what an act of Congress says. The Statutes at Large is the best version of the act in question. Section 204(a) also says, however, that the general rule will not apply if Congress has enacted the title of the U.S. Code, in which the statutory language appears, as positive law. If the title has been enacted as positive law, then the U.S. Code version of the language in question is conclusive evidence of what the statute says. If the U.S. Code and the Statutes at Large differ, the Statutes at Large control. Title 26 of the United States Code which contains the Internal Revenue Code has not been enacted as positive law. However, Congress, by the Act of August 16, 1954, established Title 26 as the Internal Revenue Code of 1954. As such it is a separate Code. The sections of Title 26 of the United States Code and the Internal Revenue Code are identical. If language from Title 26 of the U.S. Code or from the Internal Revenue Code is introduced in court, section 204(a) of Title I says it shall be prima facie evidence of the language in the act of Cancres-s-tVit-cieated it. I hope this information is helpful. Please let me know if I can be of further assistance. Sincerely, HJ:GTS:pjt (#V-251) bcc: Harry Jorgenson (Signed) Wiillam R. Maloni Gil Schwartz GC Log (#391) William R. Maloni Legal Records (2) Special Assistant to the Board Mrs. Mallardi Enclosures  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action assigned to Mike Bradfield (Don Winn will sign)  •  Mr •  Mrs. Mallardi  SIONIERT J. DOLE, KANS., CHAIRMAN  rAcKw000, OREG. WILLIAM V. ROTH, JR., DEL. JOHN C. DANFORTH. MO. JOHN H. C.HAFIE, JOHN HEINZ, PA. MALCOLM WALLOP, WYO. DAVID DURENBERGER, MINN. WILLIAM L. ARMSTRONG, COLO. STEVEN D. SYMMS. IDAHO CHARLES E. GRASSLEY, IOWA  RUSSELL S. LONG, LA HARRY F. BYRD, JR., VA LLOYD BENTSEN, TEX. SPARK M. MATSUNAGA, HAWAII DANIEL PATRICK MOYNIHAN. N.Y. MAX 'MUCUS, MONT. DAVID L. SOREN, OKLA. SILL BRADLEY, N.J. BEORGE J. MITCHELL, MAINE  'AICrtifeb Zfates5 Zonate COMMITTEE ON FINANCE WASHINGTON, D.C. 20510  ROBERT E. LIONTHIZER, CHIEF COUNSEL MICHAEL STERN, MINORITY STAFF DIRECTOR   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 29, 1982  The Honorable Paul A. Volcker Chairman Federal Reserve Board 21st & C Street, N.W. Washington, D.C. 20551 Dear Chairman Volcker: Enclosed is a copy of a letter which I received from Rodney Skurdal, of Gillette, Wyoming. Mr. Skurdal has some specific questions regarding Federal Reserve policy and Federal Reserve Notes. I would greatly appreciate it if you could address his inquiries and please get back to me so that I may respond to him. Thank you very much for your cooperation. Sincerely, .04101C  W71.4 f•  alcolm Wallop United States Senator MW:tpp Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Rodney Skurdal  Senator Malcolm Wallop Congress of the United States United States Senate Washington, District of Columbia  20515  Senator Wallop; I would like to thank you for your time to answer my letter of April 26, 1982. If possible could you please answer a couple of more questions I have or let me know where I can find answers to these questions? 1.  Where is it stated that Congress can "emit bills of Credit" by the Constitution? (Federal Reserve Notes)  2.  Where can I get a copy of the Federal Reserve Act, December 23, 1913?  3.  Please define a Federal Reserve Note.  4.  Is title 26, IRS Code, positive Law by Title 1 U.S. Code Section 204 (A)?  I thank you for your time. ectfully submitted,  Rodney S  rdal  =.1MEN   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Oeceritber 27, 1982  The honorable Bill Alexander 201 Cannon House Office Building Washington, D. C. 20515 Dear Bill: Thank you for your letter endorsing the invitation of the Arkansas Bankers Association to speak at its annual meeting in Little Rock next May. Unfortunately, I have been forced by my calendar to send regrets. I have already accepted an invitation to participate in the International Monetary Conference in Brussels which has been scheduled for the same week. With kind regards. Sincerely,  bcc: Mrs. Malardi #284 JRCoyne/c1c  BILL ALEXANDER, M.C.  201 CANNON HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 (202) 225-4076  ARKANSAS CHIEF DEPUTY MAJORITY WHIP  1-1-4 NGS BUILDING. ROOM 211-A 615 SOUTH MAIN JONESE10170, ARKANSAS 72401 (501) 972-4600  COMMITTEE ON APPROPRIATIONS  Congre55 of the tiniteb  tate5  FEDERAL BUILDING, Room 202 BATESVILLE, ARKANSAS 72501 (501) 698-1761  December 13, 1982  Chairman Paul A. Volcker Federal Reserve System Federal Reserve Building Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Chairman: I am writing to urge you to accept the invitation of the Arkansas Bankers Association to address its Annual Meeting in May. I think you would find it most enjoyable, and I know the members of the ABA would find it profitable. For the first time that I am aware of, an Arkansan has been selected as President of the American Bankers Association. William Kennedy will soon begin his tenure in that office. The Chairman of the Board of Governors has never addressed the Arkansas group, and I feel this would be a great time to do so if your schedule permits. I am sure the citizens of our great state would do their utmost to make you welcome, and you would certainly enjoy the Arkansas springtime. Thank you for your consideration of this matter. me if I can be of assistance to you. With kindest regards, I am Sincerely,  BILL ALEXANDER Member of Congress BA/wmt   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Please feel free to contact   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON.O.C. 20551  December 23, 1982  •••  The Honorable Mark 0. Hatfield United States Senator 114 Pioneer Courthouse Portland, Oregon 97204 Dear Senator Hatfield: Thank you for your letter of December 3 requesting comment on a copy of a letter your constituent, Mr. Edward L. Rada, addressed to Chairman Volcker. Mr. Rada wrote concerning his desire to add the credit card charge imposed on retail dealers by oil companies onto customers credit card slips. For your information, I am pleased to enclose a copy of Chairman Volcker's direct response to Mr. Rada. As stated in Chairman Volcker's letter, adding an additional charge to the "regular price" of a product when payment is made by credit card is considered a "surcharge" and is prohibited by a provision in the federal Truth in Lending Act. I hope this information is useful. know if I can be of further assistance. Sincerely, (Signed) Donald J. Winn Donald J. Winn Assistant to the Board Enclosure (Chrmn. Volcker's ltr. of 12/10/82) CO:vcd (V-273) bcc:  Mrs. Mallardi  Please let me  PMkrill W. FYI II r IN.L.U. WTILY.,,  1111,  Mtn A MI  Action assigned Mr. jGarwood  JAMES A. MC CLURE. IDAHO PAUL LAXALT, NEV. JAKE DARN, UT''  WILLIAM PROXMIRE, WIS. JOHN C. STENNIS, MISS. ROBERT C. BYRD, W. VA. DANIEL K. INIO4JTE, HAWAII ERNEST F. HOLLINGS. S.C.  HARRISON SCHM , N. MEX. THAD COCHRAN, ..AISS. MARK ANDREW -,. N. OAK.  THOMAS F. EAGLETON, MO. LAWTON CHILES, FLA. J. BENNETT JOHNSTON, LA.  JAMES ABDNOR  WALTER D. HUDDLESTON, KY. QUENTIN N. BURDICK, N. OAK. PATRICK .1. LEAHY, VT. JIM SASSER. TENN. DENNIS DE CONCINI, ARIZ. DALE BUMPERS, ARK.  TED ."IVENS, ALASKA LOWELL P. WEICKER, JR., CONN.  S. DAK.  ROBERT W. P.,STEN, JR., WIS. ALFONSE M. OANATO, N.Y. MACK MATTINGLY, GA. WARREN RUDMAN, N.H. ARLEN SPECTER, PA.  /a1Cnifeb Zfalez -.Senate COMMITTEE ON APPROPRIATIONS WASHINGTON. D.C. 20510  J. KEITH KENNEDY, STAFF DIRECTOR THOMAS L. VAN DER VOORT, MINORITY STAFF DIRECTOR   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  December 3, 1982  Mr. Paul Volcker Chairman Board of Governors Federal Reserve Board 20th St. & Constitution, N.W. Washington, D.C. 20551  Dear Mr. Volcker: Enclosed please find a copy of a communication I have received from Mr. Edward L. Rada regarding supplier gasoline credit charges. Your efforts to respond to the questions Mr. Rada has raised would be appreciated. Please direct your comments to my Portland field office, 114 Pioneer Courthouse, Portland, Oregon 97204. Thank you for your assistance in this matter. Sincerely,  Mark O. Hatfield United States Senator MOH:a Enclosure  Li .6 k  01 J301E31 ...  (   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  RADACORP 751 N.W,.Santiam Blvd. Mill City, Oregon .97360  cro ev, " ca t, ' -A .11  \-4 rc-- -1  ea'  MILL CITY MOBIL 654 N.W. Santiam Blvd. Mill City, Oregon 97360 (503) 897)77 /6/ 2021. 0.  Nov. 18, 1982 Mr. Paul Volcker Chairman Board of Governors of the Federal Reserve Board Washington, D.C. 20510 Dear Mr. Volcker: Re: Truth in Lending and Supplier Gasoline Credit Charges Mobil Oil Cory as well as pther oil companies, are now charging their4 Alers 3% on all sales made using their credit cards. The retail dealers are expected to absorb to those charges,ass them on to their customers by raising prices on credit card sales, or to give cash customers an equivalent discount. What we would like to do is to add the credit card charge/ onto the customer's credit card slip. We are told by our distributor, however, that such a practice is illegal. On inquiry, we discover that it is prohibited by Federal law which turns out to be the Truth in Lending Act admininistered by the Federal Reserve Board. Why is that illegal? What is the difference to a credit card customer whether the price includes the 3%(the cash customer getting a 3% discount or refund)which he will pay when billed by the oil company or if 3% is added to His bill is the the cash price for a credit-card user? same. Retail dealers should be given the option of the 3% add on as long as long asthe dealer posts the pricing system used. The present ruling, if it is illegal, just does not make seljse.  /Edward L. Rada ( Exec. Vice President cc: Senator Mark Hatfield Senator Bob Packwood Rep. Denny Smith Wayne Bowlby Mill City Mobil  •   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  December 22, 1982  CHAIRMAN  The Honorable John Paul Hammerschmidt House of Representatives Washington, D. C. 20515 Dear Mr. Hammerschmidt: Thank you for your letter endorsing the invitation of the Arkansas Bankers Association to speak at its annual meeting in Little Rock next May. Unfortunately, I have been forced by my calendar to send regrets. I have already accepted an invitation to participate in the International Monetary Conference in Brussels which has been scheduled for the same week. With kind regards. Sincerely,  bcc:  Mrs. Mallardi  JRC: tjf  COPY  411  ED BETHUNE 2ND DISTRICT, ARKANSAS  COMMITTEES:  Congre55 of tbe  niteb  BUDGET  tate5  BANKING, FINANCE AND URBAN AFFAIRS  jbouiie of AtpresSentatiba WASHINGTON OFFICE: 1535 LONGWORTH HOUSE OFFICE BUILDING WASHINGTON. D.C. 20515 (202) 225-2506  anatibington, 71D.C. 20515  DISTRICT OFFICE: 1527 FEDERAL BUILDING 700 WEST CAPITOL , LITTLE ROCK, ARKANSAS 72201 (501) 378-5941  December 21, 1982  Mr. Paul Volcker, Chairman Federal Reserve System 12th Street and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Paul: N.) CO  It is my understanding that the Arkansas Bankers' Association has invited you to address its annual convention in May. While I realize many demands are made on your schedule, I hope that you will consider addressing this distinguished group. My fellow Arkansans in this association represent a true cross section of the American financial community. The communications I receive from them reveal a mix of sophisticated concerns for world affairs with the more provincial worries associated with agricultural credit. Their gathering provides an excellent forum to discuss many of the challenging issues that face the American economy. Once again, I hope that you will find time in your very busy schedule to come to Arkansas and address the Arkansas bankers. This would be a history-making visit by a Chairman of the System. Sincerely,  ,e  Ed Bethune Member of Congress EB/jorm Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ::!ACK KE MP  WACHINGTOR OrTIEE: 2135 RAYntii•R 0-101.V.E Orricr BUILDING  Disriwrcr. Nrvi Yowl.  Avar- A  CODE 2C2: 225-5265  commir-rtts, APPROPRIATIONS suncommlyyur roRt ION  OPERATIONS  IRAN/KINK:I  MEMBER  BUDGET  Congre55 of the anitcb i)otige of :14-rpre5entatibe5 -  tatt5  D/STIRCT orrict. 1101FcrApqm_Duli_cmf4G. III WEST HURON ST141 ET BUFFALO,'VFW YoRK AREA  14202  CODE 716: 846-4123  Washington, J.Q. 20515  TASK FORCES OR NATIONAL SECURITY AND VETERANS  20 December  1982  ECONOMIC POLICY AND PRODUCTIVITY TAX POLICY  Honorable Newt Gingrich U.S. House of Representatives Washington, D.C. 20515 Dear Newt: As you know, the letter which you and other colleagues have circulated proposing a freeze of all budget accounts has caused me considerable concern. I am writing to you, first, to answer some of the questions you have raised, and second, in the hope of devising an alternative position which would accomplish what I think you, and I, are trying to achieve -- to provide a basis for effective Republican leadership on the budget, and help the President move the country toward general prosperity. My first concern with the freeze approach is that it ✓ isks abandoning effective Republican participation in setting national priorities and policies. The concept is, to be sure, a bold stroke. But what are its practical consequences? In the explanatory notes which you circulated, you expressed the opinion that under a freeze, "the burden of proof shifts to the liberals." I question whether this is the case. Why have some Democrats like Sen. Hollings also championed t he freeze idea? I think one reason is that it could be used by the Democrats as an effective defensive tactic in maintainin the general priorities which President Reagan and we Republican were elected to change. A freeze would not only prevent increases where we need them, but would also protect worthless or unaffordable low-priority programs from being zeroed out. The current crisis has resulted in large part from a stalemate between the forces seeking to change, and those resisting any alteration in, the priorities of the past couple of decades. Maintaining the status quo in budget priorities, only diminishing each account in real terms by the rate of inflation, is not a solution which we should wish. Rather than seizing the It c 11 high ground" -- which I agree we need to do -- we might instead seize the traditional role of Republicans, which has generally been to seek somewhat less o f whatever it is the Democrats have wanted. The result has always been to let them set the terms of the debate, so that the Republicans wound up as the antithesis" party, perennially on the defensive.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2  At the same time, it is worth inquiring why the freeze idea has not gotten more of a reception from the American people despite considerable media exposure. I think it's because the American people are essentially forward -looking. In content, as opposed to form, a policy of freezing everything in place is a static, almost a negative, principle. And it would tie our hands by effectually institutionalizing the slogan "Stay the Course." It would signal that our ability and willingness to break the logjam is at an end. Surely it is our responsibility to reshape the future, not to perpetuate the evil we know. And if we fail in the moment of national crisis to provide dynamic and effective leadership, we risk removing ourselves from national affairs for another generation. In your letter and supporting paper, you raise the issue of fairness. While we must face the issue squarely, does your specific proposal help the party do so? It would be difficult to defend the freeze as representing no change in policy, since there is no way to achieve the freeze t otals without changing all the enabling legislation. Moreover, opponents would point out that the freeze would be a real cut in all social spending equal to the rate of inflation. The Democrats will be sure to claim, as they already have, that fairness demands that we cut nondefense spending no further, but rather go after defense spending and repeal the tax cuts, especially indexing. Who is the more likely to prevail in this debate, once the terms are so d efined? And as for defense spending, even those who believe we do not need as large a defense buildup as the Adminstration seeks do not argue that we ought to cut it 5% each year in ✓ eal terms. You argue, Newt, that the American people are potentially patient and believe that suffering should be shared equally. I do not question the willingness of Americans to be patient or to sacrifice in a good cause. But even more than they are prepared to share the suffering of others, they would like to end the suffering of others. That, it seems to me, is where we should concentrate our political and intellectual capital -- in solving the causes of our national misery. The Democrats want to spread it around; we were elected to end it. Meanwhile, let's step back a moment and ask why you and I are caught up in this discussion. So far, OMB is asking us to base our decisions on its "black box" -- a single piece of paper containing its deficit projections. Two things are odd about this. First, OMB refuses to provide any supporting   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  3  data not even the aggregates for outlays and revenues, much less its economic assumptions. Second, these figures show deficits $100 billion larger than CBO's most recent projections -- despite economic growth higher than CB0 forecasts. This makes me wonder whether we are on the receiving end of a possibly well-intended, but nevertheless orchestrated exercise, based on the theory that Congress needs to be scared into action because it will always do less than is asked of it. Even if that is true, I would rather see things as they are than base our decisions on less than complete information It has yet to be explained why this period is different from every previous period of reces sion and recovery regarding the effect on the deficit (on this, see the enclosed study by H.C. Wainwright & Co.). Or if it is somehow different, it has yet to be explained as a matter of pure logic why, with a progressive tax structure and soc ial spending which is largely contracyclical, the deficit is not reduced by real economic growth. After all, as OMB keeps reminding us, the deficit became this large because of the recession. Before we go charging off in all directions, we need to see what's inside OMB's "black box." I think we have several allies within the Administration, including the President himself, who have serious doubts about these deficit projections and their underpinnings. Specifically, I think we need to know OMB's operating definition of a "structural deficit"; how much real GNP would have to grow, with other assumptions, to achieve a normal" economic recovery; alternative estimates of the deficit depending on whether real GNP grew 3% or 5% or 7% over the next two years; and how much real GNP and the deficit would change for each percentage point shift in interest rates, the CPI, defense purchases, etc. Look at the OMB deficit projection, and tell me if you can tell any of these things from it. I urge you, Newt, also to think over some o f the discussion we had in New York as to the importance of monet ary policy in the economic and budget situation. Compared w ith the CBO's September deficit projections, the increas e in the deficit outlook from both the January 1982 budge t and the first budget resolution is due entirely to lower -thanexpected revenues and higher interest rates. Eco nomic recovery is still the whole ballgame where the budget is concerned. All around us, even enemies of President Reagan' s campaign platform are waking up to that fact, which Repub licans like you were for a long time alone in saying.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4  Having said why I think the specific freeze proposal is not advisable, Newt, let me say where I believe you are absolutely and magnificently right. You are saying that we as a party and as a nation must take charge of our destiny not allowing ourselves to be ruled by the process, and not abdicating our responsibility to make decisions. I want to do everything I can to encourage you to continue to bring your brainpower to bear on this. My opposition to the freeze proposal is based purely on the conviction that it would have a different effect than you and I would wish, reversing the role our President and our Party undertook in shifting from defense to offense. Nevertheless, I think your initiative has already helped us to move off the dime, and stimulated the party to believe that we can act boldly and with poise under difficult circumstances. In that spirit -- the spirit of our New York meeting -- can't we devise an alternative plan which would provide a foundation for effective leadership, but without the drawbacks of the specific across-the-board freeze idea? Such a plan is what I had in mind in November, in proposing a package of accelerating the remaining tax cuts, enacting enterprise zone legislation, reforming Federal Reserve policy, and redoubling our efforts to restrain spending. So I agree 100% that without a positive proposal we will be forced into an essentially negative, defensive and reactive posture, when we must provide decisive leadership. Let me suggest that we proceed along three simultaneous t racks: 1) demand a summit meeting with OMB officials to hash out the "black box" of economic projections which underlie the whole budget exercise; 2) meet to work out a system of priorities on outlays, based on the needs of Main Street, not just Wall Street; and 3) commit ourselves to a single piece of legislation on monetary policy which will aid noninflationary recovery and so help to reduce the economy-driven portion of the budget deficit. Above all we need to demand a more positive role in the budget process to offset the "austerity and pain are good for you" crowd that threaten the Reagan Revolution and the Republican populism o f which we are both a part. Please let me know what you think, Newt.  urs very truly  k K  I  7T  CURRENT SEWICF-q DEFICIT OUTLCOW  -rife ((gL4( Forc,cast Alterna.t2  1983  1984  1905  1986  1987  1988  223  253  276  288  285  217  225  235  232  201  197  194  176  212 139  1)  WiLb 4% real growth through 1988  224  2)  with 4.75% real growt.h through 1988  219  3)  WW1 5.5% real growth through 1988  214   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ko)c-  I  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Magazine, research paper Citations:  Number of Pages Removed: 14  "An Interview With Ronald Reagan." Time, December 13, 1982. H.C. Wainwright & Co., Economics. "Economic and Investment Observations." Massachusetts: H.C. Wainwright & Co., Economics. 1982.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  WILLIAM PROXM I RE WISCONSIN   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  'ZICnifeb Zfafes"Senate WASHINGTON, D.C. 20510  December 17, 1982  The Honorable J William Stanton House of Representatives Washington, D. C. 20515  Dear Bill: Thanks so much for your letter about the monetary policy resolution. I agree with you wholeheartedly and I will do all I possibly can to forestall it and failing that to amend it. I think it would be a tragedy if the Congress butts into Federal Reserve policies which although painful are unfortunately necessary in view of the grossly irresponsible deficits Congress has visited upon the country past, present and prospective. Thanks so much for your letter. Sincere  ca,  -tLiP ft"ALP  11, ?Ax4A,-,oties /3 a  HOUSE OF REPRESENTATIVES1982  DEC 20  rti In: 16  WASHINGTON. D C 20515 CARROLL Hu BBARD FIRST DISTRICT KENTUCKY  CrT-!-  Decembet 17, 1982  'Peat Ak. Chaitman: Ptea6e accept my zincete appteciation iot the time you 60 gnaciouisty zpen-t with me in my hometown o May6ietd, Kentucky ye4tetday. It wa)s an honot and a ptivitege 6ot me to hot you., and you may be aszuted that the teisident)s o6 Gnave6 County wiLe tong temembeA gout vizit. I, peuonaLey, am gtate4ut to you 40i youA wittingne44 to accept my invitation. Again, \thank you yety much. With bet wihez 6ot you, I am Sincetety you,  Catitote Hubband MembeA o4 Congtezz Hon. Paut A. Votcket Chainman Fedetat Re6etve Sy6tem 20th Stteet and Con6titution Avenue, NW Waishington, DC 20551   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • A IF% FERNAND J. ST GERMAIN, R.I.. CHAIRMAN HENRY S. REUSS, WIS. HENRY B. GONZALEZ, TEX. JOSEPH G. MINISH, N.J. FRANK ANNUNZIO, ILL. PARREN J. M'TCHELL, MD. WALTER E. FAUNTROY, D.C. STEPHEN L. NEAL, N.C. JERRY M. PATTERSON. CALIF. JAMES J. BLANCHARD, MICH. CARROLL HUBBARD, JR., KY. JOHN J LAFALCE, N.Y. DAVID W. EVANS, IND. NORMAN E. D'AMOURS, N.H. STANLEY N. LUNDINE, N.Y. MARY ROSE ()AKAR. OHIO JIM MATTOX, TEX. BRUCE F. VENTO, MINN. DOUG BARNARD. JR.. GA. ROBERT GARCIA, N.Y. MIKE LOWRY. WASH. CHARLES E. SCHUMER, N.Y. BARNEY FRANK. MASS. BILL PATMAN. TEX. WILLIAM J. COYNE PA. STENY H. HOVER. MD.  Assigned to Messrs. Ryan & Truman.  U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-SEVENTH CONGRESS 2129 RAYBURN HOUSE OFFICE BUILDING  WASHINGTON, D.C. 20515 r  J. WILLIAM STANTON. OHIO CHALMERS P. WYLIE. OHIO STEWART B. McKINNEY. CONN. GEORGE HANSEN, IDAHO JIM LEACH, IOWA THOMAS B. EVANS. JR., DEL. RON PAUL, TEX. ED BETHUNE, ARK. NORMAN D. SHuMWAY, CALIF. STAN PARRIS, VA. ED WEBER. OHIO BILL MccOLLUM, FLA. GREGORY W. CARMAN. N.Y. GEORGE C. WORTLEY. N.Y. MARGE ROUKEMA, N.J. BILL LOWERY. CALIF. JAMES K. COYNE, PA. DOUGLAS K. BEREUTER. NEBR. DAVID DREIER, CALIF. 225-4247  December 16, 1982  Honorable Paul Volcker Chairman, Board of Governors Federal Reserve System Washington, D. C. Dear Mr. Chairman: I welcome your interest in communicating with members of the House Banking Committee on the subject of the debt problem of developing nations. As you know, we have scheduled hearings next week with the intention of beginning the process of making the extent of the problem a matter of public record. We plan to move forward with more in-depth discussions of these issues after the new Congress convenes, and your testimony at that time will be a key element in that process. In the meantime, however, we ask that you address the issues and provide the information noted below in a written reply to this letter by January 3, 1983.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1.  The recently published Country Exposure Lending Survey of the Federal Financial Institutions Examination Council provides valuable information on the levels of the debt of individual nations and the exposure of groupings of U.S. international banks. For the Committee, however, to gain a fuller understanding of the current situation an historical perspective is also needed. Please provide data going back to 1976 on an annual basis in a format which is as identical as possible to that of Table I - Amounts Owed to U.S. Banks by Foreign Borrowers, and Table I - Amounts Owned to U.S. Banks by Foreign Borrowers: Nine Largest Banks, contained in the Country Exposure Lending Survey. Any presentation of this data relative to national performance measures such as exports or gross domestic product that you feel would place the information in a more economically meaningful context would also be welcomed.  2.  For each nation which owes a significant sum to U.S. banks, please describe its current economic condition and the arrangements and prospects for payment of the debt. If the credit-worthiness of any such nation is in jeopardy, what actions need to be taken to reestablish its credit standing, and if your recommen dations include austerity measures, how are such actions likely to impact the economy of the nation involved?  3.  Please describe the content of your reported discussions with the White House in October, and the nature of and conclusions reached in the discussions in Frankfurt and Paris that involved yourself and Secretary Regan and your counterparts from the other major industrial nations.  #  -24.  In your judgment, if confidence in international financial markets is deteriorating, what steps need to be taken by the U.S. and other industrialized nations? What actions are under consideration by the Federal Reserve? If the actions under consideration include increasing resources of multilateral lending institutions, specifically: a.  What size increase would the Federal Reserve judge appropriate?  b.  How much of the increase would require funding by the U.S. and in what time periods would the funding occur?  c.  If the amount of the funding increase were expended within the U.S. in the form of, say, job creating loans and infrastructure rehabilitation, instead of loans to foreign nations, what would the impact be on U.S. unemployment, housing, and industrial utilization, and how would that impact compare with the effects of increasing loans to foreign nations?  d.  What portion of the funding increase could be viewed as a form of "assistance" to large international banks which have made unwise credit extensions?  4.  If "assistance" is needed to preserve confidence in U.S. international banks, in what form should that assistance be provided? Should reliance be placed solely on indirect approaches such as IMF loan increases, or is there merit in giving consideration to net worth certificate programs like those established for ailing thrift institutions, which would subject U.S. international banks with problem loans to rigorous supervisory controls?  5.  In your judgment, have the international bank supervisory and regulatory practices of the major industrialized nations encouraged international banks, in any way, to shift funds or locate their operations so as to minimize regulatory restraints, supervision, or taxes? If so, what actions by the newly established Task Group on Regulation of Financial Services are under consideration to address this problem? In addition, what steps in coordinating international supervision and support have been taken in the past by the central banks of the major industrialized nations, and what actions are now being contemplated by these institutions to coordinate supervision and support and restore confidence in international financial markets?  Due to the uncertainty of the Committee schedule in January, I cannot at this time provide you with a fixed hearing date. As soon as possible, however, I will be in communication with you regarding the Committee's hearing schedule. Sincerely, .•  nd a. St Germain airman Enclosures   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1 AND J. ST GERMAIN, R.I, CHAIRMAN FE %.Y R S. REUSS, WIS. , ENR: t B. GONCALEL, TEX. JOSEPH G. MiNISH, NJ. FRANK ANNUNZIO, ILL. PAR REM J. MITCHELL MD. WALTER E. FAUNTPOY. D.C. STEPHEN L. NEAL. N.C. JERRY M. PATTERSON. CALIF. JAMES J. BLANCHARD, MICH. C-ARROLL HUBBARD. JR, KY. JOHN J. LAFALCE, N.Y. DAVID W. EVANS, IND. NORMAN E. D'AMOURS, N.H. STANLEY N. LUNDINE. N.Y. MARY ROSE OAKAR. OHIO JIM MATTO X, TEX. BRUCE F. VENTO, MINN. DOUG BARNARD. JR, GA. ROBERT GARCIA, N.Y. MIKE LOWRY, WASH. CHARLES E. SCHUMER. N.Y. BARNEY FRANK. MASS. BILL PATMAN. TEX. WILUAM J. COYNE PA. STE.NY H. HOVER. MD.  