View PDF

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

https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Collection: Paul A. Volcker Papers Call Number: MC279  Box 12  Preferred Citation: Congressional Correspondence, May-June 1983; 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/c461 and https://fraser.sdouisfed.org/archival/5297  The digitization ofthis collection was made possible by the Federal Reserve Bank of St. Louis. From the collections of the Seeley G. Mudd Manuscript Library, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. They further agree to request permission of the Princeton University Library (and pay any fees, if applicable) if they plan to publish, broadcast, or otherwise disseminate this material. This includes all forms of electronic distribution.  Copyright The copyright law of the United States (Tide 17, United States Code) governs the making of photocopies or other reproductions of copyrighted material. Under certain conditions specified in the law, libraries and archives are authorized to furnish a photocopy or other reproduction. One of these specified conditions is that the photocopy or other reproduction is not to be "used for any purpose other than private study, scholarship or research." If a user makes a request for, or later uses, a photocopy or other reproduction for purposes not permitted as fair use under the copyright law of the United States, that user may be liable for copyright infringement.  Policy on Digitized Collections Digitized collections are made accessible for research purposes. Princeton University has indicated what it knows about the copyrights and rights of privacy, publicity or trademark in its finding aids. However, due to the nature of archival collections, it is not always possible to identify this information. Princeton University is eager to hear from any rights owners, so that it may provide accurate information. When a rights issue needs to be addressed, upon request Princeton University will remove the material from public view while it reviews the claim. Inquiries about this material can be directed to: Seeley G. Mudd Manuscript Library 65 Olden Street Princeton, NJ 08540 609-258-6345 609-258-3385 (fax) mudd@princeton.edu   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Congressional May & June 1983  June 29, 1983  The Honorable Denny Smith House of Representatives 20515 Washington, D.C. Dear Mr. Smith! Thank you for your letter of June 14 regarding the membership amplication of Great Western Rank, Dallas, Oreaon, a Proposed new bank. I am responding to your letter to Chairman Volcker since the application is now Pending before the Board. The application was initially filed with the Federal Reserve Bank of San Francisco in July 1981, but it was returned because of major informational deficiencies. The application was refiled in March 1992. During 1982, while the Reserve nank was waiting for Applicant to identify an adequate management team for the new bank, Applicant's charter authorization by the Oregon Superintenaent of Banking expired. Therefore, the Reserve TI,an1,-, again returned the anplication to the Applicant. In 1983, the Superintendent of Banking renewed his authorization. A new application was filed with the Federal Reserve Bank, and the application was accepted for processing on ”arch 31, 1983. The Federal Reserve Bank of San Francisco has conducted a field examination in the Dallas, Oregon, area in connection with the application. The Reserve Rank has completed its final memorandum and has forwarded it, with its recommendation, to the Board for final review and action. Board staff will carefully review the findings of the Reserve Bank and will expeditiously bring the case to the Board for a final decision. You may be assured that the anplication will receive careful consideration, and as soon as a decision on the case is reached, Your office will he notified.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely, (Signed) D'Irafd J. Winn  Donald J. Winn Assistant to the Board JME:CO:pjt (#V-110) bcc: Mr. Egertson Mr. Ryan Mrs. Mallardi  ccwomnmEs:  DENNY SMITH 5TH DISTRICT. OREGON  Iprrotion AND 11,4suLmt AFTAffix Vartniuts. Armies  WASHINGTON ADDRESS: 1213 Lonswoorrt4 Housx OF FICK BUILDING (202) 225-5711 SALEM ADDRESS. 4035 12114 S.E. 1/20 P.O. Box 13089 SALEM, OREGON 97309 (503) 399-57545  Congresz of the tiniteb  tatesS  *puck of Repretentatibet Eassbington,11.C. 20515 June 14, 1983  The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th St. & Constitution Ave. NW Washington, D.C. 20551  co  Dear Mr. Volcker: Enclosed are copies of some correspondence which I have received from constituents concerning a problem they are having with the Federal Reserve Bank of San Francisco. As you can see from these enclosures, the Great Western Bank of Dallas, Oregon, has applied for membership in the Federal Reserve System. However, Mr. Harry Green, Vice President of the San Francisco bank, has indicated to the Great Western management that their application should be withdrawn for the reasons cited in his letter dated April 29, 1983. Mr. Tom Newton, Chairman and Chief Executive Officer of Great Western, has asked me to look into this matter. Since the Board of Governors of the Federal Reserve System will make the final decision on this application, I would appreciate it if you would give the application every possible consideration under the law. Thank you for your assistance in this situation. have any questions.  enny Smith ember of Con  Please call if you  ess  DAS/dh end s.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  "1.91":"e -"."`"NISHRIPWIPWNWr•rne,•.  r31.-  •  < .4.  BANK GREAT WESTERN ) (In Organization  P.O. BOX 710 (  CHAIRMAN OF THE BOARD TOM NEWTON  DALLAS, OR 97338 623-9281 Ph.(503)  June 2, 1983  PRESIDE NT DUANE BODTKER DIRECTORS DON BODINE KENNETH GARDNER ARTHUR 0 JOHNSON ANDREW LALACK JR. ADVWORY BOARD ALLAN ANDERSON HOWARD BRANDVOLD ART DEMPSEY WALT FISCHER MARVIN KRACKE LARRY LESTER MARC H. NELSON JEROME NOBLE JANET E PERRY JOHN SCHALL EVELYN C. SMITH   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Denny Smith U.S. Congressman 1213 Longworth House Office Building Washington, D.C. 20515 Dear Congressman Smith: Over two years ago a group of progressive Polk County citizens concluded that there was a need for a new community oriented bank in Dallas. We know that several chain banks have been considering branching into Dallas when the home town bank protection act expires the end of this year. We felt that the area could best be served by a new local bank, owned and managed by local people to serve local people. We were confident that such a bank was needed and would be successful in Dallas. An independent feasibility study done by Dr. Jim Robb of Pacific Research Inc., also came to the same conclusion. We met with John B. Olin, Oregon Superintendent of Banks, who confirmed this belief and authorized the organization of Great Western Bank. We have collected $1,250,000 in stock subscriptions from approximately 260 Oregonians who believe Great Western Bank will prosper and contribute to the economic growth of Dallas and Polk County. This money was raised last year, the bleakest period of the current economic cycle. The stock subscribers' faith in the proposed management and project has been demonstrated on two different occasions. Because of changes in management and expiration of our corporate authorization, subscribers were given opportunities to request a refund of their monies. We lost two subscribers for a total of $3,000. Membership in the Federal Reserve System is the final hurdle They have had our application since July, 1981. In an attempt to expedite a decision from the Feds, our attorney, Jerry Noble, recommended we retain the services of a banking attorney, Stephen J. Smith, of Portland. We authorized his trip to the Feds' San Francisco regional office. It was Steve's intent to have a working, shirt sleeve information gathering session.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  The Honora!- le Denny Smith U.S. Congressman June 2, 1983 Page 2  Steve summarized his trip in one word, FRUSTRATION. As with any highly structured organization, they have their rules of conduct, they have their hierarchy of authority and they have attorneys advising them on what not to say. Needless to say, this type of structuring sure throws cold water on informality. We will appreciate your personal help to bring the formation of our bank to a successful conclusion. Your inquiry to the Federal Reserve (Paul Volcker, Chairman; Michael Bradfield, General Counsel; or with whom you have the most influence) and your recommendation for approval would be greatly appreciated. A chronology of events, letter from Federal Reserve and copy of "Protest Letter" with our response is included for your information. Respectfully,  , Thomas J. Newton Chairman of the Board & Chief Executive Officer TJN/DB:hc Enclosures Requests for assistance also directed to: Senator Mark 0. Hatfield Senator Bob Packwood Congressman AuCoin  •  •••••••••• .•  %het  z5L,  June 3,1983 The Honorable Denny Smith U,S.Congressman P.O.Box 13089 Salem,Oregon 97309  Dear Congressman Smith:  My wife and I are stockholders in something called the Great Western Bank which is formation in Dallas.The formation has been going on for over 18 months.The problem is The Federal Reserve Bank of San Franciso,the head culprit is a buearocrat named Mr.Harry Green,Vice President.They have been holding up the application for months and all efforts by the bank staff in Dallas have been futile to the point of exasperatic They even went to the effort and expense of hiring a banking attorney,Stephen J.Smith, and he has thrown up his hands in despair.Of course we would like to see the applicatior approved but if the Fed is going to deny it,let them do it,but for crying out loud make them do something.This is a perfect example of what President Reagan is talking about Gov't obstrution of business. It would be greatly appreaciated if you could put a little,or a lot of heat on the Fed and get them to do something. Let me take the time to tell you that we think you are doing a great job for Oregon in Washingtondie are for the M.X.,aid in Central America,(Send in the Marines),and getting private business geared up to make America strong.Keep right on voting for a big defense budget and cut down on the welfare give-a-ways. Thank you for your time in this matter and you can count on our support at the polls. We haven't missed an election since we were old enough to vote.  Yours truly,  iJ Donald V.Picker  Dorothy Pidker 15970 W.Ellendale Dallas,Oregon 97338  623-6483   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  t  A I 10,1  FEDERAL RESERVE BANK OF SAN FRANCISCO  ;.; 19,83  BAN FRANCISCO. CALIFORNIA 94120  April 29, 1983 •  Board of Directors Great Western Bank (In Organization) Dallas, Oregon Attention:  Mr. Thomas E. Newton Chairman of the Board  Gentlemen: This letter refers to the application by Great Western Bank ("Bank") for membership in the Federal Reserve System. The processing on March 31 and a field investigationapplication was accepted for was conducted by Senior Examiner David Taylor on April 11-12, 1983. Based on the complete record of this application, including the findings of the examiner, it is our opinion that there is not adequate assurance of Bank's future prospects for successful operation. The economy of Bank's proposed service area does not appear to be sufficient ly strong to support a new independent bank with its attendant overhead. The examiner noted that management was unable to provide concrete support for the deposit projections. which we consider to be optimistic. Additionally, Bank' s proposed management team does not possess the necessary commercial banking knowl edge or experience to support a satisfactory level of confidence as to proba ble successful operation of the proposed bank. In our view, those findings lead us to the conclusion that the prospects for your bank are not promising. Therefore, we suggest that you and your shareholders consider withdrawing this application until such time as the economy of your community is better able to support a new, independen t bank and you have been able to strengthen further the degree of banking experience of your proposed management. If you wish to have the processing of this application continue, you should be aware that this application does not qualify for a decision under delegated authority, but must be refer red Board of Governors of the Federal Reserve System for a decision. Our to the recommendation to the Board would reflect the concl usions stated in this letter. While we cannot predict the Board's decision, we think approval of your application is not likely at this time. We have discussed the application with senior staff of the Board of Governors, who expressed agreement with the above conclusions.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ADERAL RESERVE: BANK OF SAN FRANCISCO S.  We would appreciate your response to the above by May 13, 1983. Your response should convey the organizers' decision to either request withdrawal. of the application or to continue the application. My staff and I are available to discuss this matter with you either by telephone or, should you desire, by means of another personal meeting.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Very tru  yours  Green Vice President  GREAT WESTERN BANK On Organization)  P.O. BOX 710  DALLAS, OR 97338 Ph.(503)623-9281 •  CHAIANAN OF THE ROAM) TOLA NEWTON  May 20, 1983  PRESIDENT DUANE DOOTKER DIRECTORS DON IODINE KENNETH GARDNER ARTHUR 0 JOHNSON ANOREw LALACK JR ADVISORY SOAR° ALLAN ANDERSON NO,NAR° SRANDvOLD APT °ELAPSE', ' WALT FISCHER MARVIN KRACKE LARRY LESTER MARC M. NELSON JEROME NOBLE JANET E. PERRY JOHN SCHALL EVELYN C. SMITH   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Harry Green, Vice President Federal Reserve Bank of San Francisco P.O. Box 7702 San Francisco, CA 94120  Dear Mr. Green: This following is in reply to your letter dated April 29, 1983 to Great Western Bank (In Organization) suggesting that the bank should withdraw its application for membe rship in the Federal Reserve system.  .  We firmly believe Great Western Bank's appli cation and supporting information clearly indicates there is adequate suppo rt for another successful bank in Dallas. Oregon, and take exception to the three conclusions outlined in your latter. ONE: "The economy of Great Western Bank's proposed servi ce area does not appear to be sufficiently strong to support a new independent bank with its attendent overhead:" We are aware that in some areas of Oregon the general economic  conditions are not good and has led to the conclusion that all of Oregon is in a severely depressed economic state. That's not correct! As we pointed out in our application the Dallas area for Many many years has been:a very stable area. Un— employment in the Dallas area is logy below state and national averages. Our Willamette Industries' plywood mill for many months has been running three shifts six days a week. Their sawmill recently started a second shift. With the impmbvetents in weather, logging operations have been increasing and in the last issue of our local newspaper they ran *picture and short story on the line up. of log trucks waiting their turn to unload logs. Copy attached herewith. In 1982, Caterpillar added a new 65,000 sq. ft. addition to their manufacturing plant in Dallas. Subsequently, they have announced the transfer of manufacturing from Mentor. Ohio, to Dallas and also the development of a new rough terrain fork lift truck that they will be producing in Dallas.  -  -prINVMW•  Mr. Harry Green, Vice President Federal Reserve Bank of San Franci sco May 20, 1983 Page 2  Last year, Praegitzer Industries, a new electronics firm, began productio n of printed circuit boards for various electronic companies. They provided approximately 75 new jobs for our area. Recently, Praegitzer Industrie s announced a proposed expansion tha t will add .110,000 sq. ft..of manufa cturing facilities and 120-150 new jobs starting in the fall of this year. Safeway Company, a little over a year and a half ago, opened a new supermarket in Dallas which is their third largest store in the state of Oregon. Payless Drug Company and Sprous e Reitz have signed letters of intent to open new stores in Dallas. Willamette Industries made capital improvements of over $7 million in their plywood and sawmill in the last two years. Other capital expenditures include Caterpillar - $5.5:million , Praegitzer Industries - $1 mil lion, Safeway - $2 million. Announced capital improvements for 1983 includ e Willamette Industries - $1 million. Praegitzer Industries - $7.3 million. Payless - $2 million. Sprouse Reitz and adjoining shops - $1 million plus. City of Dallas was recently awarded a $350,000 block grant for the expansion of Praegitzer Industries. See copy of Statesman Journal 5-18-83 news story. Bank deposits for Polk County increased 7.21% in 1981 and 9.83% in 1982 with a ranking of all counties in the state of 7th place and 5th place respectively. Polk County was the only county in the top seven for both years. In 1982, Dallas branch of Oregon Bank reported an increase in deposits of 20.3% and Bank of Willamette Valley 9.6%. For the 12 month period of March 31, 1982 to March 31, 1983, Bank of Willamette Val ley reported an 18.5% increase in deposits. Investments as described above hardly sugges t that Dallas has a weak economy. This can be seconded by .reported deposit growth and the minimal loan losses that have been incurred by either bank. (Based on statements made by the respective management.) TWO: "Management was unable to provide concrete support for deposit projections, which we consider to be optimistic." The projections of deposits for Great Western Ban k are sound; conservative and based upon the following hard knowil facts. 'r•  A. Our projection for $6 million in deposits was made by Pacific Research Inc., based upon their many years of experience in community analysis in preparing applications for new banks and branches. B. In support of their $6 million deposit projec tion we refer you to our exhibit I, Deposit Growth of New Banks Opened Since January 1979, which reflects $7 million average first year deposits and 2.163 average number of accounts. The banks represented in this analysisa re in communities which have many comparable characteristics to Dallas. Therefore , we believe Great Western Bank will be similar in performance. In arr iving at our $6 million deposit we took a conservative approach. To determ ine the number of accounts we will have at the end of the first year we took the account average of the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Harry Green, Vice President Federal Reserve Bank of San Francisco May 20, 1983 Page 3  two banks with the smallest number of accounts then averaged against the overall average (750 + 1,250 ; 2 ■T 1,000 + 2,163 ;2 1,580). This method. provides a conservative average of 1,580 accounts. To determine the average account balance we employ a similar approach, taking the average account balance of the two same banks averagee against the overall average gives a conservative balance of $3,800 per account. The 1,580 accounts times $3,800 equals our projection of $6 million. C. A second approach based on the following also indicates a conservative deposit growth of $6 million in the first year. Colle  ctively the board of directors and organizers indicated they will deposit $500,000. We have signed up 220 other stock subscribers that will open accounts with Great Western Bank. The deposit of the other financial institutions in Dallas to total population of the community indic ates a balance of approximately $8,900 per person,: Conservatively, we proje ct only 50% of that amount which is $4,450 multiplied by 220 yields deposits of spproximately $980,000 from the stock subscribers. The remaining 1,345 accou nt holders are projected to deposit an average of $3,427 or approximately $4,600,000 . Add $500,000, $980,000 and $4,600,000 we once again project $6 million. D. In order to determine 1.,ow realistic our account numbers are we next compared our city population to the number of finan cial institutions located within our community with that of eleven other communitie s within our general area. See exhibit II, Number of People Per Financial Institution. Dallas has more people per institution than any other city in our general  size or area with 2,193 people per institution.  On the opening of Great Western Bank, Dallas will have 1,754 piople per institution, ranking second to Forest Grove which reflects 1,985 people per institution. The average people per financial institution for these 11 communities is 1,245 people. Based on population alone, Dallas can suppo rt another bank. E. Taking a different approach on account balances, if one compares total financial institution deposits in Dallas,.$78 million, to the city population, 8,770, one will find an average per capita deposit of $8,915. Assuming an average of two accounts per person, average account balance is $4,457. Multiply this by our projected number of accounts (1,580) and you once again achieve (exceed) $6 million in deposits. No matter which way one wants to look at it, other bank performanc e, number of people per financial institution or per capita deposits, there is one obvious conclusion, Great Western Bank's deposit projections are realisticly conservative and Dallas can support the fifth financial institution. THREE: "Bank's proposed management team does not possess the necessary commercial banking knowledge or experience to support a satisfactory level of confidence as to probable successful operation of the proposed bank."   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • Mr. Harry Green, Vice President Federal Reserve Bank of San Francisco May 20, 1983 Page 4  Great Western Bank's management team possesses a combined experience of over 80 years in all phases of banking and thrift. This is a much higher level of experience than a number of other successful banks that have started in Oregon.  The confidence the local people have in management's ability is indicated by their stock purchase and two subsequent reaffirmations. With this high degree of experience, knowledge and confidence, it is insulting to consider there is not sufficient expertise to successfully operate a bank. The experience and knowledge requirements of the Federal Reserve have been  elusive and ever changing. This organization has been flexible in changing and selecting personnel at your suggestion. We remain flexible and cooperative; however, we must have a concrete criteria as to knowledge and experience requirements. On an earlier occasion I verbally requested this information from you but was never furnished your standards. Because we have complete faith in our area and its ability to support a new independent bank and in the spirit of cooperation with the Federal Reserve as per your recommendation we replaced Mr. Bodtker as C.E.O. You suggested that Mr. Newton be named as C.E.O. and you were informed of his experience consisting of over 30 years with thrift and savings banks. Mr. Newton's experience covered a very broad range from operations to 22 years as C.E.O. During this time he managed the growth of a small single office savings Is loan to a large multi-branch, very profitable, institution. You verbally approved replacing Mr. Bodtker with Mr. Newton. This change was then approved by our board of directors and the office of Superintendent of Banks for Oregon and application changes were duly sent to you. Shortly after the C.E.O. change you wanted a cashier named thgt met your approval. Great Western Bank, in the spirit of continued cooperation with your office submitted numerous resumes for your consideration. The cashier was selected after your examination of his resume and receipt of your letter dated January 12. 1983, stating you had no Objections to his qualification. Now you state our management team is unsatisfactory. CONCLUSION: Taking into consideration the proven soundness of the local economy by the indication of a steady work force, formation of new jobs, lay unemployment, large capital investments by businesses, stability of the area, soundness of deposit projections, conservative growth and profitability projections, the many years of experience by the management team, the proven-. local confidence in the venture, only one logical conclusion can be draw, • the area can support another bank and the management team .has the expertise to make it successful. In fact, your. filed examiner, Mr. Dave Taylor, at a meeting with our group stated, "In his opinion, when Oregon law changes on branch banks, January 4, 1984, Dallas will have, without a doubt, at least one or two more banks in town", and he went on to imply the area could easily support these additional institutions. In addition, the Oregon Superintendent of Banks office, who is familiar with our local economy feels confident that a new independent bank can survive and grow in Dallas.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • Mr. Harry Green, Vice President Federal Reserve Bank of San Francisco May 20, 1983 Page 5  Yes, we want you to continue the processing of our application for membership in the Federal Reserve System.  Respectfully,  Thomas J. Newton Chairman of the Board Chief Executive Officer  TJN/DB:hc Enclosures    I "https://fraser.stlouisfed.org  Federal Reserve Bank of St. Louis  • '.7^'7:47111e•  31.*  ... BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20 551  June 27, 1983  The Honorable Strom Thurmond United States Senate Washington, D.C. 20510 Dear Senator Thurmond: Thank you for your letter of June 15 asking for comment on correspondence from Ms. Lisa Sawyer of South Carolina, inquiring about the prospective cost of credit for housing. , Ms. Sawyer's concern about these financing costs is well founded. Given the large purchase price of homes, typical financing arrangements must be spread over terms long enough to ensure manageable monthly payments on the debt. Thus, interest costs over the full term of a loan may well exceed principal payments, as Ms. Sawyer notes. Even at an interest rate as low 2 percent on a regular fixed-rate 30-year mortgage, for / as 51 example, an owner who lives in his home for three decades would pay out more toward interest than toward principal -- not allowing for the deductibility of interest payments for income tax purposes. Ms. Sawyer's question about the cost of financing a home purchase several years hence when she may become married is hence a timely one. In this connection, the Federal Reserve through its monetary policy actions has been working for some time to contain inflationary pressures that until quite recently were reflected not only in high prices of housing and other goods, but also in interest rates that carried a large premium for expected future inflation. I am glad to note that substantial progress has now been made toward reducing the inflationary momentum in the economy. As a result, interest rates on mortgages and other types of credit are currently considerably lower than they were only a few years ago when inflation reached double-digit rates. Ms. Sawyer's hopes for even more favorable home financing conditions two years hence hinge importantly, I am convinced, on greater discipline in the government's fiscal affairs. An appropriate reduction in the budget deficits in prospect would provide an improved environment in the financial markets, reduce concern about future inflation and an early rebound in interest rates, and moderate preoccupations that the Federal Reserve might somehow be forced to retreat from its basic anti-inflationary course.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  e  \  The Honorable Strom Thurmond Page Two  I hope that these comments will be helpful. let me know if I can be of further assistance. Sincerely, (Signed) Donald J. Donald J. Winn Assistant to the Board  RMF:JLK:CO:vcd (V-107) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Fisher Ms. Wing Mrs. Mallardi  Pleasr_,  STROM THURMOND, S.C., CHAIRMAN JOSEPH R. BIDEN. JR., DEL. EDWARD M. KENNEDY. MASS. ROBERT C. BYRD. W. VA. HOWARD M. METZENBAUM. OHIO DENNIS DECONCINI. ARIZ. PATRICK J. LEAHY. VT. MAX BAUCUS. MONT. HOWELL HEFLIN. ALA.  ' 8R •  CHARLES McC. MATHIAS, JR.. MD. PAUL LAXALT. NEV. ORRIN G. HATCH. UTAH ROBERT DOLE. KANS. ALAN K. SIMPSON. WYO. •JOHN P. EAST. N.C. CHARLES E. GRASSLEY. IOWA JEREMIAH DENTON. ALA. ARLEN SPECTER, PA.  COMMITTEE ON THE JUDICIARY  vim-row DrvANE LiDE. CHIEF COUNSEL AND STAFF DIRECTOR MARK H. GITENSTEIN, MINORITY CHIEF COUNSEL   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  'ZICnifeb Ziaiez -.Senate WASHINGTON. D.C. 20510  June 15, 1983  Mr. Paul A. Volcker, Chairman Federal Reserve System 20th & Constitution Streets, NW Washington, D.C. 20551 Dear Mr. Volcker: Enclosed is a copy of correspondence I have recently received from Ms. Lisa Sawyer. I believe you will find it self-explanatory. Your reviewing this material and providing any assistance and/or information possible under the governing statutes and regulations will be greatly appreciated. Thank you for your attention in this matter, and I look forward to hearing from you soon. With kindest regards and best wishes, Sincerely, 40.  Vg•t•ocrvt-%-o Strom Thurmond ST/h Enclosure  rrs  i=5  Ec nr  c,=• -re  r—  rn C') rrl  C)  4.<  =c=  C=0  :377 c!)  :r.r. —0  rel  C=. rn  C..) 0 GeJ wow./ —P.  cn co  rr  0C0D  ,, • som.  4 *  11.. •  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  313 N. Richardson St. Latta, SC 29565 May 25, 1 983  The Honorable Strom Thurmond Senate Office Building Washington, D.C. Dear Senator Thurmond: Being only a senior in high school, I still live with my parents. Even so, I am aware of the rising interest rates and the effect they will have on my plans for the near future. I hope to be married in possibly two years, so I will then be buying a house. I already know that most of my life will be spent working and trying to pay for the interest on my house. In the end I will definitely pay more interest on the borrowed money than the house cost itself. Ts there any chance the rates will change so that I -von't end up being in debt for the better years of my._ life? Sincerely,  --Lisa  Sawyer  II•  BOARD OF GOVERNORS  1r   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, C. C. 205,51  PAUL A. VOLCKER CHAIRMAN  July 5, 1983  The Honorable John Heinz United States Senate Washington, D.C. 20510 Dear John: When we talked recently you expressed some concern regarding one aspect of the Board's final regulations You had implementing the Bank Export Services Act ("BESA"). indicated that the Board's conclusion as to the kinds of activities in which a banking organization's export trading company could engage--specifically companies selling services-may be unduly narrow and might be inconsistent with the intent of Congress. Because recent conversations of Board staff with others indicate that some have incorrectly interpreted the Board's regulations in this regard in an unduly restrictive manner, I thought it desirable to clarify these matters further. As explained in the enclosed letter to Chairman Garn, the Board adopted a definition of export trading company pursuant to the Act that we believe should further banking organization investment in export trading companies (including "service" activities connected with exports) but not authorize investments in other types of service industries with a view to It seemed to us that the selling those services abroad. legislative history of the Act indicates Congress considered that bank holding companies could make a uniaue contribution as trade intermediaries, with their U.S. client base and overseas offices and experience. By this means they could further U.S. trade competitiveness. However, on a balance of considerations we concluded that Congress did not call for bank holding company investment in the U.S. service industry sector, generally, at this time to enhance U.S. service exports. on this judgment as to the probable Based Congressional intent on the scope of the Act, the final regulations adopted by the Board define an export trading activities company as one that: (a) is exclusively engaged i related to international trade, and (b) derives more than half its revenues from the export of, or facilitating the export of, U.S. goods or services produced by persons other than the export trading company or its subsidiaries. This regulation has been misinterpreted in two respects. One misconception is that an export trading company cannot itself provide services here and abroad; the other is that an export trading company cannot be a joint venture  e Honorable John Heinz  -2  ced by one or facilitating trade in the goods or services produ rrect. more co-investors. These interpretations are inco An export trading company can engage in a wide range the types of of service activities itself, but only so long as , that is, services provided by the company are trade services services they in some manner facilitate trade in goods and Accordingly, a bank -sponsored service produced by others. trading company with foreign clients would not be an "export business of company" by virtue of the fact that it is in the Thus, a bank -sponsored insurance exporting its own services. foreign company that underwrites all forms of insurance for omers, or customers, or a construction company with foreign cust nts a law firm providing general legal advice to foreign clie Indeed, these would not qualify as an export trading company. activities in service companies may not necessarily perform any little real or remit profits to the United States and so have effect on U.S. exports. an In contrast, trade services that can be provided by d from the export trading company are wide-ranging as evidence marketing language of the Act and include, inter alia, company is (including brokering insurance for which another ct research underwriter); freight forwarding; advertising; produ ting and and design; transportation; financing; and underwri s in selling insurance on the transportation of good e, such as international trade or other trade-related insuranc or resident product liability insurance, on risks located In addition, the export trading company itself can abroad. Moreover, take title to and trade in goods produced by others. services in the export trading company may provide trade party trade so connection with exporting, importing, or third related to long as more than half the company's business is facilitating exports.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Further, there is no restriction in our regulations on trade in the export trading company exclusively facilitating by the bank goods or services produced by a co-investor or ercial company, holding company investor itself. Thus if a comm holding such as a producer of farm equipment, and a bank any, that company, jointly establish an export trading comp ral Reserve export trading company is not limited by Fede in the farm regulations from facilitating international trade Similarly, a joint equipment produced by the co-investor. e company, or venture export trading company of an insuranc company is not other "service" company, and a bank holding services abroad. precluded from selling the co-investor's anies may be Similarly, joint venture export trading comp specific project abroad, established to bid for and complete a s and services of involving the export of a combination of good the co-investors.  The Honorable John Heinz  -3  Finally, I would like to emphasize that the intent of the Board's regulations defining an export trading company is not to restrict the banking industry's creativity in the development of a viable and effective export trading company Accordingly, we are prepared to industry in the United States. interpret our regulations with necessary flexibility as to the potential activities of such companies to include any activity that facilitates trade in goods and services produced by others. I should also note that bank holding companies or Edge corporations that seek to invest in companies abroad may of course apply to the Board to do so under section 4(c)(13) of the Bank Holding Company Act. I hope that this more detailed explanation of the If, after considering these Board's action is helpful to you. matters further, you continue to have concerns regarding the Board's approach in implementing the BESA, I would be glad to discuss the question with you or arrange for our staffs to consider how any remaining problems might best bs addressed. erely,  T /  Enclosure  bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (Ltr. to Chrmn. Garn from Chrmn. dtd. 6/24/83.)  Nancy Jacklin Mrs. Mallardi (2) Legal Records (2)  A*.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July 1, 1983  The Honorable Walter E. Fauntroy Chairman Subcommittee on Domestic Monetary Policy Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Walter: I am enclosing the first of the reports on regional economic conditions prepared at our Federal Reserve Banks which you had requested on a continuing basis. We are currently planning for about eight such reports per year, with the next one scheduled for the early part of August. I trust they will be useful to you in evaluating the impact of, and conditions affecting, monetary and related public policies. With best personal regards, Sincerely,  Enclosure  ("Current Economic Conditions' dtd. 6/29/83.)  SHA:pjt (V-20_ bcc: Mr. Axilrod Mrs. Mallardi (2) I/  V6,11.1-T.ER E. FAUNTROY, D.C., CHAIRMAN PARREN J. MITCHELL, MD. STEPHEN L. NEAL. N.C. DOUG BARNARD, JR., GA. HENRY S. REUSS. WIS. JAMES J. BLANCHARD. MICH. CARROLL HUBBARD, JR., KY. BILL PATMAN, TEX.  Action assigned Mr. Axilrod  GEORGE HANSEN. IDAHO RON PAUL. TEX. BILL McCOLLUM, FLA. BILL LOWERY, CALIF. ED WEBER, OHIO JAMES K. COYNE, PA.  U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON DOMESTIC MONETARY POLICY  H2-179, ANNEX NO. 2 WASHINGTON, D.C. 20515 (202) 225-7315  OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-SEVENTH CONGRESS  WASHINGTON, D.C. 20515  February 4, 1983  The Honorable Paul Volcker Chairman Board of Governors Federal Reserve System 20th and Constitution Avenue, N.W. Washington, D. C. 20551 Dear Paul: It is my understanding that the Federal Reserve Bank Presidents and the Members of the Board of Governors are provided with a roundup of regional business prospects and economic developments in each of the Federal Reserve Districts prior to each FOMC meeting. I would like very much for you to provide to the Subcommittee a copy of this document--which is also known as the "Red Book"--on the same basis that the Record of Policy Actions is released: namely, 30-45 days after the FOMC meeting. I have decided to make this request in as much as the Subcommittee will be continuing its very extensive examination of the impact of fiscal and monetary policies on national, regional and local conditions. In light of the quality and timeliness of the information contained in this document, I have concluded that it would be invaluable to the Subcommittee.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely yours,  Walter E. Fauntroy Chairman  P  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551  June 30, 1983  PAUL A. VOLCKER CHAIRMAN  The Honorable John D. Dingell Chairman Subcommittee on Oversight and Investigation Committee on Energy and Commerce House of Representatives 20515 Washington, D. C. Dear Chairman Dingell: I am pleased to respond to your letter of June 3 inquiring about the impact on U.S. banks of the collapse of the Souk al Manakh. I understand Chairman Shad will address the question of the possible impact on U.S. securities firms. As a general matter, I understand that the Kuwaiti authorities have taken steps to contain the damage from the failure and that the brunt of the losses will be borne by local securities traders. The Government of Kuwait has also taken steps to preserve the reputation of Kuwait as a financial center including keeping the local banks solvent through lowinterest Kuwaiti Government deposits. Your letter asks about potential problems for U.S. banks that might arise in connection with a failure of this sort. One problem is that banks may sustain losses on their loans to Kuwaiti residents, or possibly to residents of Bahrain who may have invested in that market. U.S. bank exposure to both of these countries is relatively small. Virtually all of U.S. bank claims on Bahrain are claims on banks, a large portion of which is claims on Bahrain offices of banks chartered in other countries. As of December 1982, about three-fifths of the total $1.4 billion U.S. bank claims on all Kuwaiti residents were claims on local Kuwaiti banks. At year-end 1982, none of the nine largest U.S. banks had exposures to residents of Kuwait or Bahrain of as much as 10 percent of their capital. Only two U.S.-owned banks had exposure to Kuwait in excess of 10 percent of their capital on that date, and both of these exposures were well below 20 percent of the banks' capital. These exposures include credits to banks and to private borrowers, and represent maximum estimates of potential problems, especially given the steps taken by the Kuwaiti Government to maintain the solvency of the banks. Thus, the potential for losses to the U.S. banking system does not appear to be a matter of particular concern. A second potential problem for U.S. banks which is mentioned in your letter is a withdrawal of Kuwaiti deposits. To put this problem in perspective, I am enclosing a table on   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable John D. Dingell Page Two  total deposits of Middle East oil producers at foreign branches of large U.S. banks. As shown in this table, total deposits of all Middle East oil producers at foreian branches, including inter alia Saudi Arabian deposits as well as deposits of Kuwait, accounted for less than 3 percent of the total deposits of the six largest U.S. hanks, and an even smaller proportion of deposits at other large U.S. banks. As of December 12, deposits of all Middle Past oil producers funded only about 5 percent of the total assets of the largest U.S. banks. When considering possible withdrawals of these funds, it must he remembered that some of these deposits are time deposits which cannot he withdrawn on very short notice. An earlier survey indicated that about one-half of these deposits had a maturity in excess of 30 days. It is interestina that in recent years denosits of Middle East oil producers at foreign branches of U.S. hanks have declined absolutely as well as a share of total deposits of the largest U.S. banks as these investors acquired securities and other nonbank assets. These shifts occurred with no apparent adverse consequences for U.S. banks. Any such funds that are withdrawn to discharge the obligations of the depositors are paid to other investors who deposit these in another hank--effectively keening the funds within the banl: , ing system. We have no evidence that any such deposit withdrawals did in fact take place during the height of crisis and that the numbers cited above are used to indicate the outside limits of the volume of deposits of Kuwait's inv-?_stors. In view of the relatively small share that Kuwaiti de.00sits play in the total liability position of U.S. hanks, and the fact that not all of these deposits would be withdrawn immediately, it appears to me that U.S. banks could easily replace these funds in the market if such withdrawals were to take place. I hope this information is helpful to your Subconlmittee in assessing the impact of the collapse of the Souk al 'Ianakh on U.S. banks. We can hone that authorities in laiwait and elsewhere will learn more from this experience and take appronriate measures to avoid a recurrence of the problem which appears to have largely affected local residents. sincerely, HST/EMT/RFG:WRM:vcd (V-99) bcc: Mr. Terrell Mr. Truman Mr. Gemmill Mr. Ryan EJ4 nclos . Dahl   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi (2)i-//  TABLE 3 DEPOSITS OF MIDDLE EAST OIL PRODUCING COUNTRIES IN FOREIGN BRANCHES OF LARGE U.S. BANKS (billions of dollars)  December 1975 Next Six Second Nine Largest Largest Banks Six Banks Banks (1) Total deposits (consolidated)  March 1979 Six Second Largest Largest Banks Six hanks 1/ 1/ 273.8 - 99.9 -  197.5  76.3  49.9  (2) Deposits of Middle East 2/ Oil Producing Countries- 9.8  1.2  0.7  15.3  (3) Line (2) as percent of line (1)  1.6  1.4  6.0  Note: 1/ -27  5.0  Next Nine Banks  March 1981 Six Second Next Largest Largest Nine Banks Six Banks Banks  December 1981 Second Six Next Largest Largest Nine Banks Six Banks Banks  December 1982 Six Second Next Largest Largest Nine Banks Six banks  1/ 68.4-  328.5  126.5  85.2  338.4  136.2  89.5  342.0  143.6  94.3  1.7  0.5  14.8  2.7  0.9  11.5  3.3  1.2  9.8  2.1  1.2  1.7  0.7  4.5  2.1  1.0  3.4  2.4  1.3  2.9  1.5  1.3  Deposits in foreign branches represent more than 75 percent of total deposits of Middle East oil producers in all U.S. banks.  Deposits as of Dec. 1978. Includes Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.  Six largest banks  Second largest  Next nine  Rank of America Chase Manhattan Chemical Bank Citibank Manufacturers Hanover Morgan Guaranty  Bankers Trust Continental Illinois Crocker National Bank First National Rank of Chicago Security Pacific Wells Fargo  European American Bank & Trust First National Bank of Boston Interfirst Bank Dallas First National Bank of Detroit Irving Trust Marine Midland Mellon Republic Bank Dallas First Interstate hank of California   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  COC,rkSS  ROOM 231. .; RAYSURN HOUSE OFFICE BUILDING /NONE (202) 221-4441  ACTION Assigned Mr. Gemmill; info copy Lo Jack Ryan  JOHN D. DINGELL.. MICH., CHAIRMAN  •  ALBERT GORE. JR . TENN. JIM SLATTERY KARS GERRY SIKORSKI. MINN. JIM BATES, CALIF JAMES H SCHEUER. N.Y. JAMES J. FLORIO. NJ EDWARD J MARKEN% MASS. DOUG WALGRFJ4. PA.  JAMES T BROYHILL NC. BOB WHITTAAER KARS THOMAS J SULEY. JR. VA MICHAEL. G. OXLEY. OH10  1E1.6S. ouse of Represtntation Anbaninfttu on Otersight and lantstigatians if tht  Committer on Xnuya and ennuntru  C=D •••ri op.  5:3  DiEfillNSEL/SC)dtF STAff OME fit CTONI  Washington, B.C. 2011  C:=I rri C-3 =r‘ ,  June 3, 1983  cm_ri c=• --n r7; c.=>  E3  c-3 rri =  E•11  1"n  3to  Co,  3= 2>  Go,  rro .1MM. Main.  Honorable John S. R. Shad Chairman Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D. C. 20549  Honorable Paul A. Volcker Chairman Federal Reserve Board 20th Street & Constitution Avenue, N.W. Washington, D. C. 20551  Dear Chairman Shad and Chairman Volcker: The Subcommittee on Oversight and Investigations is concerned about the collapse last summer of the unofficial Kuwaiti stock exchange, the Souk al Manakh. What apparently destroyed the Souk al Manakh was the practice of paying for shares with postdated checks, some with payment dates spreading up to a year after purchase, and with a premium as high as 100% built into the purchase price to compensate the seller for the delay. In return, equity buyers obtained immediate possession of the shares which they could either sell for cash or use as collateral for loans to pay off prior postdated checks coming due. In February of this year, the Finance Ministry of Kuwait believed that the Souk collapse involved postdated checks totalling $93.1 billion -- six times the Kuwaiti national budget and about 20 times the amount of currency in circulation. According to the Ministry, even when the debts Kuwaitis owed one another were taken into account, the loss came to a substantial $24.5 billion. In all, Kuwaiti bankers reportedly expected some 300 bankruptcies because of the Souk's failure. Many Kuwait banks either played the market or financed people who did, and the big international banks stationed in nearby Bahrain were reportedly involved to the tune of an estimated $1 billion. We are concerned about the involvement of U.S. banks and other financial institutions and the possibility of serious negative effects on U.S. markets., e.g., as a result of large withdrawals of deposits and investments here to cover debts owed   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  C.17  Honorable John S.R. Shad He.orable Paul A. Volcker 'June 3, 1983 Page 2 this matter and report back o int k loo you t tha ask We . ait in Kuw by the Commission and the within 30 days. A joint response eptable. Federal Reserve Board would be acc prompt at -nt on to our Thank you for your coope request.  JOHN D. DINGELL CHAIRMAN  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  June 29, 1983  The Honorable Peter W. Rodino, Jr. Chairman Committee on the Judiciary house of Representatives Washington, D. C. 20515 Dear Chairman Rodino: Thank you for your letter of June 13 concerning the Subcommittee on Administrative Law and Governmental Relations hearing on H.R. 2327, the Regulatory Reform Act of 1983. I am pleased to let you know that Vice Chairman Preston Martin will appear, on behalf of the Board, on July 14. Sincerely, WWI A.Vo!du  CO:vcd ( V-104) bcc:  Vice Chairman Martin Gil Schwartz Mrs. Mallardi (2)  NINETY-EIGHTH CONGRESS  GENERAL COUNSEL ALAN A. PARKER  PETER W. RODINO, JR. (N.J.), CHAIRMAN  STAFF DIRECTOR. GARNER J. CUNE  TEXe ROBERT W KASTENMEIER, WIS. DON EDWARDS. CALIF. JCHN CONYERS. JR., MICH. JOHN F. SEIBERLING, OHIO ROMANO L. MAI2OLI, KY. WILLIAM J HUGHES, N.J. SAM B. HALL JR., TEX. MIKE SYNAR. OKLA. PATRICIA SCHROEDER, COLO. DAN GLICKMAN, KANS. BARNEY FRANK, MASS. CEO W. CROCKETT, JR., MICH. CHARLES E. SCHUMER, N Y. BRUCE A. MORRISON, CONN. EDWARD F. FEIGHAN, OHIO LAWRENCE J. SMITH, FLA. HOWARD L. BERMAN, CALIF. FREDERICK C. BOUCHER, VA.  HAMILTON FISH, JR.. N.Y CARLOS J. MOORHEAD, CALIF. HENRY J. HYDE. ILL THOMAS N KINDNESS. OHIO HAROLD S SAWYER. MICH. DAN LUNGREN, CALIF. F. JAMES SENSENBRENNER, JR., WIS. BILL McCOLLUM, FLA. E. CLAY SHAW, JR., FLA. GEORGE W GEKAS, PA. MICHAEL DEWINE. OHIO  1E6. ItioluSt of Repremilatibet  ASSOCIATE COUNSEL ALAN F. COFFEY, JR.  Committee on tbe jubiciarp agbington, 313.e. 20515 tEtitpbont: 202-225-3951 June 13, 1983  Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Constitution Avenue and 21st Street Washington, D.C. 20551  CI) CID •••-.4  Dear Chairman Volcker: The Subcommittee on Administrative Law and Governmental Relations of the House Committee on the Judiciary will hold a hearing on July 14, 1983 on H.R. 2327, the Regulatory Reform Act of 1983. The purpose of this hearing is to examine the current regulatory procedures of the Federal Reserve and the impact this legislation would have on these regulatory procedures. On June 2, 1982, you wrote the Subcommittee regarding the problems that would arise from the additional layer of procedures that would be imposed by H.R. 746, the predecessor bill to H.R. 2327. While H.R. 2327 currently exempts monetary policy from the new management procedures it requires, rules on monetary policy as well as all other rules issued by the Federal Reserve would nevertheless be subject to the changes H.R. 2327 makes in 5 U.S.C. 553 and in the standards of judicial review set forth in 5 U.S.C. 706. Therefore, I believe it is important that you clarify and expand on the types of activities at the Federal Reserve on which you believe the legislation would have a negative impact. H.R. 2327 also exempts rules on monetary policy from executive oversight and legislative veto. However, as you are aware, rules on the safety and soundness of depository institutions could still be designated as "major" by the President and could thus become subject to executive oversight and legislative veto. Moreover, S. 1080, the regulatory reform bill which is currently being considered in the Senate, does not exempt monetary policy from legislative veto. Therefore, it is particularly important to develop a record from the Federal Reserve on these issues. The Subcommittee has prepared a list of five requirements which are to govern presentations at the hearing, and I have enclosed a copy of that list with this letter.  PETER W. RODINO, JR. Chairman Enclosure PWR/jpc   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1.  Oral testimony is limi ted to a 10 minute presen tation.  2.  Written testimony is to be submitted 48 hours befo re the hearing.  3.  60 copies of the writ ten testimony are to be provided to the Su in Room B-351--A of the bcommittee Rayburn House Office Building . Written testimony and other documentation are to be submitted on lett size paper (copies of ex er hibits may be the size of th ei r originals but not smaller than letter -size).  5.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Written testimony must ha ve attached to its face a one page summary of its contents.  BOARD  OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  June 24, 1983  PAUL A. VOLCKER CHAIRMAN  The Honorable Stephen L. Neal House of Representatives Washington, D. C. 20515 Dear Steve: Thank you for sending me the article by Congressman Kemp on the subject of the floating dollar. My general views on the issues of attaining domestic and international economic stability are contained in a talk I gave some weeks ago, a copy of which is enclosed. Let me also respond more directly to some of the points made in the article. There is no question that floating exchange rates have tended to fluctuate more widely than had been anticipated in the early 1970's, and that very wide swings can be disruptive and an impediment to economic progress. However', there is a great deal of disagreement on the causes and cures of volatility in the exchange markets. The retreat from the Bretton Woods system of relatively fixed exchange rate relationships did not occur because of some change in economic ideology--it occurred because of the pragmatic evidence that the relative competitiveness of the major countries had changed far more than their exchange rates so that a major realignment of rates became necessary. At first the attempt was made to establish new fixed parities, but it soon became clear that the market was not satisfied with these fixed relationships, and monetary authorities felt compelled to allow greater flexibility of rates in accordance with market judgments. This was in 1973 and, as you will recall, in a very short time hopes for stability were upset first by the tremendous jump in oil prices and then, after a setback in economic activity worldwide, by an unprecedented surge in price inflation in nearly all industrial countries. In short, the essential condition for stability in foreign exchange markets, which is stability or convergence of national economic policies among the major countries, was not present. I believe we have made considerable progress in the last few years in overcoming the inflationary bias in the economies of industrial countries, and in recognizing the need for a greater degree of stability and coordination in economic policy, internationally. This theme is emphasized in the declaration issued last month at Williamsburg. In my view, however much one might agree with the advantages of relatively close and predictable relationships among exchange rates, such a regime cannot be superimposed on a set of world economies   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  f  The Honorable Stephen L. Neal Page Two  that are on divergent economic courses. On the other we can achieve the aims expressed at Williamsburg, we created the conditions for a system in which exchange might not be rigidly fixed, but will not generate the behavior we have seen in the past.  hand, if will have rates erratic  I would point out, however, that the usual complaint about our present situation is not so much the erratic behavior of rates as the value of the dollar in exchange markets. Several factors can be cited in explanation of the strength of the dollar, but no doubt high current and expected U.S. interest rates are the pivotal factors. In that connection, I can only repeat what I have said many times--the key to lower interest rates, and consequently to more competitive exchange rates for the dollar, is a reduction in the size of the prospective U.S. budget deficits. I greatly sympathize with the objectives described by Congressman Kemp, and I believe we are moving in the direction needed to strengthen the international monetary system. In practice, however, I do not believe that we can start the process of reaching a more orderly and progressive international economy from the outside, i.e., by designing some kind of international monetary reform. Reform has to come on the base of healthy rates of economic growth in a non-inflationary environment. In that context, as my speech suggests, I do believe we can work toward greater stability in exchange rates, and in time explore whether a consensus can be reached on a more formal system. Sincerely,  yna Tnclosure  (4/28/83 New York remarks, "Restoring Stability")  SP:EMT:NS:PAV:pjt (#V-95) bcc: Mr. Pizer Mr. Truman Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  S.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4;  • a: •  at; 4  1/1 •  HOUSE OF REPRESENTATIVES WASHINGTON  D  C 20515  STEVE NEAL NORTH CAROLINA  May 25, 1983  The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System Washington, D. C. 20551 Dear Paul: Would you please respond to the enclosed article for my information. Thank you. Best wi  es,  EPHEN L. NEAL U. S. Congressman SLN:jb Enclosure  1.-T1  rrl C", ---•  7=0 -... ...(m-)  C.'? —I  7,1 C/3  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: Newspaper article Citations:  Number of Pages Removed: 1  Kemp, Jack. "A Floating Dollar Costs Us Jobs." Washington Post, May 15, 1983.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  June 24, 1983  The Honorable Jack Brooks Chairman Subcommittee on Legislation and National Security Committee on Government Operations House of Representatives Washington, D. C. 20515 Dear Chairman Brooks: enclosing Thank you for your letter of June 14 uarding National Security a questionnaire concerning "Safeg Information".  naire.  questionI am pleased to enclose the completed l information, Should the Subcommittee need additiona  r, the Board's officer please contact Mr. Robert E. Frazie -3816. in charge of security matters, at 452 Sincerely, S/Paul A. Volcker  Enclosure REF:CO:vcd (V-108) bcc:  Mr. Frazier Mr. Mulrenin Mrs. Mallardi (2)  Alt  QUESTIONNAIRE  1.  Approximately how many people were employed by your agency as of December 31, 1982? (The total should include both full- and part-time employees. If the exact number is not available, please give your agency's best estimate, and indicate such by preceding the number with the letter "E".)  2.  On December 31, 1982, approximately how many of your people and how many employees of your current contractors had access to your agency's classified information? Please count the individuals based on their highest level of classification. If the exact number is not known, please give your agency's best estimate. (Enter the number in each box. If none, enter "0".)  Highest Classification Level  3.  Contractor Employees  Agency Employees  TOP SECRET  /  26  /  SECRET  /  200  /  CONFIDENTIAL  /  200  /  / 0 /  0  /  On December 31, 1982, approximately haw many of your employees and employees of your contractors had Sensitive Compartmented Information (SCI) access? If the exact number is not known, give your agency's best estimate. (Enter the number on each line. If none, enter "0".)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  Employees  1,546  1  Employees have SCI access  0  Contractor employees have SCI access  -2-  4.  Approximately how many of your employees have original and derivative classification authority at each of the following classification levels? Count the employees based on their highest level of classification authority. If the exact number is not known, give your agency's best estimate. (Enter the number in each box. If none, enter "0".)  Highest Classification Level  Classification Authority Original  5.  TOP SECRET  /  0  SECRET  /  0  CONFIDENTIAL  /  0  i  / 0  /  / 50  i  / 50  i  Does your agency employ polygraph operators, or did it contract out for polygraph operators during calendar year 1982? (Check one.)  Yes X  6.  /  Derivative  No  OM NM  continue please go to Question 8.  As of December 31, 1982, approximately how many polygraph operators were employed by your agency? If the exact number is not known, please give your agency's best estimate. How many contract polygraphers did your agency employee during calendar year 1982?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Agency employees Contract personnel  -3-  7.  Please briefly describe the qualifications required of individuals employed as polygraph operators by your agency. The attachment of a job description which contains this information will be sufficient.  8.  During calendar year 1982, approximately how many books, articles, speeches, and other materials were reviewed during your agency's preclearance process, if any? If the number is not known, please give your agency's best estimate. Please enter the number on each line. If none, enter "0".)  0  Books  49  Articles  61  Speeches Other (please specify)  9.  Please estimate the average number of working days that elapse from the date of receipt of a request for preclearance of each type of document below, to the date the requestor is informed of the final results. If you have not had experience in reviewing a type of document, enter "NA" on the applicable line. (Enter estimated average number of working days on each line.)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Estimated Average Working Days  0  Books  1 to 3  Articles  2 hours  Speeches Other (please specify)  --4f ••  10.  During calendar year 1982, approximately how many employees were assigned, and working days were used for each of the following tasks? (Place the numbers in the appropriate boxes. If none, enter 111011.) Estimated Number of Employees Assigned  Estimated Number of Working Days Used  Preclearance review of books, speeches, articles and other materials  /  2  /20  Reviewing Freedom of Information Act requests  /  7  / 1,750 /  /  1  Mandatory review for declassification requests under Executive Order 12356 (August 1, 1982)  11.  /  /  / 1/  Please briefly describe your agency's plans to implement the nondisclosure agreement (paragraphs 1.a. and 1.b.), the preclearance for publication (paragraph 1.b.), and the contacts between media representatives and agency personnel (paragraph 1.d.) requirements. If you have not yet formulated these plans, please indicate a date by which we may expect a reply to this question, which should at that time be forwarded under separate cover.  