U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY'-SEVENTH CONGRESS 2129 RAYBURN  HOUSE  OFFICE BUILDING  WASHINGTON, D.C. 20515  J. WILLIAM STANTON. OHIO CHALMERS P. WYUE. OHIO STEWART B. McKINNEY, CO? GEORGE HANSEN, IDAHO JIM LEACH, IOWA THOMAS O. EVANS. JR., CE'— RON PAuL., TEX. ED BETHUNE, ARK. NORMAN D. SHUMWAY. CAL STAN PARRIS. VA. ED WESER. OHIO SILL MCCOLLUM. FLA. GREGORY W. CARMAN. N.Y. GEORGE C. WORTLEY. N.Y. MARGE ROUKEMA, N.J. BILL LOWERY. CALIF. JAMES K. COYNE. PA. DOUGLAS K. 'KREUTER. NE1 DAVID DREIER. CALIF. 2.25-4247  IMMEDIATE RELEASE  WASHINGTON, D.C., December 15 ----Chairman Fernand J. St Germai n announced today that the Banking, Finance and Urban Affairs Committee will open hearings Tuesday, December 21 on international fin ancial problems and the involveme nt of U. S. banks. "For months, the news media has been filled with reports of impend ing financial crisis around the world and the ext ent of involvement of U. S. banks," Mr. St Germain noted. "It is time to try to sift through these reports and establish a rational basis for dealing with the problems." Mr. St Germain said he hoped the hearings would determine: 1. The depth of the internationa l financial problems. 2. The degree of exposure of U. S. banks in the problems and how the involvement of these banks developed. 3.  The justification for any additiona l direct or indirect assistance from the U. S. for banks and foreign governments involved in the various financial pro blems around the world.  4.  The adequacy of supervision by U. S. regulatory agencies of the operation and performance of U. S. banks operating overseas.  Scheduled to testify at 10 A.M., Tue sday is Secretary of the Treasury, Donald T. Regan. Comptroller of the Currency C. T. Conover has been invited to app ear at 10 A.M. Wednesday. Mr. St Germain said the hearings are tentatively scheduled to continue the week of January 3 with testimony from Federa l Reserve Board Chairman Paul Volcker, Comptroller General Charles A. Bowsher, major commercial banks with int ernational lending activity, and other experts on intern ational banking problems.  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  December 13. 1982  The Honorable Henry Jr. Hyde House of Representatives Washington, D.C. 20515 7,ear Mr. Hyde: Thank you for bringing to our attention Tilliam N. Hoctor'm interest in and qualifications for the presidency of the Federal Reserve Bank of Et. Louis. By the tin., we received your letter. the Bank's board of directors was well along in the selection process and had, in fact, already decided upon Theodore E. Roberts as its choice for the presidency among a large number of highly qualified candidates. In the interim, both the Reserve bank's board of directors and the Board of Governors have formally approved Mr. Robertn . appointment. We will, however, make a special note of Mr. floater's interest and qualifications and will keep his resume under actiVI, consideration for any similar positions that may become available in the future. Sincerely,  p_44  TEAllison-red OV-262 bcct  Vice Chairman Martin Congressional Liaison Office Mr. Allison Ms. Wolfe  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Hadley Griffin, Chairman Federal Reserve Bank of St. Louis St. Louis, Missouri 63166 Dear Hadley: Chairman Volcker has asked me to send you the enclosed letter from Congressman Henry J. Hyde letting us know of William H. Pocter's interest in and qualifications for the presidency of the St. Louis Reserve Bank. Sincerely yours,  Theodore E. Allison Staff Director  Enclosure  Re n62 TEA red bcc:  Chairman's Office Vice Chairman Martin Congressional Liaison Office  Action assigned Vice Chairman Martin It03 LONOWORTH HOUSE 0111,10E BUILDING WAsmiricrrom, D.C. 20515 (202) 225-4561  VI-NRY. J. HYDE Dirreescr, tu..irdois comurrnms: JUDICIARY FOREIGN AFFAIRS  Congro5 of tbe tiniteb jr)oult of Repreantatibel Eastfngton,10.C. 20515  November 18, 1982  •  07.  Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Washington, D. C. 20551  _  •  •••,••  r•  Dear Mr. Chairman: It is a privilege and an honor to write on behalf of William H. Hocter, Executive Vice President of the Illinois Bankers Association, who is interested in the position of President of the Federal Reserve Bank of St. Louis. The enclosed resume is outstanding evidence of Mr. Hocter's experience anS quacations for this important position. His knowledae and support for the Federal Reserve System are extensive, and his relationship with the banking community is superior. I sincerely hope that Mr. Hocter's interest in this position will receive every possible consideration. His appointment to the position of President of the Federal Reserve Bank in St. Louis would do much to continue support for the Board's policies within the banking community. Thank you very much for your interest. y truly yours,  HJH:ftp 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 personally identifiable information.  Citation Information Document Type: Resume Citations:  Number of Pages Removed: 3  Resume, William J. Hocter, 1982.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  BOARD OF GOVERNORS •40 •C  •%-s  11r; 1".:::•  •  CF THE  11  FEDERAL RESERVE SYSTEM WASHINGTZN, C. C. 20551  •  ';'1,i1" •  PAUL A. VOLCKER ••  • • .. • •  IIV  December 13, 1982  The Honorable Robert J. Dole Chairman Subcommittee on Courts Committee on the Judiciary United States Senate Washington, D.C. 20510 Dear Chairman Dole: III!1982 I wrote to you recommending a change in Bankruof 1978 ("Code") to remove a possible technical impedimentve functioning of the market for repurchase transaction behalf of the Board of Governors I would like to restated to request legislative action at the present Special Se The Board believes that this action would restore res participating parties anticipated they would possess.  I  As I noted in my September letter, a recent development in the dealer in that repo market--specifically the bankruptcy of an active market--has raised the possty that in the future the financial problems of a particular institution could unnecessarily impair the liquidity of a wide range of other firms. Because of the magnitude of IS billion outstanding every day--and the importance the market--over of repos to the Federal Reserve as an instrument for the conduct of monetary policy, it is desirable to establish an environment that will assure smooth functioning of this financial market and avoid any potential for a serious ripple effect on financial markets generally.  A repurchase transaction represents a transfer of a financial instrument of some kind--often a government security--and a simultaneous agreement requiring a return of the security at a fixed date and at a price which reflects a rate of interest to be paid by the transferee. The term of repos usually ranges from one day to one week, although they sometimes extend for longer periods. Repo transactions are especially attractive to market participants, providing a high degree of flexibility as to term and amount to be invested, and are used by a wide range of entities to earn interest on temporarily idle funds. Market participants include government securities dealers, states, municipaes and other public bodies, financial institutions, pension funds, and money market mutual funds.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  , The Honorable Robert J. Dole  -2-  It had been thought by the market that these transactions were both highly liquid and secure beyond question. However, the bench opinion of the United States Bankruptcy Court for the Southern District of New York in September, 1982, in the bankruptcy case of Lombard-Wall, held that the automatic stay against creditor action prevents the holder of securities acquired under a repurchase agreement from liquidating those securities and closing out its transaction with the debtor. The decision casts doubt on the safety and liquidity of repo transactions because it subjects the holder both to unexpected inability to liquidate securities it holds and to the risk of capital loss should unfavorable interest rate changes occur; these risks impair the qualities that are the essence of the appeal of repo agreements. Because the securities cannot be liquidated without permission of the court, the investor bears the risk of changes in interest rates that may decrease the value of the underlying securities, with a final determination as to the distribution of the securities often delayed for at least two months and possibly years. In a market in which prices may fluctuate widely, such a delay could result in substantial losses to investors. If this decision becomes the law governing these transactions, the failure of one market participant and the inability of other parties promptly to liquidate their investments to obtain cash to meet obligations could have a ripple effect throughout the securities market, causing an otherwise isolated financial problem to spread to many other entities. Participants would not receive their funds as expected and would either have to default on their commitments to third parties or borrow funds, if they could, to fulfill these commitments, thus incurring addonal expenses. For example, a money market mutual fund that had put out funds in a repo transaction may experience increased redemption demands once shareholders became aware of the fund's liquidity problem. Even if the fund were able to meet ordinary demands, it might not be able to meet the unusually high demand for redemption of shares produced by public perception of a problem. The proposed amendments would resolve the potential structural problem by exempting certain repos from the automatic stay in bankruptcy. In my September letter I stressed the desirability of drawing the legislation in a narrow manner to avoid major exceptions to existing bankruptcy law. Thus the Board continues to believe that the protection provided by the proposed legislation should be limited to those markets which are so large as to raise potential systemic problems in situations in which a bankruptcy could affect the liquidity and solvency of a large number of other entities, particularly fiduciary entities. Accordingly, the Board supports limiting the scope of the government and agency securities, legislation to the repo markets I.nkers' acceptances, and cercates of deposit and to repo transactions of $1 mon or more. The legislation, however, should not I- regarded as affecting the legal status of repos on other types of assets, such as commercial paper.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Robert J. Dole  -3-  Investors who deal in repos are seeking a safe investment that protects liquidity. To subject these investors to the risks that could arise in the event of bankruptcy of a repo dealer could affect the willingness of investors to participate in this market. Because of the the important role repo transactions serve, particularly for implementation of monetary policy, it is desirable that the market be protected from unnecessary disruption. The Federal Reserve uses the repo market to affect the supply of reserves. For example, in 1981, the System entered into over $110 Such billion of repo transactions for monetary policy purposes. transactions are useful in helping to smooth out short-term swings in bank reserves that would otherwise increase the volatility of interest rates. A repo market that has been narrowed by the withdrawal of participants that are unprepared to accept the risks inherent in the Lombard-Wall decision, could limit the ability of the Federal Reserve to act promptly and in the large volumes necessary to achieve its monetary policy objectives. It would be desirable if market mechanisms could be used to avoid the risks inherent in the court's construction of the Bankruptcy Code. However, a detailed examination of this problem indicates that there are no really effective methods for hedging against these risks, leaving legislative action as the best method of clarifying the law and avoiding a structural problem for the financial markets. The proposed Code amendments are designed to protect the repo market, rather than any particular group or class of market participants. In this way, they are parallel to a similar action by Congress last July that exempted securities and commodities dealers from the automatic stay in order to minimize the "ripple effect" that would take place in the commodities or securities market should a large securities or commodities firm file a case under the Code. The Board requests that the amendments proposed be enacted promptly in order to return repurchase agreements to the status they held before the Lombard-Wall decision, thereby preserving the repurchase agreement as an important tool of monetary policy and assuring the stability of the nation's financial markets.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  S/Paul A. Volckec  mv, -f\{ ?94%•cL \‘-' I . ........ ..•'.0o?Gov4.•..  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  PAUL A. VOLCKER CHAIRMAN  December 8, 1982  The Honorable Jake Garn Chairman, Committee on Banking, Housing and Urban Affairs United States Senate 20510 Washington, D.C. Dear Mr. Chairman: ort for an amendment to This is to advise you of the Board's supp ions Act of 1982 to exempt Money the Garn-St Germain Depository Institut the reserve requirement phase-in Market Deposit Accounts ("MMDAs") from 1980 ("MCA"). provisions of the Monetary Control Act of ion 327 of the Garn-St As you know, in accordance with sect Deregulation Committee ("DIDC") Germain Act, the Depository Institutions , federally insured commercial authorized effective December 14, 1982 mutual savings banks to issue banks, savings and loan associations and to authorize an account that MMDAs. This provision directed the DIDC etitive with money market mutual would be "directly equivalent to and comp nt, the Board, on In accordance with Congressional inte funds." of the Garn-St Germain Act November 24, 1982, applied the provisions because of the transitional relating to reserve requirements. However, Control Act of 1980, which requires adjustments provision of the Monetary reserve requirements of the MCA member banks to phase-in to the lower will be subject to an effective over a four-year period, member banks s held by natural persons while 1.125 percent reserve requirement on MMDA requirement on such accounts. We nonmembers will not have any reserve will result in a decrease in estimate that this reserve requirement $9 to $13 million during 1983. after-tax earnings for members of about be reduced to zero by The reserve requirement for members will etitive Thus, member banks will be at a comp February 2, 1984. the same deposit account as disadvantage even though they are offering nonmembers. appropriate for Congress to The Board believes that it would be eve this inequity. There are two amend the Garn-St Germain Act to reli problem. Recognizing that there are alternatives that could resolve this d believes that it is best for the advantages to either approach, the Boar that it believes to be the most Congress to choose the alternative appropriate.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Jake Garn  -2-  The first alternative would be to exempt all MMDAs, so that all depository institutions offering the same account would incur the same reserve requirement liability. It should be noted, however, that exempting the MMDA from the phase-in provisions of the MCA would result in subjecting all MMDAs that are nonpersonal accounts at nonmembers to full reserve requirements. Because of the three percent reserve requirement on such accounts, Federal Reserve staff estimates that such an amendment would reduce nonmember earnings by $4 to $5-1/2 million in 1983. Since nonmember institutions would not otherwise be fully phased-in to reserve requirements on these accounts until September 1987, there would be additional costs for these institutions through that date. The second alternative would be to exempt only personal MMDAs at member banks from the phase-in of reserve requirements. This would still result in lower reserve requirements on nonpersonal MMDAs held by nonmembers during the phase-in of reserve requirements under the MCA. Since it is likely that most MMDAs will be held by natural persons, which would be subject to a zero percent reserve requirements at all/ institutions, such an amendment would be consistent with the objective of the Garn-St Germain Act to improve the competitive position of all depository institutions. Draft statutory language that would accomplish either of these approaches is enclosed for your consideration. Because implementation of such a change would involve significant programming and report structure changes by the Federal Reserve Banks, we recommend that this legislation be adopted with a deferred effective date of at least 60 days in order to allow for these adjustments to be made. Please let me know if I can provide you with any additional information or views concerning this matter. merely, i iv_ech  ?  CL I/1  Identical letter also sent to Chairman St Germain.  PSP:GTS:ECE:bbo bcc: Paul Pilecki Gil Schwartz Ed Ettin Mrs. Mallardi (2) Legal Records (2)  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Amendment to Garn-St Germain Depository Institutions Act of 1982  (a) Sec. 204 of the Depository Institutions Deregulation Act of 1980 (12 U.S.C. 3503) is amended by adding at the end thereof the following: "(4) The transitional adjustment provisions in section 19(b)(8) of the Federal Reserve Act (12 U.S.C. 461) providing for the phase-in of reserve requirements shall not apply to an account or accounts established pursuant to subsection (c) held by a member bank.". (b)  This section shall take effect 60 days after enactment.  Pureose: This amendment exempts from the phase-in of reserve requirements under the Monetary Control Act all Money Market Deposit Accounts held by banks that are members of the Federal Reserve System. Such accounts were authorized by the Depository Institutions Deregulation Committee, effective December 14, 1982, pursuant to section 327 of the Garn-St Germain Act. Because of these phase-in provisions, member banks will be subject to a small reserve requirement on personal MMDAs while , nonmembers have a zero reserve requirement on such accounts. This amendment would relieve this inequity.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Amendment to Garn-St Germain Depository Institutions Act of 1982  (a) Sec. 204 of the Depository Institutions Deregulation Act of 1980 (12 U.S.C. 3503) is amended by adding at the end thereof the following: "(4) The transitional adjustment provisions in section 19(b)(8) of the Federal Reserve Act (12 U.S.C. 461) providing for the phase-in of reserve requirements shall not apply to an account or accounts established pursuant to subsection (c).". (b)  This section shall take effect 60 days after enactment.  s at Purpose: This amendment provides that Money Market Deposit Account all depository institutions will not be subject to the phase-in of Such reserve requirements under the Monetary Control Act of 1980. accounts were authorized by the Depository Institutions Deregulation As a Committee pursuant to section 327 of the Garn-St Germain Act. the result, all depository institutions offering this account would incur same reserve requirement liability.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  December 7, 1982  The Honorable Ronald V. Dellums House of Representatives Washington, D. C. 20515 Dear Mr. Dellums: I am writing in response _to your letter of November 29 concerning audit services used by the Federal Reserve. The Board of Governors contracts for audit and public accounting services on a continual basis. The services consist primarily of an annual examination of the Board's balance shee t and related financial statements. Also, auditing services are employed throughout the year to evaluate methods used by Board examination staff during both financial and operational reviews of Federal Reserve Banks. Typically, the Reserve Banks do not use outside audit services. The Federal Reserve System encourages minority and small business firms„including those with 8(a) certification, to participate in its contracting processes. Mr. George Lopez, Manager of Procurement, is the key individual at the Board responsible for contracting matters. He can be reached at (202) 452-3296. Sincerely, •  GEL:vcd (V-269) bcc:  Mr. Livingston Mr. Denkler Mrs. Mallardi Mr. Lopez  Mrs. Mallardi  Action assigned to John Denkler RONALD V. DELLUMS  ANY REPLY TO THIS LETTER SHOULD BE ADDRESSED TO OFFICE CHECKED:  8TH DISTRICT. CALIFORNIA •  CHAIRPERSON,  201 13TH STREET, SUITE 105 OAKLAND. CALIFORNIA  •  COM M ITTEE ON THE DISTRICT OF COLUMBIA O  MEMBER.  3557 MT. DIABLO BOULEVARD LAFAvErrE, CALIFORNIA  ARMED SERVICES COMMITTEE  Congre55 of the Ziniteb  WASHINGTON, D.C. 20515  tato  --7;)  D  2490 C HANN I NG WAY, SUITE 217 BERKELEY, CALIFORNIA  kou5e of Repraientatiing  BARBARA LEE, ADMINISTRATIVE ASSISTANT  DONALD R. HOPKINS DISTRICT ADMINISTRATOR  ROBERT BRAUER, SPECIAL COUNSEL  24 1 November 29, 1982  Paul A. Volcker, Chairman 20th and Constitution Ave., NW Washington, D.C. 20551  7  .•••••••  Dear Mr. Volcker: As you may know, I have been committed for many years to increased opportunities for minority contractors. This year, in particular, is one of concern due to the number of setbacks to small businesses. Thus, it becomes of great importance to me and my constituency to become aware of the types of available procurement assistance afforded to small and minority businesspeople. The small and minority businesses in California are at a marked disadvantage to those in other parts of the nation. The distance between California and Washington makes it very difficult for them to receive constant updates on new procurements. In attempting to facilitate their efforts to receive such information, I would appreciate receiving from your agency a description of the types of auditing services you use. I would also like to know if contracts are available to outside firms, particularly those with 8(a) certification. Please include the name(s) of the key person(s) in charge of this area. Thank you in advance for your assistance. Please contact Ms. Robin Hart, my Administrative Aide, in regards to this matter. Sincerely,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  94704  (415) 548-7767  (202) 225-2661  RVD/rdh  94549  (415) 283-8125  2136 RAYBURN BUILDING  onald V. D Member of C  94617  (415) 763-0370  ess  • •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS  .-*  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20 SSI  •  AL RES ••• •••  December 6, 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: This is in response to your letter of November 22 requesting information regarding supervisory practices and procedures with respect to brokered funds. In responding, I think it is important, at the outset, to distinguish between the practice of using brokers to market bank liabilities and the use of the brokered deposits, or other types of purchased funds, by the selling bank. The use of reputable brokers to market bank deposits does not seem to be, per se, an unsafe or unsound banking practice. On occasion, banks suffer losses due to link financing arrangements (the placing of brokered deposits in conjunction with the placing of high risk brokered loans), but such activity is not thought to make up a material part of the total brokered funds activity. Larger banks, for some time, have relied on brokers to market large denomination deposit liabilities to investors. In the case of Penn Square, I note that the FDIC has indicated to you that they found little evidence of impropriety on the part of money brokers serving Penn Square. The central issue with respect to brokered deposits, and purchased funds in general, would seem to be the extent of reliance on volatile sources of funds and the use and control of such funds in a bank's overall asset-liability management. Brokered funds and purchased deposits, especially those coming from outside a bank's general trade area, are generally recognized as potentially volatile sources of funds. As such, undue reliance on these purchased funds, or imprudent investment of such funds, could expose a bank to undue liquidity strains or excessive interest rate risk. It is in this broader context that Federal Reserve examiners analyze brokered deposits as well as all of the other sources of volatile funds. Although standardized data are not routinely collected on brokered funds in the examination process, nor are specific data on brokered funds directly utilized in the computerized  I  • , .. r   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Benjamin S. Rosenthal Page Two  surveillance system, Federal Reserve examiners are instructed to review the bank's liability accounts for any evidence of brokered funds and, more broadly, are required to assess the level and use of all types of purchased funds in determining the liquidity rating of a bank. Our computerized surveillance system and bank performance reports utilize a number of liquidity ratios that relate the level of purchased funds to total sources of funds, liquid assets and total assets. Brokered deposits would be included in the total of purchased funds to the extent each deposit is $100,000 or more. Over the past few years, we have placed increasing emphasis on the need for examiners to review the composition, cost, and maturity of bank liabilities, and recently have instituted a new examination report form that focuses directly on the subject of asset-liability management. The instructions that go with the new report form state, in part, that "Reliance on funds obtained through brokers should be reviewed and discussed in all cases." Although the new report was not a direct result of Penn Square, staff did utilize information gained from the Penn Square experience in formulating the final draft. I have enclosed a copy of the relevant pages of the report for your reference. These new and more explicit procedures will go a long way toward assuring that examiners will continue to focus on the potential risk in bank funding practices. Sincerely,  Enclosures  WT:vcd (V-267) bcc:  Bill Taylor Ms. Blessing Mrs. Mallardi (2)  Action assigned Jack Ryan BENJAMIN S. ROSENTHAL. N.Y., CHAIRMAN JOHN CONYER S, J R., M ICH EUGENE V. ATICINSON, PA. STEPHEN L. NEAL N.C. DOUG SARNARD, JR.. GA. PETER A. PEYSER. N.Y. BARBARA 111„ KENNEL.LY CONN.  LYLE WILLIAMS, oFno MAL DAUB NEBR. WIL1JAM F. CLINGER. JR., PA. JOHN MILER. IND.  N I NETY-SEVENTH CONGRESS  Congrems of tbe 'Unite)etatels *must of Repregentatibefi  mAioftrry —(202) 215-4407  COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOM MITTEE OF THE  ". 1'1  COMMITTEE ON GOVERNMENT OPERATIONS  ri  RAYBURN HOUSE OFFICE BUILDING. Ft001.1•B-377 WASHINGTON. D.C. 101115  r—  • November 22, 1982  II  ••  Hon. Paul A. Volcker Chairman Federal Reserve Board Washington, D.C. 20551 Dear Chairman Volcker: Enclosed is a copy of a letter to me dated November 15, 1982, from the Federal Deposit Insurance Corporation concerning FDIC's special investigation of brokered funds activity at Penn Square Bank. I am writing to determine the practices and procedures normally utilized by Federal the Reserve examiners in reviewing the role of money brokers in the conduct of examinations of banks under Fed supervision. In particular: i. Are the volume and cost of brokered deposits routinely obtained and analyzed by Fed examiners? ii. Have the examination practices and standards been changed in any way as a result of the Penn Square experience? iii. Are you satisfied that present examination practices are adequate to prevent the kinds of problems for banks under Fed supervision relating to money brokers discussed in Mr. Sexton's letter? iv. Is data on brokered deposits included in the Fed's computerized surveillance system for potential problem banks? If not, do you believe that such data should be included in the future? Please respond by December 6, 1982. Sincerely,  Benjamin S. Rosenthal Chairman BSR:tj:v Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  FEDERAL DEPOSIT INSURANCE CORPORATION, washmoon. DC 20429  RECEIVED licw 1 8 1982  OFFICE OF DIRECTOR -DIVISION OF BANK SUPERVISION  r.OMMthCE, LL;NSUMER AND MONEIARY AFFAIRS LJBCOMMITTEE  November 15, 1982  COr  Honorable Benjamin S. Rosenthal Chairman Commerce, Consumer and Monetary Affairs Subcommittee House of Representatives Washington, D.C. 20515  NOV y sip Isg2 PA  ....................... FILE CODE ..... ............  Dear Mr. Chairman: In your letter dated July 23, 1982, you requested reports on money broker activity in insured banks and an analysis of the impact of such broker activity at the Penn Square Bank, National Association, Oklahoma City (-Penn Square Bank-) which was closed on July 5. On August 12, we provided your Subcommittee with a report containing background information and analysis of the role of money brokers; however, as we indicated in that response, specific conclusions regarding their impact upon Penn Square Bank could not be provided before a special investigation had been conducted. That review of brokered funds activity at Penn Square Bank has now been completed by an onsite investigation team composed of experienced personnel. A summary of their findings and our conclusions are set forth below. Identification of Brokers and Contractual Arrangements Our investigation team was asked to identify the money brokers who supplied funds to Penn Square Bank and to review the contracts and/or documentation supporting these arrangements. The investigation disclosed that during 1981 Penn Square Bank utilized the services of three California-based money brokers disbursing fees of approximately $118,000. A number of these transactions appeared to have been conducted without the benefit (or protection) of a formal contract. Fees paid to one of the brokers were reportedly calculated in an unconventional manner apparently resulting in costs to Penn Square Bank significantly in excess of industry norms. During 1982, the bank shifted the bulk of its money broker arrangements to different firms, ultimately utilizing the services of seven organizations. Fees totaling approximately $206,000 were disbursed in the first six months. Written contracts setting forth responsibilities and specified annualized fees were executed between March and May of this year in an effort to correct this situation.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Honorable Benjamin S. Rosenthal  - 2  Extent and Purpose of Brokered Deposit Activities Penn Square Bank utilized brokered deposits on a regular basis during both 1981 and 1982 with a dramatic increase in the volume of purchased funds evident in the period between May and July of this year. Brokered funds at Penn Square Bank, which were at a moderate level of less than $20 million during January 1982, increased to $150 million by early May and almost doubled again in volume to more than $282 million by the beginning of July. A more detailed analysis showed that the bank's deposit base became disproportionately skewed toward dependence upon large liabilities. We have also attempted to ascertain the purpose of such an extraordinary high level of purchased funds and to identify the use of these funds by the bank's management. The investigation team indicated that broker-originated deposit funds were utilized for liquidity purposes and to -temporarily- fund large loan commitments intended for resale. While the bank did experience a need for funds for both of these purposes, such a simple statement may not fully convey an understanding of the impact of management's operating philosophy upon the institution in its final months of existence. We believe that the bank's operation was so dominated by a philosophy of high volume loan production that an atmosphere was created which required a continued heavy reliance upon volatile temporary funding sources. When Penn Square Bank was unable to achieve and maintain a desired level of participation loan sales, and large unfunded loan commitments remained outstanding, bank management was faced with some difficult choices. As we indicated in our August response (page 3), several alternatives are available to a bank in such a situation. .Rather than liquidate assets or seek additional capitalization, however, the management of Penn Square Bank appears to have chosen a course of action which required the soliciting of out-of-area funds by bidding above market rates for certificates of deposits provided through money brokers. As we have previously indicated, continued reliance upon high cost large liabilities for funding can result in a dangerous cycle which, if not quickly broken, will sap an institution of its flexibility. Operating Policies and Funds Management In February 1981, at the urging of the Office of the Comptroller of the Currency, the management of Penn Square Bank established an Asset and Liability Management Committee ("ALCO'). This committee was reorganized in August of that year and subsequently adopted a written policy statement which was approved by the bank's board of directors on October 13, 1981. The policy statement set forth, in broad terms, the objectives, goals and responsibilities . . overall acquisition and allocation of funds of ALCO which included the to maximize earnings and insure (sic) adequate liquidity . . ALCO also prescribed procedures for addressing the measurement of liquidity and rate sensitivity, and set standards for deposit maturities, capital requirements, dividends, maximum borrowings and aggregate loan volume limits.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Honorable Benjamin S. Rosenthal  - 3 -  The committee's membership of 11 senior officers included all nine members of the Executive Management Committee to which ALCO was directly responsible. Four were also members of the bank's board of directors. Further, two of the committee's members, the bank's chief executive officer and its head of the energy division, were in a position to greatly influence ALCO's actions and the committee's subsequent reporting to the board of directors. Weekly meetings of ALCO were held from August 1981 through June 1982. While minutes of these meetings were maintained, these records often lacked comprehensive details such as dollar volume and actual cost factors. A review of the bank's daily activity for adherence to the stated asset/liability management policy disclosed that borrowings and purchased funds exceeded the established limits on a daily basis from May 6, 1982 until the bank's closing on July 5. Internal Procedures and Controls An examination of the bank's internal procedures and accounting practices relating to brokered funds activities also disclosed a number of weaknesses. As previously indicated, the lack of formal written contracts with fund suppliers proved to be an imprudent practice resulting in unnecessary costs. Additionally, however, it has been disclosed that until early 1982 broker fees were not negotiated, expenses were not consistently accounted for, and there existed no centralization of the - bidding- function or for contacting potential fund suppliers. This lack of sophistication in liability management resulted in a number of inefficiencies and a general disregard of sound banking practices. For example, we found that on occasion two members of the bank's officer staff actually bid against each other for the same funds on the same day. One instance was cited where an officer representing the energy division offered a rate for a particular certificate of deposit which was four points above that offered by a colleague representing the operations department. In fairness to the bank, however, we must point out that an attempt to address these practices was made in early 1982 and appears to have corrected some of the primary operating deficiencies. General Observations and Conclusions The concept of engaging in a loan production business is not new and is generally considered to be an economically beneficial function within the normal scope of a financial intermediary. This practice of originating and selling loans does not, per se, result in an unacceptable level of exposure for a financial institution if the function is properly managed and if certain basic tenets of sound banking practices are followed. By its very nature, however, it does require a rapid turnover of participation loans and a careful matching of lending commitments with funding sources.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ;  ...111, . '  Honorable Benjamin S. Rosenthal  - 4 -  volume lending We find in the Penn Square Bank situation an example of a high operation which developed (or evolved) without the benefit of proper safeengaged guards and without adherence to prudent banking procedures. The bank its lending in speculative practices, did not practice diversification in dangerous operations, and embraced a policy of rapid growth which resulted in a reliance upon volatile and expensive short-term funding. the cyclical While the general economic downturn, depressed energy prices and ng weaknature of the energy development industry may have aggravated existi uted nesses in the bank, the troubles of this institution cannot be attrib riety on solely to such external causes. We found little evidence of improp arly, there the part of the money brokers serving Penn Square Bank and, simil could be was no evidence of any significant linked financing schemes which simply, identified as a major causative factor in the bank's demise. Quite ly with bank if blame is to be identified in this situation, it rests square management's imprudent policies and control procedures.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  mes L. Sexton 'rector  •. 4%   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  g'grp... •41:, .. *0 --ri '.4 .1. . ..4,  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM i---• r.: 44, .•  WASHINGTON. D. C. 20551  PAUL A. VOLCKER CHAIRMAN  December 3, 1982  The Honorable Ron Paul House of Representatives Washington, D.C. 20515 Dear Congressman Paul: I am replying to your letter of October 26 to President Solomon requesting further information about Federal Reserve investments of foreign-currency holdings. As you know, the Federal Reserve is prepared to furnish such information to responsible parties, although we do not publish information about the detailed composition of our foreign-currency holdings and precise form in which they are held. The reason for our policies in these matters is that some foreign governments wish us to hold confidential the form or amount of our investments affecting their currencies. By respecting those wishes we are able to make arrangements to earn on behalf of the U.S. Government a higher return on our assets denominated in foreign currencies than otherwise would be possible. The $5.4 billion equivalent of foreign-currency assets in the table President Solomon sent you include $1.3 billion equivalent in funds warehoused for the Exchange Stabilization Fund (ESF). (Warehoused funds have been purchased spot from the ESF and simultaneously sold forward to the ESF at the same exchange rates.) Combined holdings were denominated principally in German marks, Swiss francs, and Japanese yen. The assets consisted of placements at central banks and the Bank for International Settlements, in government securities and repurchase agreements secured by government securities. Included in the System's holdings were balances in Mexican pesos acquired in connection with the Bank of Mexico's $700 million drawing on its reciprocal-currency arrangement with the Federal Reserve. The peso holdings are invested in an interest-bearing placement with the Bank of Mexico. When the swap drawing is unwound, the pesos will be exchanged with the Mexican central bank for dollars at the rate of exchange at  •  The Honorable Ron Paul - Page 2.  which they were acquired. The System held, and now holds, no other significant amounts of foreign assets, including debts of foreign nations. Please let me know if I can be of further assistance. Sincerely,  ea,&_  NS:PAV:ccm (531) bcc: Don Adams Ted Truman Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  (  • .0V GOV;•• '  BOARD OF GOVERNORS •co •0 • -71  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  ' ft,  December 2, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable Henry J. Nowak House of Representatives Washington, D.C. 20515 Dear Mr. Nowak: Thank you for your letter urging the Federal Reserve to reduce its discount rate again in order to encourage a further general decline in interest rates. As you are no doubt aware, we have lowered the discount rate by one-half of a percentage point since your letter was written. This action, which was broadly consistent with the pattern of rates already prevailing in credit markets, was taken against a background of continued progress in damping inflation and persistent sluggishness in economic activity, while recognizing that recent rapid growth in the monetary aggregates seemed to have been associated with strong demands for liquidity. We share your desires to see interest rates move even lower, and I can assure you that when conditions in financial markets and the economy warrant such actions, we will reduce our discount rate further. It is my personal view that as we see additional progress on inflation, and as the public comes increasingly to believe that inflationary pressures will not be permitted to build up once again, interest rates generally will continue to decline. In this regard, I might note that a restructuring of the federal budget to reduce deficits as the economy expands would greatly contribute to reducing interest rates, both by relieving demands on credit markets directly and by reinforcing the public's perception that all elements of government policy were keyed to promoting growth at a relatively stable price level. While we would be pleased to see interest rates decline, and will in no way interfere with the forces in our economy tending to reduce them, I believe that it would be a mistake for the Federal Reserve to move aggressively to push rates lower. Efforts to do so by actions to increase the money stock or reduce the discount rate too rapidly would be only temporarily successful and prove in the end to be -counterproductive. The rebound in rates that would inevitably follow would seriously impair our ability to sustain economic recovery and would be particularly harmful in long-term credit markets, where the persistent high levels of rates on bonds and mortgages result in large measure from the concerns of investors who have too often in the past suffered the consequences of stop/go policies. Our economy and financial markets would   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Henry J. Nowak Page Two  greatly benefit from a further reduction in interest rates, provided that these rates remain at lower levels for some time to permit a sustained period of economic growth.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  DK:JSZ:pjt (#V-263) bcc: Mr. Kohn Mr. Zeisel Mrs. Mallard! (2) Ms. Wing 4111D  •••••  -  •  4C- •••-  •  411114.. HENRY J. NOWAK  Action assigned Mr. Kichline Rozok4 2430 RAYBURN HOUSE OFFICE BUILDING Te1.m440,4E:(202)22.5-3304  37m Dierrnicr, Nevi YOIRK COMMITTEES: PUBLIC WORKS AND TRANSPORTATION SMALL BUSINESS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Congre55 of tbe Eniteb  tate  HOME OIFF10E: U.S. COVRTI401.13E BurrALo. N.Y. 14202 TELEFISOME:(716) 853-4131  1Doute of AepregentatibtO agbington, )13.C. 20515 November 19, 1982  -1  4-1 ••••*"  Chairman Paul A. Volcker Board of Governors of the Federal Reserve System Suite B-2046 20th and Constitution Avenue, N. W. Washington, D. C. 20551 Dear Chairman Volaker: Although the Nation's sagging economy was given a glimmer of hope with the recent decline in interest rates, the prospects for an investment-led recovery are slight,absent an additional effort on the part of the Federal Reserve Board to lower these rates further and faster. While it is true that investment and business communities were encouraged by the interest rate decline, the Fed's apparent decision to discontinue its reduction in its discount rate has sent negative signals to the commercial sector of the economy. For example, earlier this week reports indicated that stock prices fell sharply as investors worried that the progressive decline in interest rates may be halted by the Fed's inactivity on the discount rate. I share this concern and I contend that the minor respite provided to the economy by the previous decline in interest rates is no indication that economic recovery is imminent. In fact, the Wall Street Journal reported today that the Commerce Department's revised measure of the third-quarter "real" gross national product will show that there was no growth since the second quarter of this year. More dramatic indications of economic stagnation are exemplified by the high level of unemployment, the increase in business failures and the record low level of plant capacity utilization of 68.4%.  V  1  s.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Chairman Volcker Page 2  This is not a time for the Fed to abandon its positive contributions to economic recovery by continuing to work toward lowering the interest rates. What is needed, therefore, is a further reduction of the discount rate to bring down interest rates to generate a renewal of business confidence, investment and growth. Let me point out that I am in no way advocating abandonment of the fight against inflation. In fact, considering the depressed state of business activity and the low level of production in relation to capacity, a further decline in the discount rate could foreseeably result in an increase in productivity rather than a marked increase in prices. In addition, the net effect of additional reductions in interest rates and an increase in productivity could effectuate a reduction in the unemployment rate and ultimately result in a lowering of the budget deficits. As you know, it is estimated that each percentage point reduction in the jobless rate results in an estimated savings of approximately $30 billion to the Federal Government. Therefore, I urge the Fed to implement the necessary measures to further reduce interest rates as a catalyst to a resurgence in business activity and sustained economic recovery. Thank you for your consideration. Sincerely,  HENRY J. NO AK Member o C gress  :   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  December 1, 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 Cam: At the invitation of your staff, I am forwarding some technical amendments to the Banking Affiliates Act of 1982 (Section 410 of the Cam -St Germain Depository Institutions Act of 1982) which would serve to clarify the intent of that Act. Sin  rely,  /7<f ‘('..61,e, Enclosure  Ni  December 1, 1982  TECHNICAL AMENDMENTS TO THE BANKING AFFILIATES ACT Section 410 of P.L. 97-320 Deletions are indicated Note: underlined. 1. Paragraph (b)(a)(2): To clarify that the attribution rule contained in paragraph (b)(a)(2) of Section 410 of P.L. 97-320 also applies to transactions between an affiliate and the subsidiaries of a member bank, paragraph (b)(a)(2) could be amended as follows: "(2) For the purpose of this section, any transaction by a member bank or its subsidiaries with any person shall be deemed to be a transaction with an affiliate to the extent that the proceeds of the transaction are used for the benefit of, or transferred to, that affiliate." 2. Paragraph (b)(a)(4): To clarify that the restriction contained in paragraph (b)(a)(4) of Section 410 of P.L. 97-320 also applies to transactions between an affiliate and the subsidiaries of a member bank, paragraph (b)(a)(4) could be amended as follows: "(4) Any covered transactions and any transactions exempt under subsection (d) between a member bank or its subsidiaries and an affiliate shall be on terms and conditions that are consistent with safe and sound banking practices." 3. Paragraph (b)(b)(1)(D)(ii):   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I  by brackets, while additions are  To clarify that the definition of affiliate contained in paragraph (b)(b)(1)(D)(ii) of Section 410 of P.L. 97-320 also applies to any investment company with respect to which a subsidiary of a member bank is an investment advisor, paragraph (b)(b)(1)(D)(ii) could be amended as follows: "(ii) any investment company with respect to which a member bank or any subsidiary or [any] affiliate [thereof] of the member bank is an investment advisor as defined in section 2(a)(20)- of the Investment Company Act of 1940; and"  -2-  4. Paragraph (b)(d)(1): To clarify that the exempt transactions between affiliated banks in a bank holding company are subject to the same prohibition as contained in paragraph (b)(a)(3). This would make clear that the exception to the prohibition in paragraph (b)(a)(3) also applies to transactions between such affiliated banks. To accomplish this, paragraph (b)(d)(1) of Section 410 of P.L. 97-320 could be amended as follows: "(1) any transaction, [except for the purchase of a low-quality asset which is prohibited] subject to the prohibition contained in paragraph (a)(3), with a bank --" 5. Paragraph (b)(d)(6):   https://fraser.stlouisfed.org hr Federal Reserve Bank of St. Louis  To clarify that the exemption for purchasing loans on a non-recourse basis from affiliated banks (proposed by Senator Exon and added to the statute by the Conference Committee, see enclosed submission on behalf of Senator Exon's proposal) is subject to the prohibition against the purchase of low-quality assets contained in paragraph (b)(a)(3), paragraph (b)(d)(6) of Section 410 of P.L. 97-320 could be amended as follows: "(6) purchasing assets having a readily identifiable and publicly available market quotation and purchased at that market quotation; or purchasing loans on a non-recourse basis from affiliated banks, subject to the prohibition contained in paragraph (a)(3); and - or Alternatively, in addition to the change noted above, since the exempt transaction proposed by Senator Exon is completely unrelated to the exempt transaction to which it was added, to clarify the statute further the two transactions could be listed separately as follows: "(6) purchasing assets having a readily identifiable and publicly available market quotation and purchased at that market quotation [or purchasing loans on a non-recourse basis from affiliated banks]; [and] "(7) purchasing from an affiliate a loan or extension of credit that was originated by the member bank and sold to the affiliate subject to a repurchase agreement or with recourse [.]; and "(8) purchasing loans on a non-recourse basis from affiliated It banks, subject to the prohibition contained in paragraph (a)(3).   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  77'717  .t.71-11  A7.; 0_7 1932  Senate -  Section 411 of H.R. C-)2r)7, amn(M.,('., amends Section 23A of the Federal Reserve Act which eoverns hank transactions with affiliates. This Section, as amended, would eliminate an existing exemption in Section 23A of the. Federal Reserve Act ary! could have a severe impact in unit banking states which do not a11o4 millti-bank holding companies.  House -  No comparable provision.  Recommendation -  Justification -  Alleviate this unfortunate iri. :act by a relatively minor change to Section 411 of the bill. More • specifically, Paragraph (d)(6) should be amended by deleting the period after "quotation" and adding thereDaar: "or purchasing loa:lz on a non-recouns.a basis from afflita3 . hrikc cLY-1-1 laans were criginally extended on terms no more_favorblP than those available to boxmiers of comparable credit stanc'ine; and" This amenalent would preserve the existing exemption in Section 23A of the Federal Reserve Act. Elimination of this exemption would have a profound effect on the efficiencies of institutions affiliated in two different ways. First, it would .impact on hank holding company subsidiary banks which are less than 802 owned by the parent holding company. Secondly, it would impact on so-called "chain hJInking" systems, due to the expansion of the definition of "affiliate", and would cover a larger number of those organizations.  BANKING AFFILIATES (SECTION 23A) SUMMARY Under current law, banks may participate in loans made by other banks which would otherwise exceed the originating banks' lending aut hority. This activity by affiliated banks is governed by Section 23A of. the Federal Reserve Act (12 U.S .C. 371c); H.R. 6267, as amended by the Senate, alters existing law in a way that would restrict this participa tion so severely as to virtually eliminate it amongs t a great many banks and substantially alter the partic ipation market. This inequity can be rectified by adding one sentence to the bill. BACKGROUND In many states which have res trictive branching and holding company laws, banks are frequently part of a chain. A chain of banks differs from oth er banking organizations in that the *owners are usually individuals or a group of investors, rather than a single holding corporation. Frequently, a customer will need financing in excess of the bank's ability to lend. In that case, the bank can commit itself to a large loan if it has arranged for another bank or ,banks to partic ipate in the loan, thus expanding the financing available to the customer for the benefit of the coiwaunity. IMPACT OF H.R. 6267 H.R. 6267, as amended by the Sen ate, seeks to regulate the transfer of assets, includ ing such loans, among affiliates. However, as curren tly drafted, the bill will make it impossible for transa ctions such as those described' above to take place between aff iliated banks unless they are owned by a single multibank holding company, which is prohibited under the laws in man y states. WHAT IS NEEDED Language could be added to Sec . 411 of the bill which would resolve this difficulty. In the new version of Section 23A, at the end of Sectio n (d)(6), after the word "quotation" insert the following :   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  "or purchasing non-recourse loans at fair market value from affiliatedipanks, where such loans wPre-- . e-x-t-e-114-ed-ola ..te-rm-s no mor_a f-avor able than th-o-5-e ava-i-lab-le to loc.rowcrs af striding".  ••••  •  • •  ••••  • •.7 •• .•• •  —.•  7  ...-•-••••-•:1;‘,::-4•  . •• • •  •••  • • •.••  ••••••• 7.• 6 6••• •••  • ••  •.. •  •  sT •  ••  •  • .  •  •••Z  •  •  s.' :. • •  ;  . •  11.  Without this language we believe there will be a severe reduction in the availability of credit in those states which either limit or do not permit multibank holding companies. This language will permit participation in loans which meet the tests described in H.R. 6267 as amended/ since it .will require that. the loans be market rate and tnat'they be purchased at fair market value. • In conjunction the sale of low-quality apse.t..„....4..mp_Ig_pzak.tiQD • This language is proposed by the American Bankers Association in its package of technical amendments..   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  '."  f•  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  November 30, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable William Proxmire United States Senate Washington, D. C. 20510 Dear Senator Proxmire: During my recent appearance before the Joint Economic Committee you asked me to explain in greater detail how international banks could continue to provide new credits to developing countries in the context of effective adjustment programs while at the same time reducing their exposure to those countries relative to their capital or assets. I welcome this opportunity to respond to your question about this important topic. The enclosed table presents as background estimates of international bank claims on all non-OPEC developing countries and on certain major borrowers in this group of countries. The data in the top panel indicate that as of mid-1982 bank claims on non-OPEC developing countries amounted to about $240 billion. Claims of U. S. banks on these countries were estimated at $100 billion as of mid-1982, about 40 percent of the total for the BIS reporting area. The data in the middle panel show the increases in international bank claims in recent years and for the first six months of this year. These figures understate somewhat actual increases in claims since the end of 1980 because the strength of the dollar has reduced the dollar value of outstanding claims denominated in other currencies. The data in the bottom panel translate these dollar increases into percentages and show an average annual growth of such claims of 25 percent per year in the 1978-81 period. This rate of growth of bank claims on developing countries is not sustainable, since bank assets and capital have been growing at much slower rates. Turning to immediate prospects, it is reasonable to expect that the capital of the lending banks will increase at a rate of about 10 percent per annum. For large U. S. banks this increase would result from an after-tax rate of return on capital of about 14 percent, a retention of about 60 percent of after-tax earnings, and an additional 1-1/2 percent per year in increased capital raised from external sources. These assumptions appear reasonable by historical standards, particularly whenbanks should be paying more attention to profitability rather than to expanding their total assets. Asset growth of the major banks would probably be close to (but desirably a bit below) capital growth. A 10 percent rate of increase in banks' capital in 1983 would be consistent with a net increase in bank claims on non-OPEC   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable William Proxmire Page Two  developing countries of about $25 billion with no increase in the exposure- of the banks relative to their capital. The combined current account deficits of these countries may well be $30 billion smaller in 1983 than in 1981, declining from about $75 billion in 1981 to about $45 billion next year. (You will note from the table that international bank claims on these countries increased by at least $37 billion in 1981.) In this context, it is reasonable to expect that the percentage increase in bank lending required by these countries next year under their adjustment programs will be substantially reduced and should be less than the rate of growth of bank capital, thereby resulting in a small decline in exposure relative to capital for international banks in the aggregate. To put these figures in perspective, consider the outlook for the three major borrowers--Mexico, Brazil and Argentina--all of which are in the process of establishing strong IMF-approved adjustment programs and presumably will come within the criteria mentioned in my Boston speech that you quoted at the JEC hearing. The IMF stabilization program for Mexico assumes net new bank lending to Mexico of about $5 billion in 1983. Such lending would imply an increase in international bank claims on Mexico of about 8 percent in 1983 from the level at the end of June 1982--less than the expected increase in banks' capital next year--without making any allowance for net new lending in the second half of 1982. This outcome would be a dramatic reduction from increases of more than $10 billion per year in 1979-81. Moreover, while the quantitative implication for years beyond 1983 have not been fully developed, the IMF program plainly looks toward further reductions in the current account deficit (and implicitly in borrowing requirements) in future years. In the case of Brazil, the Foreign Sector Program adopted on October 25 by Brazil's National Monetary Council calls for a neI increase in loans from international banks of $4.2 billion in 1983, also 8 percent of outstanding claims in June 1982. By comparison these banks' claims increased more than $6.0 billion per year in 1980-81. For Argentina, the IMF has projected that international banks' exposure need only increase by about $1-1/2 billion by the end of 1983, after little apparent increase this year. Such an increase would be 6-1/2 percent of outstanding claims in June 1982 and could represent a dramatic decline from the pace of recent annual increases, which averaged more than $5 billion in 1979-81. Again 1983 would be an "adjustment" year, implying a reduction of arrears, and would be consistent with lesser borrowings in future years. Based on these kinds of calculations and consistent with IMF-approved adjustment programs, it is feasible to expect that an   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable William Proxmire Page Three  increase in the level of international bank claims to non-OPEC developing countries in general, and to the major borrowers in particular, need not, and should not, increase the exposure of banks relative to their capital base. Rather, some declines would appear more likely. In specific cases, the loans may be essential to the success of the IMF program and the net result should be to strengthen the economies of the borrowing countries. Sincerely,  SL Paul  Enclosure  November 30, 1982  International Bank Claims on Non-OPEC Developing Countries (Billions of dollars)  I.  December 1979  June 1/ 1982  1980  1981  13.1 36.9 30.7  18.9 43.3 41.0  22.9 49.6 55.4  22.9 52.2 61.8  61.6  80.7  103.2  127.9  136.9  120.8  155.6  193.3  229.9  241.7  1977  1978  4.8 23.8 19.9  6.7 31.7 23.2  Subtotal  48.5  Total  98.7  Outstanding Claims Argentina Brazil Mexico  II.  Increase in Amount Argentina Brazil Mexico Subtotal Total  III.  