August 1, 1983  12.  During the five-year period ending December 31, 1982, did your agency experience any unauthorized disclosures of classified information? (Check one.)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Yes -- continue X  No -- please go to Question 14  -5-  13.  For the five-year period ending December 31, 1982, please indicate the total number of unauthorized disclosures, the number of unauthorized disclosures made through books, articles, speeches written or given by then-current or former employees, and the number which were not reported to the Department of Justice.  Number of known unauthorized disclosures Number not reported to Department of Justice Number made through writings or speeches by then-current or former employees  14.  Please enter below the name, title, and telephone number of the person to be contacted if clarification or additional information is needed.  Agency: Name: Title: Location: Telephone Number:  Board of Governors of the Federal Reserve System Robert E. Frazier/Kenneth G. Wood, Jr. Associate Director/Chief of Security MS-148  (Area Code)  MS-111  202 202  (Number)  452-3816 452-3357  If you have any questions, please contact either GAO staff member: Mr. Irving Boker on 275-4407 or Mr. James Reid on 275-4430  Thank you for your time.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Please return the completed questionnaire to:  Legislation and National Security Subcommittee Committee on Government Operations 3-373 Rayburn House Office Building Washington, D.C. 20515  cste.t..s  FRANK HORTON, N.Y. JOHN N. ERLENBORN, ILL WILLIAM F CLINGER, JR., PA. DAN BURTON, IND.  JACK BROOKS, TEX., CHAIRMAN DANTE B. FA!CELL DON FUCh..k, FLA. ELLIOTT H. LEVITAS, GA. HENRY A. WAXMAN, CALIF. STEPHEN L NEAL, N.C. TOM LANTOS, CAUF.  22154147  NINETY-EIGHTH CONGRESS  Congress of the United g5tats lipase of Represmatito LEGISLATION AND NATIONAL SECURITY SUBCOMMITTEE OF THE  COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING, ROOM B-373  WASHINGTON, D.C. 20515  June 14, 1983  61  Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th Street & Constitution Avenue, N.W. 20551 Washington, D.C. Dear Mr. Chairman: The Legislation and National Security Subcommittee is reviewing the Presidential Directive, "Safeguarding National Security Information," issued March 11, 1983. Because of the potential impact of this Directive on our security interests, the morale of Government employees, and the efforts of the Government to recruit well-qualified personnel, the inquiry is of special importance. A copy of the Directive, NSDD-84, is enclosed for your convenience. It would be appreciated if you would assist the inquiry by gathering the necessary information pertinent to an evaluation of the Directive's possible impact. Please provide this information on the enclosed questionnaire within 10 days. I have asked the General Accounting Office to assist in this effort. That office will assist the Subcommittee in reviewing and analyzing the questionnaires. Thank you very much for your attention to this request. Sincerely,  JACK KOOKS Chairman  Enclosures   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  REQUEST FOR INFORMATION RELATIVE TO NATIONAL SECURITY DECISION DIRECTIVE-84  Introduction:  On March 11, 1983 the President issued National Security Decision Directive-84 (NSDD-84), Safeguarding National Security Information. In order to evaluate the impact of the Directive, certain information is being requested from agencies affected by the Directive. Because the information must be obtained quickly, this questionnaire has been designed to collect the data. Throughout this questionnaire, we are talking about the number of people, for that reason the number of positions should not be converted to full-time equivalents. When an estimate is given for any answer, please precede the estimated number with the letter "E". Unless otherwise specified, the requested information should be as of December 31, 1982. Please be specific when indicating whether an answer is classified. If any information will not be obtainable within the specified timeframe, please send that information which is available and indicate a date by which we may expect the remainder. If you have any questions, please call Mr. Irving T. Boker, FTS 275-4407 or Mr. James F. Reid, FTS 275-4430. The completed questionnaire should be sent to:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Legislation and National Security Subcommittee Committee on Government Operations B-373 Rayburn House Office Building 20515 Washington, D.C.  QUESTIONNAIRE  1.  Approximately how many people were employed by your agency as of December 31, 1982? (The total should include both full- and part-time employees. If the exact number is not available, please give your agency's best estimate, and indicate such by preceding the number with the letter "E".)  Employees  2.  On December 31, 1982, approximately how many of your people and how many employees of your current contractors had access to your agency's classified information? Please count the individuals based on their highest level of classification. If the exact number is not known, please give your agency's best estimate. (Enter the number in each box. If none, enter "0".)  Highest Classification Level  TOP SECRET  Agency Employees  /  Contractor Employees  / _  3.  SECRET  /  /  CONFIDENTIAL  /  /  On December 31, 1982, approximately how many of your employees and employees of your contractors had Sensitive Compartmented Information (SCI) access? If the exact number is not known, give your agency's best estimate. (Enter the number on each line. If none, enter "0".)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Employees have SCI access Contractor employees have SCI access  -2-  4.  Approximately how many of your employees have original and derivative classification authority at each of the following classification levels? Count the employees based on their highest level of classification authority. If the exact number is not known, give your agency's best estimate. (Enter the number in each box. If none, enter "0".)  Highest Classification Level  Classification Authority Original  TOP SECRET  5.  I T  SECRET  /  CONFIDENTIAL  /  /  Derivative  I  /  /  /  /  /  Does your agency employ polygraph operators, or did it contract out for polygraph operators during calendar year 1982? (Check one.)  Yes -- continue No -- please go to Question 8.  6.  As of December 31, 1982, approximately how many polygraph operators were employed by your agency? If the exact number is not known, please give your agency's best estimate. How many contract polygraphers did your agency employee during calendar year 1982?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Agency employees Contract personnel  -3-  Please briefly describe the qualifications required of individuals employed as polygraph operators by your agency. The attachment of a job description which contains this information will be sufficient.  8.  During calendar year 1982, approximately how many books, articles, speeches, and other materials were reviewed during your agency's preclearance process, if any? If the number is not known, please give your agency's best estimate. Please enter the number on each line. If none, enter "0".)  Books Articles Speeches Other (please specify)  9.  Please estimate the average number of working days that elapse from the date of receipt of a request for preclearance of each type of document below, to the date the requestor is informed of the final results. If you have not had experience in reviewing a type of document, enter "NA" on the applicable line. (Enter estimated average number of working days on each line.)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Estimated Average Working Days  Books Articles Speeches Other (please specify)  -4-  10.  During calendar year 1982, approximately how many employees were assigned, and working days were used for each of the following tasks? (Place the numbers in the appropriate boxes. If none, enter "0".) Estimated Number of Employees Assigned  Estimated Number of Working Days Used  Preclearance review of books, speeches, articles and other materials Reviewing Freedom of Information Act requests Mandatory review for declassification requests under Executive Order 12356 (August 1, 1982)  11.  Please briefly describe your agency's plans to implement the nondisclosure agreement (paragraphs I.a. and 1.b.), the preclearance for publication (paragraph 1.b.), and the contacts between media representatives and agency personnel (paragraph 1.d.) requirements. If you have not yet formulated these plans, please indicate a date by which we may expect a reply to this question, which should at that time be forwarded under separate cover.  12.  During the five-year period ending December 31, 1982, did your agency experience any unauthorized disclosures of classified information? (Check one.)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Yes -- continue No -- please go to Question 14  -5-  13.  For the five-year period ending December 31, 1982, please indicate the total number of unauthorized disclosures, the number of unauthorized disclosures made through books, articles, speeches written or given by then-current or former employes, and the number which were not reported to the Department of Justice.  Number of known unauthorized disclosures Number not reported to Department of Justice Number made through writings or speeches by then-current or former employees  14.  Please enter below the name, title, and telephone number of the person to be contacted if clarification or additional information is needed.  Agency: Name: Title: Location: Telephone Number:  (Area Code)  (Number)  If you have any questions, please contact either GAO staff member: Mr. Irving Boker on 275-4407 or Mr. James Reid on 275-4430  Thank you for your time.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Pleaso return the completed questionnaire to:  Legislation and National Security Subcommittee Committee on Government Operations 3-373 Rayburn House Office Building 20515 Washington, D.C.  March 11, 1983 NATIONAL SECURITY DECISION DIRECTIVE - 84 Safeguarding National Security Information As stated in Executive Order 12356, only that information whose disclosure would harm the national security interests of the United States may be classified. Every effort should be made to declassify information that no longer requires protection in the interest of national security. At the same time, however, safeguarding against unlawful disclosures of properly classified information is a matter of grave concern and high priority for this Administration. In addition to the requirements set forth in Executive Order 12356, and based on the recommendations contained in the interdepartmental report forwarded by the Attorney General, I direct the following: 1. Each agency of the Executive Branch that originates or handles classified information shall adopt internal procedures to safeguard against unlawful disclosures of classified information. Such procedures shall at a minimum provide as follows: a. All persons with authorized access to classified information shall be required to sign a nondisclosure agreement as a condition of access. This requirement may be implemented prospectively by agencies for which the administrative burden of compliance would otherwise be excessive. b. All persons with authorized access to Sensitive Compartmented Information (SCI) shall be required to sign a nondisclosure agreement as a condition of access to SCI and other classified information-. All such agreements must include a provision for prepublication review to assure deletion of SCI and other classified information. c. All agreements required in paragraphs 1.a. and 1.b. must be in a form determined by the Department of Justice to be enforceable in a civil action brought by the United States. The Director, Information Security Oversight Office (IS00), shall develop standardized forms that satisfy these requirements. d. Appropriate policies shall be adopted to govern contacts between media representatives and agency personnel, so as to reduce the opportunity for negligent or deliberate disclosures of classified information. All persons with authorized access to classified information shall be clearly apprised of the agency's policies in this regard. 2. Each agency of the Executive Branch that originates or handles classified information shall adopt internal procedures to govern the reporting and investigation of unauthorized disclosures of such information. Such procedures shall at a minimum provide that: a. All such disclosures that the agency considers to be seriously damaging to its mission and responsibilities shall be evaluated to ascertain the nature of the information disclosed and the extent to which it had been disseminated.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  b. The agency shall conduct a preliminary internal investigation prior to or concurrently with seeking investigative assistance from other agencies. c. The agency shall maintain records of disclosures so evaluated and investigated. d. Agencies in the possession of classified information originating with another agency shall cooperate with the originating agency by conducting internal investigations of the unauthorized disclosure of such information. e. Persons determined by the agency to have knowingly made such disclosures or to have refused cooperation with investigations of such unauthorized disclosures will be denied further access to classified information and subjected to other administrative sanctions as appropriate. 3. Unauthorized disclosures of classified information shall be reported to the Department of Justice and the Information Security Oversight Office, as required by statute and Executive orders. The Department of Justice shall continue to review reported unauthorized disclosures of classified information to determine whether FBI investigation is warranted. Interested departments and agencies shall be consulted in developing criteria for evaluating such matters and in determining which cases should receive investigative priority. The FBI is authorized to investigate such matters as constitute potential violations of federal criminal law, even though administrative sanctions may be sought instead of criminal prosecution. 4. Nothing in this directive is intended to modify or preclude interagency agreements between FBI and other criminal investigative agencies regarding their responsibility for conducting investigations within their own agencies or departments. 5. The Office of Personnel Management and all departments and agencies with employees having access to classified information are directed to revise existing regulations and policies, as necessary, so that employees may be required to submit to polygraph examinations, when appropriate, in the course of investigation of unauthorized disclosures of classified information. As a minimum, such regulations shall permit an agency to decide that appropriate adverse consequences will follow an employee's refusal to cooperate with a polygraph examination that is limited in scope to the circumstances of the unauthorized disclosure under investigation. Agency regulations may provide that only the head of the agency, or his delegate, is empowered to order an employee to submit to a polygraph examination. Results of polygraph examinations should not be relied upon to the exclusion of other information obtained during investigations. 6. The Attorney General, in consultation with the Director, Office of Personnel Management, is requested to establish an interdepartmental group to study the federal personnel security program and recommend appropriate revisions in existing Executive orders, regulations, and guidelines.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .r,,,,,.•,f.• • • .• Of GOVt'  .0.  •'et",,..,--" ' ', 0 • •co -•—,  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  %''' 5, :l..! C ‘ e: ..(4 PS01-**  PAUL A. VOLCKER  • • i?AL '• • •.• • •  CHAIRMAN  June 24, 1983  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: On June 1, the Federal Reserve Board considered the final regulations implementing the Bank Export Services Act I have enclosed a copy of the (Title II of P.L. 97-290). Federal Register notice incorporating the decisions taken by the Board in adopting the final regulations, as well as a memorandum to the Board that discusses in detail the issues considered at the recent Board meeting. The Board adopted regulations that in my opinion carry out the purposes of the Act to promote the establishment and growth of export trading companies while maintaining the safety To these ends, the and soundness of affiliated banks. regulations permit a bank holding company to invest in or establish either wholly-owned or joint venture export trading companies to engage in a wide range of export trade services. The Board also adopted a limited exemption from the collateral requirements of section 23A of the Federal Reserve Act to permit banks to assist in financing the trading activities of these companies. The Board's most difficult deliberations occurred over the type of company that is to be considered an "export trading Our company" in which bank holding companies may invest. in that, indicated review of the legislative history of the Act the consideration of this legislation, an export trading company was discussed in terms of a company that serves as an The intermediary to facilitate trade in goods and services. testimony reflected the perception that trading companies were constrained in their expansion by the lack of financing and foreign contacts, both of which banking organizations could It was felt that affiliation of bank holding provide.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Fernand J. St Germain  -2 _  companies with trading companies would create entities with a broad array of services that may be offered to smaller U.S. producers of goods and services that previously have been excluded from the export market. In light of these considerations, the Board defined export trading company as a company that is exclusively engaged in activities related to international trade and that derives more than half its business from exporting or facilitating the export of goods and services produced in the United States by In so doing the export trading company may itself others. engage in a wide variety of services including marketing, freight forwarding, taking title to goods, consulting and so forth, where those activities in some manner facilitate trade in goods and services produced by others. In taking this action, the Board considered the comments of those parties that had advanced an alternative Under this approach, a bank interpretation of the statute. holding company would be authorized to invest'in any service industry where the company invested in principally has foreign clients and thus is in the business of exporting its own Under this approach, an "export trading company" services. could, for example, be an architectural firm with solely foreign clients; a travel agency specializing in international travel with principally foreign customers; a construction company exporting its services abroad; or an insurance company underwriting risks resident abroad for foreign customers regardless of whether these activities related to international possible two in the difference Thus, the trade. interpretations of the law is significant as a policy matter. As noted above, the Board's review of this matter included careful consideration of whether Congress intended through this Act to authorize to banking organizations this broad investment authority in U.S. service industries with We concluded that the legislative solely foreign customers. focus was on the promotion of U.S. exports and on the unique capability that banking organizations have -- with their U.S. customer base and overseas office networks -- to serve as In effective trade intermediaries in promoting U.S. exports. view of this Congressional objective, the Board took into account that services performed utilizing this vehicle would not necessarily be performed here or by U.S. residents, and that the profits from the performance of the service would not For these necessarily be remitted to the United States. reasons the Board was not persuaded to adopt the alternative interpretation. The Board believes that the alternative is not as consistent with the purposes and objectives of the legislation of furthering bank holding company investment in   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  e  •  The Honorable Fernand J. St Germain  -3 _  trade intermediaries that can efficiently and effectively promote U.S. exports, rather than to foster investment in service companies. I bring these matters to your attention in view considerable public interest in export trading companies the absence of a clear direction from the Congress on If you have any questions on these matters, we matter. of course, be glad to discuss them with you. Sin  of the and in this would,  rely,  Qiii aar, Enclosures  (Press release dtd. 6/2/83; Memo to Board from Comm. on Banking Supervision & Regulation dtd. 5/27/83.)  KMO:NJ:jsd bcc: Ms. O'Day Ms. Jacklin Legal Records (2), Mrs. Mallardi (2) IDENTICAL LETTERS ALSO SENT TO:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Chairman Cam, Cong. Wylie and Senator Proxmire.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Juno 23, 1983  The Honorable Lawton Chiles United Statei Senate Washington, D. C. 20510 Dear Senator Chiles: Enclosed please find some correspondence on the procedures at the Miami Branch of the Atlanta Federal Reserve Bank in connection with non-competitive tenders for Treasury securities -- a matter you have taken an interest in. I hope the change in Froceeures will irl.:rove public satisfaction with our services, and I want tc thank you for your interest. Sincerely,  .f/W7,3 oliri Enclosures - Chiles/Winn exchange 1,140, ott4. Greene/Volcker exchange. kt44 . cite( , V414314 NMS:slw Cong. #254./D3  CLO will handle tesponse  006111111,11:111:  LAWTON CHILES  APPROPRIATIONS  FLORIDA   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BUDGET GOVERNMENTAL AFFAIRS  'Ziertifeb Zfatez -Senale  SPECIAL COMMITTEE ON AGING DEMOCRATIC STEERING COMMITTI,  May 16, 1983  C=,  Hon. Paul Volcker Chairman Board of Governors Federal Reserve System Washington, DC 20551  CD rn cr? Cn  Dear Mr. Volcker: I have recently received the enclosed correspondence regarding a matter involving your agency, and because of my desire to be responsive to all inquiries, I would appreciate having your comments and views. Your early consideration of this matter will be appreciated, and if convenient, I would like to have your reply in duplicate. In your communication, please return the enclosure and make reference to this letter as indicated below. Sincerel  LAWTON CHILES  LC/dms Enclosure RE:  In reply, please refer to:  Jerome G. Greene  REPLY TO: FEDERAL BUILDING, LAKELAND, FLORIDA 33801  r'n 36":  LAVC OFFICES  JEROME G. GREENE Still_  311  Bls(  AVNE BUILD1N ;  10 WEST FLAC.LER STREET  IAMI. FLORIDA 33130 Lf P1-10  -i77 3042  April 26th, 1983  Honorable Paul Volcker, Chairman Board of Governors rederal Resrve SyzLem Washington, D. C. 20551 Dear Mr. Volcker: I had hoped, through the intercession of Senator Chiles, (without requiring your intervention,) that the elimination by your Miami Branch of a basic element of banking accountability would be corrected, i.e., the refusal of the Branch to receipt for Cashiers checks in substantial amounts tendered in connection with the purchase of Treasury bills and notes. I enclose copies of the correspondence from me to the Senator and the response from Donald Winn, Assistant to the Board. I would have expected the rationale given by Winn to have come from some bureaucrat in one of the more hidebound and less dynamic Government departments. I never dreamed in the inter est of "being cost conscious and service conscious" the Federal cash Reserve would abolish giving a receipt for the equivalent of rate in large amounts. Winn went into great detail about the elabo points syst:m which Miami has evolved to avoid :jiving receipt:- and yet. with evident prick; to the fact that no check has been lost roof It is quite obvious, however, that the system is not foolp though and all your employees may not be saints. Moreover, even lost or the customer may ultimately discover that the check was e before misdirected, conceivably a long period of time might elaps estabthe check could be replaced or the bona fides of the loss the Fedlished. The burden is now on the buyer rather than on eral Reserve.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Page Number Two  Honorable Paul Volcker  April 26th, 1983  It would seem to me that in the interest of good public relations and in the interest of exemplary banking practice, the Federal Reserve, if given a choice between answering questions or giving receipts, would opt for giving receipts. A less desirable alternative for those willing to stand on line for receipts would be to make a minimal charge of say $3. to $5. for the privilege of being given a receipt. After all, once at the window it takes less than a minute for a clerk to look at the instruments and affix his signature. If, however, the unspoken objective of the Federal Reserve-and I would find this difficult to believe—is to discourage at the window transactions at the Branch, the Miami procedure is ideal from an administrative point of view but it is equally destructive of the average American's image of the Federal Reserve as the keystone of the American banking system and a model of sound banking practices. In spite of the foregoing, I might add, however, that I feel you have done an outstanding job as Chairman of the Board in preserving the economy of the country and hope that the President will have the same perception and re-appoint you. Sincerely yours,  JEROME G. GREENE JGG:SW Enc. Via Certified Mail, Return Receipt Requested Receipt #388959 cc: •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Honorable Lawton Chiles  '0 • t .,1sI..,  •C  BOARD OF GOVERNORS ' \ 0 • 4  15 .  ,4%.114 - 7':f*.: ; .C°i : • •rt  4.r? , 0.- • - .= .."4- Ni [(1{{1 r: ▪  E&AL RtS .  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. POSSI  •  March 22, 1983  The Honorable Lawton Chiles United States Senator Federal Building Lakeland, Florida 33801 Dear Senator Chiles: Thank you for your letter of January 20 requesting comment on the enclosed correspondence from your constituent, Mr. Jerome G. Greene of Miami, regarding Treasury bill tender receipting procedures at the Miami Branch of the Federal Reserve Bank of Atlanta. Last April, Miami Branch management, in its ongoing efforts to reduce costs, discontinued issuing teller receipts for non-valuables such as Treasury bill tenders. However, an alternate procedure was substituted which enables lobby customers to prepare their own record of tender submission and to deposit their tenders in a secured container themselves. The change in procedures was not made to "eliminate any direct responsibility for receipt of the money by a specific individual," as Mr. Greene suggests. Miami Branch management made the change in response to a need to improve their service to Treasury customers by allowing customers to submit their tender offers without having to wait in lengthy lines.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Now, when submitting a tender offer, lobby customers are instructed to follow this procedure: 1.  complete the tender form (the forms are provided);  2.  date and time stamp all copies of the completed tender (a Miami Branch date stamping machine has been installed in the lobby for this purpose);  3.  remove the last copy of the tender form and retain it as the customer's record of the application;  4.  insert all the remaining copies of the tender, along with the payment check, into a Miami Branch envelope (envelopes are provided in the lobby), seal the envelope; and  5.  deposit the sealed envelope into the double locked drop box located in the lobby (this container will later be opened by two Branch employees working as a unit).   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Lawton Chiles Page Two  We believe the existing procedures are sufficient to prevent the loss of a tender or check, once the envelope is inserted in the drop box, for two reasons: first, if a tender or check were lost (which Miami Branch management informs us has never occurred), daily balancing procedures would detect the problem; and second, the customer himself would become aware of the problem in a very few days if the customer did not receive a discount check from the Branch and did not receive a statement of account from the Treasury Department. We regret any inconvenience which Mr. Greene's clients may have experienced while adjusting to this new procedure, but we believe that Miami Branch management has acted appropriately in this cost-conscious, service-conscious environment. If Mr. Greene has any suggestions on ways the Branch could further improve the instructions or forms provided to lobby customers, Miami Branch management would appreciate hearing from him. I hope this information is useful. if I can be of further assistance.  Please let me know  Sincerely,  Donald J. Winn Assistant to the Board Enclosure  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  Ar.  WASHINGTON, 0. C. 20551 PAUL A. VOLCKER  June 22, 1983  CHAIRMAN  The Honorable Robert J. Dole Chairman Committee on Finance United States Senate Washington, D. C. 20510 Dear Bob: Thank you for your letter of May 27 in which you comment on my correspondence with Senator Eagleton regarding tax indexing. I must acknowledge that I view this issue with mixed feelings. Certainly, the arguments you present for government accountability and for not relying on inflation to ease our budget problems have considerable force. But there are, I believe, arguments on the other side just as persuasive. Unfortunately, these are not issues that are likely to be settled by statistical evidence; the issues involved are much more philosophical in nature. I gather we agree that for the economy in general income indexing is likely to be a bad practice. We had some indications of the dangers of a generally indexed economy in the case of the oil price shocks in the 1970s. To the extent that wages, salaries, and pensions were indexed, inflationary pressures were generated and perpetuated and the necessary economic adjustments were postponed. In general, it is my feeling that indexing of income tends to set up expectations that living standards will not be adversely affected by rising prices. This is a very dangerous perception, and I believe that tax indexing will in the end help foster this misapprehension. It can be argued that the advantages of tax indexing outweigh the objections. But I'm afraid that such indexation will also tend to stimulate the spread of indexed contracts elsewhere in the economy. My instinct is to resist those measures that, in substance or by symbolism, tend to encourage the notion that we can live with inflation or that rising prices contain no dangers for our standard of living. Finally, as a practical matter, I cannot overlook the fact that indexing does give up revenues at a time of massive current and prospective budgetary deficits. To put the point succinctly, "if not this, then what?".   