In 6 months  In 12 months to date above 1.1 1.7 1.4  1.9 7.9 3.3  6.4 5.2 7.5  5.8 6.4 10.3  4.0 6.3 14.4  0 2.6 6.4  4.2  13.1  19.1  22.5  24.7  9.0  11.3  22.1  34.8  37.7  36.6  11.8  In 12 months to date above  Percentage Increase  In 6 months  32 8 8  40 33 17  96 16 32  44 17 34  23 15 35  0 5 12  Subtotal  12  27  31  28  24  7  Total  14  22  29  24  19  5  Argentina Brazil Mexico  1/International bank claims normally increase relatively slowly in the first half of the year. Source:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Bank for International Settlements.  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  November 30, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable Joseph G. Minish Chairman Subcommittee on General Oversight and Renegotiation Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman Minish: I have read your recent letter concerning the pricing of payments services by the Federal Reserve Banks, and I believe I am fully sensitive to the concerns that prompted you to write. While your letter raises a number of complex issues which I want to comment on, I would suggest at the outset that I believe our actions and our progress to date are broadly in line with both the Monetary Control Act of 1980 and with the recommendations contained in the report of the GAO concerning the Federal Reserve's priced service activities. Before turning to the particulars raised in your letter, there is a more general point which I would like to mention. The Congress, the Federal Reserve, and the banking community generally have long recognized that there are important public interest and public policy considerations associated with the payments mechanism. Indeed, for this reason the Federal Reserve, from its earliest days, has sought to foster the safety, integrity and efficiency of the payments mechanism. Those responsibilities are no less important today than they were in 1913. In fact, in today's environment of huge payment flows--many made electronically--I would suggest that those public interest considerations take on a renewed importance. For this reason we have and will continue to conduct our activities in the priced service areas with due regard for carrying out these public interest responsibilities. Turning now to some of the specifics raised in your letter, the Monetary Control Act requires the Federal Reserve to recover through pricing the full costs (including the private sector adjustment factor--PSAF) of providing its priced services over the long run. The Act further stipulates that the goal should be achieved giving due regard to competitive factors and the provision of an adequate level of services nationwide. As I see it, our progress toward achieving those goals has been encouraging.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Joseph G. Minish Page Two  For example, looking at all Federal Reserve Bank priced services for the three-month period ending in August 1982, the costs (including PSAF) of providing all Federal Reserve priced services were $487.7 million at an annual rate. For the same period, the total revenues collected were $408.4 million, producing a revenue gap of $79.3 million or 16 percent. In effect, therefore, and in the face of a volume drop of about 20 percent since the inception of pricing, the Federal Reserve is essentially covering all of its production costs (including overhead costs) but not yet recovering the PSAF. Considering that as recently as the first quarter of 1982 the gap was 26 percent, I believe meaningful progress is being made in achieving the goals contemplated by the Monetary Control Act. These aggregate statistics do not, however, tell the full story. For example, they include the Federal Reserve's automated clearinghouse (ACH) operations for which there has been a broad (but not complete) consensus that an operating subsidy was justified, essentially on so-called "infant industry" considerations. Recently, we have indicated that the ACH subsidy would be phased out in orderly steps between now and 1985--an approach which also seems to have broad support in banking circles. In any event, if the intentional ACH subsidy is removed from the overall cost/revenue figures cited above, the cost/revenue gap for the three months ending in August narrows to about $70 million or 15 percent. While I do not want to go into inordinate detail, I believe the situation in check processing warrants special mention in part because I recognize fully that this is an area in which there has been a considerable amount of both contention and confusion. It is not and it will not be our intent to "subsidize" our check operations. If there were some overwhelming public interest considerations that required that result, we would expect to have full consultation with the Congress on that course of action. Having said that, I am hopeful that the problem will not arise because I believe the prospects are good for the Federal Reserve's check operations "standing on their own two feet" in a manner fully compatible with the Monetary Control Act. Here, too, I draw some encouragement from recent experience. Over the three months ending in August in check operations, the gap between costs and revenues was 16 percent--down sharply from the gap of 21 percent in the first quarter of 1982. That gain has been   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Joseph G. Minish Page Three  made in a setting in which the volume of checks handled by the Reserve Banks has dropped by about 15 percent. In this connection, I would also add that considerable progress has also been made in adjusting our resource base in check operations to the volume loss experienced since we began pricing check services. For example, in that period work force reductions in check processing have amounted to 13 percent. While on the subject of check processing, the Federal Reserve--as you know--has proposed a number of steps that are aimed at a further speed-up of the collection and payment of checks. In connection with those changes, we had anticipated repricing our check services this fall and thereby sharply narrowing or effectively eliminating the revenue gap in check operations. However, in the light of the substantial volume of public comments we have received on these proposals, it would now appear that the program (including the new prices for check services) will not be implemented until early 1983. It remains our best judgment that the higher prices that we expect will take effect at that time--together with related changes in the services--will, at essentially current volume levels, eliminate the cost/revenue gap in most Federal Reserve offices. In those few offices where volume losses have been very sharp, the transition may take a bit longer because of the magnitude of the adjustments which must be made in the resources formerly devoted to these operations. In those individual situations and in our check operations more generally, I believe our actions have been consistent with the intent of the Monetary Control Act and with the recommendations of the GAO. I am keenly aware of the controversy and/or confusion that has surrounded the proposed changes in our check processing operations referred to above. In that light, and as a result of the considerable dialogue we have had with bankers and others in recent weeks on this subject, we are actively seeking out ways in which we can be responsive to those concerns while at the same time achieving the acceleration in check collection as contemplated by the overall program. In this regard, I can assure you that it is not and will never be our objective to drive private competitors out of the check processing business. Certainly, that objective--or anything like it--would not be in the public interest.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Joseph G. Minish Page Four  We will keep the Subcommittee staff informed of developments. In the meanwh ile, if your staff has any fur ther questions, they should feel free to call on Mr. E. Gerald Corrigan, Chairman of the Fed eral Reserve's Pricing Policy Committee, who can be reached at the Federal Reserve Bank of Minneapolis, 612-340-2424, or Mr. Theodore E. Allison, Staff Director of the Board of Govern ors' Division of Federal Reserv e Bank Activities, 202-452-2793 .   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  EMcE:EGC:NS:vcd (#V-228) bcc:  Mr. Corrigan Mr. Allison Mr. McEntee Mrs. Mallardi (2)t/  Action assigned Mr. Allison; info copy to V. C. Martin JOSErH G. WHISK NJ., CHAIRMAN HENRY B. GONZALEZ, TEX. FRAM_K ANNUNZIO, ILL. PARREN J. MITCHELL MD. DOUG BARNARD, JR., GA. WALTER F. FAUNTROY, D.C. Mt:Ri ROSE OAKAR, OHIO JIM MATTOX, TEX. BLARNEY FRANK, MASS.  U.S. HOUSE OF REPRESENTATIVES  STAN PARRIS, VA. BILL McCOLLUM, FLA ED WEBER, OHIO MARGE ROUKEMA, NJ. GREGORY W. CARMAN. N.Y. GEORGE C. WORTLEY, N.Y. DOUGLAS K BEREUTER, NEBR.  SUBCOMMITTEE ON GENERAL OVERSIGHT AND RENEGOTIATION OF THE  TrurtioNE: 223-2828   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS NINETY-SEVENTH CONGRESS 413 Co  WASHINGTON, D.C. 20515  September 28, 1982  1r rtJ  C" ,  4-  The Honorable Paul A. Volcker, Chairman, Board of Governors of the Federal Reserve System, Federal Reserve Building, Constitution Avenue Bet.20th & 21st Sts., Washington, D.C. 20551. Dear Chairman Volcker: At my direction, the staff of the Subcommittee on General Oversight of the House Banking, Finance and Urban Affairs Committee has reviewed the Report by the General Accounting Office, surveying the compliance of the Federal Reserve Board and the District Federal Reserve Banks with the directives of the Monetary Control Act of 1980 concerning the pricing of services provided by the Federal Reserve System to banks and other depository institutions. The Report of the Comptroller General suggests that the Federal Reserve needs to address itself with greater commitment and greater speed to achieving the full recovery of costs expended for check processing and other payments services through explicit pricing of these services to the user institutions. The Report estimates that timely Federal Reserve actions could increase earnings paid to the U.S. Treasury by about $175 million for the last half of fiscal year 1982 and about $175 million for fiscal year 1983. The concerns raised by the Report of the Comptroller General are confirmed and amplified by discussions which we have had with representatives of private commercial banks active in the processing and clearing of checks. These institutions allege that the failure of the Federal Reserve to fully comply with the pricing mandates of the Monetary Control Act is creating a situation in which the Federal Reserve System, the dominant participant in the check-clearing market, is offering its services on a subsidized basis, which cannot possibly be matched by private institutions. There is genuine concern that the Federal Reserve's below-cost pricing may drive legitimate private corn-  .0.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2 -  petitors out of the market. This would be both unfair and economically undesirable over the long term. It would cause serious dislocations in local labor markets involving many semi -skilled individuals for whom other employment alternatives are not available. I have instructed the Subcommittee staff to undertake detailed discussions with representatives of the General Accounting Office in order that we may make an informed decision as to whether there is a valid need for oversight hearings. As we proceed forward with our inquiry, we will no doubt wish to discuss matters with members of your staff. The Board and its staff have had an opportunity to review the observations and recommendations of the GAO. It would appear that the Board would be well advised to give prompt and thoughtful consideration to the recommendations of the GAO and to put in motion all of the necessary actions required to achieve full compliance with the directives set forth in the Monetary Control Act of 1980. I shall keep you informed of our intentions with respect to any possible oversight hearings. I welcome any information which you may wish to provide the Subcommittee, detailing specific actions and plans of the Federal Reserve Board to fully recover all costs involved in check clearing and other services offered by the Federal Reserve System. With best regards, I am,  Sincerely,  69  m  J seph G. Minish, Chairman.  (  r OF Gov4.  ) . •.*c  BOARD OF GOVERNORS  v0 • ' •co *0 •  OF THE  FEDERAL RESERVE SYSTEM  •.4  I- • ,•5 •  RAL  RE.S • • •..• • •  WASHINGTON, EL C. 20551  November 30, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable Harold L. Volkmer House of Representatives Washington, D.C. 20515 Dear Mr. Volkmer:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ch you indicate Thank you for your recent letter in whi recent declines in the that you have been pleased to see the in market interest rates and Federal Reserve's discount rate and r reductions in its disurge the Federal Reserve to make furthe count rate. l Reserve, too, Let me begin by saying that the Federa interest rates that have has very much welcomed the declines in erscore, however, that occurred in recent months. I must und supply and demand forces those declines reflect the outcome of influence of the Federal working in the market place, and the ted and "two-edged". Reserve on those forces is both limi st rates to There is a natural tendency for intere ic activity such as we have decline during periods of weak econom and household credit demands been experiencing because business tendencies, moreover, have are depressed at such times. These rent economic setting, as been greatly reinforced in the cur at the base of the hisinflationary expectations -- which are e been laboring under -torically high interest rates we hav inflation outlook has been have been moderating. This shift in the clear slowing in the occurring, I believe, in response to past year or so, as well pace of inflation experienced over the t the Federal Reserve will carry as to the growing conviction tha sful conclusion. I would its anti-inflation policy to a succes Congress this summer to also cite the actions taken by the federal budget. Much reduce the prospective deficits in the Congress' recent actions remains to be done on the budget, but encouragement to members of have, I believe, provided important our financial community. recent declines, I agree with you that even after the , levels that must be viewed interest rates remain at high levels run. I strongly believe, howas unsatisfactory for the long Federal Reserve to attempt ever, that it would be wrong for the this time by pouring reserves to force interest rates lower at  ••••••=b  The Honorable Harold L. Volkmer Page Two  into the banking system. Such an action mig ht well prove counterproductive, since it could undermine the public's confidence in the prospect of achieving a lasting red uction in inflation. The better course for the Federal Reserv e to take is to continue to seek moderate growth in money and credit , a policy that should foster a financial environment con ducive to much needed economic recovery without resurgent inflat ion. In the process, we have indeed been willing to see somewh at faster growth in the money supply than planned at the start of the year in the light of economic conditions and the evidence that individuals and business desire a high degree of liquidity . Rut that does not imply that we can or should permit inc reases without limit, a course that I believe would be counterprodu ctive in terms of the desirability of lower interest rates. Let me emphasize again that rates have com e down recently even as the Federal Reserve has adhered to the basic policy it has had in place for several yea rs. Continued adherence to that policy should produce fur ther declines in interest rates as expectations of future inflation rates continue to moderate further. I think tha t the experience of the past decade shows that inflationary excess es in monetary -or fiscal policy -- are not the way to inc rease the availability of capital or to promote sustained, balanced economic growth. Sincerely,  FMS:MJP:PAV:vcd (V-238) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Struble Ms. Wing Mrs. Mallardi (2) //  z  Action assignei Mr. Kichline DISTRICT OFFICES HAROLD L. VOLKMER 9TH CONGRESSIONAL DISTRICT  LEE VIOREL DISTRICT ADMINISTRATOR Room 370  M I SSOURI  1007 LONGWORTH HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 (202) 225-2956  Congrefiti of tbe tiniteb tate5 30oufse of 1epresSentatibe5  FEDERAL BUILDING HANNIBAL, Missoum 63401 (314) 221-1200 535 AUE Sr. FRANCOls 63031  FLomussiorr, Missouxi  (314) 837-1688 HOUSE COMMITTEE ON AGRICULTURE  Ellassbington, 30.C. 20515 818 TERRA LANs P.O. Sox 219  HOUSE COMMITTEE ON  O'FALL.ON, MISSOURI 63364  SCIENCE AND TECHNOLOGY  JAMES S. SKIRLING ADMINISTRATIVE ASSWAM'  (314)272-8272  October 12, 1982  122 BOURKE MACON, Missouou 63552 (816) 385-5615  The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th Street & Constitution Avenue, NW Washington, D.C. 20551 Dear Mr. Volcker: High interest rates continue to plague Americans. Nowhere is this problem felt more strongly than in our rural areas, where for the first time in history farmers are paying more in interest than they are making net income. I am pleased that the Federal Reserve Board has seen fit recently to lower the discount rate, which has directly resulted in lower lending rates. I am writing to urge the Board to further reduce the discount rate, by one-half percentage point now and another one-half percentage point in November. I believe such a reduction is necessary in order to increase the availability of capital and improve our economic conditions. With best wishes, I am Sincerely,  Harold L. Volkmer Member of Congress  CZ) Gee  n. •  HLV/td   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  rr4  •••  s,  • * of GOV;•• 0. •  BOARD OF GOVERNORS OF THE  •0  2 • 4..1 •  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 205SI  r[  November 30, 1982  PAUL A. vOLCKER CHAIRmAN  The Honorable Jim Weaver Chairman Subcommittee on Forests, Family Farms, and Energy Committee on Agriculture House of Representatives Washington, D.C. 20515 Dear Chairman Weaver: Thank you for your letter of September 27 expressing concern about the relationship between the Federal Reser ve Board's monetary growth targets and a healthy recovery from the current economic recession, particularly for the housi ng and related industries. I want to reassure you that our aim has been and continues to be to foster a sustainable, noninflationary recovery in economic activity, and our monet ary policy and operating procedures are designed with that goal in mind. The factors that were considered in setting the curre nt monetary growth targets were discussed in some detail in the Federal Reserve Board's midyear report to the Congress, a summary of which is enclosed. As the report indicate s, the basic principle underlying our policy considerations is that we cannot expect sustained growth in our economy at a pace determined by its productive potential unless we curb inflationa ry pressures. It is widely agreed that restrained growt h in money and credit is a key element in lowering the underlying infla tion rate. While, as your letter correctly points out, we have made great strides in gaining control of inflation in the last two years, it would be premature now to assume that inflation has been permanently brought to heel. Unfortunately, the process of reversing the inflationary momentum of the 1970s has been painful, particul arly, as your hearings document, for the homebuilding and related industries that depend heavily on credit markets. The severity of these hardships indicates the extent to which inflation and the expectation that it would be allowed to continue had become deeply entrenched in our behavior patterns and economic insti tutions. Even today, three years after the Federal Reserve instituted new procedures aimed at improving control of the money aggregates, financial markets still seem to be skeptical of our commitment to a non-inflationary policy.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  MN\  The Honorable Jim Weaver Page Two  I would want to stress that in this environment an attempt, such as you suggest, to fine tune the economy through a temporary acceleration of money growth offset by the promise of a reduction later presents difficult questions of judgment. It is one thing to reap the rewards of lower inflation and lower inflation expectations in lower nominal interest rates. It is quite another to attempt to force interest rates down through massive open market operations. Given the persistent doubts about our ability to deal with inflation over the long run, it is very likely that such an effort would not have the desired effect of lowering interest rates, particularly in those longterm markets on which housing and capital spending depend. On the other hand, in the context of weak economic activity, an enlarged demand for liquidity for precautionary purposes, and conviction that government policies remain focused on restoration of price stability, there may be more room for maneuvering in the short run without those adverse consequences. In the final analysis, we have to make an adjustment to a noninflationary growth path, which I think would be easier to achieve if fiscal and monetary policy bore more equal shares of the burden and if policies were sufficiently consistent to inspire confidence in our longer-run objectives. In terms of our policy goals -- and our communication of these goals to the market and the public -- concern about inflation, and the monetary discipline that is necessary to control inflation, cannot simply be turned on and off as short-run economic conditions might dictate. Our basic policy, then, has not changed. Of course, as you are aware, in implementing policy we must recognize that the relationships between the monetary aggregates and other economic variables are not absolutely precise, especially in the context of the ongoing rapid financial change and shifting liquidity demands that we have been experiencing. Consequently, at any given time there is uncertainty about rates of monetary growth that are consistent with our broader objectives for the economy. We at the Federal Reserve have tried to be alert to developments that might unexpectedly alter the relationship between money and economic activity either temporarily or permanently and to be prepared to modify our objectives accordingly. Thus, in our midyear review, we stated that growth in the monetary aggregates somewhat above the targeted ranges would be tolerated for a time under circumstances where precautionary or liquidity motivations were leading to stronger than anticipated demands for money. More recently we have been confronted with   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Jim Weaver Page Three  the prospect that during the next few months, M1 will be temporarily distorted by certain technical factors, first, maturing "All Savers Certificates" and then the new "money market fund-type" deposits. Thus, because of these problems in interpreting M1 in this period, the Federal Open Market Committee decided at its most recent meeting to put less emphasis on that particular aggregate in monitoring economic and financial developments over the next few months. I see a great opportunity at present to achieve lasting progress on inflation, and I believe, in fact, that a number of preconditions for a sustainable recovery now are coming into place. The recent declines in nominal interest rates suggest that the market's expectations of long-run prospects for inflation are being scaled down. Because of lower inflation and reduced debt burdens, consumers' balance sheets are in better shape than in recent years. I fully expect that we will begin to see increases in production and declines in unemployment in coming quarters, although I do not think that anyone can forecast exactly when that upturn will occur. Once under way, I expect that the recovery will proceed at a moderate pace that will steadily take up the slack in our under-utilized resources without overheating the economy. Over the near term, it is unfortunately not likely that progress in reducing unemployment will come quickly; in our midyear report, the FOMC members reported that they expected the unemployment rate to average between 8-1/2 and 9-1/2 percent during 1983. While this is not a happy state of affairs, it is probably the case that the inflationary process is still with us enough -and the disinflationary process not yet firmly enough implanted -- that our ability -- within a brief period of time with any semblance of continued progress toward price stability -- to reduce unemployment to the 5 percent level that you suggest is limited. However, I am convinced that over the longer term prospects are good for improving productivity, encouraging business investment, and restoring soundness in financial markets that will allow us to reach and sustain a high level of resource utilization in a non-inflationary environment. Progress toward this goal would undoubtedly be speeded by a reduction of pressures in the credit markets arising from the imbalance in the federal budget outlook. The prospect of persistent growing federal budget deficits is a factor holding   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Jim Weaver Page Four  up interest rates, especially in the long-ter m area so vital for mortgage finance and business investment. Continued improvements on this front would be beneficial in their own right and would make a significant contribution towa rd relieving the very real economic problems you cite. Sincerely,  Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  JR:JZ:TDS:JSZ:NS:vcd (V-237) bcc:  Ms. Zickler Mr. Rosine Mr. Simpson Ms. Wing Mrs. Mallardi (2)-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • .•'of GOV•.. 4•  • . •  •  •  'r1 • • , (t/PP  BOARD OF GOVERNF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 2055i  / L") .• . /P  •  • ';•;•  :RZ• •• j.  ••  A'i  .LT .•  November 24, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable Fernand J. St Germain Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman St Germain: The Board has appointed thirteen new members to its Consumer Advisory Council, to succeed those persons whose terms expire this year. Ms. Janet M. Scacciotti, whom you recommended for appointment, was among those selected to the Council. The selections were made from nearly 400 nominees this year, and the Board was pleased at the large number of highly qualified individuals whose names were submitted for consideration. For your information, I am enclosing a press release announcing the Board's selections. We very much appreciate your interest in the Council and thank you for recommending Ms. Scacciotti. Sincerely,  Enclosure  Identical letters to:  Cong. Claudine Schneider Senator Chafee Senator Pell  CO:vcd bcc: Mrs. Bray Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • •( .-)v GOv; ' SO •' At -7. 0 '' ••co  •. •0  ',-  ** r r  BOARD OF GOVERNORS  Ri1:•• \0 • .*P • \J.  •  `4,  OF THE  FEDERAL RESERVE SYSTEM  ;— •  wASHINGTON, D. C. 205S  • ••  •  November 24, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable Fernand J. St Germain Chairman Committee on Banking, Finance and Urban Affairs House of Representatives 20515 Washington, D. C. Dear Chairman St Germain: The Board has appointed thirteen new members to its Consumer Advisory Council, to succeed those persons whose terms expire this year. Mr. James G. Boyle, whom you recommended for appointment, was among those selected to the Council. The selections were made from nearly 400 nominees this year, and the Board was pleased at the large number of highly qualified individuals whose names were submitted for consideration. For your information, I am enclosing a press release announcing the Board's selections. We very much appreciate your interest in the Council and thank you for recommending Mr. Boyle. Sincerely,  Enclosure  Identical letters to:  Chairman Reuss (JEC) Chairman Gonzalez (Subcmte. on Housing & Community Dev. of House Bkg.) Cong. Bill II .11  CO:vcd bcc: Mrs. Bray Mrs. Ma1lardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • of GOVe • •• •• • 1?-,/  BOAPE) OF GOVERN3PS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 •• tete) • • •  PAUL A. VOLCKER  •  November 24, 1982  RO • •..• •  CHAIRMAN  The Honorable Jake Garn Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Garn: The Board has appointed thirteen new members to its Consumer Advisory Council, to succeed those persons whose terms expire this year. Mr. Michael Van Buskirk, whom you recommended for appointment, was among those selected to the Council. The selections were made from nearly 400 nominees this year, and the Board was pleased at the large number of highly qualified individuals whose names were submitted for consideration. For your information, I am enclosing a press release announcing the Board's selections. We very much appreciate your interest in the Council and thank you for recommending Mr. Van Buskirk. Sincerely,  aite Enclosure Identical letters to:  Chrmn. St Germain Cong. Wylie Cong. Stanton Sen. Glenn Sen. Baker Charles L. Marinaccio (Senate Bkg.)  CO:vcd bcc: Mrs. Bray Mrs. Mallardi (2)  4uvemLer 2.4, 1964:  rtie honorable Lion 1.1‘ter liouse uf rtepresentatives Waweington, o.C. Lalar tir. Kitten the doard today announced tne appointment of new members to the Consumer Advisory tmuncil„ for term beOnniny in January 1.33. Tne Council serves an 161nm-tont role in advisiny the tioard on its regulatory duties in the consucter financial services area. For your information, I ciM enclosing a prcss release that lists those apdointed to the council. We are especially grateful for tne interest you have taken in bringing qualified nominees to tne 6oard's attention. We were impresseu by r. liartin T. Arnold's qualifications. As you know, however, there were ualy a limited number of positions to oe filled, and you may ae Interested that oore than 400 individuals expressed a desire to serve. Factors beyond each nominee's personal qualifications necessarily entured Into the Uoard's decision. These included the need to maintain an even balance of consumer and industry interests, to incluje representation of wooen and minorities and to achieve a geograpnic oalance amony thu twelve Federal Reserve bistricts. In addition, because members' three-year Council terms are stajgered, the ward also souyht in its naw appointments to complement tne background, experience, and qualifications of current members who have one or tno remaining years on the council. The combination of all of tnese factors made the selection process particularly Jifficult, an regrettably many highly qualified nominees will not have the opportunity to serve on the Council at this time. Tne board appreciates your interest in the Council and would be pleased to have your future recommendations. Sincerely, Or•  inclosure lobiTILAL LLTTLRS SLAT Tu (see attacned list) PiN:cu:evjj   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Don Ritter House of Representatives Washington, D.C. 20515 The Honorable Frank Annunzio House of Representatives Washington, D.C. 20515 The Honorable George M. O'Brien House of Representatives Washington, D.C. 20515 The Honorable Charles H. Percy U. S. Senate Washington, D.C. 20510 The Honorable Michael G. Oxley House of Representatives Washington, D.C. 20515 The Honorable Edward R. Roybal House of Representatives Washington, D.C. 20515 The Honorable Matthew G. Martinez House of Representatives Washington, D.C. 20515 The Honorable Donald W. Riegle, Jr. U. S. Senate Washington, D. C. 20510 The Honorable James A. McClure U. S. Senate Washington, D.C. 20510 The Honorable Steve Symms U. S. Senate Washington, D.C. 20510 The Honorable George Hansen House of Representatives Washington, D.C. 20515 The Honorable William Proxmire U.S. Senate Washington, D.C. 20510 The Honorable Rudy Boschwitz U.S. Senate Washington, D.C. 20510  e-e--4-3.--7/   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Larry J. Hopkins House of Representatives Washington, D.C. 20515  Dict,2_e_si  The Honorable Chalmers P. Wylie Member of Congress Federal Building 200 N. High Street Columbus, Ohio 43215 The Honorable Lowell P. Weicker, Jr. U.S. Senate Washington, D.C. 20510 The Honorable Christopher Dodd U. S. Senate Washington, D.C. 20510 The Honorable Ed Weber House of Representatives Washington, D.C. 20515 The Honorable John L. Napier House of Representatives Washington, D.C. 20515 The Honorable Tony P. Hall House of Representatives Washington, D.C. 20515 The Honorable David Dreier House of Representatives Washington, D.C. 20515  /7/  The Honorable Norman D. Shumway House of Representatives Washington, D.C. 20515  p  The Honorable Lawton Chiles U.S. Senate Washington, D.C. 20510 The Honorable Dante B. Fascell House of Representaitves Washington, D.C. 20515 The Honorable Earl Hutto House of Representatives Washington, D.C. 20515 The Honorable Bill McCollum House of Representatives Washington, D.C. 20515  vita„el&-L.  tva,12:67-_, ec.e.t2,1  2  F4   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Claude Pepper House of Representatives Washington, D.C. 20515 The Honorable Jake Garn, Chairm an Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 The Honorable Millicent Fenwic k House of Representatives Washington, D.C. 20515 The Honorable John Tower U.S. Senate Washington, D.C. 20510 The Honorable Jesse Helms U. S. Senate Washington, D.C. 20510 The Honorable John P. East U. S. Senate Washington, D.C. 20510 The Honorable James G. Martin House of Representatives Washington, D.C. 20515 The Honorable Jake Garn, Chairm an Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 The Honorable Barber B. Conabl e, Jr. House of Representatives Washington, D.C. 20515 The Honorable Lindy Boggs Hal e House of Representatives Washington, D.C. 20515 The Honorable Billy Tauzin House of Representatives Washington, D.C. 20515 The Honorable J. Bennett Johnst on, U.S. Senate Washington, D.C. 20510  4,1,_f_J I.1/Z   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Robert L. Livingston House of Representatives Washington, D.C. 20515 The Honorable W. Henson Moore House of Representatives Washington, D.C. 20515  scz,v-r4  The Honorable Jesse Helms U. S. Senate Washington, D.C. 20510 The Honorable James G. Martin House of Representatives Washington, D.C. 20515  0-2-0L)  a-AL  The Honorable Joseph G. Minish House of Representatives Washington, D.C. 20515 The Honorable Paul N. McCloskey, Jr. House of Representatives Washington, D.C. 20515  ct--1-1—rt-z--  The Honorable Fernand J. St. Germain Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515  &e:2P 4;7  _  The Honorable John Paul Hammerschmidt House of Representatives Washington, D.C. 20515  f 2— .64.L....  The Honorable Jake Garn, Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510  _27  The Honorable Paul Laxalt U. S. Senate Washington, D.C. 20510 The Honorable Larry E. Craig House of Representatives Washington, D.C. 20515  ,  k_z   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable James A. McClure U.S. Senate Washington, D.C. 20510 The Honorable Steve Symms U. S. Senate Washington, D.C. 20510 The Honorable George Hansen House of Representatives Washington, D.C. 20515 The Honorable Charles E. Grassley U. S. Senate Washington, D.C. 20510 ••.••••••=.••  The Honorable Roger W. Jepsen U.S. Senate Washington, D.C. 20510 The Honorable Tom Tauke House of Representatives Washington, D.C. 20515 The Honorable Carl Levin U. S. Senate Washington, D.C. 20510 The Honorable Joseph D. Early House of Representatives Washington, D.C. 20515  t7)  A  .57  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  • co  WASHINGTON, D. C. 20551  1*  OFFICE OF THE GENERAL COUNSEL  November 23, 1982  The Honorable Frank Horton House of Representatives Washington, D.C. 20515 Dear Congressman Horton: Chairman Volcker asked me to reply to your letter on behalf of Ann Mittermeyer. I very much appreciate your recommendation and wish to assure you that Ann's application will be reviewed and given every consideration. Sincerely,  Michael Bradfield General Counsel  0   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  6 3'Yz  ?7/YaL.-4L-t-r,J-L-1  •  FRANK HORTON  Action assigned Mr. Bradfield  R EP R ESENTATI VE or New `tom( DIsTRicr 14T14 CON M rrrEE:  GOI#ERNMENT OPERATIONS RA NIKING MINORITY MEMBER DEAN, NEW YORK REPUBLICAN DELEGATION   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Congre55 of the  id: niteb &taus  34ouge ot Repregentatibeg fillassbingtonAs.c. 20515  lorimparommorinar, U291CliersowIllumomo WA we W110141. D.C. 20515 (202) 215-4916 arrincrerricas: 314 1r90931,94. Ilutummo Rockmart:3c Nrw Yaws( 14614 014)243-6270 VT1-473-6270 WAYNE COINTY °TICE IkALDINE Lamses. Nine Yew 14449  November 22, 1982  rrt  I  The Honorable Paul A. Volcker Chairman Federal Reserve Board Washington, D. C. 20551  I  rs.)  Defaz- Paez..1:  I am writing on behalf of An n Mittermeyer, who is a constituent in search of employment with the Federal Reserve System. Miss Mittermeyer is a nice, young lady seeking a position in the legal field. She recently took her exams for the District of Columbia Bar. Her work experience in Washington has been with a law firm and with the Securities and Exchange Commission and she would very much like to pursue her career in law with the Federal Reserve Board. I would greatly appreciate your giving her. every consideration. With kindest personal regards, rely,  Frank Horton  Linda Inman, Personnel Division, Federal Reserve Board Lillian Glooch, Personnel Division, Federal Reserve Board Joanne Lawton, Legal Division, Federal Reserve Board Michael Bradfield, Legal Division, Federal Reserve Board Ann Mittermeyer  S  FRANK HORTON  Action assigned Mr. Bradfield WASHINGTON Gorr= 22.29 R A TILIIIN BUILDING WA SHINGTON, D.C. 20515  U.S. REPRESENTATIVE 34TH DISTR I CT OF NEW YORK  (202) 225-4916 COM MITTLIE.  GO!;ERN M ENT OPERATIONS  Congrefs of tbe Eniteb ibtatesi  RAVKING MINORITY MEMBER DEAN, NEW YORK REPUBLICAN DELEGATION   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  3i)ou5e of RepreZentatibeZ  DISTRICT OFFICES 314 IrcomAL BUILDING  RocmcsTot, Nrw Yam( 14614 (716) 265-11270 FTS-473-6270  Elacsbinoton,31).C. 20515 November 22, 1982  WAYNIECGLorryOrmic659mAmNG LYON., Maw Yon( 14489  The Honorable Paul A. Volcke: Chairman Federal Reserve Board Washington, D. C. 20551  rim nic  Dea-  cle  I am writing on behalf of Ann Mittermeyer, who is a consti tuent in search of employment with the Federal Reserve System . Miss Mittermeyer is a nice, young lady seeking a position in the legal field. She recently took her exams for the Distri ct of Columbia Bar. Her work experience in Washington has been with a law firm and with the Securities and Exchange Commis sion and she would very much like to pursue her career in law with the Federal Reserve Board. I would greatly appreciate your giving her every consideration. With kindest personal regards, Si  rely,  Frank Horton FH:Y CC:  Linda Inman, Personnel Division, Federal Reserve Board Lillian Glooch, Personnel Division, Federal Reserve Board Joanne Lawton, Legal Division, Federal Reserve Board Michael Bradfield, Legal Division, Federal Reserve Board Ann Mittermeyer  ;  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: 2  Resume, Ann Mittermeyer, 1982.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  J. ilkLIAM STANTON  DISTRICT OFFICES:  11TH DISTRICT, OHIO  170 NORTH ST. CLAIR STREET PAINESVILLE, OHIO 44077 PHONE: AREA CODE 216, 352-6167  2466 PlAYBURN BuiLoiNG WASHINGTON, D.C. 20515 PHONE: AREA CODE 202, 225-5306  Congre55 of the Elniteb (-1)tato  COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS  31)ou e of Reprelentatibeti aliattinston,  COMMITTEE ON SMALL BUSINESS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  MANTUA POST OFFICE 10748 NORTH MAIN STREET MarrruA, OHIO 44255 PHONE: AREA CoDE 216, 274-8444  20515 November 22, 1982  Honorable Paul A. Volcker The Chairman Board of Governors of the Federal Reserve System Washington, D. C. 20551 Dear Paul: With the Election on November 2 meaning a change in direction for some of our good colleagues, I thought I would bring to your personal attention one of my colleagues whom I think could possibly be of great assistance to you. He is Jim Coyne of the Eighth Congressional District of Pennsylvania. Jim was, by far, the most outstanding freshman, in my opinion, in the 97th Congress. He has the education and the experience now to be of great value to someone. He also has the same thoughts as I do with regard to the role of the Federal Reserve Board and the Congress. I have no idea Jim Coyne will be calling upon you. If he does though, I just thought I would let you know my personal high regard for him. With best personal regards, I remain Since  y yours,  iam Stanton WS:ag P.S. give me.  I am enclosing a biographical sheet I asked Jim to  *  I. v  JAMES K. COYNE MEMBER OF CONGRESS BIOGRAPHY  James Kitchenman Coyne was elected to the 97th Congress to represent the 8th Congressional District of Pennsylvania. He was sworn into office on January 5, 1981. Mr. Coyne serves on the HOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS and the subcommittees on Domestic Monetary Policy; Economic Stabilization; Housing and Community Development; International Development, Institutions and Finance. Mr. Coyne serves on the HOUSE COMMITTEE ON HOUSE ADMINISTRATION and the subcommittees on Services; Personnel and Police; and Policy Group on Information and Computers. Mr. Coyne also serves on the JOINT COMMITTEE ON THE LIBRARY. In addition to the House Committees, Mr. Coyne is a member of the Congressional Arts Caucus, the Steel Caucus and the Environmental Study Conference. As a Member of Congress, Mr. Coyne has worked diligently toward reducing inflation, lowering interest rates and unemployment, controlling runaway federal spending and reducing federal regulations. Coyne has also taken an active role in improving communications between constituents and representatives, promoting American exports and continuing the development of high technology industries in the United States. Before his election to Congress, Mr. Coyne was a successful businessman as president of the Coyne Chemical Company, Philadelphia, Pa. from 1971 until 1980. He worked to develop alternative energy as founder and president of Energy Management Service, Inc. from 1977 until 1978. From 1974 until 1978, Coyne served on the faculty of the Wharton Business School of the University of Pennsylvania. Mr. Coyne graduated with an MBA from the Harvard Business School in 1970 and received a B.S. in economics and administrative sciences from Yale University in 1968. Mr. Coyne was elected as Supervisor for Upper Makefield Township, Pennsylvania prior to his election to Congress. As an active community member, Mr. Coyne maintains memberships in the Lower Bucks Chamber of Commerce; the Central Bucks Chamber of Commerce; the American Marketing Association; the Penn Jer Del Chamber of Commerce; Yale Engineering Association; Bucks County Historical Society; National Trust for Historic Preservation; Upper Makefield Historical Association; Irish American Cultural Society of Bucks County; Aircraft Owners and Pilots Association; trustee and former government relations chairman, National Association of Chemical Distributors; former president, Harvard Business School Club; board member, St. Peter's school. Mr. Coyne was born on November 17, 1946 in Farmville, Virginia. He married Helen Mercer in 1970. They have three children, Alexander, Katherine and Michael and reside in Washington Crossing, Pennsylvania.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  JAMES K. COYNE  EDUCATION: Attended public schools in Abington Township, Pennsylvania. National Merit Scholarship to Yale University.  Awarded  Attended Yale University, graduating with B.S. in 1968. Dean's list; publisher of Yale Daily News and other campus periodicals; active in Political Union and Yale Engineering Association. Principle areas of study: administrative sciences, economics, and psychology. Attended graduate school at Harvard Business School. Earned MBA in 1970. Principle areas of study: international economics and marketing, including intensive work in computer modeling. Upon graduation, assigned to Inter-American Development Bank and was project director in the Caribbean on several Inter-American Development Bank activities.  PRIVATE SECTOR: PRESIDENT: Coyne Chemical Company FOUNDER and CHAIRMAN: Energy Management Service, Inc. FOUNDER and PRESIDENT: ReChem Corporation. CONSULTANT: Various financial intitutions and U.S. corporations. MEMBER: Philadelphia "Committee of 70" and various local Chambers of Commerce. Faculty member at the Wharton Business School of the University of Pennsylvania. Selected as outstanding teacher in 1974. Taught economics, marketing and international marketing over a five year period in the MBA program.  U.S. HOUSE OF REPRESENTATIVES: During my period of service in Congress I have devoted myself to activities of the Banking Committee, particularly the Subcommittee on Domestic Monetary Policy and the Subcommittee on International Development Institutions and Finance. My special concern has been to assist the Administration in bringing to Congress a better understanding of the need for economic responsibility in domestic monetary policy; helping the Federal Reserve and other public financial institutions to articulate their goals and objectives within the Committee and the Congress; and assisting the Treasury in developing fiscal and monetary policy proposals consistent with the disinflation goals of the Administration. I have had experience overseas both as a consultant and with the Inter-American Development Bank and World Bank. I am fluent in French and familiar with international financial policies and procedures, both in the Western Hemisphere and throughout Europe and many third-world nations.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  November 22, 1982  Mr. James Cleary Coordinator Somerset County National Democratic Policy Commission 336 West High Street Bound Brook, New J1- 1,-*itl 08869 Dear Mr. Cleary: I am writing at the request of Con gresswoman Fenwick in regard to your letter to her abo ut Federal Reserve policy towards the Eurodollar market. Whi le I have not seen your letter, I understand that you expres sible "bailout" by the Federal Res sed concern about a poserve. The Eurodollar market consists of the dollardenominated activities of banks loc ated outside the United States, including but not limited to affiliates of banks headquartered in branches and other the United States. Because of the great volume and import ance of Eurodollar financial transactions, the Federal Reserve takes keen interest in them, particularly as the y inv of U.S. banks. Our analysis of curren olve the operations Lmvdevelopments, including Eurodolla t international bankr operations, indicates that banks have become somewhat more cau activities, in line with a reassessment tious in their tain kinds of lending. The Federal Res of risks in cererve believes that such reappraisals are justified and tha t other countries' banks have shown a res both U.S. and ponsible attitude in dealing with recent developments. Whi concern at this time would be misplaced le excessive , the System remains cognizant of its responsibilities toward s tem and would act forcefully if condition the banking syssuch action. The System's responsibili s should warrant ties do not extend so far as dollar operations of non-U.S. banks outside the United States. Moreover, the System offers no guarantee that management and owners of a U.S. ban imprudently would escape the consequen k that has acted ces and avoid losses. I hope this information will be useful to you. DBA:EMT:CO:DJW:vcd (#V-250) Sincerely, CC: Congresswoman Fenwick bcc: Mr. Adams Donald J. Winn Mr. Truman Assistant to the Board Ms. Brown Mrs. Manarch'  Action assigneti Mr. Truman  MILLICENT FENWICK 5111 DISTRICT. NEVV JERSEY  WASHINGTON OFFICE LONGWORTH HOUSE OFFICE BUILDING WASH!mc-rot4, D.C. 20515  ino  TELEPHONE: (202)225-7300  COMMITTEES: •  FOREIGN AFFAIRS EDUCATION AND LABOR SELECT COM M ITTEE ON AGING  COM M!SSION ON SECURITY AND COOPERATION IN EUROPE   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Trai.grtss xrf tire *atm Amer of lepresartatilles Xnasiiingtrrn,  p.c.  DISTRICT OFFICES: 41 NORTH BRIDGE STREET SOMERVILLX, NEW J ER SEY  08876  TELEPHONE: (201)722-8200  20515  POST OFFICE BUILDING 1 M OR RI S STREET MORRISTOWN, NEW JERSEY  07960  TELEPI4ONE: (201 )538-7267  October 27, 1982  Mr. Paul A. Volcker Chairman Federal Reserve Board 20th Street & Constitution Avenue 20551 Washington, D.C.  t7".. s-t's  Dear Mr. Volcker: ri J.  One of my constituents, Mr. James Cleary, has written me of his concern regarding a possible bail out of the Euro dollar ancial market by the Federal Reserve. Since no one on my staff familiar with such a plan, I hope that you can give us the Board's" view on such proposals and sumnarize any pertinent regulations. I have told Mr. Cleary that you will be responding to him directly but I would, of course, be interested in seeing a copy of your response. Mr. Cleary's mailing address is: Mr. James Cleary Coordinator Somerset County National Democratic Policy Commission 336 West High Street 08869 Bound Brook, New Jersey Thank you, in advance, for your assistance in this matter. With all good wishes, Sincerely yours,  t  kl  MILLICENT FENWICK Member of Congress MF:bgs  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  71  dr,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  November 22, 1982  The Honorable Lawrence Coughlin House of Representatives Washington, D. C. 20515 Dear Mr. Coughlin: Thank you for bringing to my attention the thoughtful letter that you received from Mr. Thomas A. Cooper, President of Girard Bank, on the features of the money market deposit account authorized by the Garn-St Germain Depository Institutions Act of 1982. At its meeting on November 15, the Depository Institutions Deregulation Committee issued regulations for an account that is in line with that urged by Mr. Cooper. A significant exception relates to the authorization of an account with unlimited transactions features that would be subject to transactionaccount reserve requirements. The Committee felt that it needed more time to study such an account, anS it will be on the agenda for the upcoming meeting on December 6. Sincerely,  NB:AFC:vcd (V-257) bcc:  Mr. Bernard Mrs. Mallardi (2) -----   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  a-41-42-4:-e7wc.6  taAZ /21-#1,  WASHINGTON Orrict: 306 CANNON BUILDING (202) 225-6111  LAWRENCE COUGHLIN .1 DISTRICT. PENNSYLVANIA COW4ITTEE ON APPROPRIATIONS SUBCOMMITTEES: FOREIGN OPERATIONS LEGISLATIVE  DISTRICT OFFICE 700 ONE MONTGOMERY PLAZA NORRISTOWN, PENNSYLVANIA 19401 (215) 277-4040 596-1755  Congre55 of the tiniteb giqateti jiioufse of ikeprelentatibe5 as'bington,313.C. 20515  November 10, 1982  4  Honorable Paul A. Volcker, Chairman Depository Institutions Deregulation Committee 20th and Constitution Avenue, Room B-2120 Washington, D.C. 20551 Dear Mr. Chairman: Attached is a copy of a letter I have received from Thomas A. Cooper, President of Girard Bank, concerning the rules which the DIDC is formulating to implement the provisions of Public Law 97-320 which authorize money market deposit accounts. I believe Mr. Cooper has raised a number of points which merit the Committee's attention, and I would appreciate any consideration you may be able to give his views. Your comments on the issues raised by Mr. Cooper would be most welcome. With all best wishes, ially,  A, Lrg  - 1CE .wr••  LC:rb Enclosure N'fl‘ttIrt!..1 ?Ili  O331d110  ti:IAIL1321  SS :8 WU S I AONZISI --"u3 1i12C'' VP -, 1  COUGHLIN   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ,LJ j gf2/ i\, 0 GIRARD BANK  Girard Plaza Philadelphia PA 19101 Tel (215) 585-2402  THOMAS A COOPER President  November 1, 1982  Re: Docket No. D-0026  Representative R. Lawrence Coughlin 2467 Rayburn House Office Building Washington, DC 20515 Dear Mr. Coughlin: 'Girard Bank is encouraged by the Garn-St. Germain Act's provision for a new insured deposit account competitive with money market mutual funds. Properly structured account guidelines will provide our industry with long needed competitive flexibility and bring lasting benefits to consumers and businesses by improving their investing and borrowing opportunities. We fully support the thrust of this legislative action, but have concern that specific account rules to be developed by the DIDC may include provisions which undermine Congress' intent by imposing arbitrary restrictions as to transaction flexibility, interest rate, and balance maintenance requirements. Our fundamental position is that the legislation itself is sufficient to guide financial institutions in developing their own unique products. The DIDC should impose no additional restrictions. To do so would only stifle the competitive spirit of our industry and eliminate any real possibility for banks to differentiate their product offerings. Consumers deserve to have a meaningful choice, and not lose this opportunity for benefiting from healthy competition among banks and other financial service companies. Account rules should be written to protect and benefit consumers, not ourselves or other financial service providers. We have made our position clear to all DIDC members and want to share our specific comments with you as well. We ask that you stay involved as developments unfold and work to insure no restrictions are imposed which would prohibit the healthy competitive environment Congress intended. Our comments are lettered to correspond with the key topics listed in the Federal Register.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1\lovember 1, 1982 Page 2  a) Initial Deposit Denomination. There should be no mandated initial deposit denomination. If the DIDC is compelled to establish one, it should be set between $1,000 and $2,500. Higher levels would be contrary to Congress' requirement for an account competitive with money market funds, which generally require initial deposits in this range. Further, to mandate a higher amount would unfairly preclude an inordinately large segment of depositors from the account's benefits simply because of their limited resources. A higher deposit requirement may also cause many individuals to simply borrow the ,amount required from other sources, thereby circumventing the initial 'deposit rule, while creating totally unproductive credit demands in our financial system. We appreciate the risk that a low initial deposit rule may lead to faster conversion of low interest deposits, but we should not perpetrate the past and expect to protect ourselves by arbitrary rules. Instead, we should let market forces guide our thinking and permit individual banks to control their deposit and asset mix through their own pricing and marketing techniques. b) Maintenance Balance. We oppose any maintenance balance requirement. Money market funds rarely have such a requirement, although they usually reserve the right to close accounts which maintain low average balances (frequently $500) after giving 30-60 days notice. Banks should have similar flexibility, and have the right (not requirement) to impose maintenance balance provisions at any level or in any manner they choose. If the DIDC feels compelled to impose a maintenance balance level, notwithstanding the fact that such a rule could render the account non-competitive with money market funds, it should be set at no higher than $500. c) Interest Rate on Balances Below Maintenance Level. There should be no penalty for falling below the maintenance level, except for a reduction in the interest rate to no more than the allowable NOW-account rate (as it may be adjusted from time to time) during the period the balance is deficient. d)  Minimum Draft Denomination.  Refer to items i and k.  Notice Requirements for Withdrawal. There should be no e) requirement for banks to reserve the right to require notice prior to withdrawal. Such a requirement serves no practical purpose,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ANNMIMA  November 1, 1932 Page 3  particularly since withdrawals by check or automatic transfer are to be permitted. f) Loans for Initial Deposits. There is no practical way to prohibit customers from borrowing to meet initial deposit requirements. A low initial deposit requirement is the most practical approach to avoid such unproductive, and possibly ill-advised borrowing practices. Girard would not intend to offer, nor would we expect other banks to offer such loans either directly as part of a :product offering, or indirectly by knowingly making loans for this purpose. Restrictions on Additional Deposits. We strongly oppose g) any attempt to restrict additional deposits in any way. Customers should be permitted to deposit any amount as frequently as they like, and banks should be permitted to devise any deposit mechanism, including sweeps, to provide maximum customer convenience and competitive financial management services. To rule otherwise would severely restrict product design flexibility, adversely affect the customer and undermine the fundamental spirit of competitiveness intended by the Congress. h) Account Maturity and Guaranteed Rates. The essence of Congress' intent is to provide a liquid investment opportunity for consumers and businesses. Interest rates paid by banks will reflect this liquidity feature if market forces are permitted to operate freely. Mandated maximum account maturities or guaranteed rate periods are not necessary. If the DIDC is concerned about the potential for circumventing existing requirements on other time deposits, a simple statement prohibiting such circumvention should suffice. Controlling Withdrawals. Our fundamental position is that i) the DIDC should impose no mandatory withdrawal limitations in terms of number, amount, or method. If a bank prefers, it should be permitted to offer either an account restricting monthly withdrawal capability to avoid reserve requirements, or an account with capability for totally unlimited withdrawals, with such accounts included for calculating and meeting reserve requirements. Such a policy will foster competitive spirit among banks, and permit the account to be competitive with money market funds (which are not required to restrict either the number or amount of withdrawals) without jeopardizing existing policies for reserves and methods for controlling money supply growth. The Garn-St. Germain Act clearly   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  pr  November 1, 1982 Page 4  intended this policy and we assume account rules will be drafted accordingly. The issue of controlling transaction frequency for the purpose of determining proper reserve calculations is more difficult. Electronic transactions can be controlled at the time the transaction is initiated, but not without operations and systems modifications. Check transactions cannot be controlled so easily. We suggest that transaction frequency be measured monthly (based on the calendar 'month or other four week regular account cycle) on an ex-post basis to determine reserve compliance. Banks should be required to demonstrate a viable monitoring system capable of categorizing all balances in accounts which by their terms and conditions, or which by transaction frequency in any given month would render such balances reservable. Check transactions should be measured by date of payment since the check date is not easily captured in most bank operation environments. No minimum check amount should be established. j. Overdraft Credit Arrangements. To arbitrarily restrict overdraft credit arrangements tied directly to this account serves no practical purpose. Our position on this issue is included in f) above. k) Withdrawals by Telephone, Mail, Pre-Authorized, etc. Withdrawals of any type or amount should not be controlled, except for the purpose of determining whether an account is subject to reserve requirements. The new account should not be subject to reserves if the terms, conditions and practices of the offering bank permit the following  transaction parameters: 1.  Unlimited cash withdrawals and transfers to other accounts of the depositor by mail, messenger, telephone, or in person.  2  Three check payments to third parties per month (or other regular four week period), based upon the check paid date.  3  Three automatic or pre-authorized transfers to other accounts of the depositor per month if a check writing feature is offered, or six automatic or pre-authorized transfers if no check writing feature is available.  ISM%   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  November 1, 1982 Page 5  Authorization for six such transfers is necessary to provide transaction parity for banks which may elect to use existing checking accounts to provide the limited check withdrawal feature intended by Congress. We strongly oppose the concept that telephone transfers are included in the "pre-authorized" transfer category. Such a policy penalizes banks which have developed sophisticated telephone banking systems designed to improve the efficiency of the nation's costly paper-based :system. Further, this policy creates disincentive for banks to pursue and support EFT payment systems, and discourages development of more convenient and electronic banking services for the benefit of consumers. We urge the DIDC to exclude telephone transfers from the pre-authorized" category. 