ilmonw.••••,..............1.•••••••••••••••••••••••••••1111••••••••-•-••••-wwww..... https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -1The Honorable Robert J. Dole Page Two  In summary, while I appreciate your arguments, I have profound concerns which leave me, on balance, opposed to tax indexing, despite some of its admitted attractions in stimulating fiscal responsibility. ely,  & ' (4 7 7 Sin  P/V avie6fr-&/ SL:HW:JSZ:PAV:pjt (#V-93) bcc: Ms. Lepper Mr. Wendel Mr. Zeisel Ms. Wing Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  oftwasian*,,  .  ROBERT J. DOLE, KANS., CHAIRMAN NOG PACK WOOD. OREG. WILLIAM V. ROTH, JR., DEL. JOHN C. DANFORTH, MO. JOHN H. CHAFEE, R.I. JOHN HEINZ, PA. mALCOLM WALLOP, WYO. DAVID DURENBERGER, MINN. WILLIAM L. ARMSTRONG COLO. STEVEN D SYMMS ''')A*40 • CHARLES E. GRASSLEY, IOWA  Action assigned Mr. Kichline  RUSSELL B. LONG. LA. LLOYD BENTSEN TEX. SPARK M MATSUNAGA HAWAII DANIEL PATRICK MOYNIHAN, N.Y. MAX 111AUCUS, MONT. DAVID L. SOREN. OKLA. SILL BRADLEY, N.J.  'ZCnifeb Zialcz -.Senate  GEORGE J. MITCHELL, MAINE DAVID PRYOR, ARK,  COMMITTEE ON FINANCE WASHINGTON. D.C.  20510  ROBERT E. LIGHTHIZER, CHIEF COUNSEL MICHAEL STERN, MINORITY STArF DIRECTOR  ' E13-  Cr` C=t  May 27, 1983 The Honorable Paul A. Volcker Board of Governors, Chairman Federal Reserve System 20th Constitution Avenue, N.W. Washington, D.C. 20551  C  --4 rfli  Dear Paul: I was interested in your May 9 letter to Senator Eagleton, in response to his inquiry as to your views on tax indexing. Your reservations about "indexing in general" are well-taken, although the notion that indexing encourages people to try to live with inflation is far from proven. What may be true of private contracts is not necessarily true of government programs. But I was particularly concerned by your failur e to distinguish cost-of-living adjustment in spending programs from the principle of indexing the progressive income tax to inflation. You rightly point out two strong arguments for tax indexing: that it can eliminate inflation-induced distortions in patterns of investment and capital accumulation, and that it can deprive the government of an incentive to reduce its fiscal problems by inflating people into higher tax brackets. Those are important arguments for indexing. But there are other arguments that I think make a stronger case why tax indexing should be retained. First, indexing is a question of government accountability. Because of the progressive rate structure, an unindexed income tax causes real tax liabilities to rise with inflation. These unlegislated tax increases are no substitute for Congress taking the matter in hand and making the spending and tax decisions needed to put us on a path of declining deficits. We can argue about appropriate revenue levels, but surely we can agree that they ought to be legislated openly and honestly. Further, indexing on the tax side embodies our commitment to ending inflation. It says quite clearly that we will not rely on inflation to ease our budget problems, but that we will deal directly with the situation. If we lack the will to do that, de-indexing taxes will not help matters. It will be an admission of failure, no more, no less.   https://fraser.stlouisfed.org V' Federal Reserve Bank of St. Louis  1 •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2  As perhaps the staunchest of our warriors against inflation, I would hope you would give these arguments some consideration in evaluating the implications of retaining or eliminating tax indexing. In your letter to Tom Eagleton you say that the "absence of tax indexing does at least work in the direction of closing the present huge budget gap." If that were really so, I might sympathize with your view. Certainly we all have reason enough to question Congress' ability to maintain fiscal discipline. But tax indexing imposes a real discipline that led, in part, to the tax reform measures of 1982. That is the lead we ought to follow, on both the spending and tax side, to close the budget gap. If our only answer is to return to unlegislated tax hikes, then there really is no hope. Since Cid614 BOB DOLE Chairman BD: gph  • •  BOARD  •  dr  GOVERNORS OF THE  •  FEDERAL RESERVE SYSTEM  ••• •. 41  • •  ••••  WASHINGTON, 0. C. 20551  •  &Au. • .• •  May  PAUL A. VOLCKER  ,  CHAIRMAN  The Honorable Thomas F. Eagleton United States Senate Washington, D.C. 20510 Dear Senator Eagleton: Thank you for your letter of March 14 requesting an elaboration of my views on the subject of tax indexing. Actually, my view on the matter is part of a broader instinct-that indexing in general tries to evade the consequences of inflation, and we would be better advised to deal with the ailment directly. • •  In any world approximating that in which we live today, inflation has many undesirable economic effects. In addition to the myriad inequities that it creates, these effects include distortions of the pattern of investment and capital accumulation. Indexation, in general, represents an attempt to neutralize these inequities and inefficiencies. But, even if this were totally successful, in a practical sense it is hard to imagine a world in which indexation made it possible to live with inflation and to escape the costs of the reduced long-run growth and short-term instability that have tended to accompany inflation in the past. Yet, the more we try indexing, the more the temptation to try to live with inflation. I realize strong arguments can be made for tax indexing along the lines of avoiding a 'Government" incentive to inflate to drive people into higher tax brackets or, as you note, to spend more money. Those arguments need consideration, but I suspect that public concern with the effects of inflation in the Presence of an unindexed tax system should serve to focus attention on the heart of the matter--discipline in both monetary and fiscal policies. But I would be concerned with indexing on the spending side as well (or morel). As a second alternative, your proposal to tie the implementation of indexing to achievement of a deficit which is no more than 2 percent of GNP has the advantage that it would help to attenuate the pressing problem of structural imbalance in the budget. For all the inequities and difficulties of an "unindexed' syhtem in a period of inflation,  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  •••  •  •  . The Honorable Thomas F. Eagleton -Page Two  absence of tax indexing does at least work in the direction of closing the present huge budget gap and relieving inflationary and interest rate pressures. If indexing is retained, other means of closing the deficit should be found. I hope that you find these comments useful. cerely,  ikgsgo&  •  •  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  June 22, 1983  The Honorable Martin Frost House of Representatives Washington, D. C. 20515 Dear Mr. Frost: Thank you for your letter, of June 10 regarding the enclosed copy of correspondence sent to the Board of Governors by Mr. Keith McGarrahan, Vice President of Preston Securities, regarding the Board's List of OTC Margin Stocks. For your information, I am pleased to enclose a copy of the Board's direct response to Mr. McGarrahan, along with the enclosure. I believe this letter addresses the concerns raised by your constituent. Please let me know if I can be of further assistance. Sincerely, (Stned) Donald J. Winn Donald J. Winn Assistant to .the Board Enclosures (6/20/83 ltr. from Jack Ryan & 5/31/83 ltr. from Jamie R. Lenoci) C(i):\cd (#V-101) bcc:  Mrs. Mallardi k,//  MARTIN FROST  Cong. Liaison Office will handle response  DISTRICT OFFICES:  DALLAS, TEXAS 75208 0 RePusuc RANK TOWER, ROOM 1 319 4CK) SOUTH ZANG BOUUEVAIRO (214)787-2816  24T)roiSTRICT, TEXAS  RULES COMMrTTEE Cr•-IMITTEE MAJORITY WHIP AT LARGE  Congetisi of tbe itiniteb &tog irptia of RepresSentatibeg  OPFSCE lit.numoso WASHINGTON, D.C. 205 1 5  1 238 Losoowoom4 Fioust  alagbington, 313.C. 20515  (202)225-3805  GFtAND PFtAIRIE, TEXAS 75051 Ratusuc BANK Towts. ROOM 720 SO 1 WEST FREEWAY (214)262-1503 PLEASE REPLY TO OFFICE CHECKED  e -9r1 w.pl C775  r— tri -1r1 -1r1  ---4 1-11  Ca  CZ)  rrl  C77)  4=)  rrt •gC  June 10, 1983  DCA. :PC) )r).  Mr. Paul Volcker Federal Reserve Board 20th & Constitution Avenue, Washington, D.C. 20551 Dear Mr. Volcker: It has been brought to my attention that Keith McGarrahan of Preston Securities, Inc. from Arlington, Texas has received He has unsatisfactory service from the Board of Governors. requested answers to several questions -- all of which I find to be perfectly legmate. In addition, he maintains that he has made several attempts to contact you, yet invariably gets no response. I am enclosing a copy of his letter, which you should have already received. Please respond to me as soon as possible so that I can then relay the answers back to Mr. McGarrahan. Thank you for your help. Sincerely,  Martin Frost MF/js  fn  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -Nor" 4  (I I \ .AKI •.1-0WI.R• 0•3()r) N (•1\ I RAI E \PRI ssMAN SI I I I ()IO DAI I.A• Tixiv.:75231  PRESTONSECURITIES  ,  214.373.4400 SOO • 527.6861  \IIIERS 01 JIlL NEW YORK STOCK EXCI IANGE  424 Lamar Blvd. E., Suite 210 Arlington, Texas 76011  June 6, 1983  Mr. Paul Volcker FEDERAL RESERVE BOARD 20th E., Constitution Avenue, N. W. Washington, D. C. 20551 ,Dear Mr. Volcker:  It is becoming more and more of a problem dealing with your people. A few weeks ago I wrote you concerning Patrick Industries questioning why it was not on the margin list. At that time I was told you would include Patrick assuming the stock did not fall below the $5.00 price level. Of course the stock was approximatley $10.00 when I wrote the letter and is currently $12.00. (These kinds of excuses are more than a little fatiguing). The price during that time never fell below $9.00. Then, the new list comes out without even mentioning Patrick. I simply cannot understand it! On another matter, we asked the question as to why Machine Technology was not on the list. No one even bothered to answer that letter. After watching the Federal Reserve Board for the last several years and having found out more about this, the real problem seems to be with the banks. When banks loan brokers money they don't give value to stocks under $5.00 whether marginable or not. So this whole problem seems strongly related to the convenience of the large banks and "who cares" about the smaller brokerage firms or investors it may inconvenience.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. E. 20551  June 22, 1983  CHAIRMAN  The Honorable Paula Hawkins United States Senate Washington, D. C. 20510 Dear Senator Hawkins: When I testified before the Senate Banking Committee on April 26, you asked my views on whether it would be wise to consider assigning the Board's substantial responsibility for consumer protection regulations to another agency. I promised to give you further thoughts on the question, and I am pleased to do so. With the passage by the Congress in 1968 of the first federal legislation for the protection of individual consumer borrowers, the Board assumed a major role in writing and enforcing rules governing the financial rights and responsibilities of consumers. With each new mandate--first truth in lending disclosures, then credit card rules, equal credit opportunity, fair credit billing rights, consumer leasing, and so on--the Board's involvement in consumer matters has deepened. At the direction of the Congress, the Board has increasingly assumed a leadership role in implementing a host of consumer financial protections, with 15 consumer protection laws and regulations currently administered by the Board. The Board has rulewriting responsibilities for many of these laws, and enforcement responsibilities for all of them. Some Board rules apply to a wide diversity of industry groups; others apply only to banks or depository institutions; still others cover only state member banks. An attachment to this letter gives a brief description of the pertinent consumer protection laws and sets forth the various types of authority we exercise. As you probably know, the Board was at first reluctant to undertake consumer responsibilities, which then seemed so far removed from its traditional role. As I mentioned during our discussion at the hearing, I do not view the Board's attention to these matters as being essential to the function of the central bank. For that reason, we are quite prepared to consider with you and others possibilities for the relocation of responsibilities for some or all of these activities. At the same time, I do want to say that, given the responsibility, the Board has taken these duties seriously and has tried to do a responsible job in administering them--a job that we believe is generally viewed as competent. I believe we have a first class staff in the area, and we and the staff have gained considerable understanding of both consumer and creditor   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  PAUL A. VOLCKER  The Honorable Paula Hawkins Page Two  all concerns through close contacts with consumer groups and segments of the credit industry, including retailers, finance al companies and others not normally associated with the Feder Reserve. In particular, I believe the Consumer Advisory the Council has worked well in conjunction with the Board and the staff. In considering a possible change in the locus for ce responsibilities, the value of maintaining the staff experien less and resources and the Consumer Advisory Council more or intact should not be minimized. Reassignment of these responsibilities could logically take the form either of transfer to an existing agency-presumably the Federal Trade Commission--or of setting up a of separate agency to administer these rules, as well as some the responsibilities of several other agencies. Transfer to the Federal Trade Commission One natural approach would be to transfer all rulewriting, with or without enforcement responsibility, to the ently FTC. The number of retailers and finance companies curr two of subject to FTC enforcement jurisdiction under at least under the Board's regulations far exceeds the number of banks More the direct supervisory authority of the Federal Reserve. a fundamentally, that approach would centralize authority in body concerned with a wider range of consumer affairs. The main difficulty would be that a certain amount of the overlap with the regulation of financial institutions by le, Federal Reserve and other banking agencies would be inevitab ach and financial institutions themselves may find the appro more burdensome. In that connection, although the FTC has considerable Lending experience in enforcing some statutes such as Truth in bilities and Equal Credit Opportunity, many Board responsi itutions, relate exclusively or primarily to financial inst example, where the Commission has very little expertise. For Home Mortgage only financial institutions are affected by the Flood Disclosure Act, the Community Reinvestment Act, the Privacy Disaster Protection Act and the Right to Financial ssion for Act. Transferring rulewriting authority to the Commi tutions to statutes such as these would subject financial insti an unfamiliar regulator. Second, some of the Board's rules, particularly those tly related to under the Electronic Fund Transfer Act, are direc   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Paula Hawkins Page Three  the payments mechanism, where the Federal Reserve has a longstanding interest. Although the Fair Credit Billing Act covers the credit card operations of retailers, it also covers all bank credit card plans--also related to the payments mechanism. Consequently, a certain amount of coordination with the Board would remain necessary. With regard to supervision for compliance (as opposed to rulemaking), one could either transfer supervision along with rulewriting to the FTC, setting up an examination staff within the Commission, or leave in place the current bank examination responsibilities of the Board and other financial supervisory agencies. From our standpoint, enforcement should logically be joined with rulemaking responsibilities, but the examined institutions would probably resist being subject to another enforcement body. Transfer to a New Agency Another possibility would be to move the Board's responsibilities to a new agency. A new agency might take the form of an agency devoted exclusively to consumer credit, as recommended some years ago by the National Commission on Consumer Finance. Formation of a new agency for the primary purpose of assuming the Board's responsibilities would seem hard to justify on cost-effectiveness grounds. To make it worthwhile, a new agency should probably include the transfer of other similar functions from several other agencies. Any proposal along these lines would involve other agencies and programs with which I have no direct experience. Gathering enough activities to justify creation of a whole new agency would have to be considered from the perspective of whether the benefits of centralization would outweigh the transitional disruptions. In summary, I do not believe our consumer responsibilities are critical to our central function as a central bank. I do believe these responsibilities have been of value in bringing consumer concerns to the attention of the Board and its staff, and indications of Congressional, judicial, and public approval of the Board's actions have suggested the present arrangements are broadly acceptable. But we are quite ready to explore specific alternatives that you or others may suggest, keeping in mind the desirability from our standpoint, of rulemaking and enforcement remaining together.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Paula Hawkins Page Four  Should you wish to pursue this matter further, I would also strongly suggest that we compare reactions by our Consumer Advisory Council as well as by financial institutions directly affected. I have asked the Consumer Advisory Council to review this issue. I am, as indicated earlier, also sensitive to the strong desirability of maintaining the strength and composition of the present staff unit involved in this work. Sincerely,  S/Paul A. Volcker  Enclosure  GLG:NT:NS:PAV:pjt bcc: Gov. Teeters Mr. Garwood Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ATTACHMENT  CONSUMER REGULATORY AND ENFORCEMENT RESPONSIBILITIES OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM  The Board is responsible for administering, in various ways, a total of 15 consumer protection laws. The Board has enforcement responsibility over state member banks for all of these laws, and rulewriting responsibility for some of them. A brief, general description of each law follows: The Truth in Lending Act, implemented by the Board's Regulation Z, was enacted to make it possible for consumers to obtain uniform information about credit terns, especially the annual percentage rate and finance charge, offered by various lenders. It enables consumers to compare terms more easily and obtain the financing arrangements that would best serve their needs. Regulation Z prescribes uniform methods for computing the cost of credit and disclosing credit terns, and gives consumers the right during a limited time period to rescind certain credit transactions in which the creditor takes a mortgage or other security interest in the consumer's residence. The regulation also prohibits the unsolicited issuance of credit cards and limits the liability of cardholders for unauthorized use if their card is lost or stolen. 0 The Board's Regulation Z applies to banks, savings and loan associations, credit unions, retailers, finance companies, and all others extending consumer credit. The Board enforces the regulation only with regard to state member banks. The Consumer Leasing Act, which is implemented by the Board's Regulation M, is the leasing counterpart to the Truth in Lending Act. It requires accurate disclosure of both the cost and terms of consumer leases and of leasing terms in advertisements. Like Truth in Lending, its purpose is to enable the consumer to compare more easily the various lease terms and, where appropriate, to compare lease terms with credit terms. 0  The Board's Regulation M applies to hanks, leasing companies, automobile dealers, and all others engaged in lease transactions. The Board enforces the regulation only with regard to state member banks.  The Fair Credit Billing Act, implemented by Regulation Z, provides certain consumer rights in connection with billing procedures and the resolution of billing errors. It sets forth rules that creditors must follow in preparing billing statements and in responding to billing complaints from consumers. It also contains rules to ensure that creditors are fair and prompt in the handling of credit accounts. The rules apply to creditors of open-end accounts--for example, revolving credit and credit card accounts.  2 O  The Board's Regulation Z applies to banks, savings and loan associations, credit unions, retailers, finance companies, and all others extending consumer credit. The Board enforces the regulation only with regard to state member banks.  The Equal Credit Opportunity Act addresses the problem of discrimination in the granting of credit. Implemented by the Board's Regulation B, it prohibits discrimination in the granting of credit on the bases of sex, marital status, race, color, religion, national origin, age, receipt of public assistance, and the exercise of rights under the Consumer Credit Protection Act. (The Truth in Lending, Consumer Leasing, Fair Credit Billing, Equal Credit Opportunity, Electronic Fund Transfer, Fair Credit Reporting, and Fair Debt Collection Practices Acts are all part of the Consumer Credit Protection Act.) The regulation requires institutions to provide, upon request by the consumer, the reason credit was denied. It also gives married individuals the right to have credit histories on jointly held credit accounts maintained in the names of both spouses. O  The Board's Regulation R applies to hanks, savings and loan associations, credit unions, retailers, finance companies, and all other creditors. The Board enforces the regulation only with regard to state member banks.  The Home Mortgage Disclosure Act, which is implemented by the Board's Regulation C, resulted from congressional awareness of the continuing decline in the quality of housing in older urban neighborhoods. The Act requires depository institutions to disclose the geographic distribution of their mortgage and hone improvement loans. Its purpose is to make available, to depositors and others, information that will enable them to make informed decisions about whether institutions in metropolitan areas are meeting the housing needs of their communities. O  The Board's Regulation C applies to hanks, savings and loan associations, and certain other depository institutions. The Board enforces the regulation only with regard to state member banks.  The Community Reinvestment Act is implemented for state member banks by the Board's Regulation BB. Its enactment resulted from many of the same concerns that prompted passage of the Home Mortgage Disclosure Act. This Act extends beyond housing, however, and encourages institutions to help meet the credit needs of their communities, particularly low- and moderateincome neighborhoods, while maintaining safe and sound operations. The regulation provides guidance as to how the Federal Reserve will assess state member banks' performance in achieving their obligations to individuals in the communities they serve. A state member hank's performance is assessed during the course of bank examinations. That assessment is taken into account, along with other factors, when the Federal Reserve considers certain applications for bank mergers and hank holding company formations, mergers, and acquisitions.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I  3  o  The Board's Regulation RB applies only to state member banks. Comparable regulations have been issued by the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Federal Home Loan Bank Board. The Board enforces its regulation with regard to state member hanks.  The Electronic Fund Transfer Act was enacted by the Congress in response to the development and use of electronic fund transfers in place of cash and checks. The Act is designed to protect the rights of consumers who hank electronically. The Act is implemented by the Board's Regulation E, which provides a basic framework regarding the rights, liabilities, and responsibilities of consumers who use electronic transfer services and of the financial institutions that offer the services. Examples of electronic services are automated teller machines, telephone bill-payment plans, point-ofsale terminals in stores, and pre-authorized transfers to or from a consumer's accounts (such as a direct deposit of salary or Social Security payments). o  The Board's Regulation E applies to hanks, savings and loan associations, credit unions, retailers, finance companies, and all others engaged in providing consumer financial services electronically. The Board enforces the regulation only with regard to state member banks.  The Federal Trade Commission Improvements Act authorizes the Board to identify unfair or deceptive acts or practices on the part of banks, and to write rules prohibiting such acts or practices by hanks. If the Federal Trade Commission issues a rule prohibiting a practice, the Bosjrd must issue a similar rule for hanks, unless it determines that such practice is not unfair or deceptive with regard to banks, or that prohibiting it would interfere with monetary policy or the payments mechanism. The Board of Governors is also directed under the Act to create a separate division of consumer affairs and to establish a formal system to receive and act upon consumer complaints about state member banks. The regulation issued under this authority describes procedures for handling consumer complaints against state member banks (Regulation AA).   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  o  The Board is authorized to write regulations prohibiting unfair or deceptive practices that would apply to all banks. The Federal Home Loan Bank Board is authorized to write comparable regulations for savings and loan associations. The Board would enforce its regulation only with regard to state member banks.  The Fair Credit Reporting Act protects consumers against inaccurate or misleading information in credit files maintained by credit reporting agencies. The Act requires these agencies to allow credit applicants to correct erroenous reports. Banks nay be subject to the Act in their role as credit grantors, purchasers of dealer paper, credit card issuers, and employers   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4  O  Although no regulations implement this Act, the Board enforces the Act with regard to state member banks.  The Fair Housing Act (Title VIII of the Civil Rights Act of 1968) forbids any lender froN discriminating in its housing-related lending activities against any person because of race, color, religion, national origin, or sex. O  The Board enforces the Act and regulations issued by the Department of Housing and Urban Development with regard to state member banks.  The Real Estate Settlement Procedures Act is implemented by regulations of the Department of Housing and Urban Development. It establishes rules for creditors to follow in providing borrowers with pertinent and timely information about the costs of the real estate settlement process. The Act protects borrowers against certain abusive practices, such as kickbacks, and places limitations on the use of escrow accounts. O  The Board enforces a regulation issued by the Department of Housing and Urban Development with regard to state member banks.  The Flood Disaster Protection Act covers loans made by federally related lending institutions if the loan is secured by improved real estate or a mobile hone located in a flood hazard area of a community participating in the National Flood Insurance Program. The Act bars the lender from making a federally insured loan unless the property securing the loan is covered by flood insurance. It is implemented for state member banks by the Board's Regulation H. O  The Board's Regulation H applies only to state member banks. Comparable regulations have been issued by the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Federal Home Loan Rank Board, and the National Credit Union Administration. The Board enforces its regulation with regard to state member hanks.  The Fair Debt Collection Practices Act is designed to eliminate abusive and deceptive collection practices. The Act is applicable to hanks that regularly collect debts for other institutions under reciprocal service agreements. For example, the Act would cover a bank that assists another bank in collecting defaulted debts of consumers who have relocated, although it does not apply to a hank's collection efforts on its own behalf. O  Although no regulations implement this act, the Board enforces the Act with regard to state member hanks.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -5  The Right to Financial Privacy Act is based on the belief that customers of financial institutions have the right to expect a reasonable degree of privacy with regard to federal government scrutiny of their financial transactions. This Act establishes specific procedures for government authorities to follow in seeking information about a customer's financial records from a financial institution. It also imposes limitations and duties on financial institutions prior to the release of information sought by government agencies. The Board's Regulation S sets forth the terms and conditions of cost reimbursement for searching for or providing records to the federal government. 0  The Board's Regulation S applies to banks, savings and loan associations, credit unions, and other institutions that assemble or provide customer financial records to a government authority. The Board enforces the Act only with regard to state member hanks.  The Federal Reserve's Regulation 0 governing interest on deposits also includes advertising rules and disclosure procedures to be followed by menher banks. The Depository Institutions Deregulation Act of 1980 provided for the gradual elimination of interest rate ceilings on deposits. However, the Federal Reserve will retain statutory authority to ensure that depositors are fairly informed about the terms of their accounts in advertising and disclosures. 0  The Board's Regulation 0 (and regulations of the flepository Institutions Deregulation Committee) apply to member banks and certain U.S. branches and agencies of foreign banks. Comparable regulations have been issued by the Federal Deposit Insurance Corporation and the Federal Home Loan Bank Board. The Board enforces its regulation and that of the DIDC only with regard to state member hanks.