1) Lead Time for Implementation. No lead time should be provided. The account should be available for banks to offer immediately upon promulgation of account rules. To mandate a delay unfairly penalizes banks which have efficient operational and marketing capability, and improperly supports organizations which do not. We urge the DIDC to permit immediate account implementation, and not develop rules which relieve competitive pressures for some, while stifling competitive spirit for others. We hope our comments are helpful, and that you support our position that the time has come to cease developing unproductive, anticompetitive regulations to the detriment of consumers. We look forward to a quick resolution of the issues, and an exciting new account opportunity structured for the benefit of consumers and businesses as Congress intended. Sincerely,  Thomas A. Cooper President /mbl  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON. O.C. 20551  November 17, 1982 The Honorable Larry Pressler United States Senate Washington, D. C. 20510 Dear Senator Pressler: Thank you for your letter of October 22 requesting our comments on correspondence you received from one of your constituents, Mr. T. J. Reardon of Western Bank, Sioux Falls, South Dakota. Mr. Reardon is concerned with a particular policy decision made by the Federal Reserve Bank of Minneapolis. The Federal Reserve Bank of Minneapolis discovered that Western Bank's disclosure of the cost of credit life insurance in certain of its transactions was in violation of the Truth in Lending Act and its implementing Regulation Z. Specifically, the bank did not disclose the total cost of the credit life insurance over the term of the transaction; instead, it incorrectly made a cost disclosure based upon a one-month term, which is a significantly smaller cost figure. Under the Federal Truth in Lending Act, that particular violation requires that the bank take corrective action as detailed in the Truth in Lending Enforcement Policy Guide. Earlier this year the bank was requested to take corrective action as specified in the policy guide. Unfortunately, this violation was not discovered by the Federal Reserve Bank of Minneapolis until 1981, although, as Mr. Reardon indicates, the erroneous disclosure had been made for a substantial time prior to 1981. While Board staff would have preferred a provision in the law that permits one warning by bank examiners before reimbursement under the policy guide is required, the Congress did not provide this flexibility. Thus the Board, through the Federal Reserve Bank of Minneapolis, is required under the law to disregard the fact that its examiners may have previously overlooked a violation which it later finds to be reimbursable. In this particular case, the policy guide does not require automatic reimbursement to all affected customers. Instead, the bank is required to send affected customers a letter asking if the insurance was desired when the transaction was consummated, and, if not, whether they want the insurance to stay in effect. Only if the customer elects to cancel the insurance would any monies be reimbursed.   https://fraser.stlouisfed.org C Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Larry Pressler Page Two  Bank of Minneapolis Finally, the Federal Reserve s staff on the matters outlined sought the advice of the Board' 1981 letter. Staff here carein Mr. Reardon's December 17, presented in the letter and fully reviewed the arguments subject to the policy guide. concluded that the violation was Federal Reserve Bank of Subsequent to this review, the take necessary corrective action Minneapolis asked the bank to as outlined in the policy guide. to comment on We appreciate the opportunity me know if we can be of Mr. Reardon's letter. Please let further assistance. Sincerely,  Donald J. Winn Assistant to the Board  SMcN:vcd (V-242) bcc:  Shawn McNulty Mrs. Mallardi-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • <Y-ezu(...-0-.,‘_,L 6;  ').Trtifeb Ziales -Senate WASHINGTON. D.C. 20510 I .  October 22, 1982  Mr. Paul A. Volcker, Chairman Federal Reserve System 20th Street & Constitution Ave., N.W. Washington, D.C. 20551 Dear Mr. Volcker: Enclosed please find a letter from one of my constituents, Thomas J. Reardon, of Sioux Falls, South Dakota, regarding the Federal Reserve System compliance examiners. I would appreciate it if you could check into this matter, and respond to me on his behalf. Thank you very much for your time and consideration in this matter. I look forward to hearing from you in the near future. Sincerely,  Larry essler Uniter States Senator LP/jP.rEnclosure  wesTem Ban   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  the  that likes to know you by name  P.O. B05( 1225,SIOUX FALLS,SOUTH DAKOTA 57101 CA?  October 4, 1982  Honorable Larry Pressler United States Senator 411 Russell Washington, D. C. 20510 Dear Senator Pressler: I am writing this letter to you in order to express my concern at the policies of the Federal Reserve System with regard to their member banks. WESTERN BANK has been a member of the Federal Reserve System since November 30, 1959, and is the largest state chartered Federal Reserve member in the State of South Dakota. As a result, we are the largest bank in South Dakota which is examined for financial soundness and compliance with banking regulations by the Federal Reserve System. In recent years, WESTERN BANK has noticed a distinct change in the attitude of Federal Reserve System Compliance Examiners. In our early years, the Federal Reserve Examiners assisted us in our efforts to comply with federal banking statutes and to serve our community, particularly with regard to their housing needs. We are the largest servicer of home loans in South Dakota. Recently, since 1978 or 1979, that has not been the case. Rather, Compliance Examiners have virtually become "the enemy" by a relentless search for violations, frequently of a technical nature. Rather than assisting Bankers in improving their compliance efforts, they have become policemen with one thought in mind, catch the banker in an error. I feel this attitude at the Federal Reserve is typified by our current dispute with them. Our current dispute revolves around a certain truth-in-lending disclosure we made in connection with our real estate mortgage loans. From 1972 until the time of the examination in late 1981, WESTERN BANK had always disclosed the cost of optional credit life insurance on a monthly basis. In other words, we told our customers the monthly cost of credit life insurance which would cover their mortgage loan. This life insurance was optional. From 1972 until late in 1981, the Federal Reserve had examined our Bank four times for compliance with truth-in-lending regulations. At no time did they suggest this monthly disclosure was incorrect. In fact, the disclosure on credit life insurance had never been criticized by a Federal Reserve Examiner.  DOWNTOWN EAST NORTH WEST  100 North Phillips Avenue 26th Street at Cliff Avenue 1500 North Minnesota Avenue West 12th Street at Western  605-335-5400 605-335-5330 605-335-5340 605-335-5300   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Honorable Larry Pressler Page 2  However, in our November, 1981 examination, the fifth such compliance examination, the examiner took the position that Regulation Z (which had not changed in this regard since 1972) required that our optional credit life insurance disclosure be done on a total cost for the life of the loan basis. The Federal Reserve required this monthly disclosure instead of a total life of the loan disclosure to be a matter requiring possible reimbursement. Under their procedures, WESTERN BANK has been asked by the Federal Reserve System to notify certain of its customer that it has incorrectly disclosed the cost of the optional credit life insurance and further offer those customers the choice of either continuing their credit life insurance or obtaining a refund of all credit life insurance premiums paid since the inception of their mortgage loan, even though they have enjoyed the benefits of the protection provided by the credit life insurance. WESTERN BANK strongly resents this decision by the Federal Reserve System because of three factors. First, we feel our monthly disclosure is more beneficial and understandable to a home buyer than a total life of the loan cost disclosure. For us to be required to say that we incorrectly disclosed the cost of this optional credit life insurance is also particularly upsetting since no one disputes that our disclosure of the monthly charges was absolutely accurate in all cases. Second, as I had noted earlier, WESTERN BANK had been examined four previous times and no one had raised this issue and there were no changes in Regulation Z which would make our disclosures incorrect as a result of some change. Rather, we have followed a consistent pattern since 1972 of disclosing on a monthly basis. In addition, many of the financial institutions in our area also disclose on a monthly basis. For the Federal Reserve now to require us to change our format and reimburse customers for credit life coverage which they have received and further which was accurately disclosed In a meaningful fashion seems to us highly unreasonable and arbitrary. Finally, as we have made clear to the Federal Reserve, we feel we have valid legal grounds under which our disclosure method did not involve any violations of Regulation Z. I am enclosing with this letter a copy of my December 17, 1981 letter articulating our technical reasons for believing our procedure to be correct. While I know you would be reluctant to involve yourself in an isolated dispute between the Federal Reserve System and a single bank, I believe our experience is not uncommon to that which other banks have suffered at the hands of the Federal Reserve. Certainly, Regulation Z and the federal Truth-in-Lending Act has served and continues to serve a valuable purpose in providing fair credit disclosures to people. At the same time, there is no question but that Regulation Z has a number of technical requirements which do not benefit anyone, and our   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Honorable Larry Pressler Page 3  disclosure of monthly optional credit life insurance premiums is a good example of the type of alleged technical violations which absolutely harms no one. May my counsel and I meet with you to further expand upon the issues raised in this letter? Cordial  you s,  WES  T. f. Reardon President TJR ka  • the  FzFra 1  •  .  _ hit•likesloi..nowyoubynme  P.O. BOX 1225, SIOUX FALLS. SOUTH DAKOTA 51101  December 17, 1981  Mr. Sheldon Azine Vice President Federal Reserve Bank 250 Marquette Avenue Minneapolis, Minnesota  dII  55480  Dear Mr. Azine: Re:  WESTERN BANK - 1981 Consumer Compliance Examination  There have been numerous conversations between Mr. Michael C. Rouse of your Consumer Affairs Department and Mr. John Schlimgen, our Consumer Compliance Officer, regarding an alleged violation of Section 226.4 (a) (5) in connection with the recent consumer compliance examination of WESTERN BANK.  Since I have  written you on other occasions concerning consumer compliance at WESTERN BANK, I thought it was appropriate that I write this letter to give you our position with regard to this alleged violation.  The essence of the alleged violation is that on our real estate mortgage disclosure statements, we clearly state: is not required to obtain this loan."  "Credit life and disability insurance  All parties agree that this 'meets the  first requirement of Section 226.4 (a) (5) (1).  Our disclosure then goes on to  give the monthly cost of such credit life or disability insurance or both which can be obtained through an outside insurance company (either Minnesota Mutual Life Insurance Company or the United Life and Accident Insurance Company, depending upon the year of the mortgage origination) which have group credit life and disability policies.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  DOWNTOWN EAST NORTH WEST  Mr. Rouse has initially taken the position that  100 North Phillips Avenue 26th Street at Cliff Avenue 1500 North Minnesota Avenue West 12th Street at Western  605-335-5400 605-335-5330 605-335-5340 605-335-5300  t,.  under the -4.quiremunts of Section 22' .4 (a) (5) (ii) a disclw;ure of optional credit life and disability insurance costs on a monthly bais rather than a total cost basis is incorrect.  A sample copy of an optional insurance disclosure  is enclosed.  WESTERN BANK's position is that first, it is not clear that the insurance in question is "written in connection with" the particular mortgage transaction in question.  The borrower, if they desire the insurance, is given an insurance  application to fill out.  A copy of the current application for United Life  and Accident Insurance Company is enclosed.  The insurance company makes a  separate determination over which WESTERN BANK has no control whether or not to grant the insurance requested.  The monthly payment the borrower originally  makes does not include any monthly payment for credit life or disability insurance.  If the customer has requested the insurance and it is later granted,  the customer is sent a separate letter, a sample copy of which is enclosed, and the customer's monthly payment is then adjusted to reflect the increased cost arising from the optional insurance.  The determination of whether or not  to insure a customer usually takes approximately one month.  The insurance  coverage itself is not retroactive to the date of the application or the date of the mortgage loan, but rather takes effect on the date the company accepts the applicant as an insurable risk.  Thus, while the insurance application itself  is generally (but not always) filled out at the time of the mortgage loan closing, the determination as to the insurability of the applicant is outside of WESTERN BANK's control and the date of the insurance is not contemporaneous with the mortgage loan, but rather lags behind approximately one month.  Under these  circumstances, WESTERN BANK has serious doubts whether the insurance meets the regulation's requirement that it be written in connection with the particular credit transaction.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  thc Jt  NI1  quvlion of  C10;1r.  We  thc proper V y  LO  disel(isc  have ziked our out ide counsel  to :1,;!;i!:l  iusur.incc  nOt  us in re);ard to  this partiplar point raised in your current conf;umer cmipliance exinlination. lie his advised us that while the Board had initially issued Official interpretation 226.402 in 1969, that Interpretation has spiwned a considerable ammint of confusion.  That Interpretation simply states that it is not necessary  to disclose the full cost of the optional insurance for the full term of the transaction.  Rather, it could be disclosed for the initial term of the policy.  In addition, there have been approximately 15 public informition letters released by the Federal Reserve Board further explaining the appropriate disclosures of optional insurance.  In fact, your October 26, 1973 letter relating  to the Philbeck decision (Public Information Letter No. 724) actually refers to "the possible ambiguity of the language in the Interpretation" referring to Interpretation 226.402.  Mr. Rouse has initially suggested to us that the appropriate corrective action for this apparent violation could be the sending out of letters to approximately 125 loans and offering them the alternative of continuing their present insurance or terminating it and obtaining a refund of all credit life insurance premiums already paid.  This could total approximately $25,000 in payable refunds.  We at WESTERN BANK strongly disagree with this proposed method of correction. The method used by WESTERN BANK in disclosing optional credit life and disability insurance in conjunction with real estate transactions has been utilized since 1970.  In the 12 years since this disclosure has been in effect, the bank has been  examined for consumer compliance on at least three previous occasions and no criticism of this method of optional insurance disclosure has ever been brought to our attention.  In addition, in our two previous examinations, your agency  gave us indications our insurance premium disclosure procedures were correct.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I  •!  T1tIo!;in;;  st_Jtt.ownl ri.;yirding ( , c(lit life iw:ur.ince di!;c1w.urv!: fri)m our  1979 examination, which objects only to a single installment loan on which we failed to obtain the customer's signature indicating the have the credit life insurance. there was  a  customer  desired to  In addition, in our May, 1980 examination,  specific discussion between the consumer compliance examiners and  our real estate personnel regarding real estate procedures and practices including optional insurance disclosures and there was no criticism of these disclosures in that examination.  It is our policy at WESTERN BANK to comply with all the requirements of Regulation Z. Accordingly, we have now modified our optional insurance disclosures so that both the monthly charge and the total cost for the entire term of the loan is disclosed. That would eliminate all questions as to the proper method of disclosure of optional insurance costs in the future.  The sole remaining question relates to  the handling of these loans upon which we gave a monthly cost disclosure, and Mr. Rouse believes we should have given a total cost disclosure.  Even assuming  for the moment that Mr. Rouse's position as to the proper disclosure on optional credit insurance is correct, it is not clear that the Uniform Enforcement Policy Guildelines would require the correction he has suggested.  First and foremost, the Uniform Guidelines state "adjustments will not be required if the agency determines the disclosure error resulted from any unique circumstance involving a clearly technical and nonsubstantive disclosure violation which did notadversely affect the information provided to the consumer and which did not mislead or otherwise decieve the consumer".  It would seem to  WESTERN BANK that agency discretion should be exercised in this case. no substantive disclosure violation being discussed here.  There is  The information  transmitted to the consumer did not in any way mislead him, rather it gave him the accurate cost of the optional insurance in a manner that in WESTERN BANK's opinion was most relevant to him, i.e. a monthly cost.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  We have found that our  .  I  .1  to  e.  11,1,1tc lodn (11.:lonicr!; ;Irc c(mccrtic(1 primArilyh ii  hc  1;:outhlv  obligations, ralher than a 30-year total of obligations, whether it be a total of payments or total optional insurance costs. ,  Second, this particular area  is a highly technical and confusing one, having spawned an official interpretation and approximately 15 public information letters over the course of 12 years.  WESTERN BANK spends a considerable amount of time and effort at consumer compliance.  We work hard at doing a good job of consumer compliance.  Our  level of compliance has improved dramatically from 1979 to the present time. We are continuing to improve our compliance through our compliance officer, internal compliance audit, compliance schools and meetings and thorough follow-up on consumer examinations.  In conclusion, WESTERN BANK feels that because: 1.  WESTERN BANK has consistently used the same method of optional credit life insurance disclosure for 12 years and no previous examination has criticized this format;  2.  No consumer has been adversely affected by the disclosure which is in a readily understandable per month format;  3.  The highly technical and ambiguous nature of previous Federal Reserve Board pronouncements on proper optional credit life insurance disclosures;  4.  The alleged violation is the type for which agency discretion is properly exercised; and  5.  WESTERN BANK has already instituted a new disclosure format which includes both a total cost and per month cost thereby unquestionably complying in a prospective manner with the requirements of Regulation Z;  the Federal Reserve Board should not require any special notice procedures in connection with this alleged violation as long as WESTERN BANK does disclose the total optional insurance cost on a prospective basis. Sincerely, WESTERN BANK  T. J. Reardon President  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  S.  cc:  !lich fel Vouse DAvid Enudson  Enclosures:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  l. Sample old disclosure forms 2. Current insurance application 3. Sa4le insurance noLification letter 4.. Page of 1.979 exam   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  November 16, 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: Thank you for your letter of October 25 in which you ask for the reasons, if any, for continuing to maintain the confidentiality of the list of persons holding more than five percent of the shares in Credit and Commerce American Holdings, N.V. ("CCAH"). Information containing a list of the more than five percent shareholders of CCAH was previously furnished to you with the indication that the applicant had requested in filing their application with the Board that the names of those shareholders be treated confidentially. No assurances were given at that time that the Board would refuse to release the information to the public if a request were filed under the Freedom of Information Act. In your recent letter, you correctly point out that the usual practice has been to make this type of information publicly available, and this practice is reflected in the Y-6 Annual Report of Bank Holding Companies, which specifically asks for a listing of five percent shareholders. Although CCAH has yet to file the Y-6 annual report form, the Board has received a request under the Freedom of Information Act to disclose the information that was previously made available to your Subcommittee. In accordance with past practice, disclosure of the shareholder information in response to the pending request would be appropriate, and a response is being prepared to that request that will include the shareholder information. I hope that this information is of help to you. Sincerely,  REM:vcd (V-246) bcc: Mr. Mannion Mr. Bradfield Legal Files (2) Mrs. Mallardi (2)  Action assigned Mr. Bradfield  BELJAMIN S. ROSENTHAL, N.Y., CHAIRMAN J01 , 1;ANYERS. JR., MICH. ID,GENE V. ATKINSON, PA. f o • STEPHEN 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  NINETY-SEVENTH CONGRESS  Congre55 of Me Elniteb  tate5  MAJORITY—(202) 225-4407  31)0w:it of 3atprefSentatibet COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE  COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING, ROOM B-377 WASHINGTON. D.C. 20515  October 25, 1982  Hon. Paul A. Volcker Chairman Federal Reserve Board Washington, D.C. 20551 Dear Chairman Volcker: On February 1, 1982, the Board's General Counsel, Mr. Bradfield, conveyed to the subcommittee a Federal Reserve staff memorandum responding to questions I had asked concerning the applicants and application for control of Financial General Bankshares Inc. Among other things, the Board's response to question one included the names and other information on all investors whose ownership share of the applicant CCAH exceeded or would exceed five percent. The response stated also, however, that the applicants had requested confidential treatment for the identity of many of these shareholders and that the Board had not made this information publicly available. The Board requested, consequently, that the subcommittee give confidential treatment to this information. It is my understanding that such information on the identities of the investors owning more than five percent of an applicant corporation is not generally accorded confidential treatment, although there is provision for confidential treatment under special circumstances upon request of and justification by the applicant. Similarly, it is my understanding that all holding companies file reports with the Federal Reserve annually that include the identities of all investors owning more than five percent of the holding company, and that under normal circumstances this information is public. The public has a legitimate interest in this information. Because ownership information is normally made public, I am writing to ask what reasons there are, if any, for continued exceptional treatment in this case. In particular, please state for the subcommittee's information: 1.   " https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  PA.  JOHN HILER. IND.  What reasons and justification have the applicants given for confidential (/ treatment of the identities of these investors?  • 2  'ND  2.  Does the Board presently believe that there are compelling reasons to accord confidential treatment to the identities of these investors, contrary to the usual treatment in such cases, and if so what are those reasons? A reponse by Friday, November 12, would be appreciated. #'  Sin erely,  min S. Rosenthal C airman BSR:dpt:v   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •4  November 15, 1982  The Honorable Bill Bradley United States Senate Washington, D. C. 20510 Dear Senator Bradley: Thank you for your letter of November 1 regarding a proposed merger between Trust Company of New Jersey and a state-chartered savings bank in New Jersey. The proposed acquisition involves a question regarding compliance by the Wilshire Oil Company of Texas, the parent of Trust Company, with the 1980 divestitute requirements of the Bank Holding Company Act. Under the Act, Wilshire was given until December 31, 1980, either to divest its subsidiary bank or its impermissible nonbanking activities. Wilshire has not yet effected this divestiture. Wilshire has proposed the merger with the savings bank as a method of compliance with the Act by terminating its status as a bank holding company under the Act. The Board will take up the question in the near future and very much appreciates the benefit of your views on this matter. Sincerely,  Donald J. Winn Assistant to the Board VM:CO:vcd (V-253) bcc:  Mr. Mattingly Legal Files (2) Mrs. Mallardi  ..=•••••••••   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  _  BILL BRADLEY vif•  COMMITTEES:  Action assignel Mr. Braifie1-1  NEW JERSEY  FINANCE ENERGY AND NATURAL RESOURCES  -Statez --Senate  SPECIAL COMMITTEE ON AGING  WASHINGTON. D.C. 20510  November 1, 1982  .. rn 1.--. IT T':1 "; :I '  UP CO r....  Honorable Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Washington, D. C. 20551  ?IL' CD  -.-  ;•-•  "..S  C.1/  Dear Mr. Chairman: 410  The Commissioner of New Jersey's Department of Banking, Michael Horn, has informed me of his support for a proposal now pending before the Federal Reserve Board. The application by Wilshire Oil Company proposes to comply with the Bank Holding Company Act of 1956 by merging the Trust Company of New Jersey with a capital stock savings bank under the laws of New Jersey. Commissioner Horn has indicated that the merger will shore up a state savings bank which is in financial difficulty and which would otherwise require intervention by the state or F.D.I.C. The State Banking Commissioner has made a compelling case for the merger and I understand that the F.D.I.C. has added its endorsement to the request for expedited consideration. I hope that the Federal Reserve Board will join with the State of New Jersey and the F.D.I.C. to resolve this issue.  1 1  Sincerely,  Bill Bradley United States Senator BB/mae  2107 DIRKSEN BUILDING WASHINGTON, D.C. 20510 (202) 224-3224   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  P.O. Box 1720 UNION, NEW JERSEY (201) 688-0960  P.O. Box 1031 07083  TURNERSVILLE, NEW JERSEY (609) 228-2815  08012  BOARD OF GOVERNORS :  .. •0 • -n • -A ..1to  OF THE  t •. • '..-‘j • Ln • A. (-).  FEDERAL RESERVE SYSTEM WASHINGTON. D.C. 20551  November 9, 1982 The Honorable Robert C. Byrd United States Senate Washington, D. C. 20510 Dear Senator Byrd: Thank you for your letter of November 4 requesting comment on the enclosed correspondence from Mr. Eugene G. Eason, who requests information on the ordering and distribution of Federal Reserve notes. In September of each year, the Federal Reserve places an order for new notes with the Treasury Department's Bureau of Engraving and Printing (BEP) based on two estimates: how many new notes are needed to replace old notes that will wear out during the year and how many new notes will be needed for additional growth in currency demand over the next year due to the growth in the economy. This latter point appears to be the area of Mr. Eason's particular concern. New money moves into the public's hands when customers of depository institutions make withdrawals from their deposit accounts in the form of cash. Depository institutions, in turn, replenish their supplies of currency from the 37 Federal Reserve Banks and Branches -- again by means of a charge against the deposit accounts that the institutions maintain at the Federal Reserve Banks and Branches. Those latter accounts, incidentally, are maintained for the most part in satisfaction of reserve requirements established by law for the purpose of enabling the Federal Reserve to control the growth of money and credit within the economy. The normal sequence of events is that the commercial banks try to hold only enough currency on hand to meet the public's immediate demand for cash. The rest of what we normally refer to as money is held on the bank's books in the form of checking and savings account entries. If the public wants more of its money in the form of cash and the bank has an insufficient amount of currency in its vault, the bank orders the additional notes from its local Federal Reserve office and, at the time the cash is distributed to the customer, the recipient's checking or savings account is reduced in exchange for the currency. Conversely, when the public does not want to hold its money in large amounts of cash, some currency is returned to the banks by their customers and their accounts are credited in exchange for the returned bills. The excess cash   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  v-  14  The Honorable Robert C. Byrd Page Two  is sent back to the Federal Reserve, that is, it is withdrawn from circulation for reuse later along with new currency. As further background on Federal Reserve notes, I am enclosing a copy of "U.S. Currency", which may be of interest to Mr. Eason. I hope this information has been helpful. me know if I can be of further assistance. Sincerely, f"4 ---d) Anthony F,. Cola Anthony F. Cole Special Assistant to the Board Enclosures  CO:vcd (V-254) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi c/  Please let  Cong. Liaison Office will handle response IM•1001 0. NATIt•LO. IRMO_ CHAIRMAN TII0 fry IryINC ALAINIA r WIFICRER, IN.. cooed mom..."...itr•II• I', • MC [wit, 10A140 PAUL I. A IIALT ARV. JAM, &M.N. UTAH lotalmisori 11C04mITT, N. mtg. t•IMO COCHRAN. MISS MARK ANDietrill N. OAK. JAMES ARONOR • OAK.. . 1KRIE r AMATO. N.Y. ALFONSE M MACK MATTINGLY. GA. WARREN RUDMAN. N.H. ARLEN SPICTILIII, PA.  Mu I iAIN INCMisi. WIC &AWN. .10.44,4 L 111/000 PT C. 11,1114 CANIIIL M. IONA114 C •IIINT ST F . HOC  • •' -  • '-  " ,6  •  L  TON,  MR. • F. SAMOA TNLAA CAR TON CHILI J. RI NPH_T T JOHNSTON. LA RiALTILII 0. HUI  -B Dg'5 21  GUI NTIN N. DU PATIOLA J I.FA JIM bASSFR. TANN DeraNii. CIE I. OIAL INI *war. DALE SUMPlkS, ANA.  9.  11Cni1eli Zfafez -Senate COMMITTEE ON APPROPRIATIONS WASHINGTON. D.C. 20510  5. " .••• 0•  ••  November 4, 1982  GrFI  J. KEITH lifirookilD1r, Woo F 00111LCTON THOMAS L. VAN OR 10001111T, MINORITY •IAt r LneCCTOR   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  p5ki Mr. Paul A. Volcker Chairman Board of Governors of the The Federal Reserve System 20th and Constitution Avenue, N. W. Washington, D. C, 20551 Dear Mr. Chairman: The enclosed communication is respectfully referred for such consideration as it may warrant, and for a report thereon, in duplicate. Thanking you in advance for your report, and the return of the enclosure, I am Sincerely yours, 1625141w Robert C. Byrd RCB:st Enclosure  1  EUGENE G.EASON  f  UNION BANK BUILDING IA 26301 CLARKSBURG, WEST VIRGIN  October 28, 1982  The Honorable Robert C. Byrd United States Senator Senate Office Building Washington, D.C. 20510  Oar*  5 4?  Dear Senator Byrd: to one of the members of Would you please refer this your staff. and with no ax to grind, For my personal information I would like to know: ermines how What governmental entity det 1. er than paper to much paper money to print oth replace worn out bills; and ey is fed into How the additional paper mon 2. the economy. persons who I thought I have talked with various they know no more than I nd fou e hav and ed orm inf would be about the answers. on g if there is a publicati I would appreciate knowin man as which is written for a lay and s wer ans the ers cov which an accountant. opposed to an economist or   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  erely yurs  Eugene G. Eason EGE:sjc  • •• Of GOve••. • 9 ...s  9  • `J:.  BOARD OF GOVERNORS OFTHE  FEDERAL RESERVE SYSTEM WASHINGTON.O.C. 20551  &AL Rt.s°:• * -•....•-  November 9, 1982  The Honorable Robert W. Kastenmeier House of Representatives Washington, D. C. 20515 Dear Mr. Kastenmeier: Thank you for your letter of September 1 requesting comment on correspondence you received from Richard J. and Jeaneen M. Lettman of Madison, Wisconsin. Mr. and Mrs. Lettman's inquiry relates to the lack of small denomination deposits that earn market rates of interest and the imposition of service charges by depository institutions.  •  With respect to the Lettmans' comments on the lack of small denomination market rate instruments, it should be noted that the Federal Reserve no longer possesses the authority to establish rate cegs on time and savings deposits. Such authority now resides with the Depository Institutions De. Under the Depository Instiregulation Committee tutions Deregulation Act of 1980 ("Act") (Title II of P.L. 96-221), the DIDC is required to phase out interest rate cegs on deposit accounts maintained at federally insured commercial banks, savings and loan associations, and mutual savings banks. Section 203(a) of the Act transferred the authority to regulate the rate cegs on time and savings deposits of depository institutions to the DIDC. The DIDC is in the process of deregulating rate ceilings on deposits. On May 1, 1982, depository institutions were authorized to offer two new deposit instruments -- a $7500 minimum 91-day time deposit with a ceg rate of interest tieS to the rate payable on 91-day U.S. Treasury bills and a year or more time deposit in any denomination without any limitations on the ceg rate that depository institutions may pay. In addition, the DIDC also established a deregulation schedule that eliminates the ceg rates on time deposits of shorter maturities over the next four years. At its June 29 meeting, the DIDC authorized depository institutions, effective September 1, to offer a new 7- to 31-day time deposit with a rate tied to the 91-day U.S. Treasury bill rate and a minimum denomination of $20,000. These actions should provide depositors with increased returns on their funds. In addition, Congress recently enacted the Garn-St Germain Depository Institutions Act of 1982 ("Act") (P.L. 97-320). kmong other things, the Act directs the DIDC to authorize a new deposit instrument that is "directly equivalent to and competitive with money market mutual funds." This   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Robert W. Kastenmeier Page Two  account, which is required to be authorized by December 14, 1982, should also provide depositors with an additional market rate investment option. The Lettmans are also concerned with the growing practice of depository institutions imposing service charges. In recent years, depository institutions have encountered significantly increased operating costs due to increases in salaries, computer equipment, postage, and other expenses. Much of the increased costs are passed on to depositors in the form of service charges, particularly on transactions accounts. The Federal Reserve does not regulate the type and amount of service fees charged by depository institutions. We do, however, possess regulations that require member banks to disclose fully the nature and extent of their service charges. The amount of service charges is generally a management decision made by the institution itself, taking into account competition and prevailing practices in the local community. I hope that this is helpful to you. know if I can be of further assistance.  Please let me  Sincerely,  (biF!;ned) Anthony F. Cole Anthony F. Cole Special Assistant to the Board  .GTS:BAB:AFC:vcd (V-203) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Bradfield Mr. Schwartz (C-184) Ms. Belcamino Legal Files (2)  BOB KASTENMEIER  Action assigned Mr. Bradfield  COMMITTEE ON JUDICIARY  2D Diwritics. WiscoNsiN • 22..32 HOUSE OFFICE BUILDING  PHONE AREA CODE 202, 225-2906 HOME OFFICE SuITE 505 119 MONONA AVENUE MADISON, WISCOP,ISIN 53709 PHONE. AftEA CODE 608, 264-5206  Congrefsti of the 71Initeb tato vouge of RepretentatibesS Iliassbington,30.e. 20515  CHAIRMAN, SUBCOMMITTEE ON COURTS, CIVIL LIBERTIES AND THE ADMINISTRATION OF JUSTICE SUBCOMMITTEE ON CIVIL AND CONSTITUTIONAL RIGHTS SUBCOMMITTEE ON CRIME  COMMITTEE ON INTERIOR AND INSULAR AFFAIRS SUBCOMMITTEE ON PUBLIC LANDS AND NATIONAL PARKS  September 1, 1982  115  ILZ)  I,, , IT4  1.413 Mr. Paul A. Volcker Chairman Federal Reserve Board 20th and Constitution Avenue, N.W. Washington, D.C. 20511  -rzrn  -42 =It.2  rN..)  rrn  "70  c ) - c? fT: — .1 ( ' -ro  71, r  LO .4&"  Enclosed is a letter I recently received from Mr. and Mrs. Richard Lettman which I think you will find to be self-explanatory. I would appreciate any comments you might have on the issues they raise. Thank you for your consideration, and I look forward to hearing from you. With kind regards,  Sinc   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ••  r-C3  •-•••  !VI <  Dear Mr. Volcker:  RWK:ml  GO  rn -o  RO R . KAS E Member of Cong  IER  -/ 1 4  g: 3  -  • -•   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  August 20, 1982  ? 1•2• 1_ Congressman Robert Kastenmeier 1203 House Office Building 20515 Washington, D. C. Dear Congressman Kastenmeier: We are writing to you in regard to something which is happening . with the Banking Industry which has us at this point extremely upset We don't know if this is just in Wisconsin or all over, but it certainly is worth hearing your opinion on. 1.  How can the small person Money-Market Certificates: like us ever invest in one? Any of them that gives a good rate of interest is only for those who can afford to tie up $5,000 and up for a year or more. Then too, in our income category who has $5,000? In looking in on various ways of plans you seem to need $10,000 for real good investment. Its the middle class who need we to make a bit of money now and then and obviously those don't have that kind of money. We think its time at the bottom got some kind of help. been We recently had an incidence with our bank we have along at for years and have pulled what money we had out th closing our checking account and went to another from k. They started to "charge" us when we withdrew it our savings account. I could not believe it when happened. I know many people who set up fir savings accounts for the purpose of having ance ey for taxes at the end of the year, insur the iums etc. etc. and when they are due you make to ithdrawal at the time perhaps when you sit down bank work on your budget for the month. Well, our is ted charging for withdrawals and to us this just like stealing. For goodness sake you work government 'hard enough to put something aside, then the you faxes you besides on the interest (so what have that IS gained?) and NOW the banks charge for money and you wish to use. This parRIGHTFULLY YOURS to say ticular bank was an M and I Bank and needless shudder to they are losing people because of this. I think if all banks begin using this form of there when business. We figure its our money and its from our we need it and we should be able to withdraw or three own account no matter if it is once a month We would appreciate your opinion. times a month. Cordially,  4  2 tc;4..d  (1'  OWitetW  4,47,61-0E-}  Richard J. and Jeaneen M. Lettman  • BOARD OF GOVERNORS OFTHE  FEDERAL RESERVE SYSTEM WASHINGTON  J. CHARLES PARTED MEMBER OF THE BOARD  November 8, 1982 The Honorable Benjamin S. Rosenthal Chairman Subcommittee on Commerce, Consumer and Monetary Affairs Committee on Governmental Operations House of Representatives 20515 Washington, D. C. Dear Mr. Chairman: Chairman Volcker has asked me, as the Board's representative on the Examination Council, to respond to your recent letter requesting clarification of certain public disclosure provisions and definitions in connection with the current revisions to the Report of Condition for commercial banks. In particular, your questions relate to the reporting requirements contained in Supervisory Supplement 1--Past Due, Nonaccrual and Renegotiated Loans and Lease Financing Receivables--which will become effective beginning with the call report for December 31, 1982. In mandating this report requirement, the Examination Council determined that information on loans past due 90 days and still accruing, nonaccrual loans, and renegotiated troubled loans would be made available to the public upon request beginning with the report for June 30, 1983. Your first question pertains to the Examination Council's decision to wait two reporting periods before commencing to make the information available to the public, i.e., beginning the public availability with the report for June 30, 1983, rather than with the first reporting for December 31, 1982. The primary reason for this decision is to ensure that the information released will be accurate and thus avoid misleading the public. In this regard, it is important to remember that the reporting requirements contained in Supervisory Supplement 1 are completely new for State banks and constitute a substantial modification of present reporting requirements for national banks. For this reason, the Council believed it essential that, before making the information publicly available, respondents be accorded sufficient time to become familiar with the reporting requirements and related definitions, to develop internal reporting procedures and systems to accurately generate the required data, and to give banks a reasonable period of time to gain experience in completing the forms. Given the importance of the data and the likely attention that it may be accorded by bank customers and financial analysts, the Council viewed this delay as a critical step in ensuring that the reported information available to the public is reliable and as error-free as possible. The information for the first two quarters of reporting will still be of some value to the supervisory agencies since they will be in a position to make adjustments for the early lower quality through contacts with the banks and otherwise.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  alo,•'  The Honorable Benjamin S. Rosenthal  -2  _  You also asked under what authority the agencies held back the public availability the first two quarters of information. It is the view of the agencies that there is no statutory or legal requirement to disclose this particular information under the Freedom of Information Act. Indeed, similar information collected for several years from National banks by the Comptroller of the Currency has not been made available to the public. The agencies are now preparing to make the information available, beginning with the June 1983 reports, as a matter of public policy as determined by the Examination Council, not as a matter of legal requirement. Your remaining questions relate to the definition and reporting of renegotiated "troubled" debt in Supervisory Supplement 1. The definition of renegotiated loans that has been incorporated into the new reporting requirements was designed to be consistent with, and to reflect, the accounting and reporting principles contained in Financial Accounting Standards Board Statement No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings" (FASB 15). In particular, FASB 15 considers a troubled debt restructuring to constitute a situation in which the creditor for economic or legal reasons "related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider." In light of the principles set forth in FASB 15, the definition of renegotiated debt as contained in the call report instructions is as follows: For the purposes of this supplement, renegotiated "troubled" debt includes those loans and lease financing receivables that have been restructured or renegotiated to provide a reduction of either interest or principal because of a deterioration in the financial position of the borrower. A loan extended or renewed at a stated interest rate equal to the current interest rate for new debt with similar risk is not considered renegotiated debt. Exclude all loans to individuals for household, family, and other personal expenditures, and all real estate loans secured by 1 to 4 family residential properties. For further information, see Financial Accounting Standards Board Statement No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings" (FASB 15). This definition applies to loans to private borrowers--both domestic and foreign--as well as to loans to governments and governmental agencies. No distinction or special treatment is accorded loans to foreign governments or sovereign entities. i 1  In the case where interest on a loan has been refinanced through a new loan that covers the amount of accrued interest and where the new loan is at current market rates, the new loan would not be reported as a renegotiated loan for purposes of Supervisory Supplement 1. Such treatment is based upon   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Benjamin S. Rosenthal  -3-  the presumption that the borrower is capable of meeting the repayment terms of the new loan on schedule. Should the borrower become delinquent with respect to interest or principal under the new loan, the loan would be reported in the appropriate past due column of Supervisory Supplement 1. On the other hand, if the restructuring of the loan should involve concessionary rates below current market rates or involve any forgiving of principal or of accrued interest, the restructured loan would be reported under renegotiated loans in Supervisory Supplement 1. With respect to your question concerning how long a renegotiated loan would continue to be reported in the renegotiated column, the call report instructions provide that a loan is to be reported as renegotiated "until paid in full or until such time as the terms are substantially equivalent to terms on which loans with comparable risks are being made." Thus, there is no fixed period of time during which a loan once renegotiated must continue to be reported as such. For example, other things equal, a loan that has been renegotiated to reduce the rate of interest below current market rates due to deterioration in the financial position of the borrower would continue to be reported as a renegotiated loan until such time as the loan is paid or until the rate of interest on the loan reaches equivalence with rates currently being charged on loans of comparable risk. Your final question concerns whether the category renegotiated loans would include those loans that are refinanced on normal terms for the convenience and at the request of the customer. The answer is "no". As the definition set forth states, there are two fundamental conditions to be met if an extension of credit is required to be classified as a renegotiated loan in Supplement 1. First, the loan must have been restructured or renegotiated to provide a reduction of either accrued interest or principal or to reduce the on going rate of interest on the renegotiated loan below current market rates for loans of comparable risk. Second, the restructuring or renegotiation must have occurred because a perceived deterioration in the financial position of the borrower. Thus, a loan that is extended, renewed or refinanced for the convenience of the customer at the current market rate of interest for debt of similar risk would not be considered a renegotiated loan reportable on Supervisory Supplement 1. A copy of the latest draft of the instructions for Supervisory Supplement 1 is enclosed for your information. If you have any further questions, please let me know. Sincerely, ‘ p.  Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action assigned Mr. Sigel; info copy to Gov. Partee LYLE WILLIAMS, OHIO HAL DAUB NEBR. WILLIAM F. CLINGER, JR  BENJAMIN S. ROSENTHAL, N.Y.. CHAIRMAN JtcHN L:JNYERS, JR., MIC.H. EL/GENE V. ATKINSON, PA. STEPHEN L. NEAL, N.C. DOUG BARNARD, JR., GA. PETER A. PEYSER, N.Y. BARBARA B. KENNELLY, CONN.  NINETY-SEVENTH CONGRESS  Congre5ii‘ of the tiniteb  tate5  MAJORITY—(202)  225-4407  Thou5eofileprefientatibefS COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE  COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING. ROOM 6-377 WASHINGTON. D.C. 20515  N) rsa 771  October 8, 1982  •  .a•  Hon. Paul A. Volcker Chairman Federal Reserve Board Washington, D. C. 20551 Dear Chairman Volcker: Thank you for your letter of October 1 concerning the quarterly reports on the amounts of past-due, non-accrual, and renegotiated "troubled" loans and lease financing receivables that banks will be required to file for December 31, 1982, and quarterly thereafter. I am writing to request further clarification on the public disclosure provisions and the definitions that are applicable to this new reporting requirement. My specific questions are as follows: 1.  Upon what (a) policy basis and (b) legal authority have the regulatory agencies determined that information reported by the banks that will be releasable to the public with the report for June 30, 1983, is not releasable to the public for the reports for December 31, 1982, and March 31, 1983?  2.  What are the specific rules regarding the reporting classification "renegotiated"?  3.  What treatment is required to be given to renegotiated loans to sovereign governments and their instrumentalities?  4  When a loan has been renegotiated, with the resulting credit arrangement having a term in excess of 12 months, is the bank required to include that renegotiated loan in the total it reports for the entire duration of the term of that loan, even if it should run for 3 to 5 years; or is there only a limited period of time (e.g. the first 12 months following renegotiation) during which such a credit must be included in the report of renegotiated loans?  5.  Does the class "renegotiated" include loans that are refinanced on normal commercial terms for the convenience and at the request of the customer? If   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  PA.  JOHN HILER, IND.  •  2 not, what standards are banks obligated to follow to distinguish between "renegotiated" and "refinanced"? In other words, what prevents banks from placing troubled renegotiated credits in the refinanced class, thereby exempting them from the requirement to report them to the regulators? SiAcerely,  U'enjamin S. Rosenthal Chairman BSR:dt/b   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  November 4, 1982  The Honorable Patricia Schroeder Chairwoman Subcommittee on Civil Service Committee on Post Office and Civil Service House of Representatives Washington, D. C. 20515 Dear Chairwoman Schroeder: Thank you for your letter dated October 22 regarding Section 301 of the Civil Service Act (5 U.S.C. 3111). The Board of Governors of the Federal Reserve System, while an independent agency and not governed by Civil Service laws and regulations, does parallel the Federal Government's programs in spirit and in practice. In this regard, the Board maintains an internship program for students who would benefit from the broad knowledge and experience gained in working for an agency making financial and economic policy. We have used, and will continue to accept, students on a volunteer basis, particularly for positions in the area of economic research. These students generally remain with the Board for one semester and gain experience which is valuable in their future careers. Although we have had only a limited number of experiences of this kind, we encourage anyone who is interested in learning more about the program to contact Ms. Kathy Warehime, Supervisor, Recruitment-Planning and Placement, Division of Personnel, at (202) 452-3653. Sincerely,  JW:AFC:CO:vcd (V-247) bcc: John Weis Kathy Warehime /714-t,) ',277etfixt-h  NINETY-SEVENTH CONGRESS  Action assigned Mr. Denkler  OATRICIA SCHROEDER.COLO.. CHAIRWOMAN mr pnis  K. UDALJ-. ARIZ. W...-LIAM (BILL) CLAY, MO. GUS YATFtON, PA.  CHARLES PASHAYAN, JR.. CALIF. GENE TAYLOR, MO. JAMES A. C.OURTER, N.J. FRANK R. WOLF, VA.  31ou5e of 1lepre5entatibe5 COMM ITTEE ON POST OFFICE AND CIVIL SERVICE SUBCOMMITTEE ON CIVIL SERVICE 209 CANNON HOUSE OFFICE BUILDING  iliagbington, J.C1  C5  .11  C) 7:1  20515  TELEPHONE (202) 225-4023  717  CD  CAS  (7.1 r4 .."%•  —4 CI  '  --tp  •  ' • 1.  October 22, 1982  um or  146 tto  DI( :NJ  Dear Agency Head: Section 301 of the Civil Service Reform Act (5 U.S.C. 3111) authorized agencies to accept volunteer service from students under certain conditions. I am interested in whether your agency has utilized the authorities under this section. If so, please describe the situation in which this authority was used, how many volunteers it involved, the type of work they were doing, whether there was any provision for the volunteers to conv ert to or apply for civil service jobs, and whether the program is on-going. Furt her, please inform me of any plans you have for the continued use of this authority. I hope you can respond by November 15, 1982. Any questions about this request should be directed to Andrew Feinstein at 225-4025.  PATRICIA SCHROEDER Chairwoman PS:af   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  J  i BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D.C. 20551  November 3, 1982 The Honorable Samuel S. Stratton House of Representatives Washington, D. C. 20515 Dear Mr. Stratton: This is in response to your letter of October 5 requesting our views with respect to correspondence between you and Mr. Langdon P. Marvin, Jr. The correspondence files of the Bank of New York (the "Bank") disclose that the Bank has responded to Mr. Marvin's requests for information and contains several letters from the Bank's counsel to Mr. Marvin's counsel. In the case of the residuary trust (MVM Trust No. 2), wherein the contingent interest of Mr. Marvin is not disputed by the Bank, the requested information was supplied. The bank informed the Federal Reserve that it does not believe that Mr. Marvin is a person interested in the corpus of the marital trust (MVM Trust No. 1) under the Surrogate's Court Procedure Act (SCPA) of New York. Consequently, the Bank believes it was acting properly, pursuant to its responsibility of maintaining the confidentiality of its relationship solely with interested persons, in withholding information concerning this trust. With reference to the power of appointment that Mr. Marvin holds, the Bank has indicated that Mr. Marvin, or his attorney, will be furnished with the requested information as provided under Section 2309 of the SCPA upon a judicial determination that the power of appointment is valid. In this regard, the Bank has indicated that: (a) prior to a letter dated August 31, 1981, from Lawrence Weston Krieger, Esq., it had not been aware of the power of appointment; (b) since being made aware of the power of appointment, it has ceased to invade the corpus of MVM Trust No. 1 for the benefit of Mrs. Marvin; and (c) it is the Bank's intention to initiate an action in the Surrogate's Court of New York County requesting that the power of appointment be set aside as invalid. The results of this action will, of course, determine Mr. Marvin's rights. Mr. Marvin's right to compel the Bank as a fiduciary to disclose information about the marital trust is, as noted above, a question for judicial determination. In this regard, Section 2102 of the SCPA provides for proceedings for relief against a fiduciary to supply information concerning assets or affairs of an estate relevant to the interest of the petitioner. Further, SCPA Article 22, and more specifically Section 2205, covers the area of compulsory accounting of a   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Samuel S. Stratton Page Two  fiduciary on a court's initiative, or on petition, and who may petition. This is not to say that Mr. Marvin is legally entitled to the information requested, but rather that procedures exist under the SCPA by which he and his attorney may file for judicial relief. The Federal Reserve Bank of New York will continue to monitor the situation and will ensure that the Bank complies with its responsibilities after the proper determinations are made by the court. I hope this information is he]pful. know if I can be of further assistance.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Please let me  Sincerely,  Donald J. Winn Assistant to the Board  DV:vcd (V-232) bcc:  Don Vintage Ms. Blessing Mrs. Mallardi  =r•111111111  Action assigned Mr. Ryan 6.6/  -•6  lb.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  19810CT HOUSE OF REPRESENTATIVES WASHINGTON, D  SAMUEL S. STRATTON NEVV YORK  C 20515  1: 45  Wt. OFFICE OF T.  October 5, 1982  Dear Mr. Chairman: Attached is a copy of a settlement and power of appointment signed by the late Mrs. Mary V. Marvin on September 16, 1980, which I understand was designed to transfer the fund designated therein to her son Langdon P. Marvin, Jr., who currently resides at . Mr. Marvin, whom I knew when we were both students at Harvard, tells me that the fund in question is controlled by the Bank of New York. Mr. Marvin tells me the fund has not been turned over to him as his late mother's appointment directs. He also advises me that letters to the Bank of New York inquiring about this matter, by himself and others have gone unanswered. Inasmuch as your elevated position makes you in a sense a Czar of the banking industry, I wonder whether it would be possible to find out from officials of the Bank of New York why this transfer of funds has not yet been made. I would appreciate it if you could give me whatever information you may uncover on this matter, and also advise Mr. Marvin how he should proceed.  Sinv4rely your/ s / /7 enclosure Hon. Paul A. Volcker Chairman, Board of Governors Federal Reserve System Washington, D. C. 20551  /  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: Legal document Citations:  Number of Pages Removed: 1  Settlement and Exercise of Power of Appointment, Mary Vaughan Martin, September 16, 1980.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  Jib BOARD OF GOVERNORS OF THE  44k  FEDERAL RESERVE SYSTEM  • -r,  i- •  •-1  1-  WASHINGTON, O. C. 20551  .i. ..'..  '...,  <,.,.  .RALREs. .•..• •  PAUL A. VOLCKER  November 3, 1982  CHAIRMAN  The Honorable Jesse Helms United States Senate Washington, D. C. 20510 Dear Jesse: You sent me a brief analysis by the Laffer people concerning a so-called "price rule" for monetary policy, with the comment that the paper has a hypothesis you'd "like to share."  TI  Perhaps I should answer "so would I." But I don't really think that it's so simple, and, specifically, I don't think we can operate monetary policy in such a way as to freeze some index of volatile commodity prices in a roughly 7-8 percent range, as the paper seems to suggest. That is all the more true when many of those commodity prices may, at present be depressed below longer-term "equilibrium" (even assuming the general price level is stable from now on) due to the recession and other short-term factors. But let me look at the "price" concept in another, and hopefully more constructive, way. I personally can generate a lot of sympathy for the old idea that the central bank, among all its responsibes, should be more explicitly charged with special responsibility for the integrity of the currency -- that is, for price stability. De facto, I believe that is not so far from what is generally assumed to be the case, here and abroad, but it's never been formally incorporated in U.S. law. The Full Employment and Humphrey-Hawkins Acts, which apply to the Federal Reserve as well as other government agencies, speak in terms of "balanced" objectives of high levels of employment, and production as well as stability. That may well be appropriate for such broad legislation setting objectives for all economic policies, but it doesn't in itself suggest any special emphasis for monetary policy; it leaves us, in a formal sense, appearing to be charged with the impossible job of achieving all good objectives, even if other policies are not consistent. Hence, the result might be more uncertainty than necessary about our intent, ability, or responsibility to deal with inflation. Arguably, in the end the result is to make the goal of reconciling stability with growth more dcult rather than easier because inflationary expectations become more deeply rooted. That general issue has been debated many times in the history of the Fed; perhaps it should be again. In a sense,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ..sek  The Honorable Jesse Helms Page Two  the gold standard idea, and I suppose the Laffer "commodi ty price rule," are attempts to operationally enforce a "pri ority" for monetary policy on price stability. Those specific rules raise numerous questions of whether they are, in fact, operationally feasible or desirable ways of reaching the basic objective. As you know, I have the greatest reservatio ns on that score, even though I readily appreciate and share the general idea of the importance of pursuing and attaining the goal of stability. You can well ask whether we have a better answer. Laffer and others point to the limitations on monetary aggregate targeting. I would be the first to admit (and not just admit, but urge) that "aggregates" targeting, applied too mechanically, can have serious problems of its own, and those problems multiply during a period of rapid institutional change when "money" is difficult, to say the least, to define in a standard operational way. I suspect any very simple rule is likely to break down, or give less than satisfactory results over time . Put another way, presumably we have a Federal Reserve so that intelligent people, operating in a framework somewhat insulated from immediate political pressures, can use a degree of judgment in working toward the agreed objective. I am very leery of legislating mechanical rules. In that connection, I would point out that the Congress -- while carefully and appr opriately refraining from legislating specific targets and recognizing circumstances might require some flexibility in pursuing the targets the Federal Reserve sets -- has itsel f contributed strongly to the current emphasis on the aggregat es both in past legislation and in its regular "critiques" of Federal Reserve policy. While you may consider that empha sis a mistake, legislating another kind of mechanical approach woul d, sooner or later, have difficulties -- and likely more sever e difficulties -- of its own. Economic and monetary policy would be (relatively!) simple if the impact of our actions on the economy did not operate with lags of unknown length or were not affected by expectational factors or shifts in attitudes or behavior. But there is a long and respectable history of analysis emphasizin g   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Jesse Helms Page Three  the relevance of monetary "quantiti es" to price performance over time, and with all the diffic ulties, we cannot throw aside that experience lightly. I fear this letter is already lon ger than you bargained for in your brief inquir y, but the issues are obviously critically important. I'd be glad to talk with you about them further at your convenien ce.