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 205S1 PAUL A. VOLCKER CHAIRMAN  June 21, 1983  The Honorable Jake Garn Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Cam: both before We have discussed on a number of occasions the Senate Banking and after my recent testimony before islation to address Committee the need for positive banking leg and financial system the fundamental need to adapt the banking We both have spoken publicly to a rapidly changing world. of the dangers to the about the need for legislative action and ad hoc and disorderly financial system inherent in the present developments. responding to As a first, and limited, step toward legislation, with a these concerns, I am enclosing draft t temporarily the section by section analysis, to hal depository institutions acquisition of banks and thrifts by non establish rules for and, on this same temporary basis, to depository chartered state by activities nonbanking You have suggested, and I institutions and their subsidiaries. to have a specific agree, that it would be desirable and these limited proposal to accomplish legislative the Congress to focus and transitional objectives placed before expedite public discussion. ary legislation -As I have emphasized, this is tempor 31, 1983 -- designed to expiring of its own force on December discretion and to provide avoid a preemption of Congressional the urgent decisions on the time for the Congress to take up on. Intensive effort by fundamental permanent banking legislati the agencies and other the Congress, with assistance from to assure that the time interested parties, will be required l be used constructively gained from this temporary action wil   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Jake Garn  -2  e agreement on the permanent iev ach to ly ive ect eff and t y, and for the Board, I wan all son per elf mys For on. ati legisl ed to work with you to enact par pre are we t tha you ure to ass on will have such a major impact t tha g rin ctu tru res ded nee the system. the future of our financial Sincerely,  cietiQadizA Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  A BILL of acquisition the temporarily To limit the commencement of depository institutions and state chartered certain new activities by for other purposes. depository institutions and House of Representatives of the Congress assembled, United States of America in  and Be it enacted by the Senate  Sec.  1.  is the date The effective date of this Act  er Act is hereby repealed on Decemb s thi and ent ctm ena its of 31, 1983. Sec.  2.  e of this Act, On or after the effective dat  directly or no company that is engaged  indirectly, including  k activity not permitted for a ban through a subsidiary, in any y Act n 4 of the Bank Holding Compan holding company under sectio ured bank, and no company shall shall acquire control of any ins hout ks in more than one state wit acquire control of insured ban k Holding Company Act. prior approval under the Ban effective date of this Act, Sec. 3. On or after the directly or  no company that is engaged through a subsidiary (other  indirectly, including  , in than an insured institution)  activity permitted for any activity other than an  a  multiple  effective date of this the on y pan com g din hol n savings and loa al of section 408 of the Nation Act under subsection (c)(2) Housing Act or for a bank the  Bank  insured  Holding  Company  n 4 of holding company under sectio Act  shall  acquire  control  of  any  ed in subsection (m) of institution, except as provid  Housing Act. section 408 of the National   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2  Sec.  4.  or acquired control No company that acquires  ion on or after June ut it st in d re su in or nk of an insured ba e bill), shall retain th of on ti uc od tr in 1983 (the date of ive on or after the effect n io ut it st in or nk ba control of such g or indirectly, includin ly ct re di ge ga en d an date of this Act in insured institution), an an th er th (o ry ia through a subsid permitted for a bank ty vi ti ac an an th r he any activity ot t Bank Holding Company Ac e th of 4 n io ct se r de holding company un holding company under an lo d an s ng vi sa le or for a multip t, the National Housing Ac of 8 40 n io ct se of 2) subsection (c)( s acquired pursuant to wa n io ut it st in d re su unless such in t. the National Housing Ac of 8 40 n io ct se of ) subsection (m tain t, no company shall re Ac is th of te da e iv After the effect re an one state that we th re mo in s nk ba d re control of insu of he date of introduction (t 83 19 ne Ju r te acquired on or af al ired with prior approv qu ac re we s nk ba ch the bill), unless su Company Act. under the Bank Holding e date of this Act, iv ct fe ef e th r te af Sec. 5. On or may commence, either n io ut it st in ry to si no state-chartered depo h a subsidiary, any ug ro th g in ud cl in , directly or indirectly that wfully engaged in by la d an ly us io ev pr t activity no authorized for that s wa ty vi ti ac ch su ) institution unless (a implication by a by t no d an ly it ic pl ex type of institution gated interpretation promul by or d, te op ad e state statut tivity is 1, 1983; (b) such ac y ar nu Ja to r io pr thereunder, Holding Company Act nk Ba e th of ) (8 c) n 4( permitted under sectio   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  3-  _  for a bank holding company; or (c) such activity is explicitly authorized  by a state statute, or  thereunder,  and  is  performed  interpretation  exclusively  in  promulgated  the  state  authorizing such activity for customers present in that state; provided, however, that this section  does  not authorize  the  conduct of any activity currently prohibited to state chartered depository  institutions  Glass-Steagall Act.  under  sections  20  or  21  of  the  Nothing in this section shall prohibit a  state chartered savings and  loan association or savings bank  from engaging in any activity expressly permitted for a federal savings and loan association or savings bank  under the Cam -St  Germain Depository Institutions Act of 1982. Sec.  6.  Any state-chartered  that commenced, directly or subsidiary, on or after June  depository  indirectly, including  institution through  a  , 1983 (the date of introduction  of this bill), any activity that would have been prohibited by this Act if commenced after enactment of this Act shall, upon enactment of this Act, immediately terminate such activity. Sec. by  the  7.  The provisions of this Act shall be enforced  appropriate  federal  agency  under  the  Financial  Institutions Supervisory Act of 1966, as amended, and for this purpose any company that controls an  insured  bank  shall  be  treated as a bank holding company. Sec.  8.  For purposes of this Act, the terms:  (a)  "bank  holding  company",  "company",  "control", and "subsidiary" have the same meanings as provided in section 2 of the Bank Holding Company Act;   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4-  -  (b)  "depository  12 U.S.C. meaning as provided in (c) "insured provided  in  12  U.S.C.  institution"  has  the  same  461(b);  bank"  1813(h) and  has  the  shall  same  also  meaning  include  as  any  an insured bank under 12 me co be to le ib ig el institution that is cepts deposits that the ac at th n io ut it st in U.S.C. 1815, and any lar means for payment to mi si or k ec ch by aw dr depositor may with ness of making commercial si bu e th in s ge ga en third parties and e any foreign bank ud cl in t no es do k" an The term "b loans. n expressly exempted io ut it st in an or ch an having an insured br and nk Holding Company Act; Ba e th of c) 2( n io ct under se and "multiple savings n" io ut it st in ed ur ns "i (d) anings as provided in me me sa e th ve ha y" an and loan holding comp tional Housing Act. section 408 of the Na   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Section by Section Analysis that the Act will Section 1 of the bill provides is repealed effective be effective upon enactment and December 31, 1983. the acquisition Section 2 of the bill prohibits y engaged in activities of an "insured bank" by any compan k holding company under that are impermissible for a ban y Act. "Insured bank" section 4 of the Bank Holding Compan bank, the accounts of is broadly defined to include any well as any institution which are insured by the FDIC, as C insured bank and any that is eligible to become an FDI or transaction account institution that accepts demand ss of making commercial deposits and engages in the busine in an activity Thus, a company that is engaged loans. holding companies, such that is not now allowed for bank erwriter or a retailer, as a securities or insurance und called "nonbank not acquire a bank through the socould ding Company Act by bank" loophole in the Bank Hol accounts or commercial divesting the bank's transaction This section would not prohibit the lending portfolio. k by a bank holding acquisition of an additional ban d in nonbanking company, which is lawfully engage er rights or other activities pursuant to grandfath section 4(c)(5) or the provisions of section 4, such as s. export trading company provision company from Section 2 also prohibits any e than one state without mor in ks ban of l tro con ing uir acq Company Act. Acquisitions approval under the Bank Holding Douglas Amendment would that are consistent with the mple, where a given state continue to be permitted, for exa banking organizations or invites entry by out-of-state a trust company that does where the acquisition involves other than in a fiduciary not generally accept deposits capacity. applicable to the Section 3 contains limitations ons similar to those acquisition of thrift instituti banks under section 2. applicable to the acquisition of hibits the acquisition of This section of the bill thus pro which are insured by the an institution, the accounts of in activities other than FSLIC, by any company engaged multiple savings and loan those that are permissible for a s and Loan Holding Company holding company under the Saving of the Act or for a bank Act as of the effective date The Holding Company Act. holding company under the Bank tiple savings and loan activities authorized for mul the same as those for bank holding companies are generally real They differ in areas such as holding companies.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ment and certain estate development, property manage sion activities. An investment advisory and futures commis s section is provided exception to the prohibition of thi roved under the emergency in the case of an acquisition app section 123 of the thrift acquisition provisions in utions Act of 1982. Garn-St Germain Depository Instit the acquisition of a Thus, this section would not prohibit nondepository company failing FSLIC insured thrift by a section 123 of the after the priorities specified in d. Cam -St Germain Act have been applie any company Section 4 of the Act would require titution after the date that acquires a bank or insured ins such bank or insured of introduction of the bill to divest ties to those allowed institution or conform its activi the Savings and Loan under the Bank Holding Company Act or is intended to deter a Holding Company Act. This section to enactment of the possible rush of acquisitions prior bill. limitation on Section 5 of the Act imposes a for state chartered nonbanking activities authorized tion is prospective from depository institutions. This sec affect any activity the date of the bill and does not depository institution commenced by a state chartered This section does before introduction of the bill. tory institution from prohibit a state chartered deposi e of the Act any commencing after the effective dat unless: activity not previously engaged in authorized by (a) the activity was expressly on thereof prior state statute or an interpretati to January 1, 1983; bank holding (b) the activity is permitted for of the Bank companies under section 4(c)(8) Holding Company Act; or authorized by state (c) the activity is expressly the authorizing law, is performed exclusively in customers state, and is provided only to physically located in the state. t it is not Section 5 also makes clear tha ties activity prohibited uri sec any ize hor aut to ed end int Glass-Steagall Act, under sections 20 or 21 of the or sale, underwriting, issuance, the including Section 5 further does not distribution of securities. ivities by state chartered prohibit the commencement of act statutes that allow such thrift institutions under state   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  vity authorized for a ti ac y an m or rf pe to institutions German ution under the Garn-St federal thrift instit ized Act of 1982, which author Depository Institutions . ing and other activities expanded commercial lend immediate termination of Section 6 requires the sitory by a state chartered depo any activity commenced tion of period between the introduc institution during the have been t if the activity would the bill and its enactmen ty had been commenced vi ti ac e th if 5 n io ct se prohibited by n 4 of the This section, like sectio after enactment. mmence ent a possible rush to co bill, is intended to prev ent of in anticipation of enactm new nonbanking activities the statute. by ovides for enforcement Section 7 of the Act pr nancial l agency under the Fi the appropriate federa 1966 (i.e., the y Act of Institutions Supervisor tional ency in the case of a na Comptroller of the Curr the case of a state in d ar Bo e rv se Re l ra de bank; the Fe y; the FDIC in the case an mp co g in ld ho nk ba or B member bank ember bank; and the FHLB nm no d re su in y ll ra de fe of a state rift or a S&L holding th d re su in C LI FS an of in the case any that acquires For this purpose, a comp company). a bank nk would be treated as control of an insured ba holding company. s terms used in the ne fi de t Ac e th of 8 n Sectio bank" as e exception of "insured th th wi y, ll ra ne Ge t. Ac ove, the terms used ab 2 n io ct se of on si us noted in the disc isting provided elsewhere in ex as g in an me me sa e th ve ha law.  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  a ••••••  June 21, 1983  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: I have discussed with you and with Chairman Garn on a number of occasions the need for positive banking legislation to address the fundamental need to adapt the banking and financial system to a rapidly changing world. We have all spoken publicly about the need for legislative action and of the dangers to the financial system inherent in the present ad hoc and disorderly developments. As a first, and limited, step toward responding to these concerns, I am enclosing draft legislation, with a section by section analysis, to halt temporarily the acquisition of banks and thrifts by nondepository institutions and, on this same temporary basis, to establish rules for nonbanking activities by state chartered depository institutions and their subsidiaries. I think we agree that it would be desirable to have a specific legislative proposal to accomplish these limited and transitional objectives placed before the Congress to focus and expedite public discussion. I appreciate your consideration of this matter in the House, and I have forwarded this material to Chairman Garn for consideration on the Senate side. I would like to emphasize that this is temporary legislation--expiring of its own force on December 31, 1983-designed to avoid a preemption of Congressional discretion and to provide the time for the Congress to take up the urgent decisions on fundamental permanent banking legislation. Intensive effort by the Congress, with assistance from the agencies and other interested parties, will be required to assure that   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Fernand J. St Germain Page Two  the time gained from this temporary action will he used constructively and effectively to achieve agreement on the Permanent legislation. For myself personally, and for the Board, I want to assure you that we are prepared to work with you to enact the needed restructuring that will have such a major impact on the future of our financial system. Sincerely,  S/Paul A Man Enclosure MB:NS:pjt bcc: Mr. Bradfield Mrs. Mallardi (2) Legal Records (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  June 20, 1983  The Honorable Timothy E. Wirth Chairman Subcommittee on Telecommunications, Consumer Protection, and Finance Committee on Energy and Commerce House of Representatives Washington, D. C. 20515 Dear Chairman Wirth: Thank you for your letter, of June 15 concerning your Subcommittee's hearing or the Federal Deposit Insurance Corporation proposal to permit subsidiaries of insured nonmember banks to engage in securities activities. I am pleased to let you know that Mr. E. Gerald Corrigan, President of the Federal Reserve Bank of Minneapolis, is looking forward to being with the Subcommittee on June 28 at 9:30 a.m. Sincerely, SiPaul IL Volske;  CO:vcd (#V-106) bcc:  Mr. Corrigan Mrs. Mallardi (2)  Mr. Corrigan will testify  vs,.NINETY-EIGHTH CONGRESS  •r  ROOM B-331 RAYBURN HOUSE OFFICE BUILDING PHONE (202) 225-9304  TIMOTHY E WIRTH COLO , CHAIRMAN  t. EDWARD J MARKEY, MASS AL SWIFT WASH CARDISS COLLINS. ILL ALBERT GORE JR , TENN MICKEY LELAND, TEX JOHN BRYANT. TEX JIM BATES. CALIF JAMES H SCHEUER N Y HENRY A WAXMAN CALIF JOHN D DINGELL MICH (EX OFFICIO)  MATTHEW J RINALDO, NJ CARLOS J MOORHEAD, CALIF THOMAS J TAUKE. IOWA MICHAEL G OXLEY, OHIO JAMES T BROYHILL. N C (EX OFFICIO)  U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON TELECOMMUNICATIONS, CONSUMER PROTECTION, AND FINANCE COMMITTEE ON ENERGY AND COMMERCE  WASHINGTON, D.C. 20515  June 15, 1983  Crr. ) CD 0")  Honorable Paul Volcker Chairman, Federal Reserve Board 20th and Constitution Avenues, N.W. Washington, D.C. 20551 Dear Chairman Volcker: On June 28, the Subcommittee on Telecommunications, Consumer Protection and Finance will hold a hearing on the Federal Deposit Insurance Corporation proposal to permit susidiaries of insured nonmember banks to engage in securities activities. I am writing to invite E. Gerald Corrigan, President of the Federal Reserve Bank of Minneapolis to testify on June 28 on some of the broader public policy issues that should be addressed in the context of this proposal. I have read Mr. Corrigan's article, "Are Banks Special?" with great interest. I believe it makes an important contribution to the current debate about the separation of banking and commerce and the wisdom of permitting a greater degree of consolidation of financial services. I am therefore asking him to testify in his personal capacity and discuss with the Subcommittee members the various points raised in this article. Our primary concern is how this and related proposals will affect the economy. The Subcommittee's objective is to examine changes in financial intermediation and regulation from a fundamental public policy perspective, balancing concerns for competition and efficiency against traditional concerns for the fairness and equity of access to capital and credit, safety and soundness, fiduciary responsibility, conflicts of interest and the concentration of financial resources. The ultimate test of an efficient financial services industry is how well it serves the economy in contributing to economic growth. We would appreciate Mr. Corrigan's responses to the following questions in particular:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ce)  Could the consolidation of important financial services increase the probability that problems experienced by a single financial institution would set off a chain reaction throughout financial markets? What implications does the continuing trend toward a greater consolidation of financial functions have for the effectiveness of the existing public safety net? Since the public safety net is uniquely available to depository institutions, could an expansion of the scope of their powers into areas that may involve greater risk -taking undermine their ability to act as a back-up source of liquidity to other sectors? Could impairment of this function adversely affect other financial institutions such as securities firms for whom banks are a major source of funds? Will overlapping interests in different financial functions increase opportunities for self-dealing? Are conflicts of interest inherent in the financial supermarket concept? Can adequate safeguards be devised to prevent an erosion of the impartiality of the credit decision-making process? The hearing will be held at 9:39_1_4.n the Rayburn House Office Building, room to be announctT, tri6rgy and Commerce Committee rules require that 75 copies of any prepared testimony be available for the use of the Subcommittee Members no later than Friday, June 24. All written statements will be included in the hearing record in full. In order to maximize the opportunity for questions and exchange with the Subcommittee Members, we ask that he limit his oral summary presentation to no more than ten minutes. If you or President Corrigan have any questions regarding his testimony, please feel free to contact me, or Jane D'Arista or Darina Chlumecky of the Subcommittee staff at 202/225-9304. On behalf of the Subcommittee, I thank you for your assistance and look forward to hearing President Corrigan's testimony on June 28. With best wishes,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely yours,  Timothy E. Wirth Chairman  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON,0. C. 20551  June 20, 1983  PAUL A. VOLCKER CHAIRMAN  The Honorable John Heinz United States Senate 20510 Washington, D.C. Dear Senator Heinz: I have now had an opportunity to discuss with the Board issues raised by the legislation introduced by you last year, S. 3059, requiring payment of interest on reserve balances held against deposit accounts that are directly competitive with money market funds. We feel that as a general matter payment of a market-related interest rate on reserve balances--whether held against deposit accounts specified in the proposed bill or against all deposit accounts requiring reserves--is worthwhile on grounds of equity and also on the more technical ground that it will work to discourage development of transactions-type accounts outside the depository system. Such accounts outside banks and thrift institutions would not under current law be subject to reserve requirements of the Federal Reserve, and their proliferation would complicate the implementation of monetary policy. However, the Board also generally believes that payment of interest on reserves should be phased in over time, taking due account of the potentially adverse effects on Treasury revenues under the current difficult fiscal conditions and to minimize complications for monetary policy associated with transition to the new way reserves would be treated by depository institutions if they were interest-bearing. The bill in question would limit interest on reserve balances to money market deposit accounts (MMDAs), super-NOW accounts, and also, if our reading of the your bill is correct, regular NOW accounts. The payment of interest on reserve balances held against MMDAs--only the non-personal portion of which is subject to reserve requirements--would be a step favored by the Board at this time. Paying interest on reserve balances held against super-NOW accounts would make them more competitive with money market funds, although this might add further to uncertainties in interpreting the monetary aggregates, particularly Ml, by causing a shift of funds now held in the form of MMDAs into super-NOW accounts. With interest paid on reserve balances, depositors would be able to receive as good a yield on superNOW accounts as on MMDAs--abstracting from service charges depository institutions might impose--and the former would also   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  aora,..•  The Honorable John Heinz Page Two  have the capacity for unlimited transfers by check. But payment of interest on super-NOW reserve balances does open up the issue of-whether interest should also be paid on reserve balances of all transactions accounts. As deregulation proceeds, it will be difficult to distinguish super-NOW accounts functionally from regular NOW accounts. Paying interest on all NOW account reserve balances--and perhaps at some point extended to balances held against demand deposits generally-would involve a fairly significant drain on Treasury revenues. Thus, while the Board as a matter of principle favors payment of interest on all reserve balances, the question of whether interest should be paid on reserve balances held against regular NOW accounts, or transactions accounts more generally, should be judged additionally from the perspective of overall fiscal considerations and equity in the raising of revenue. As a final point, the Board feels that for technical monetary control reasons it would be better to pay interest on reserve balances on a more current basis than the one quarter lag in your legislation. There would probably be less potential for complicating monetary control if the law gave the Board discretion to set a rate based on or related to market rates, or--if it were felt that more specificity was desirable--based on the average yield on, say, the System's Treasury bill portfolio in a current month. •••••••..  Sincerely,  SZfayi (SHA:NS:)DJW:pjt bcc: Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  =IML  June 16, 1983  The Honorable Mark Anlrews United States Senate Washington, D. C. 20510 Dear Senator Andrews! In his absence, Chairman Volcker has directed me to make an interim response to your letter regarding Dakota Bankshares. On May 3, 1983, the Board denied the application filed by Dakota Bankshares to acquire the Dakota Bank of Wahpeton. The Board's Order, a copy of which is enclosed, explains that the denial was based upon the fact that the chain banking organization consisting of Dakota and its affiliates did not meet the Board's Capital Adequacy Cuidelines. As to the timeliness of the Board's action, while the Dakota application was originally filed in August 1982, it was substantially revised and amended by Dakota on February 17, 1983. Dakota has recently submitted to the Board a revised proposal. The proposal is under active consideration and a decision on it will be made shortly. Your letter will be brought to the Board's attention in connection with its consideration of the proposal. Chairman Volcker is lookinc into this matter personally. We will provide you with a complete response to your letter in the near future and will keep you informed of developments in this matter. Sincerely,  Donald J. Winn Assistant to the Board Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  VM:vcd (11V-102) bcc: Mr. Bradfield Mr. Mattingly S&R Clearing Unit (w/copy of incoming) Mrs. Mallardil.  MARK 0. HATFIELD. OREG., CIUURM AN --fib ---STEVENS, ALASKA LOWELL P. WEICKER, JR., CONN. JAMES A. MC CLURE. IDAHO • PAUL LAXALT, NEV. JAKE GARN, UTAH THAD COCHRAN. MISS. MARK ANDREWS. N. OAK. JAMES ABONOR, S. OAK. ROBERT W. KASTEN, JR., WIS. ALFONSE M. D AMATO, N.Y. MACK MATTINGLY, GA. WARREN RUDMAN, N.H. ARLEN SPECTER, PA. PETE V. DOM ENICI. N. MEX.  Action assigned Mr. Ryan  JOHN C. STENNIS. MISS. ROBERT C. BYRD. W. VA. WILLIAM PROXMIRE. WIS. DANIEL K. INOUYE, HAWAII ERNEST F. HOLLINGS. S.C. THOMAS F. LAGLeroN, Mo. LAWTON CHILES, FLA. J. SENNETT JOHNSTON. LA. WALTER D. HUDDLESTON, KY. QUENTIN N. MURDICK. N. OAK. PATRICK J. LEAKY. VT. JIM SASSER. TENN. DENNIS DE CONCINI. AEI& DALE BiUMPERS, ARK.  2Cnifeb Ziatez senate COMMITTEE ON APPROPRIATIONS WASHINGTON. D.C. 20510  J. KEITH KENNEDY, STAFF DIRECTOR FRANCIS J. SULLIVAN MINORI TY STAFF DIRECTOR  June 10, 1983  Mr. Paul Volcker, Chairman Board of Governors of the Federal Reserv e System 20th And Constitution Avenue, NW Washington, D.C. 20551 Dear Chairman Volcker: I tried to call you this week but you wer e out of town, Therefore, I thought it was wise to put my concern in writing and contact you personally next week. I would appreciate it very much if you and your staff could shed some light on the status of an application for a proposed bank in Wahpeton, North Dakota . When I was home over the Memorial Day recess, it was pointe d out to me that there is an application for a State Banking Cha rter in Wahpeton, North Dakota, which was approved by the North Dakota State Banking Board in July of 1982. I'm told tha t the required applications were made to the Board of Governors of the Federal Reserve System on August 23, 1982, but that no action was taken by this Board until May 3, 1983. This consti tutes a period of some 253 days for action. It is my unders tanding from my staff legal counsel that Congress specified that such action should be completed within 91 days. If your people could provide an explanation to me as to this extreme del ay, it would be most helpful. Certainly, from our prior rel ationship, I know that this kind of delay is not tolerated by you or your staff. The concern I have, Mr. Chairman, is tha t the state of North Dakota desperately needs the jobs that will be created by a new business such as this bank. Also, given the present situation in agriculture and small busine ss, southeastern North Dakota has a requisite for capital, len ding and other benefits that could be derived from this new financ ial institution. The only banking competition provided in the Wahpeton area at this time is by the two very large chain banking orgainizations out of Minneapolis, Minnesota. They hav e protested and fought this attempt by North Dakota people to put a new locally owned and locally managed bank in the city of Wah peton. The information I was given over the Memorial Day recess and a follow-on check by my staff indicates to me that the sole basis for denial by the Board of Governors was a purported lack of capital in the bank holding company. However, it would app ear that this bank   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ce2  Mr; Paul Volcker, Chariman June 10, 1983 page 2  holding company, headquartered in North Dakota, has as good a capital-to-asset ratio as the two competing large bank holding companies from Minneapolis. If this is not correct, I would certainly appreciate any other information you could give me on it. It's our hope, Mr. Chairman, that this application, approved as it is by North Dakota, can be approved by your Board as well in a timely fashion. If that is not forthcoming, we would appreciate your providing us with definitive criteria which we can meet in order to obtain approval. My staff would be most happy to work with anyone you might designate to eliminate any problems that might preclude the granting of such a charter. We would appreciate hearing from your office on ways we can jointly expedite this matter. Timeliness is of the essence, since the major requirements for capital in our state occur during the late summer and fall, If the facts Dakotans are if you would be more than possible.  that have been given to me by these key North not accurate, it would be most helpful to me bring this to my attention. Be assured I'll happy to cooperate directly with you in any way  I will be calling to visit with you on this matter. Sincerely,  MARK ANDREWS U.S. Senator  MA/agn   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  June 16,1q83  The Honorable George Bush President of the United States Senate 20510 Washington, D.C. Dear Mr. Vice President: Pursuant to the requirements of Section 206 of the ary Control Act Depository Institutions Deregulation and. Monet report on the activof 1980, I am pleased to submit my annual Committee ities of the Depository Institutions Deregulation viability of during its third year of operation and on the depository institutions.  Sincerely,  Enclosure Identical ltrs. also sent to:  bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Speaker O'Neill, Chrmn. Garn & St Germain, Sen. Proxmire & Cong. Wylie  Mr. Ettin Mrs. Mallardi (2)  a   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ANNUAL REPORT TO THE CONGRESS ON THE DEPOSITORY INSTITUTIONS DEREGULATION ACT OF 1980 FOR THE YEAR ENDING MARCH 31, 1983  by  Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System  ,  Introduction The general decline in interest rates since last summer has reduced the pressure on many institutions' earnings, particularly thrift institutions, as the cost of their funds has moved more into line with the return on assets held in their portfolios.  Those institutions that relied on short-  term, market-rate and indexed liabilities to fund long-term, fixed-rate mortgages have been able to replace a large volume of high-cost liabilities at lower yields, while the gradual maturing of low-yielding mortgages will boost income flows over time.  Moreover, the congressionally mandated money market  deposit account (MMDA) has clearly improved the ability of depository institutions to compete with other market instruments for consumer and other funds.  However, for the time being at  least, the improvement in earnings for thrifts has been slowed as a result of the introduction of the MMDA and its aggressive pricing, particularly at the start.  Indeed, the very success  of the MMDA, by increasing the proportion of very short-term liabilities, has greatly increased the sensitivity of deposit costs to changes in market rates of interest, a matter of some concern for the future. While 1982 still showed large losses for thrifts, the outlook for the industry has changed dramatically.  By the  end of last year, the aggregate earnings of the industry had moved from a large loss to near a break-even position, and further improvement appears likely in 1983.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Certain individual   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2  institutions will continue to experience losses and eroding net worth.  Capital assistance programs that were established  under the proons of the Garn-St Germain Depository Institutions Act of 1982 will, however, provide the means for dealing with these problems in an orderly way. The Committee, acting in part under new directions from Congress, continued in 1982 the process of deregulation in order to improve the competitive position of depository institutions relative to unregulated financial services firms and to give savers with small balances more ready access to a variety of insured instruments paying market rates.  Within the legisla-  tive constraints, the Committee weighed the effects of each action on the earnings and viability of institutions.  The bene-  fits accruing to institutions as new or deregulated instruments and accounts attract additional funds were balanced against the possible negative effects on earnings arising from the higher costs of deposits that are tied to market rates or are free of any indexing. The legislatively mandated money market deposit account is an example of both the benefits and risks associated with deregulation.  The MMDA has provided depository institu-  tions with a device competitive with money market mutual funds. Deposit growth, particularly at thrift institutions, picked up sharply in early 1983, largely due to huge flows into MMDAs which both banks and thrift institutions have marketed aggressively.  Happily, the introduction took place at a time 5f  3-  sharply lower interest rates.  Nevertheless, these initial  inflows have come at some cost for many institutions.  Intro-  ductory rates on MMDAs often were well in excess of market   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  yields, reflecting attempts to capture market share and to attract funds from money market mutual funds.  Moreover, to  the extent that the MMDA has induced internal transfers of funds from low-yielding passbook savings deposits, it has reduced the earnings of all depository institutions from what they otherwise would have been, especially the thrifts which can least afford it.  Recently, rates on the MMDA have moved  more nearly in line with the yields on instruments in which the funds are being invested. The MMDA's negative effects on institutions' earnings through internal deposit shifts and introductory pricing are in many respects transitory, but the account will also have an important longer term effect on earnings by increasing their sensitivity to changes in interest rates.  MMDA balances already  account for as much as one-sixth of thrift institutions' total deposit balances.  Changes in deposit costs due to interest rate  fluctuations will thus be reflected in institutions' net earnings earlier until their asset portfolios are also restructured toward more rate sensitive instruments.  Effect of removing interest rate differentials One of the issues to be addressed in the annual report required by Congress is the effect of removing the differential on the ceiling rates payable by thrift institutions and those  4-  -  payable by banks.  A differential still exists on several major  account categories, including passbook savings accounts, fixedceiling time deposits, the small saver certificate (whose maturity was reduced to 18 months effective April 1, 1983), and the 26-week money market certificate.'  The Cam -St Germain legisla-  tion has mandated the elimination of all differentials no later than December 31, 1983.  Even sooner, on May 1, 1983, the dif-  ferential was eliminated on the 91-day account as a result of the DIDC decision at its June 29, 1982 meeting when the account was authorized. Evidence suggests that allowing thrift institutions to pay a differential does assist them in attracting funds relative to banks.  The eventual elimination of the differential  thus could affect to some degree deposit flows to thrifts.  On  the other hand, data about rates and deposit flows on ceiling free accounts suggest that market determined "differentials" tend to arise in the absence of regulatory ceilings. In particular, ceiling free accounts have given thrift institutions the opportunity to determine deposit rates based upon prevailing competitive conditions, their portfolio composition and costs, and their marketing strategies.  A comparison  of yields on the MMDA and Super NOW in May 1983 revealed that the rates offered by thrifts exceeded those offered by commercial  1. There is a differential on the MMC only at certain levels of interest rates.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -5-  banks by 39 and 20 basis points, respectively.  In some instances  the differences in rates paid by thrifts and banks may be greater than previous regulatory differentials; in other instances they may be smaller.  The question, of course, remains as to whether  thrifts can prudently, and profitably employ, over time, funds obtained at rates higher than their immediate competitors.  Disintermediation This annual report is also required to discuss the "disintermediation of savings deposits from insured banks and insured thrift institutions to uninsured money market innovators paying market rates to savers." The disintermediation problems of depository institutions have eased considerably since the last report, and since late last year have been reversed.  Not  only the decline in interest rates, but also a decrease in fears about the viability of institutions, has led to an increase in deposit flows to thrift institutions since mid-1982.  These  flows have been supplemented by the introduction of the new MMDA and the Super NOW account instruments. The authorization of the MMDA and the Super NOW account, in addition to the ceiling free time deposit established in May 1982 (the maturity of the ceiling free time deposit was lowered from 3-1/2 years to 2-1/2 years in April 1983), has given commercial banks and thrift institutions instruments competitive with money market instruments.  Growth in MMDAs has been  -6  extremely rapid, with MMDA balances exceeding $300 billion only three months after the introduction of the account. Super NOW balances totaled about $26 billion atter three months--a lower growth rate than the MMDAs but comparable to the growth of ordinary NOW accounts when they were first introduced.  Funds flowing into the MMDA have come from a  variety of sources.  Evidence in the early weeks after its  introduction suggested that on the order of one-fourth of MMDA balances represented shifts from money market mutual funds and other non-deposit instruments (excluding large certificates of deposit); money funds were still experiencing net redemptions of shares in February and March, but the total share of MMDA growth accounted for by shifts from such funds and other market instruments has declined from that of the initial weeks.  Recommendations for legislative and administrative actions Each member of the DIDC is asked to make recommendations of measures to encourage saving, to provide equitable treatment to savers with small balances, to ensure an adequate flow of funds to thrift institutions and the housing market, and to maintain the viability of depository institutions. In light of these aims, Congress may wish to reconsider the question of paying interest on transaction deposits for all depositors.  Given the history of this question, it is well that  the approach to it has been judicious.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The creation of the NOW  account represented the first in a series of steps toward the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -7-  payment of interest on all transaction deposits. have, however, been carefully controlled.  These steps  The NOW account was  first authorized in limited geographic areas.  Even when author-  ized nationwide, eligibility for it was restricted to individuals and certain non-profit organizations, and a ceiling was placed In 1982  on the rates that depository institutions could offer.  the groups eligible to hold interest bearing transaction accounts were expanded by Congress to include governmental units.  In  keeping with the Garn-St Germain Act, the Committee authorized the Super NOW account which is ceiling free, but whose eligibility is restricted to those authorized to hold NOW accounts. The Congress may want to consider extending to other groups, primarily businesses operated for profit, the eligibility to hold transaction deposits paying explicit interest.  Depository  institutions are already paying implicit interest on the deposits of these groups through the provision of operational and credit services.  In addition, methods of paying explicit interest have  been developed; these include devices such as sweep accounts that link a checking account to an investment vehicle and move balances in excess of a target level into the market instrument. It is thus increasingly less meaningful to create special categories of depositors that cannot receive explicit interest payments on transaction balances. Pending such a Congressional decision, a transactional MMDA for businesses was considered at both the December 1982 and March 1983 DIDC meetings.  The Committee has delayed further  -8-  consideration  until June of 1983.  Congressional guidance in  this area would be valuable. Second, as part of an urgently needed review of the structure of financial regulation, I believe the Congress should assess again the appropriate definition and functions ot a bank to the end that, among other purposes, the application of reserve requirements might be rationalized among depository institutions and money market funds. The past year has brought new opportunities and challenges to depositors and institutions alike.  The reduction in  the minimum denomination of money market certificates and 91day accounts together with the authorization ot the MMDA has provided the saver with small balances the opportunity to earn a market rate of return.  New accounts have enhanced the flow  of funds to thrift institutions.  Initially, these funds have  been placed in liquid assets, but new commitments for mortgages at savings and loan associations have shown continued strength, suggesting an eventual increase in the volume of mortgages as well.  The DIDC will need to review remaining ceiling rate limi-  tations to be sure that regulatory policy itself does not induce a shorter and potentially more fragile liability structure among depository institutions. New accounts are not, however, a panacea for the problems of thrifts or the housing market.  Over the long run, our  social goals with respect to savings, thrifts, and the housing industry can only be met by both monetary and fiscal policies   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -9-  that encourage price stability and lower interest rates. this direction.  ultimately a climate ot  We have made significant progress in  Further improvement will ensure a timely and  orderly deregulation of depository institutions.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  June 13, 1983  PAUL A. VOLCKER CHAIRMAN  The Honorable Doug Barnard, Jr. Chairman Subcommittee on Commerce, Consumer, and Monetary Affairs Committee on Government Operations House of Representatives Washington, D. C. 20515 Dear Chairman Barnard: Thank you for your letter of May 23 concerning the government's 14.4 million warrants to purchase Chrysler Corporation common stock at $13 per share. I understand that Secretary Regan, as Chairman of the Chrysler Corporation Loan Guarantee Board, is preparing specific answers to the questions you raised in your letter concerning the disposal of the warrants. In the meantime, you may be interested in my letters to Senator Proxmire and Representative Green, copies of which are enclosed. As these letters reflect, I have been and remain opposed to disposing of the warrants for less than fair value. Thank you again for your interest in this matter. Sincerely,  Enclosures  (Ltrs. to Cong. Green and Senator Proxmire from Chairman Volcker dated 5/23/83)  GMallinson/HJorgenson/DLKohn/NSoss:vcd (V-91) bcc: Ms. Mallinson, Mr. Jorgenson, Mr. Kohn, Ms. Wing, Mrs. Mallardi  Action assigned Mr. Kichline DOUG BARNARD, JR., GA., CHAIRMAN D COLEMAN, TEX JOHN M SPRATT, JR., Sc JOHN CONYERS JR., MICH ELLIOTT H LEVITAS, GA HENRY A. WAXMAN, CAUF  NINETY-EIGHTH CONGRESS  Congre55 of the initebifotate5 lbousSe of Repregentatibt5  JUDD GREGG N H WILLIAM F CLINGER JR PA TOM LEWIS FLA MAJORITY-(2021 225-4407  COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE  COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING, ROOM B-377 WASHINGTON, D.C. 20515  May 23, 1983  Hon. Paul Volcker Chairman Federal Reserve Board Washington, D.C. 20551 Hon. Donald T. Regan Secretary Department of the Treasury Washington, D.C. 20220  Go, Ce.) --4  Hon. Charles A. Bowsher The Comptroller General of the United States General Accounting Office Washington, D.C. 20548 Gentlemen: I am writing to you in your capacity as members of the Chrysler Corpora tion Loan Guarantee Board. As you know, in 1979 the Chrysler Corporation agreed, in return for UD to $1.6 billion in loan guarantees from the federal government, to give the government warrants to buy 14.4 million Chrysler shares for $13 per share by 1990. At the time of the agreement Chrysler stock was worth less than $5 per share. The stock recently has sold for up to $29 per share. If the warrants were exercised or sold at current prices, they would yield approxi mately $220 million in profit to the government. Since the matter is clearly of concern to the Congress, J would appreci ate it if you would supply responses to the following by June 13, 1983: 1.  In a recent meeting with the staff of the Board, it is reported that Chrysler raised the possibility of the Board canceling all or part of the warrants. Although Chrysler subsequently withdrew its request for the present, how will the Board dispose of such a request if it is made again?  2  How will the Board decide whether to keep the warrants, whether to sell them in the open market, whether to exercise them or whether to cancel all or part of them?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  a.  What specific criteria or guidelines are provided by the Loan Guarantee Act and its legislative history to guide your decision?  3.  b.  What other goals and criteria will you use in making such a decision?  c.  Are there any legal or other impediments to an immediate sale of the warrants?  d.  Is it the Board's intention to derive the maximum possible return for the government, consistent with maintaining the financial health of Chrysler Corp.?  e.  Will the Board weigh the benefit to Chrysler, its employees and the auto industry generally in receiving S13 per share for the warrants (for a total of $188 million) if they were to be exercised? Will it consider dilution in the present shareholder's equity? Will it consider the impact on the price of Chrysler stock if the warrants or the stock were sold?  What is the Board's timetable for making decisions regarding the warrants? Will they he exercised or sold before 1990 or held to maturity? Sincerely,  Doug R rnard, Jr. Chairm n DB:tji:v   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4191111119191.9=mmom7  9   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  June 14, 1983  The Honorable Doug Barnard, Jr. Chairman Subcommittee on Commerce, Consumer, and Monetary Affairs Committee on Government Operations House of Representatives Washington, D. C. 20515 Dear Chairman Barnard: Thank you for your letter of June 3 concerning your Subcommittee's hearing on the activities of the bank regulatory agencies and the Department of Justice in identifying and prosecuting criminal violations of banking laws by officers, directors and insiders. I am pleased to let you 'glow that Mr. John E. Ryan, Director, Division of Banking Supervision and Regulation, will be appearing on June 28 on behalf of the Board. Sincerely,  CO:vcd (V-96) bcc:  Mr. Ryan Mr. Bradfield Mr. Mattingly Mrs. Mallardi (2)  DOUG BARNARD, JR., GA. CHAIRMAN RONALI2 D COLEMAN, TEX JOHIY SPFIATT, JR.. S.C. JOHN CONYERS, JR. MICH. ELLIOTT H LEVITAS, GA. HENRY A. WAXMAN, CAUF.  NINETY-EIGHTH CONGRESS  JUDD GREGG, NH WIUIAM F CLINGER, JR PA TOM LEWIS, FLA  Congross of tbe Ztiniteb 'tate  MAJORITY-(202) 225-4107  jOolust of Repregentatibez COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE  Cong. Liaison Office doing memo to Chairman  OF THE  COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING, ROOM B-377 WASHINGTON, D.C. 20515  June 3, 1983  Hon. Paul A. Volcker Chairman Federal Reserve Board Washington, P. C. 20551 Dear Mr. Chairman: On June 28, 1 983, the Commerce, Consumer and Monetary Affairs Subcommittee will hold a hearing on the activities of the bank regulatory agencies and the Department of Justice in identifying and prosecuting criminal violations of banking laws by officers, directors and insiders. The subcommittee held a hearing on the failure of Penn Square Bank, Oklahoma City, Okla., in 1982 and is now investigating the failure of Hrited American Bank of Knoxville, Tenn., and various other Tenr ,ssee banks. On may 27, 1983, five hanks in Tennessee having assets of about $750 million were closed by the Tennessee State Commissioner of Banking. In these and other instances, possible criminal violations of banking laws by tank officers, directors and insiders have been found by the Comptroller of the Currency and the Federal Deposit Insurance Corporation and referred to the Justice Department. I am writing now to request that the appropriate Federal Reserve official testify at the subcommittee hearing concerning the following: 1.  Describe generally how and under what circumstances the Federal Reserve investigates violations of the criminal laws relating to bank officers, directors, employees and insiders. a.  Describe the adequate?  b.  How are referrals to the Department of Justice handled? Are they investigated by the Federal Reserve before referral to the Department of Justice? Does the Federal Reserve follow up on such referrals to determine what action has or has not been taken?  c.  From January 1981 to date, list each criminal referral involving a hank officer, director, employee or insider made by the Federal Reserve to the Department of Justice and describe the nature of the violation alleged. Identify which involved closed and which open banks.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  resources  available for  these  purposes.  Are  they  2 d.  P.  For each of the cases prosecuted by the Department of Justice on the basis of referrals from the Federal Reserve, set forth the date of referral and the date on which an indict ment was brought.  a.  When the Department of Justice ref uses or is unable to prosecute a referral, what explanation is provided the Federal Reserve and what alternatives -- such as referrals to sta te criminal authorities or use of its supervisory, non -criminal disciplin ary action against officers, employees and directors of its banks -are available to the Federal Reserve?  b.  In this regard, set forth each instan ce, since January 1, 1981, of Federal Reserve disciplinary action under its supervisory powers, against an officer, employee or direct or of a regulated bank for violations of laws, regulations and orders . Include, as to each, a brief description, including year of the vio lation, the disciplinary action taken, the Position of the individua l(s) involved, final disposition, and indicate whether the fin ancial institution involved was open or closed.  c.  Provide the subcommittee with the nam es of bank officers, directors and employees removed or suspended by your agency from January 1, 1973 to date, including the name of the instituti on involved and the reasons for and date of removal Or suspension.  d.  Set forth your agency's position on the pub lic disclosure of instances of disciplinary actions against named office rs and directors, when violations are of a serious, non -techn ical nature. Would public disclosure have a deterrent effect on future misconduct by others?  2  3.  Based on the referrals described in ans wer to 1.c. above, list and describe each indictment (including the name(s) of the defendant(s) and bank affiliation) brought against a bank officer, director, employee or insider for violations of Tit le 18 of the United States Code, particularly Sections 2, 152, 215 , 371, 656, 1001, 1005, 1007, 1014, 1341, 1342, 1343, 2314, and 2315. Set forth the ultimate disposition (including sentence) of each cas e listed.  Set forth the Federal Peserve's views on the adequacy of the present system of criminal referrals, including the role played by the Justice Department in the process. What changes would you recommend to improve the prosecution of criminal violations of banking laws?  Please supply the data requested in que stions 1 c, d and e and question 2 h and c sufficiently in advance of the hea ring, hut not later than June 20, in order to permit advance examination of the data for use at the hearing. Please supply 25 copies of the Federal Reserve's testimony one day prior to the hearing and an additional 50 copies on the day of the hearing. Sincerely,  A-1?jf Doug nard, Jr. Chairman nB:jh   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  June 13, 1983  PAUL A. VOLCKER CHAIRMAN  The Honorable Walter E. Fauntroy Chairman Subcommittee on Domestic Monetary Policy Committee on Banking, Finance and Urban Affairs House of Representatives 20515 Washington, D. C. Dear Walter: I have now had an opportunity to discuss with the ed by Board issues raised by the legislation introduc rest on reserve Congressman Barnard requiring payment of inte are directly combalances held against deposit accounts that that as a general petitive with money market funds. We feel rate on reserve matter payment of a market-related interest unts specified in balances--whether held against deposit acco unts requiring the proposed bill or against all deposit acco ty and also on the reserves--is worthwhile on grounds of equi discourage develmore technical ground that it will work to ide the depository opment of transactions-type accounts outs thrift institutions system. Such accounts outside banks and rve requirements would not under current law be subject to rese ation would compliof the Federal Reserve, and their prolifer cy. However, the Board cate the implementation of monetary poli interest on reserves also generally believes that payment of account of the should be phased in over time, taking due revenues under the potentially adverse effects on Treasury to minimize complicacurrent difficult fiscal conditions and transition to the new tions for monetary policy associated with ry institutions if way reserves would be treated by deposito they were interest-bearing. on reserve The bill in question would limit interest (MMDAs), super-NOW balances to money market deposit accounts draft bill is coraccounts, and also, if our reading of the of interest on reserve rect, regular NOW accounts. The payment -personal portion of balances held against MMDAs--only the non --would be a step which is subject to reserve requirements favored by the Board at this time. against Paying interest on reserve balances held competitive with money super-NOW accounts would make them more further to uncertainties market funds, although this might add particularly Ml, by in interpreting the monetary aggregates, the form of MMDAs into causing a shift of funds now held in on reserve balances, super-NOW accounts. With interest paid good a yield on superdepositors would be able to receive as from service charges NOW accounts as on MMDAs--abstracting the former would also depository institutions might impose--and   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I.  The Honorable Walter E. 7auntroy Page Two  have the capacity for unlimited transfers by check. But payment of interest on super-'Mrt7 reserve balances does open up the issue of whether interest should also be paid on reserve balances of all transactions accounts. As deregulation nroceels, it will he difficult to distinuish super-NOW accounts functionally from regular Nn- accounts. Paying interest on all NOW account reserve balances--and perhans at some point exten ded to balances hell againct demand deposits generally—would involve a fairly significant drain on Treasury revenues. Thus, while the Board as a matter of principle favors paynent of interest on all reserve balances, the question of whether interest should be paid on reserve balances held against regular rrT7 accounts, or transactions accounts more generally, should be ju'lqed al-7itionally fro-, the nersnective of overall fisca l consilerations and equity in the raising of revenue. As a final point, the Board feels that for technical monetary control reasons it woula be better to pay interest on reserve bPlances on a more current basis than the one quart er lag in the proposed legislation. There would probably be less potential for cor7licatim7 monetary control if the law gave the Board discretion to set a rate basel on or relatel to marke t rates, or--if it were felt that more snecificity was desirable—based on the average yield on, say, th.:.! vstem's Treasury bill nortfolio in a current month. Sincerely,  SHA:NS:vcd bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Axilrod Mrs. Mallardi (2)  April 25, 1983  The H000rable Walter E. Fauntroy Chairman Subcommittee on Domestic Monetary Policy Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Walter: I know it has been some time since you wrote asking for my response to legislation introduced by Congressman Barnard that mandates payment of interest on reserve balances held against certain deposit accounts deemed to be directly competitive with money market funds. I believe your staff has been informed that I had asked our people for a technical analysis of the economic and monetary implications of the legislation; that analysis is now well advanced. Perhaps it would be most productive if we forwarded substantive comments on the :proposal after I have had an opportunity to discuss the issues involved with my colleagues. I appreciate your patience on this matter, which does raise Important issues for monetary policy and also, to a degree, for prospective Treasury revenues. Sincerely,  SHA:pjt (V-279 (1982)) bcc: Mr. Axilrod Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  June 10, .-L3  The Honorable Harley O. Staggers, Jr. House of Representatives Washington, D. C. 20515 Dear Mr. Staggers: In the absence of Chairman Volcker, I am responding to your recent letter on behalf of Mr. Timothy Sirk, who has expressed an interest in employment with the Board of Governors. In order to properly evaluate his credentials, please have Mr. Sirk contact Ms. Kathy Warehime 52-3880, at of our Division of Personnel on (20? his earliest convenience. You can be assured that his background of training and experience will be given careful consideration for all appropriate positions which are to be filled now or in the near future. We appreciate having your, recommendation on behalf of Mr. Sirk. Sincerely,. (Signed) William R.  ""7-11  William R. Maloni Special Assistant to the board  KW:CO:DJW:vcd (V-94) bcc:  Ms. Warehime Mrs. Mallardi  Action assigned Mr. Shannon WASHINGTON OFFICE 1504 LONGWORTH HOUSE OFFICE BUILDING WASHINGTON D C 20515 (202) 225-4331  'eRLEY 0. STAGGERS, JR. 419 2ND DISTRICT, WEST VIRGINIA COMMITTEES  Congrcss of thct1nitiT e tatcs  AGRICULTURE SUBCOMMITTEES DEPARTMENT OPERATIONS RESEARCH, AND FOREIGN AGRICULTURE DOMESTIC MARKETING. CONSUMER RELATIONS, AND NUTRITION FORESTS, FAMILY FARMS, AND ENERGY  touse of Rtprantattes Vashington, D.C. 2o515  VETERANS AFFAIRS  May 23, 1983  SUBCOMMITTEES  DISTRICT OFFICES KEYS ER (304) 788-6311 UmseuFIG (304) 645-3188 MARTINSBURG (304) 267-2144 MOFIGANTOWN (304) 291-6001  HOSPITALS AND HEALTH CARE OVERSIGHT AND INVESTIGATIONS  --ri c --15 rrs  (=> ":1'• C=2  Mr. Paul A. Volcker Chairman Federal Reserve Board Twentieth Street and Constitution Avenue NW Washington, D.C. 20551  rr; --! 1-6 rr". C.: :74.7  CD  Dear Mr. Volcker, I am writing this letter on behalf of Mr. Timothy Sirk, who is applying for a position on your staff. I have known Mr. Sirk for a number of years, and I believe he would be a well-qualified individual for your staff. Mr. Sirk is a hard-working, dedicated person who has the ability to work well with others. He has just completed his studies at the West Virginia Univerity College of Law, and I believe he could be an asset to you. I would fully recommend him for a position on your staff. If I can provide further information on Mr. Sirk, please feel free to contact me.