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  PAV:vcd (V-252) bcc:  Mrs. Mallardi (2)  JESSE HELMS NORTH CAROLINA   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action assigned Mr. Kichline tIttan  2Cniteb Zfafes  enaf.e  WASHINOTON. D.C. tOSI0  r  1%- "•o-13 ISE1%0NI ervta.c.- la  October 28, 1982  The Honorable Paul Volcker Chairman Federal Reserve System 21st Street and Constitution Avenue, N.E. Washington, D.C. 20551 Dear Paul: The change in monetary policy which has become apparent is overdue. We have had what amounts to a deflation in recent months. I hope that the experiment with monetari sm is at an end, though the alternative of preOctober '79 is equally unacceptable. If, as some have speculated, the Fed is merely allo wing a "technical" bulge in the money supply figures and will go back to the previous targeting, then this change in policy is going to look like a pre-election pumping up for political reas ons. If, on the other hand, the Fed is going to simp ly move to interest rate targets or some Keynesia n jobs statistics, then we'll probably have agai n the pathetic monetary situation we had when President Carter was in office. The enclosed paper, "The Price Rule" has a hypothesis I'd like to believe. May I have your thoughts? With kindest personal regards. Sincerely,  JESSE HELMS:hcm Enclosure  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Research paper Citations:  Number of Pages Removed: 6  Kadlec, Charles W. "The Price Rule." California: A.B. Laffer Associates, 1982.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  •  I   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  November 2, 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 27 expressing your support of the recent decision by the Federal Financial Institutions Examination Council to require quarterly reporting and public release of bank data on past due and other troubled loans.  We appreciate having your views on this  matter. Sincerely,  CO:DJW:vcd (V-248) bcc:  Gov. Partee Mr. Sigel Mr. Ryan Mrs. Mallardi (2) -  -  LYLX WILL/AMS, OHIO NAL DAUB. NEBR. WILLIAM F. CLINGER, JR., PA.  BENJAMIN S. ROSENTHAL. N.Y., CHAIRMAN JOHN CONYERS, JR., MICH. EUGENE V. ATKINSON PA. STEPHEN L. NEAL. N.C. DOUG BARNARD. JR., GA. PETER A. PEYSER, N.Y. BARBARA B. KENNELLY, CONN.  NINETY-SEVENTH CONGRESS  Congre55 of Me Unita Otatez  JOHN MILER, IND.  MAJORITY—(202) 2-25-4407  jDouo of 1epregentatibe0 COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING. ROOM B-377 WASHINGTON. D.C. 20315  October 27, 1982  -o  Hon. Paul Volcker Chairman Federal Reserve Board Washington, D. C. 20551  CD  Dear Chairman Volcker: sion of the Federal I understand from press reports that the recent deci terly reporting and Financial Institutions Examination Council to require quar troubled loans has been public release of bank data on past due and other by certain Members of criticized not only by the banking industry but also information could weaken Congress. Their criticism has been that release of such public confidence in the banking system. C decision was not I am writing to express my personal view that the FFIE this information, and the only a correct one but was long overdue. Release of nce rather than weakqp heightened public awareness that will result, will enha on, I urge that the FFIEC public confidence and understanding. For this reas irements as announced. reaffirm its intention to implement the reporting requ rest on the financial Confidence in the banking system as a whole does not banks. It rests, instead, success or failure of any one bank or small group of em as a whole continues to (a) on the practical observation that the banking syst confidence in the governfunction smoothly, in spite of its problems, and (b) on Reserve and FDIC -- whose mental institutions -- specifically, the Federal When the financial markets. function it is to ensure the stability of the difficult, and in some cases affairs of banks are known generally to be ic confidence in both the threatened, secrecy is far more destructive of publ than open disclosure would banks themselves and in the regulatory institutions FFIEC were to yield to the be. It would therefore be very unfortunate if the rting 'and disclosing troubled recent pressure to reverse its decision on repo loans.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  Benjamin S. Rosenthal Chairman BSR:dtb  a•  'O..  November 1, ln82 The Honorable Charles E. Schumer House of Representatives Washington, D. C. 2.015 Dear 71r. Schumer: Chairman Volcker has asked me to respond to your letter of October 22 on behalf of The First !Tomen's Rank, New York, New York. In your letter, you indicate your support for the efforts of The First Iomen's Bank to make full banki ng services available to women and to provide women top management roles in banking. In this regard, you note that The First Women's Rank is the object of two takeover attempts and express concern that any change in control may affect the efforts of The First Women's Bank to provide full banking services to all women. In light of these concerns, you indicate that a heari ng would he appropriate. The Federal Reserve is currently processing applications of Valbanque Corporation and its suhsidiary , N.Y. 'Banco Holdings, Ltd., on behalf of their principal, Mr. Ralph uallone, to acquire shares of The First Women's Bank . In addition, Brasilinvest S.A. Investimentos, Participac oes e Negocios has filed an application relating to The First Women's Bank with the Federal Reserve Rank of New York, although the application has not yet been accepted for processing. The Board's staff carefully reviews all applications, including all comments submitted. Once staff has completed its analysis, the entire record, consisting of the applicat ion, all comments and any request for a hearing, is presented to the Poard for its consideration. Your letter has been made a part of the record of the applications currently pending befor e the Board relating to the acquisition of shares of The First women's Bank and will be considered by the Board when it acts on the applications. The Poard very much appreciates the benefit of your views on this matter. Please let me know if I can be of further assistance. SW:AFC:vcd (#V-245) Sincerely, bcc: G.C. Log 380 Mr. Mattingly (Signed) Ms. Mason Colo Ms. Weinberg Anthony P. Cole Legal Files (2) Special Assistant to the Board Mrs. Mallardi.../   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CPARLES E. SCHUMER  1 IA CANNON Haulm Omer BUILDING WASH I NOTCH. D.C. 10515  111"rtt Dismetcr. Naw YORK  (202.) us-ea COMMITTEE& BANKING. FINANCE AND URCA;',..AFFA IRS POST OFF ICE AND CIVIL SERVICE  Congre55 of the V.Jniteb ,tate 300Ufit of ikepretentatibet  2501 Avirtatz U 110001U-TN, NSW Yaw 11229 (212) 743-31100  Elas'bington,313.C. 20515 October 22, 1982 honorable Paul Volcker Chairman board of Governors Federal Reserve Board Washington, D.C. 20551  o'S f•J Lfl  1—r  —v  Dear Chairman Volcker: I am writing to support the request of The Fir st Women's Bank in New York City that the Board of Governors sch edule and hold a formal hearing on the Vallone application currently before you.  4r!  The First Women's Bank seeks to provide equa l access to credit and full commercial banking services to all on a non-discriminatory basis, particularly to qualifying women customers . Another goal of The First Women's Bank is to enhance employment opport unities for qualifying women on a non-discriminatory basis and in accordan ce with applicable federal and state laws. On September 8, 1982, the Board of Directors of the First Women's Bank adopted the following resolution: "RESOLVED, that The First Women's Bank oppose s the applications of Ralph Vallone, Jr., N.Y. Banco Holdings, Ltd ., and the Valbanque Corporation, filed with the New York State and Federal banking authorities, and Mr. Vallone's stated intention s to acquire up to 25% capital stock interest in the Bank and to exercise control over the Bank and its Board of Directors as not consistent with the best interest of the Bank and its sha reholders." On October 12, 1982, the Board of Directors, by resolution, recommended acceptance of a cash tender offer of $15 a sha re, subject to appropriate regulatory approvals, from Brasilinvest Overse as Bank, Ltd., by shareholders of the Bank who would like to receive cash fro m their shares at this time. This tender offer is conditioned upon no other person receiving regulatory approval to control the Bank or acquire 10% or more of its outstanding shares. The board of Directors of The First Women's Bank is concerned that if the Vallone application is accepted certain large shareholders will be enriched at the expense of the Bank's 7000 small sha reh The Board of Directors is also concerned tha olders who are mostly women. t the character and philosophy of the bank will be affected and that the Bank will lose its minority status, established by virtue of Executive Orders 116 25 and 12138, without clear proposals for replacing those deposits received through the minority bank program.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  Honorable Paul Volcker October 22, 1982 Page Two These- concerns certainly merit an opportunity for a hearing. I support The First Women's Bank request that such a hearing be held. Sin  rely,  ES E. SCHUMER ember of Congress CES:gl cc: Carol Greitzer   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  November 1, 1982  The Honorable James Abdnor United States Senate Washington, D. C. 20510 Dear Senator Abdnor: Thank you for your letter regarding the new money market account to be created pursuant to P.L. 97-320.  I appreciate your interest in this  account, and I want to assure you that the DIDC is working actively to implement the account on a timely basis. With best wishes, I am Sincerely,  NB:vcd (V-240) bcc:  Mr. Bernard Mrs. Mallardi (2)  Action assigned Norm Bernard  'ZICrtifeb Zfatez Zenate WASHINGTON. D.C. 20510  L.  ;C-  C".  October 21, 1982 -•  Honorable Paul Volcker Federal Reserve System 21st and Constitution Avenue Washington, D.C. 20551 Dear Mr. Volcker: I was pleased by the action of my colleagues in the passage of S. 2879, which among other changes in the financial sector directs the DIDC to create an instrument that allows banks and thrifts to complete with money market mutual funds. As you know, the State of South Dakota has had a great interest in this issue. I encourage you to take swift action in designing this new instrument. Millions of savers across the United States deserve to command market rates of return while being under the protection of the FDIC and FSLIC. The U.S. economy has suffered the dislocation of resources for years due to the effects of federal regulation. Now is indeed the time to take this forward step. Thank you for your expediency on this task. With best wishes, rely,  James Abdnor United States Senator JA/dj   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  4  •  411M,  0f GOV  •  E30dn, RO OF GOVERNORS 7 ( 41 . Fria ' icre cgir•W\ •-n • —k rrrrrr   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  OFTHE ..2•  r- • :i.tt ' L .•  *.A•  FEDERAL RESERVE SYSTEM WASHINGTON. D.C. 20551  / 1 4 ,• .RAL RES. • ••••••  November 1, 1982  The Honorable Charles B. Rangel Member of Congress 163 West 125th Street New York, New York 10027 Dear Mr. Rangel: Thank you for your telegrams of the applications of Valbanque Corporation subsidiary, N.Y. Banco Holdings, Ltd., on pal, Mr. Ralph Vallone, to acquire shares Bank, New York, New York.  October 22 concerning and its wholly-owned behalf of their princiof The First Women's  In your telegrams, you support the concern of the board of directors of The First Women's Bank that consummation of these applications would adversely affect the numerous small shareholders of The First Women's Bank and would result in the loss of the institution's minority status. In addition, you indicate your support for the hearing request submitted by The First Women's Bank. At this time, staff is reviewing the applications and all comments submitted, including those of The First Women's Bank. Once staff has completed its analysis, the entire record, consisting of the applications, all comments, and the hearing request, will be presented to the Board for its consideration. Your telegrams have been made a part of that record and will be considered by the Board when it acts on the applications. The Board very much appreciates the benefit of your views on this matter. Please let me know if I can be of any further assistance. Sincerely, SW:AFC:vcd (#V-244 & #478) bcc: G.C. Log #379 Mr. Mattingly Ms. Mason al°14j-Th (cr6LMs. Weinberg Anthony F. Cole Legal Files (2) Special Assistan t to the Board Gov. Teeters  CHARLES 8 RANGEL 163 WEST 125 ST NEW YORK NY 10027  11.Tys POST/  LINE 1•11 western union  al rä #-  .0  tes  .  ,-, Q• AILS.MAIL  le ,. ,...4  ,.• ••••.:.  1--.,%  . .a I!"•e a•  .11f).-''''" IZ.:41.: !g: P.11:  -14'019653A295 10/22/82 ICS IPMGONC NYK WSHA 01012 MGM GO NEW YORK NY 10022  HON PAUL VOLCKER, CHAIRMAN, BOARD OF GOVERNORS FEDERAL RESERVE BOARD WASHINGTON DC 20551  11=••  RE1 APPLICATIONS OF VALBANQUE CORPORATION AND ITS WHOLLY OWNED SUBSIDIARY, N.Y. BANCO HOLDINGS, LTD., CORPORATIONS WHOLLY OWNED BY RALPH VALLONE, JR., TO BECOME BANK HOLDINGS COMPANIES AND TO ACQUIRE NOT LESS THAN 25% OF THE OUTSTANDING SHARES OF THE FIRST WOMEN'S BANK ("VALLONE APPLICATION") / AM WRITING TO SUPPORT THE REQUEST OF THE FIRST WOMEN'S BANK" THAT THE BOARD OF GOVERNORS ORDER AND HOLD A FORMAL HEARING ON THE VALLONE APPLICATION WHICH 18 PRESENTLY PENDING BEFORE YOU. AMONG THE CONCERNS OF THE BOARD OF DIRECTORS OF THE BANK WITH RESPECT TO THE VALLONE APPLICATION ARE THE ENRICHMENT OF CERTAIN LARGE SHAREHOLDERS AT THE EXPENSE OF THE BANKS 7,000 SMALL SHAREHOLDERS, WHO ARE MOSTLY WOMEN, A CHANGE IN CHARACTER AND PHILOSOPHY OF THE BANK AND THE LOSS OF MINORITY STATUS ESTABLISHED BY VIRTUE EXECUTIVE ORDERS 11625 AND 12138 WITHOUT CLEAR PROPOSALS FOR REPLACING THOSE DEPOSITS RECEIVED THROUGH THE MINORITY BANK PROGRAM THESE CONCERNS MERIT AN OPPORTUNITY FOR A HEARING, I SHARE THESE CONCERNS AND SUPPORT THE BANK'S REQUEST CHARLES B RANGEL MEMBER OF CONGRESS 17101 EST MGMCOMP  513   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  TO REPLY BY MAILGRAM, SEE REVERSE SIDE FOR WESTERN UNION'S TOLL - FREE PHONE NUMBERS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CA4 BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, 13. C. 20551  November 1, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable Jack Brooks Chairman Committee on Government Operations House of Reprentatives Washington, D.C. 20515 Dear Chairman Brooks: The Board appreciates the opportunity to respond to the GAO report entitled "Bank Merger Process Should Be Modernized And Simplified", which reviews the regulatory procedures associated with bank merger applications. The report makes various recommendations to Congress and makes four recommendations to the Federal bank regulatory agencies. Our comments with respect to the recommendations to the banking agencies are set forth below. The GAO recommends that the three Federal banking agencies, with the advice and assistance of the Department of Justice, work together to formulate a useful and consistent method of analysis for considering what effect a proposed merger would have on future competition in the market area of the bank being acquired. The Board issued for public comment on February 26, 1982, proposed guidelines related to the analysis of market extension mergers and acquisitions. The Department of Justice has commented extensively on this proposal and issued on June 14, 1982, its own revised merger guidelines that cover the analysis of both market extension and horizontal mergers and acquisitions. Board staff is reviewing both the comments and the revised guidelines of Justice in formulating final recommendations to the Board regarding the Federal Reserve guidelines in these areas; and Board staff stands ready to work with other agencies toward greater consistency in competitive analysis. The GAO recommends that the three Federal bank regulatory agencies jointly establish a more consistent method of analysis for defining the relevant market when evaluating the competitive effects of proposed mergers. Under the auspices of the Federal Financial Institutions Examination Council, members of the Board's staff participated on a Task Force to study the possibility of more uniformity of market definitions. While strong differences in analytic preferences among the agencies were revealed and have not yet been resolved, the Task Force has agreed to continue discussions in this area.  •  -,  -2 _  The GAO recommeIS s that the Federal regulators take steps to ensure that competitive factor reports are furnished to the requesting agency within the required 30 days and that the requesting agency properly considers the comments received and reconciles major conflicting conclusions. The Board has always attempted to furnish competitive factor reports within the time mII has delegated this function to the Reserve Banks in a further effort to save time. Reports received from the other agencies are reviewed during the processing of all merger applications, and memoranda prepared by the Board Staff always discuss differences in the various agency findings. It is recommended that the Federal Reserve System and the Federal Deposit Insurance Corporation jointly work with State bank regulators to: (1) coordinate the Federal -State review of merger applications and (2) develop common merger application forms. The Reserve Banks maintain contact with State Banking regulators and cooperate with them in the processing of merger applications. It should be noted, however, that 32 of the 43 merger applications processed in the Federal Reserve System in 1981 involved phantom bank mergers or mergers of subsidiaries of the same bank holding company which required little coordination among the agencies. The Board's bank merger form is designed to be responsive to the Federal Bank Merger Act, and the form is, of course, available for use by any State regulator. It is important to note, however, that criteria, including in certain instances the relevant law, for decisions on merger applications at the State and Federal level are not uniform, and may thus require the collection of different information. Furthermore, significant changes from time to time in State or Federal laws or regulations would require revons in the relevant forms, necessitating, in turn, the assent of all the State II Federal agencies and involving substantial burden. Thus, it is not clear that common merger forms would be workable without adding significant problems, including perhaps substantially increased costs. We trust these comments will be of use to your Committee as it reviews the GAO Report.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sin erely,  /4  01110gai,--  BOARD OF GOVERNORS  ..  'co  'et:.  2'  •-\ .  i— (,)  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  November 1, 1982  PAUL A. VOLCKER CHAIRMAN  The Honorable William V. Roth, Jr. Chairman Committee on Governmental Affairs United States Senate Washington, D.C. 20510 Dear Chairman Roth: The Board appreciates the opportunity to respond to the GAO report entitled "Bank Merger Process Should Be Modernized And Simplified", which reviews the regulatory procedures associated with bank merger applications. The report makes various recommendations to Congress and makes four recommendations to the Federal bank regulatory agencies. Our comments with respect to the recommendations to the banking agencies are set forth below. The GAO recommends that the three Federal banking agencies, with the advice and assistance of the Department of Justice, work together to formulate a useful and consistent method of analysis for considering what effect a proposed merger would have on future competition in the market area of the bank being acquired. The Board issued for public comment on February 26, 1982, proposed guidelines related to the analysis of market extension mergers and acquisitions. The Department of Justice has commented extensively on this proposal and issued on June 14, 1982, its own revised merger guidelines that cover the analysis of both market extension and horizontal mergers and acquisitions. Board staff is reviewing both the comments and the revised guidelines of Justice in formulating final recommendations to the Board regarding the Federal Reserve guidelines in these areas; and Board staff stands ready to work with other agencies toward greater consistency in competitive analysis. The GAO recommends that the three Federal bank regulatory agencies jointly establish a more consistent method of analysis for defining the relevant market when evaluating the competitive effects of proposed mergers. Under the auspices of the Federal Financial Institutions Examination Council, members of the Board's staff participated on a Task Force to study the possibility of more uniformity of market definitions. While strong differences in analytic preferences among the agencies were revealed and have not yet been resolved, the Task Force has agreed to continue discussions in this area.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2The GAO recommends that the Federal regulators take steps to ensure that competitive factor reports are furnished to the requesting agency within the required 30 days and that the requesting agency properly considers the comments received and reconciles major conflicting conclusions. The Board has always attempted to furnish competitive factor reports within the time limit and has delegated this function to the Reserve Banks in a further effort to save time. Reports received from the other agencies are reviewed during the processing of all merger applications, and memoranda prepared by the Board Staff always discuss differences in the various agency findings. It is recommended that the Federal Reserve System and the Federal Deposit Insurance Corporation jointly work with State bank regulators to: (1) coordinate the Federal -State review of merger applications and (2) develop common merger application forms. The Reserve Banks maintain contact with State Banking regulators and cooperate with them in the processing of merger applications. It should be noted, however, that 32 of the 43 merger applications processed in the Federal Reserve System in 1981 involved phantom bank mergers or mergers of subsidiaries of the same bank holding company which required little coordination among the agencies. The Board's bank merger form is designed to be responsive to the Federal Bank Merger Act, and the form is, of course, available for use by any State regulator. It is important to note, however, that criteria, including in certain instances the relevant law, for decisions on merger applications at the State and Federal level are not uniform, and may thus require the collection of different information. Furthermore, significant changes from time to time in State or Federal laws or regulations would require revisions in the relevant forms, necessitating, in turn, the assent of all the State and Federal agencies and involving substantial burden. Thus, it is not clear that common merger forms would be workable without adding significant problems, including perhaps substantially increased costs. We trust these comments will be of use to your Committee as it reviews the GAO Report.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  Odh,_  S .  November 1, 19R2  The Honorable Ted Weiss Member of Congress 37 West 6th Street New York, New York 10023 rear  r. Weiss:  Chairman volcker has asked no to respond to your letter of October 20 on behalf of The First Women's P.ank, York, rew York.  reta  In your letter, you indicate your support for the efforts of The First Women's Rank to make full banking services available to women and to provide women top management roles in banking. In this regard, you note that The First Women's Bank is the object of two takeover attempts and express concern that any change in control may affect the efforts of The First Women's Rank to nrovide full banking services to all women. In light of these concerns, you indicate that a hearing would he appropriate. The Federal Reserve is currently Processing applications of Valbanque Corporation and its subsidiary, N.Y. Banco Holdings, Ltd., on behalf of their principal, Mr. Ralph vallone, to acquire shares of The First Women's Pank. In addition, Brasilinvest S.A. Investimentos, Participacoes e Negocios has filed an application relating to The First Women's Bank with the 7eleral Reserve Bank of New York, althouah the application has not yet been accepted for processing. The Poard's staff carefully reviews all applications, including all comments submitted. Once staff has completed its analysis, the entire record, consisting of the application, all comments and any request for a hearing, is presented to the Board for its consideration. Your letter has been made a cart of the record of the applications currently pending before the Board relating to the acquisition of shares of The First Uomen's Bank and will be considered by the Board when it acts on the applications. The Board very much apr)reciates the benefit of your views on this matter. Please let me know if I can he of further assistance. Sincerely, SW:AFC:vcd(W-243) bcc: G.C. Log 378 Alitsiony F. Colo Mr. Mattingly Ms. Mason Anthony P. Cole Ms. Weinberg Special Assistant to the Board Legal Files (2)„ mqllardi   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  10 TED WEISS 20TH DISTRICT NEW YORK  Action assigned Mr  Bradfield  725 WEST 181sT STREET NEW YORK CITY  10033  212/927-7726 2875 BROADWAY NEW YORK CITY  132 CANNON BUILDING  10025  212/222-8155  WASHINGTON, D.C. 20515 202/225-5635  490 WEST 238m STREET RIVERDALE 10463 212/884-0441  37 WEST 65m STRErr NEW YORK CITY 10023 212/787-3480  JIM GOTTL I EB  Congre5t4 of tbe Einiteb tato  ADMINISTRATIVE ASSISTANT  koua of Reprefientatibeii  October 20, 1982  -71  41V+  C FP!  The Honorable Paul Volcker, Chairman Board of Governors Federal Reserve Board 21st Streets Constitution Avenue between 20th Washington, D.C. 20551  E.  ;  Dear Mr. Volcker: I am writing to support the request of the First Women's Bank that the Board of Governors order and hold a formal hearing on the Vallone application which is presently pending before you. The First Women's Bank was founded with goals which include providing equal access to credit and full commercial banking services to all on a non-discriminatory basis and, in particular, to qualifying women customers and to enhance employment opportunities, including managerial employment opportunities, for qualifying women on a non-discriminatory basis and in accordance with applicable federal and state laws. By resolution on September 8th, 1982, the Board of Directors of the Bank resolved as follows: "RESOLVED, that The First Women's Bank opposes the applications of Ralph Vallone, Jr., N.Y. Banco Holdings, Ltd. and the Valbanque Corporation, filed with New York State and Federal banking authorities, and Mr. Vallone's stated intentions to acquire up to 25% capital stock interest in the Bank and to exercise control over the Bank and its Board of Directors as not consistent with the best interest of the Bank and its shareholders." By resolution dated October 12th, 1982, the Board of Directors of the Women's City Bank recommended acceptance of a cash tender offer of $15 a share, subject to appropriate regulatory approvals, from Brasilinvest Overseas Bank, Ltd., by shareholders of the Bank who wished to receive cash  GOVERNMENT OPERATIONS: GOVERNMENT INFORMATION AND INDIVIDUAL RIGHTS EDUCATION AND LABOR: POSTSECONDARY EDUCATION   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  LABOR- MANAGEMENT RELATIONS  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  GOVERNMENT ACTIVITIES AND TRANSPORTATION •  EMPLOYMENT OPPORTUN I T I E S   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Honorable Paul Volcker,Chairman  -2-  October 20, 1982  for their shares at this time. This tender offer is conditioned upon no other person receiving regulatory approval to control the Bank or acquire 10% or more of its outstanding shares. Among the concerns of the Board of Directors of the Bank with respect to the Vallone application are the enrichment of certain large shareholders at the expense of the Bank's 7,000 small shareholders, who are mostly women, a change in character and philosophy of the Bank and the loss of minority status, established by virtue Executive Orders 11625 and 12138, without clear proposals for replacing those deposits received through the minority bank program. These concerns merit an opportunity for a hearing. share these concerns and support the Bank's request. Sinperely, / TED WEISS Member of Congress TW/nh Please reply to: 37 West 65th Street New York, New York 10023  I
Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102