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  With warm regards, I remain Sincerely yours,  Harley Stagger Member of Congress  BOARD OF GOVERNORS OF THE SYSTEM RESERVE RURAL  AlLntiltan wetu pork  31initar .;$tateo .;$,Ematt.1583 JUN 1 5 PM 12: 23 avit1ington,31 T. RECEIVED OFFICE OF THE CHARM June 13, 1983  Dear M  airman:  As Orwell once observed, there's always room for one more custard pie! Best,  Honorable Paul A. Volcker Federal Reserve Board Constitution Avenue and 21st Street, NW Washington, DC 20551 Enclosures   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Newspaper articles Citations:  Number of Pages Removed: 2  Moynihan, Daniel Patrick. "The Deficit: Let's Not Borrow Trouble." Wall Street Journal, June 9, 1983. Roberts, Paul Craig. "Mr. Feldstein's Fiscal Folly." Wall Street Journal, June 1, 1983.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1  June 7, 1883  The Honorable Jack Kemp House of Representatives Washington, D.C. 20515 Dear Jack: It is we who should be thanking you for a little different evening last week -- different ir terms Jf the point of view we often get and maybe even different in reflecting a strong intellectual interest by one Member of Congress in more arcane elements of monetary policy. It was refreshing for all of us, even though once or twice I would have liked to mount the podium for rebuttal (I do think those structural deficits loon much larger in the years ahead). It was also good to have Jeff with us -- it will inspire me for an appropriate Dartmouth oration. Sincerely,  PAV:ccm   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  HOUSE OF REPRESENTATIVES WASHINGTON, D. C. 20515  411P  June 1, 1983  The Honorable Mike Lowry House of Representatives Washington, D. C. 20515 Dear Mr. Lowry: Thank you for your letter of April 29 with regard to the application of BankAmerica Corporation to acquire Seafirst Corporation. You indicate that you have asked the Hous e Committee on Banking, Finance and Urban Affairs to hold hearings on this matter and have requested the Board to withhold final approval pending the outcome of these hearings. I am responding to your letter to Chairman Volcker since the application is now pending before the Board. The Board has published a Federal Register notice as required by the Bank Holding Company Act, and interest ed parties have been afforded an opportunity to express thei r views through May 31. Your comments will be made part of the official record in this case and will be given full consider ation. With respect to your request that the Board delay acti on until Congressional hearings are held, I am sure you unde rstand the situation is such that the public interest may requ ire the Board to act prior to that time. Let me assure you that the Board will very carefully examine this merger request. As part of that process, the Board is required by the Bank Holding Company Act to balance the public benefits to be derived from this proposal , including the probable effect of the transaction in meeting the convenience and needs of the community, against its possible adverse effects. I would be pleased to keep you informed of the status of this application. Sincerely, RC:CO:DJW:pjt bcc: Roger Cole Jack Ryan Mrs. Mallardit/   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Donald J. Winn Assistant to the Board  411KE LOWRY SEVENTH DISTRICT WASHINGTON  Mrs. Mallardi Action assigned to Jack Ryan (info, copy to Mike Bradfield)  comktrr-rtfs  BUDGET  CHAIRMAN TASK FORCE ON INTERNATIONAL FINANCE AND TRADE  1206 LONGWORTH HOUSE OFFICE BUILDING WASHINGTON, D C 20515 (202) 225-3106 107 PREFONTAINE PLACE SOUTH SEATTLE, WASHINGTON 98104 (206) 442-7170  Congretfs of Or ?Elniteb iPtate5 liptuSe  of Reprtgrntattin5  afAington, iD.C. 20315  BANKING, FINANCE AND URBAN AFFAIRS SUBCOMMITTEES  HOUSING AND COMMUNITY DEVELOPMENT INTERNATIONAL TRADE INVESTMENT AND MONETARY POLICY INTERNATIONAL DEVELOPMENT INSTITUTIONS AND FINANCE  April 29, 1983  MERCHANT MARINE AND FISHERIES (ON ,EAVE)  Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Twentieth Street and Constitution Avenue, NW Washington, D.C. 20551 Dear Mr. Volcker: I am writing to express my deep concern about the potential merger between Seattle First National Bank and BankAmerica. I am particularly disturbed that this merger has been proposed with very short notice and in an atmosphere of crisis with very little information made available to either the U.S. Congress or the Washington State legislature. Seattle First National Bank is by far the dominant financial insitution in the Northwest ano holds almost 40 percent of the deposits in the State of Washington with almost 200 branches throughout the state. We have many unanswered questions concerning the impact of a merger of the nation's second largest bank in terms of assets, BankAmerica, with nation's ninteenth largest bank in terms of deposits, Seafirst. A merger of this magnitude raises serious concerns about the fundamental principles underlying our nation's financial system including the continued stability of the system, undue concentration of economic and financial power, prohibitions on interstate banking, ano the proper role of federal bank regulatory agencies. I have askeo the House Committee on Banking, Finance ano Urban Affairs to hold hearings in the near future on this issue. I strongly encourage the Federal Reserve to very carefully examine the merger request and to withhold final approval of this proposed merger until after the Congress has had the opportunity to thoroughly and expeditiously investigate this situation. Thank you for your consideration.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  cerely, //„. ZAr„,/ Mike Lory- , Member bf Congress Ca—)  ••••••=. ••  t‘)  C=> .710 C:7  ..• • • • • 0? GOVe •• R4,•. ." 0  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  •  PAUL A. VDLCKER  •1•AL •....••  May 31, 1983  CHAIRMAN  The Honorable Dan Rostenkowski Chairman Committee on Ways and Means House of Representatives 20515 Washington, D.C. Dear Dan: Thank you for sending me a copy of your recent speech on U.S. trade policy before the Mid -America Committee in Chicago. I have sympathy for many of the points you made, although my perspective on some of them may differ a bit. I would note, for example, that the relation between today's trade problems and the depressed state of the domestic economy is not unique to the United States; almost all industrial countries, including Japan, experienced a dramatic decline in their exports in 1982. The developing countries, with their greater dependence on commodity exports, were particularly hard hit. From that perspective, it is crucially important to ensure a sustainable, non-inflationary economy and, as you state, to strive to construct and to maintain a viable multinational trading system. The success of these efforts will affect not only the economic vitality of our own economy but also that of many other countries. Your call for rational policies--I would add of a longterm nature--to stimulate the industrial adjustment process is also very important. We need to recognize not only the changing structure of our comparative advantage but also the need to accommodate such change at minimum social cost. Finally, I might comment on the question of the contribution of exchange rate movements to our current trade problems. As I noted earlier, those problems have not been limited to the United States, where our currency has been relatively strong. This is one reason why I believe that it is easy to exaggerate the contribution of the dollar's strength to our trade difficulties. At the same time, I would be quick to admit that the strength of the dollar in recent years has added to the competition felt by our export- and import-competing industries. However, I would not seek a solution to these problems through the formal stabilization of the world's exchange rate system, since I believe that the behavior of exchange rates fundamentally is determined by economic policies not by systemic factors; rather I would argue as you do that   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Dan Rostenkowski Page Two  tie source of much of our problem in this area lies in our bloated budget deficits which nut upward pressure on dollar interest rates and tend to keep the dollar artificially strong. I hope that these comments may be helpful. The issues you have raised are important, and I aprlaud you for furthering the discussion o‘' rational and reasonab]e trade policies. Sincerely,  Ylauj  EMT:CO:vcd (V-84) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Truman Mrs. Mallardi (2)v7  • •  NINETY.EIGHTH CONGRESS  211.  DAN ROSTENKOWSKI. ILL. CHAIRMAN  SAM M GIBBONS FLA J J PICKLE TEX CHARLES B RANGEL NY FORTNEY H (PETE) STARK, CALIF. JAMES R JONES OKLA ANDY JACOBS JR IND HAROLD FORD. TENN ED JENKINS. GA RICHARD A GEPHARDT MO THOMAS J DOWNEY N Y CECIL ICECI HEFTEL, HAWAII WYCHE FOWLER. JR. GA FRANK J GUARINI, N J JAMES M SHANNON MASS MARTY RUSSO ILL DON J PEASE OHIO KENT HANCE TEX ROBERT T MATSUI. CALIF BERYL ANTHONY. JR ARK RONNIE G FLIPPO ALA BYRON L DORGAN N DAK BARBARA B KENNELLY CONN  BARBER B CONABLE JR NY JOHN J DUNCAN TENN BILL ARCHER, TEX GUY VANDER JAGT MICH PHI.JP MI CRANE ILL BILL FRENZEL MINN JAMES G MARTIN N C RICHARD T SCHULZE PA. BILL GRADISON OHIO W HENSON MOORE LA. CARROLL A CAMPBELL. JR.. S.C. WILLIAM PA THOMAS. CALIF  COMMITTEE ON WAYS AND MEANS U.S. HOUSE OF REPRESENTATIVES WASHINGTON, D.C. 20515  (-4.3  rri rvi  ▪  r-  fr.n  May 9, 1903  1-11 -r1  JOHN J SALMON CHIEF COUNSEL JOSEPH K DOWLEY ASSISTANT CHIEF COUNSEL ROBERT J LEONARD CHIEF TAX COUNSEL A L SINGLETON. MINORITY CHIEF OF STAFF  -  r,  rT1 70  ......• --  C/ ...... C!) —I  . ...r 7"..  CO  r --1 -  The honorable Paul Volcker Chairman, Board of Governors Federal Reserve System Constitution Avenue & 21st Street Washington, D.C. 20551 Dear Paul: ,nclosed is the text of a trade speech I plan to present tonight to the Nid-America Committee in Chicago. As it addresses some of the more serious trade problems before us, I would be interested in any comments you might have. Sincerely yours,  an Rostenkowski Chairman DR/mp Lnclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  c:=>  I(  VD  ROSTENKOWSKI TRADE SPEECH  FOR RELEASE AFTER 6 P.M. MONDAY, MAY 9, 1983  FOR INFORMATION CONTACT John Sherman - 202-225-Pq33  The following are remarks by Rep. Dan Rostenkowski (D-I11.), prepared for delivery in Chicago to the Mid -America Commi ttee on Monday, May 9, 1983 at 8 p.m.:  Trade, like ,energy a decade ago, has become a national issue fraught with ambiguity and a sense of peril. We have sudde nly awakened to the stinging reality that the competitive lead we took for granted has all but vanished. Just as we controlled the flow and the price of energy after World War II, so we virtually dominated the world 's trade laws and markets. Unlike the dramatic oil embargo, our trade crisis is much less visible -- and much less abrupt. Yet the growing hostility in our union halls and boardrooms against mounting compe tition from Japan and Europe is strikingly reminiscent of our sense of frustration and impotence toward OPEC. But from those dark days of gas lines we struck back -- first with crude quotas and conservation laws, and later with longrange pricing and international contingencies. We fought back on the energy crisis. And now we've got to fight back on the trade crisis. And it is a crisis. U.S. trade, which has grown steadily since the end of the war, has now begun to decline. In 1982 our exports dropped by almost 10 percent, and for the first quarter of 1983 they are even below 1982 levels. The $42 billion trade deficit that we posted in 1982 is expected to nearly double this year. Negative trade balances and economic stagnation feed on one another -- not just here, but around the world. As barriers go up the world market has shrun k, severely curtailing U.S. exports. Developing nations, whose markets offer the greatest potential, have become the first victims. To survive they must borrow more and more from the developed natio ns. The third world debt today exc,3eds $600 billion, which other wise might fund greater productivity at home. Over the last few years the cycle has become more '7icious -- further weakening the world's economic condition. Add to that the breakdown of international trade laws. Our attempts to broaden and enforce the General Agreement on Tarif fs and Trade are either ineffectual or ill-timed. Our allies show little interest, or consensus, in using GATT as a forum for settl ing grievances. Rather, most have decided to pursue their own self-interests -- beyond the limits of established law. The overrated strength of the dollar is playing absolute havoc with our domestic market -- particularly against the under valued Japanese yen. As mounting U.S. deficits ironically support high interest yields to foreign investors, the relation of the dolla r to other currencies becomes distorted. The effect has invited a rush of imports into the country and driven up the price of American goods abroad. In both instances, U.S. commerce is being sacrificed at the very time we are so desperately trying to nurture recovery. The pest efforts of some of our major industries to modernize production, curtail excess and improve quality are increasingly negated by the differential in currency rates. Yet the current Administration seems disinclined to intervene. National debate -- particularly in ronaress -- is sadly limited by the brittle cliches of "free trade" and "protectionism." The first is a myth. The second is a menace.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Free trade is a noble quest. It had its finest hour after World War II when Europe and Japan were pulled from the rubble by historic amounts of American aid. Our gen erosity was largely tied to the premise that the world's political stability would be determined by the world's economic growth. As revitalized nations reached out for foreign markets, America initiated the GATT which led to the dramatic reduction of trade barriers and the further expansion of world commerce. We expected the rest of the post-w ar economies to develop after the U.S. model. We never considered tha t different cultural and geographic factors would set them on individua l courses. All this was done under the banner of free trade. But as national self-interests eme rged, the industrial powers began to quilt a patchwork of sub sidies, tax expenditures, non-tariff barriers and guaranteed loans to bet ter position themselves against their competitors. And the U.S. was no exception. Those who today beat the drums,for free trade often conveniently disregard our own long-standing agricultural barriers and quotas -- or the billions of dollars the Federal government commit s to the research and development of particular industrial sectors, like aerospace and defense. We may have the freest and the faires t trading system in the world -- but let's not call ourselves pure "free traders." The latest cry in Congress, of course , is protectionism -- the true barometer of hard times. It's the easiest political response to the complex realities of unemploym ent and economic stagnation. In America, where the notion of our post-war economic supremacy has lingered well beyond its time, protectionism seems more to reflect our anxiety over losing our once dom inant position in world trade than the emerging challenge from abr oad. We fear that the legend of Yankee ingenuity and risk-taking has ended. Instead of confronting the realities of our competitive sli de and efficiencies, we often raise convenient targets for retributi on. Dozens of protectionist measures hav e been introduced in Congress since January -- all the way from man dating the domestic content of U.S. automobiles to raising the tariff on imported roses. Many are only warning shots fired across the bow of our trading partners -but some are torpedoes aimed squarely amidships. All, however, indicate the frustration and the pressure on politicians to do something. By far, the most immediate force beh ind protectionism is the enduring recession. As long as unempl oyment remains close to 10 percent -- as long as record deficits and high interest rates persist and long-term investment in plant and equipment is held back -protectionist pressures will mount. Amidst all this trouble, many forget that checking imports in an att empt to shore up domestic industry and jobs only weakens world commerce -and ultimately weakens commerce in our own country. The second -- and less direct -- cau se for protectionism is fear over the lack of a coherent U.S. trade policy. Instead, we have a confusing hodgepodge of non-tariff barrie rs, subsidies, and tax incentives, as well as complex and ineffecti ve trade laws. Put bluntly, we don't have a trade policy. And without a trade policy (or eve n the promise of an overall strategy), bus iness, labor and politicians have no sense of purpose -- only uncertainty. Recent proposals to reorganize the Admini stration's trade functions only increase uncertainty and do not sol ve the real problem of creating and implementing an effective trade pol icy.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The blame does not lie only with the Reag an Administration. It stretches back a decade or so when we failed to recognize that the old post-war formulas were outdated -that the entire world economic structure was changing. We were stil l guided by a Marshall Plan mentality that reinforced our false sense of preeminence. We saw no reason back then to take a comprehensiv e look at the viability of our auto, steel and electronics industries -- a practice of our partners that we curse today as "industrial poli cy." With a huge and expanding domestic market for our goods and serv ices, we grew increasingly complacent. Administrations have consistently play ed trade as a political, rather than an economic, card in dealing with our foreign friends and opponents. Whatever trade policies emerge are too often shaped by the rewards and punishment employed to meet our immediate political ends -- rather than to shift the emph asis of our economic policy. Witness the recent Russian pipeline sanctions -- and the more recent renewal of Russian grain sales. By contrast, our trading competitors view trade and foreign policy as one concept. American trade policy is still shaped by crisis rather than vision. Compared to many of our allies, we inst inctively respond to the demands of the vulnerable, rather than guiding the paths of the strong. If inflation does not prop up farm prices, we rush in with subsidies like this year's Payment-in-Kind program. If our steel industry is rusting because of overcapacity and underinvestm ent, we are there with tax benefits like accelerated depreciation and safe harbor leasing or out-and-out quotas. When Chrysler was on the verge of collapse we guaranteed loans and stepped up the pres sure on voluntary Japanese export restraints. But for U.S. enterpri se that is pressing its way jr the world with technological breakthrough s or sheer managerial agility, the Federal government doesn't do enough to promote or hasten their success. What's worse is that our own policy para lysis is forcing us to strike out randomly at our trading part ners -- particularly Europe and Japan -- for following their own sel f interests in time of international stress. Foreign barriers to our exports, unfair pricing competition and heavy foreign government subsides have provoked predictable -- and very legitimate -- cries of "unfair" acro ss the country. We are less vocal, however, when it comes to the for esight, determination and flexibility that are the driving forces of our competitors' trade strategy -- and which provide a painful foil to our own complacency. I'm a politician. I think I understand better than most the cycles of national sentiment. Sometimes the best course is to hunker down and wait for the tide to change. Other times it is right to strike -- to take the offensive. In my view, we must take the offensive in reordering American trade policy. And that means setting down clear-cut, pragmatic objectives. First -- we must abandon the rhetoric of "free trade" and "protectionism," and concede that neither holds the answer for the future. No useful purpose is served by continuing to force the debate to one extreme or the other. Second -- we must move trade policy on to the same plateau foreign policy. We no longer have the lux ury of treating trade cessions and sanctions as the handmaidens to security interests strategies. Instead we must place American commercia l gains in rank of priorities.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  A.  with conor global the first  We must establish the Administration' s role as a teammate, rather than a referee, to American business and labor. Government must become an advocate rather than an adversary. As a congressman, I want to be able to promise every American busine ssman and worker that if they turn out a competitive product our governmen t will fight for a foreign market to sell it in. We must begin at once to assess our own industrial and technological base to give us a firm readin g on our national capacity -our strengths and our weaknesses. Right now we're overwhelmed with our casualties. Our successes too often go unnoticed -- along with opportunities for future market pen etration. Likewise, we need a thorough ana lysis of the broad range of subsidies, tariff and non-tariff bar riers, regulations, tax expenditures and research and development incentives to weed out contradictions, duplications and obsolesce nce. The tax code alone is studded with emergency relief against eco nomic conditions that have long since changed. Third -- we have got to begin applyi ng a consistent, fair -but tough -- set of rules to the pra ctices now governing world trade. Liberal trade rules are fine if they are respected the world around. But the old rules no longer guide our allies. We need to say to the rest of the world: "We will treat you fairly, but if you go too far in distorting trade we will vigorousl y protect our national interest." But if we're going to have such rul es we have to apply them consistently and be willing to live by them oursel ves. We've finally got to recognize that agriculture and steel and semi-conductors no longer compete head-to-head for foreign market shares. The old rules of competition are now controlled by central banks and government planning boa rds. Like it or not, we have entered, the age of the mercantile state. It's time to begin planning on thi s basis, both in adapting our own system and checking over-aggressive foreign policies when the nation al interest dictates. We already have some very tough tra de laws on the books. Before the year is out the Committee on Ways and Means will have reformed them to quickly and effectively redress legitimate grievances. Fourth -- we need to develop rat ional policies to stimulate adjustment for industries that have lost their competitive edge and to regain our technological and productive capabilities. When import or tax relief is sought, a pri ce should be paid, or a standard met -whether it's retraining or rei nvestment. To an extent, crisis has already forced this upon some of our industries. But crisis management merely gets us by, day-to-day. We must do better than that. In realigning the thrust of Americ an enterprise we cannot simply abandon our traditional industrie s -- many of whom, in the best of times, will never regain their former size. We've got to consider eliminating overcapacity in industrie s such as steel -- perhaps in conjunction with our trading partne rs -- as well as to seek more specialize(I use of our older mills and plants, and encouraging further joint ventlIres with foreign inv estors. We should also begin to retrai n, or otherwise accommodate, workers in older industries -- particula rly men and women in their for ties and fifties. Such changes in many cases, however, cannot be made without personal ilsrur•tion. Workers must recognize that wit h new opportunities must come a change in the status quo.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  We should begin a thorough review of our anti-trust laws, as well as encourage productive partnership between government and the private sector -- particularly in research and development. Promoting change in overall trade policy will not be easy or inexpensive. We must be prepared to make some difficult choices regarding the survival of certain firms. It means the willingness to commit billions of dollars to expand the capacity of future production like telecommunications -- as well as subsidize U.S. ventures into markets already being undercut by our competition. Fifth -- the world's exchange rate system must be stablized. For trade to be orderly, our monetary sys tem must operate evenly and effectively. Each is a cogwheel that must turn with the other. The first opportunity presents itself this week in Paris where finance and trade ministers of the free wor ld's major industrial powers gather to address this imbalance. Sixth -- we must not abandon our eff orts to keep the multinational trading system viable. While GATT no longer shows the intere st or the power to adjudicate our present grievances, we must hope that the emergence of a tough, pragmatic Ame rican trade policy will prompt our allies to return to the internationa l negotiating tables. Finally, the nation's most important short-run objective reverse our own economic slide -- giv ing hope to our partners our recovery will hasten their own recoveries. Unless we can tough budget resolution that guaran tees the steady decline of deficits, I don't see how we can eve r bring that about. The next quantum leap in world wants to compete with our allies we start rebuilding. We are still the largest trader in the world. I for sleeves to keep it that way.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  is to that write a Federal  trade is at hand. If America had better quit complaining and freest and the fairest and the one am ready to roll up my  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 . r   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  PAUL A. VOLCKER CHAIRMAN  May 26, 1983  Honorable Bill Boner Member of Congress Congress of the United States House of Representatives Washington, D. C. 20515 Dear Mr. Boner: • Thank you for your letter regarding the financial assistance recently granted to the United Southern Bank of Nashville by the Federal Deposit Insurance Corporation. As you may be aware, the Federal Reserve provides loans for the purpose of accommodating the short term liquidity needs of banks. Although we appreciate your interest in and support for the United Southern Bank, the decision as to the terms and conditions upon which long term capital assistance is provided to banks rests with the Federal Deposit Insurance Corporation. In the interest of assuring that your views are known by the Federal Deposit Insurance Corporation, I have taken the liberty of forwarding a copy of your letter to that agency. Sincerely,  BILLBONER  DISTRiCT OFFICE  5.1- H DIS- RICT. TENNESSEE  •  552 U S COuRTHOUSE  COMMITTEES  NASHVILLE TENNESSEE 37203 815-251-5295  APPROPRIATIONS  WASHINGTON OFFICE  ENERGY AND WATER DEVELOPMENT  ROOM 107  •  _HUD-INDEPENDENT AGENCIES  Congress of the laffitai gkatcs toust of REprantadins  SELECT COMMITTEE ON AGING CHAIRMAN. CONGRESSIONAL TRAVEL AND TOURISM CAUCUS  CANNON HOUSE OFFICE BUILDING 202-225-4311  IDashington, D.C. 2015 May 6, 1983  Mr. Paul A. Volcker, Chairman Federal Reserve System 20th Street and Constitution Avenue, NW Washington, DC 20551  1,•••••• ...n  ▪ rn  CO  an rn  c=-3 rn  ..... WI"  CD  c:3 Pz:, :r•c= . ,....., --n ...._.... c= ....n ...n A CD ,  ;n c=, .Fri •••=_rn -----  --c.-?.. 1".•'';  rt, ....,. r..e•  1•.••.•• •••••••  •...%.  Re:  •  :a.m.. emna••  .•  •..w.:  C:21  CO') -  C/D  Z::)  U. S. Bank 200 Fourth Avenue North Nashville, TN 37219  Dear Mr. Volcker: I am writing this letter to express my interest in the U. S. Bank. As you are aware, the bank was extended a temporary loan to assist them. I have been advised by bank officials that converting this loan to a permanent fixed maturing loan would be of benefit in helping the bank to resolve their current problems. I would like to urge you to consider converting this temporary loan to a permanent loan to benefit this bank, thus benefiting the State of Tennessee as well. Thank you for considering this option for U. S. Bank. Please let me know if I may be of further assistance on behalf of the bank by contacting my Nashville office. Sincerely, ww-  Bill Boner Member of Congress BB/dgt   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Tom Mottern Mr. George Thompson, III  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  7171A) /c 9 BILL BONER  DISTRICT OFFICE  H DIS-RICT, TENNESSEE  \JI) cop-  COMMITTEES APPROPRIATIONS ENERGY AND WATER DEVELOPMENT HUD-INDEPENDENT AGENCIES  Congrcsz of the Unitcd e$tates uousc of Rtpusentatitics  SELECT COMMITTEE ON AGING CHAIRMAN CONGRESSIONAL TRAVEL AND TOURISM CAUCUS  552 U S COURTHOUSE NASHVILLE TENNESSEE 37203 615-251-5295 WASHINGTON OFFICE ROOM 107 CANNON HOUSE OFFICE BUILDING 202-225-4311  illashington, B.C. 20515 May 6, 1983  C-4:3 CZ3'  C.A-)  Mr. Paul A. Volcker, Chairman Federal Reserve System 20th Street and Constitution Avenue, NW Washington, DC 20551 4.••••• ••  Re:  U. S. Bank 200 Fourth Avenue North Nashville, TN 37219  CA)  Dear Mr. Volcker: I am writing this letter to express my interest in the U. S. Bank. As you are aware, the bank was extended a temporary loan to assist them. I have been advised by bank officials that converting this loan to a permanent fixed maturing loan would be of benefit in helping the bank to resolve their current problems. I would like to urge you to consider converting this temporary loan to a permanent loan to benefit this bank, thus benefiting the State of Tennessee as well. Thank you for considering this option for U. S. Bank. Please let me know if I may be of further assistance on behalf of the bank by contacting my Nashville office. Sincerely,  Bill Boner Member of Congress BB/dgt cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Tom Mottern Mr. George Thompson, III  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  May 26, 1983  The Honorable Walter E. Fauntroy Chairman Subcommittee on Domestic Monetary Policy Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman Fauntroy: Thank you for your lette. r of May 25 regarding the joint oversight hearing on the Federal Reserve pricing of services and Federal Reserve compliance with Section 107 of the Monetary Control Act of 1980. I am pleased to let you know that Mr. E. Gerald Corrigan, President of the Federal Reserve Bank of Minneapolis, will be appearing on behalf of the Federal Reserve on June 16. Sincerely,  I IDENTICAL LETTER TO CHAIRMAN BARNA RD CO:vcd (#V-92) bcc:  Mrs. Mallardi  `31r-  •  I  MIN==l1M,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  President Corrigan will be testifying  Congre55 of the ZL1niteb  tatt5  1Douck of 1epre5entatibe5 litlazbington, D.C. 20315 May 25, 1983  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System 20th and Constitution Avenue, N.W. Washington, D.C. 20551  e=, -n .••••, Fi rn --.1 --, e--, L.-..7. rn ---; F.1 .r ...... C", rn = c,., :-•;j7: :::: :,.. _ • -r ..._  e_n c=::.  -.1 rvi r...-3 =  ›.. g5 r— am< IQ cr) P3'" 4....  ....m.... ••  N)  C./5  CJ -•••4 rn ...MN  Our subcommittees, the Subcommittee on Domestic Monetary Policy of the Committee on Banking, Finance and Urban Affairs, and the Subcommittee on Commerce, Consumer, and Monetary Affairs of the Committee on Government Operations, will hold joint oversight hearings on June 15 and June 16, 1983, on the Federal Reserve pricing of services and Federal Reserve compliance with Section 107 of the Monetary Control Act of 1980. Section 107 established the basic criteria under which the Federal Reserve System is to price explicitly its services to depository institutions. These hearings will examine whether the Federal Reserve's pricing of check clearing and ACH services and its proposals for reducing float meet the criteria of Section 107 of the Monetary Control Act of 1980, and will evaluate the impact of these actions on financial institutions, on consumers and businesses, and on the Federal Reserve's net earnings paid to the Treasury.  1. What role should the Federal Reserve play in check clearing and electronic transfers generally? For example: a. Should the present arrangement of competition in clearing services between the Federal Reserve and the private sector be maintained, or should it be changed in basic ways? b. Is there an inherent contradiction between the role of the Fed as regulator of financial institutions and the role of the Fed as competitor? c. Is a major operational role in check clearing necessary to the Federal Reserve's functioning as a central bank?  7J  c...3 7,t.,, en ,-,,-,r, —1 C") f --..- --- c..., :xi .,c- r-.1 -g-rn ryl  Dear Mr. Chairman:  We are writing to request that you or your designee (who we understand will be E. Gerald Corrigan, President of the Federal Reserve Bank of Minneapolis) testify at the hearings on Thursday, June 16, 1983. We suggest that your testimony address the following questions, as appropriate:  en 7,...  C.:0   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Chairman Volcker  - 2  May 25, 1983  2. Is the Federal Reserve, in the pricing of its check-clearing services, competing fairly with the private sector? For example: a. Does the Federal Reserve's cost-allocation system provide a fair and complete allocation of all Fed clearing costs to Fed clearing services? b. Does the Private Sector Adjustment Factor as now constructed provide a fair and complete approximation of capital and tax costs incurred by private sector clearing services but not by the Fed as a public institution? c. Should presentment fees charged by banks to correspondents be included in the Fed's pricing of check clearing services, ignored, or banned altogether? d. In other respects, is the Fed's present pricing schedule and policy of annual pricing reviews for funds transfer services appropriate and adequate? e. Should Federal Reserve prices in the future be set at levels sufficient to recover past revenue shortfalls? What would be the effects of such a policy on consumers, competitive parity with private sector providers, Federal Reserve volume, and the Federal budget? 3. Are the Fed's proposals for reducing float cost-effective, attentive to the needs of the financial institutions, and consistent with fair competition between private clearing services and the Federal Reserve? For example: a. Should the Fed proceed as scheduled with its proposal for a noon presentment time for checks? b. Should the Fed proceed as scheduled with its proposals for pricing or eliminating interdistrict float, return-item float, and other types of residual float? 4. To what degree do legal barriers (such as interpretations of the McFadden Act which restrain interstate pick-ups of checks by banks and reserve requirements on customer clearing balances at correspondent banks) constrain the private sector from competing on an equal footing with the Fed in check clearing services? 5. In what ways can and should the Federal Reserve change or expand its check clearing services in order to reduce costs to the consumer? For example: a. Should the Federal Reserve initiate a separate low-cost clearing service for low-value consumer checks, as recommended by the General Accounting Office in its report of May 1982?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Chairman Volcker  May 25, 1983  b. Can and should the Federal Reserve establish a nationwide program to speed the processing of return items so as to reduce consumer problems with delayed funds availability? 6. What are the present and projected levels of use of the Automated Clearing Houses? What future roles are envisioned for either private or Federal Reserve provision of an automated clearing system (including whether or not the Federal Reserve through this or a future automated clearing house system should act as coordinator or principal provider for local switches or networks)? In what activities are the Federal Reserve and other providers of services engaged in order to lower consumer costs through electronic means, such as an early truncation service? The joint hearing on Thursday, June 16, 1983, will be held in the afternoon at a time and in a room to be specified shortly. We would appreciate receiving for the use of the Members and staff of both subcommittees 100 copies of your written testimony at the Commerce, Consumer, and Monetary Affairs Subcommittee office (Room B377 of the Rayburn House Office Building) at least 48 hours before the hearings. We recommend that you also bring an additional 100 copies of your testimony to the hearing for the use of the members of the public and press who may be in attendance. Should you or your staff have any questions regarding this hearing, please contact Don Tucker or Richard Peterson of the Subcommittee on Commerce, Consumer, and Monetary Affairs at (202) 225-4407, or Howard Lee or Andrew Bartels of the Subcommittee on Domestic Monetary Policy at (202) 226-7315. Sincerely,  10# •  / 1 14 viz I  tC 42-  Doug Bairnard, Jr., Chairman Subcol101ittee on Commerce, Consumer, and Monetary Affairs Committee on Government Operations  Walter E. Fauntro Chairman Subcommittee on Domestic Monetary Policy Committee on Banking, Finance and Urban Affairs  2311 RAY8uRN ..ouse 1-1 OFFICE BUILDING  BILL GRADISON  WASHINGTON, D.C.  2ND DISTRICT, OHIO  20515  TELEPHONE:(202) 225-3164 MARGARET TOTTEN ADMINISTRATIVE ASSISTANT  Congre1s5 of the tiniteb aDowIt of ReprefSentatibefS  FEDERAL OFFICE BUILDING 550 MAIN STREET CINCINNATI, OHIO  45202  TELEPHONE:(513) 684-2456  190 EAST MA;N STREET  astington, 119.e. 20515  BATAVIA, OHIO  45103  TELEPHONE:(513) 732-1786  May 25, 1983 3>"  Paul A. Volcker Chairman Federal Reserve System 20th and C Streets, NW Washington, D.C. 20551  = cn  Dear Paul: As you could tell from the large turnout, C & M and SOS members always look forward to your visits. This morning's breakfast was a high point of this year's breakfast meetings. Your candor and willingness to engage in give-and-take discussions with us is deeply appreciated. Sincerely,  Blt i "Gradison Representative in Congress BG/a   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551 PAUL A. VOLCKER CHAIRMAN  May 25, 1983  The Honorable Mark O. Hatfield Chairman Committee on Appropriations United States Senate Washington, DC 20510 Dear Chairman Hatfield: •  I understand that the Appropriations Committee is about to consider a bill providing for increasing the U.S. quota in the IMF and expansion of U.S. participation in the General Arrangements to Borrow and in that connection may consider a provision requiring the U.S. Executive Director of the IMF to oppose any use of the IMF's resources for a list of member countries. I urge the Committee not to adopt such a provision because, if incorporated into law, the provision would clearly undermine the effective functioning of the International Monetary Fund over time, and therefore would be distinctly counter to U.S. interests. The IMF is an international monetary institution. It has 146 members with a wide range of political and social systems, some of which are decidedly unattractive to Americans. However, in making its resources temporarily available to members with balance of payments problems, the IMF must be guided by certain basic, continuing purposes that are plainly in the general interest and the U.S. interest -- that is, to promote international monetary cooperation, to facilitate the expansion of world trade, and generally to ensure the smooth functioning of the international financial system. The introduction of legislated political criteria by the United States into its multilateral lending decisions -- followed, as it inevitably would be, by the injection of such considerations by others -- would clearly threaten to turn the IMF from its basic economic role into a contentious forum for airing political differences precisely at a time when prompt and effective economic action by that institution is vitally important to the recovery of the U.S. and world economy. As you know, the IMF-sponsored programs -- which basically are in the long-run interests of the United States and other countries in an expanding, market-oriented world economy -- can themselves be controversial and highly sensitive in borrowing countries, and loading them further with explicitly "political" considerations could all too easily doom the Fund to impotence. Obviously, to the extent that other countries also adopt political criteria to affect their positions on IMF lending decisions, countries we consider our friends, as well as the functioning of the international monetary system, could be adversely affected.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Page 2  Chairman Hatfield  Through the years, the basic U.S. approach has been to try to insulate the IMF, to the extent feasible, from political judgments. This, for instance, has been the U.S. position on attendance of the PLO at the IMF/IBRD Annual Meetings. This was the position I took in connection with the provision regarding IMF lending to South Africa in the bill recently before the House Committee on Banking, Finance and Urban Affairs. I believe that this approach is fundamentally sound and has served America well. Thus, I would urge the Senate Appropriations Committee not to add a provision to the legislation before it that would reverse the long-standing U.S. opposition to politicizing the IMF. Sincerely,  S/Paul A Volckei  Identical letters also sent to: Chairman Kasten and Senators Stennis and Inouye.  EMT:PAV:ms bcc: Ted Truman Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS •co •0 • -n  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  May 24, 1983  PAUL A. VOLCKER CHAIRMAN  The Honorable Sam B. Hall, Jr. Chairman Subcommittee on Administrative Law and Governmental Relations Committee on the Judiciary House of Representatives 20515 Washington, D. C. Dear Chairman Hall: Thank you for your letter of April 25 concerning Although, as you note, the Federal regulatory reform. Reserve--as an independent agency--has not been subject to the executive orders relating to regulatory improvement procedures, the System's regulatory work has been guided by similar objectives and procedures. Your letter asks for very detailed information about the use of regulatory analyses in rulemaking procedures. Because we have not distinguished between major and minor rules in our regulatory reviews, the Federal Reserve has not maintained numerical lists of its actions. However, we understand the basic thrust of your inquiry to be whether regulatory analyses have been used effectively at the Federal Reserve. We think we can be helpful in answering that question. Let me say, at the outset, that the Federal Reserve is committed to regulatory improvement and the reduction of unnecessary burdens, as indicated in the attached policy statement. We initiated a Regulatory Improvement Project in 1978, shortly before Executive Order No. 12044 was issued, and we wrote to President Carter and President Reagan to offer our voluntary compliance with the spirit of their executive orders on regulatory improvement. The Project was charged with conducting zero-based reviews of all 27 Federal Reserve regulations and ensuring that new and amended regulations were subject to the same process. Thus far, we have completed the review of 17 of these regulations. In addition, the Federal Reserve has been implementing the provisions of the Regulatory Flexibility Act adopted in 1980. That Act requires all federal agencies to consider the impact of regulations on small entities and to conduct regulatory analyses and periodic reviews of regulations. Finally, the Federal Reserve supported the enactment of the Financial Regulation Simplification Act of 1980, which prescribes regulatory improvement procedures for the federal   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Sam B. Hall, Jr. Page Two  financial regulatory agencies. These agencies must now coordinate their regulatory efforts and establish programs for the periodic review of existing regulations, and they must ensure that compliance costs, paperwork, and other burdens on the public are minimized. The agencies must also submit annual reports to Congress on their regulatory simplification efforts (our 1982 report is enclosed). Thus, the Federal Reserve and the other financial regulatory agencies are now under statutory requirements that are similar to those proposed as part of current bills for regulatory reform, and it would seem that most of these statutory proposals would only add another layer of administrative review. In conducting our reviews of new regulatory proposals or existing regulatory provisions, the Regulatory Improvement Project initiates the preparation of regulatory analyses by internal staff at the Reserve Banks and the Board. We do not follow a rigid approach in these analyses but, rather, tailor each analysis to fit the characteristics of the particular regulation and the underlying statutory requirements. For example, where the statutory charge to the Federal Reserve is broad, as in the securities credit area, we devoted a substantial amount of resources to the review and explored many alternatives. In other cases, where statutory provisions are very specific and establish the basic regulatory framework, as in the case of Truth in Lending or the Monetary Control Act, our analyses addressed more technical aspects and focused on designing methods to minimize the difficulties of compliance. Because we have, thus far, been able to use such a flexible approach in our regulatory analyses, we have generally At the staff level, the analyses, found them to be useful. staff input from more than one area first of all, necessitate of interest, ensuring that a variety of viewpoints are heard. Second, the specific information called for in the analyses serves to focus the staff's attention on issues that might otherwise be overlooked or neglected. Finally, the preparation of an analysis assists the staff in articulating concepts and alternatives. At the Board level, the regulatory analyses have (1) provided Board members information in a more coherent fashion, (2) helped focus attention on critical points, (3) clarified areas of uncertainty and informational deficiencies and, thus, (4) helped to direct the public's attention to issues that the Board specifically asked it to address.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Sam B. Hall, Jr. Page Three  Although the Board has, on balance, found regulatory analyses useful, we have strong reservations about statutory provisions that require agencies to conduct cost-benefit analyses based on actual dollars and cents. The Federal Reserve attempted such a study for three of its regulations in the consumer credit area and found that most financial institutions do not have data on all of their compliance costs readily available on a consistent basis. In addition, we found that it is very difficult for institutions to identify the costs of prospective regulations; it is only as institutions implement their compliance programs that they discover all the difficulties. This is not to say that cost-benefit analyses are not useful on a conceptual basis, since participants attempt to identify all areas where costs may be incurred and try to articulate clearly the likely benefits. But we would argue that specific statutory requirements for cost-benefit analyses may impose unwarranted costs on both the regulator and the regulated without yielding sufficient information to clearly identify the best regulatory choice. In closing, I believe the Board has demonstrated its support for efforts to improve the regulatory process. However, as I stated in my letter to you last year, it is my judgment that the objectives of regulatory simplification would not be achieved by imposition of an additional layer of administrative requirements, and I continue to be concerned with any new requirements that could reduce our ability to react promptly and effectively during this period of rapid change in our financial system. In any event, given the specific regulatory reform measures enacted within the past three Years, and our experience with those provisions, I believe that further requirements applicable to the federal financial regulatory agencies are not needed at this time. I hope this information is helpful. know if I can be of further assistance. Sincerely,  S/Paul A. Volcket, Enclosures BRL:AFC:pjt (V-77) bcc: Mrs. Lowrey Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Please let me  Schwartz Action assigned Barbara Lowrey; info copy to Gil  I N'NETY EIGHT H CONGRESS  GENERAL COUNSEL ALAN A PARKER  PETER W FI'..:DINO JP IN JI CHAIRMAN JACK BROOKS TX ROBERT W KASTENMEIR WIS DON EDWARDS CALIF JOHN CONYERS JR . MICH JOHN F SEIBERLING OHIO ROMANO L MAZZOLI KY WILLiAM J HUGHES NJ SAM B HALL JR TEX MIKE SYNAR OKLA PATRICIA SCHROEDER COLO DAN GLICKMAN KANS HAROLD WAS..INGTON ILL BARNEY FRANK MASS GEO W CROCKETT JR MICH CHARLES E SCHUMER N BRUCE A MORR,SON CONN EDWARD F FEIGHAN OHIO LAWRENCE J SMITH FLA HOWARD L BERMAN, CALIF  HAMILTON cis, . JR NY CARLOS J MOORHEAD CALIF HENRY J HYDE ILL THOMAS N KINDNESS OHIO HAROLD S SAWYER MICH DAN LUNGREN CALIF F JAMES SENSE NBRENNER JR BILL McCOLLUM FLA E CLAY SHAW JR FLA GEORGE W GEKAS PA MICHAEL DeWiNE OHIO  STAFF DIRECTOR GARNER J CLINE  WIS  iDoufSe of 1epreSentatibt5 Committce on tht judiciary  ASSOCIATE COUNSEL FRANKLIN G POLK  weazbington, 33.C. 20515 trleptiont: 202-225-3951 April 25, 1983 YYY1  c=1 r-n =:• CZ)  Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Constitution Avenue and 21st Street Washington, D.C. 20551 Dear Chairman Volcker: The Subcommittee on Administrative Law and Governmental Relations will be holding hearings on H.R. 2327, the Regulatory Reform Act of 1983. These hearings will begin in early June. As you know, regulatory reform has been a topic of intense interest during the last several years. During both the 96th and 97th Congresses considerable effort was devoted to passing major regulatory reform legislation. Due to the complexity of the issue, neither Congress was able to complete action on this legislation. In beginning consideration of regulatory reform legislation in this Congress, I believe it is important to draw on the recent experiences of agencies in issuing regulations. Since 1978, agencies have been required to conduct analyses of certain proposed and final rules under either Executive Order 12044 or 12291. Each of these executive orders has requirements that are similar to provisions of the bills now before the Congress. As an independent regulatory commission, the Federal Reserve System was requested by Presidents Carter and Reagan to comply with each of these executive orders. In order to assist the Subcommittee on Administrative Law and Governmental Relations, I therefore ask that you provide the subcommittee with the information requested on the enclosed questionnaire by May 20, 1983. Thank you for your prompt assistance in this matter. Sin erely,  B. HALL, CHAIRMAN SUBCOMMITTEE ON ADMIN STRATIVE LAW AND GOVERNMENTAL RELATIONS Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  QUESTIONNAIRE  1.  How many rules has the agency proposed in each of the following periods? Please indicate the number by whether the rules were considered major or minor rules and attach a list of the rules proposed. a. b. c.  2.  How many rules has the agency promulgated in each of the following periods? Please indicate the number by whether the rules were considered major or minor rules and attach a list of the rules promulgated. a. b. c.  3.  b. c. d.  e. f. g.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1976 - 1977 1978 - 1979 1980 - 1982  Regarding rules proposed or promulgated in 1978 and 1979: a.  4.  1976 - 1977 1978 - 1979 1980 - 1982  How many were subjected to regulatory analysis under Executive Order 12044? Please attach a list of these rules. How long did each regulatory analysis take from initiation to completion? What was the cost of each regulatory analysis? What was the average cost of all analyses? What parts of each regulatory analysis, if any, were conducted by outside contractors? Please attach a list, by rule, of the contractors hired for each rule and the amount paid to each contractor. What steps were taken to identify potential conflicts of interest on the part of any such contractors? Were all regulatory analyses that were completed made a part of the public rulemaking record? If not, why not? Were any proposed rules modified as a result of a regulatory analysis? Please attach a list of these rules and the reason for the modification.  Regarding rules proposed or promulgated in 1980 and 1982: a.  b.  c. d. e.  How many were subjected to regulatory impact analysis under Executive Order 12291? lease attach a list of these rules by category of major and non-major. Identify by category of major and non-major all rules for which the regulatory impact analysis was waived under Executive Order 12291. Please attach a list of these rules by category of major and non-major and state the reason each waiver was granted. How long did each regulatory impact analysis take from initiation to completion? What was the average time for analyses? What was the cost of each regulatory impact analysis? What was the average cost of all analyses? What parts of each regulatory impact analysis were conducted by outside contractors? Please attach a list, by rule, of the contractors hired and the amount paid to each.  •  f. g. h.  5.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  What steps were taken to identify potential conflicts of interest on the part of any such contractors? Were all regulatory impact analyses that were completed made part of the public rulemaking record? If not, why not? Were any proposed rules modified as a result of a regulatory impact analysis? Please attach a list of these rules and a brief statement of the reason for the modification.  Under Executive Order 12291, all rules are required to be submitted to O.M.B. for review prior to proposal and again prior to promulgation. a.  Regarding O.M.B. review of proposals for rules prior to their publication: (1) (2) (3)  (4)  (5)  (6) (7)  b.  How many proposals were submitted in preparation for publication of a proposed rule? Were any of these proposals returned as inconsistent with Executive Order 12291? Were any of these proposals modified in response to O.N.B. comments prior to publication of the proposed rule? If so, list the proposed rule and describe the modification and the basis for the modification. Were any of these proposals returned by O.M.B. to the agency for further analysis? If so, on what basis? Please attach a list of those proposals and a statement of the reason for each return. Were any of these proposals rejected by 0.M.B.? If so, attach a list of these proposals and state what action the agency took in response to each rejection? How long did it take O.M.B. to process each proposal and return it to the agency? How did O.M.B. approve, seek modifications to, or reject the proposal? (e.g., in writing, by phone, in meetings with the agency?)  Regarding O.M.B. review of rules prior to promulgation: (1) (2) (3)  (4)  (5)  (6)  How many rules were submitted prior to publication of the final rule? Were any of these rules returned as inconsistent with Executive Order 12291? Were any of these rules modified in response to O.M.B. prior to promulgation of the final ule? If so, list the rule and describe the modification, and the basis for the modification. Were any of these rules returned by O.N.B. to the agency for further analysis? If so, on what basis? Please attach a list of these rules and a statement of the reason for each return. Were any of these rules rejected by 0.M.B.? If so, attach a list of these rules and state what action the agency took in response to each rejection? How long did it take O.M.B. to process each rule and return it to the agency? What was the average time of O.M.B. review?  (7) (8)  c.  Regarding the analysis of costs and benefits under Executive Order 12291: (1)  (2)  (3)  6.  How did 0.M.B. approve, seek modifications to, or reject the rule: in writing, by phone, or in meetingf; with the agency? Were all 0.M.B. communications regarding the rule made public by inclusion in the rulemaking record? Were those that influenced the agency decision made public (either the communication or a summary thereof). If not, why not?  Does the agency have a standardized method for evaluating costs and benefits? If so, please attach a copy. If not, please explain briefly why not. How does the agency assess non-quantifiable costs and Senefits? Please attach a copy of any policy regarding this assessment. Do the regulatory impact analyses conducted by the agency clearly set forth any assumptions made and methods used in the calculation of costs and benefits. If so, please explain briefly how this is handled. If not, please explain briefly why this information is not included.  Identify those existing rules designated for review by the President's Task Force on Regulatory relief since February, 1981. a.  How many of these rules were subjected to regulatory impact ah11nalysis undLI er Executive Order 12291? Please attach a list of these rules by category of major ,and non-major.  I.  Did 0.M.B. review the regulatory impact analysis for any of these rules? If so, please list for each rule: •  (1) (2)  c.  7.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The time required for 0.M.B. review. The result of the 0.M.B. review and any action taken by the agency as in response to the 0.M.B. review.  State by JFI any action the agency took regarding the rule as a result of this review.  Does the agency have a rule or policy governing the contact of agency employees involved in a rulemaking decision with outside parties? If so, please attach a copy of this rule or policy.  .011111.  •  • of GOvE ••  BOARD OF GOVERNORS  .*  OF THE  •co •0 • -A • • <q^ *.As  FEDERAL RESERVE SYSTEM F- •  WASHINGTON, D. C. 20551  (-)  May 23, 1983  PAUL A. VOLCKER CHAIRMAN  The Honorable Bill Green House of Representatives 20515 Washington, D.C. Dear Mr. Green: Thank you for your communication concerning Chrysler Corporation's proposal that the government relinquish without compensation its warrants to purchase Chrysler stock. As you know, the warrants were obtained when Chrysler borrowed $1.2 billion in 1980 and 1981, with repayment guaranteed by the federal government. The warrants were negotiated with the Corporation under Section 5(d) of the Chrysler Corporation Loan Guarantee Act ("the Act") which directs the Loan Guarantee Board "to the maximum extent feasible . . . to ensure that the government is compensated for the risk assumed in making guaranteed loans" and authorizes the Loan Guarantee Board to "enter into contracts under which the government, contingent upon the financial success of the Corporation would participate in gains of the Corporation or its security holders." Section 5(d) of the Act also authorizes a guarantee fee to be collected as compensation for risk. For a number of reasons, the Board set the guarantee fee at one-half percent per annum (in addition to the one-half percent collected to cover the operating expenses of the Board) and sought other ways to satisfy the Section 5(d) requirements of the law without depleting Chrysler's badly needed cash resources. Thus, from one perspective the warrants should properly be viewed in conjunction with the guaranteed fee as the return for the risk the taxpayer took. Moreover, in passing the Act, Congressional intent was that all interested parties should sacrifice to contribute to the recovery of the Corporation. One effect of these sacrifices was to restructure the costs of the company, but they also had the beneficial effect, from a public policy perspective, of discouraging future requests for similar government assistance. Exercise of the warrants would, therefore, be consistent with the intent of the public policy purpose involved in the broad -based Chrysler program. More generally, in programs of this sort, an equity interest by the government lender or guarantor seems appropriate. For all these reasons, I fully supported the provision of warrants in the original loan guarantee agreement.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Bill Green Page Two  I am pleased that the Company appears to be on its way back to health and, with its new-foun d access to private securities markets, intends to begin repaying its guaranteed loans this year in a greater amount than had been anticipated in its plans. Chrysler has made considerable progress, and all who contributed--workers, management, supp liers, creditors--are to be congratulated and encouraged to cont inue their efforts to continue this progress. Rut there is litt le doubt that the Corporation would not have had a chance to stage this recovery had not the taxpayers been willing to shoulder the risk of extending credit to the firm--and the risk at the time was thought by all to be very great, as indicated by the fact that at the time Chrysler did not have unassist ed access to private credit markets under any loan terms. Subsequent events-however fortunate they may be--do not in my view change in any way the underlying reasons for obtainin g the warrants or justify disposing of then for less than fair value. I am pleased that Chrysler has now recognized this point and withdrawn its proposal regarding the warrants . I should also point out that exercise of the warrants would provide Chrysler with a desirabl e infusion of equity capital. The financial position of the company will be strengthened. The dilution of existing stoc kholders' interests takes place against full knowledge, to a recent buyer, of the outstanding government interest in the warr ants; earlier stockholders, of course, benefitted from the government loan program helping to assure the viability of the company. Staff at the Federal Reserve, along with those at Treasury and the General Accounting Office, are now working on alternatives for the government to real ize value apPropriate for the warrants. I do not have a repo rt from them, but I assure you I vigorously oppose any effo rts that would deny the taxpayer compensation for the risk he took in this program. Sincerely,  GM:DK:JHJ:NS:PAV:pjt (V-85) bcc: G. Mallinson D. Kohn H. Jorgenson Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  MI*  BOARD OF GOVERNORS OF IRE FEDERAL RESERVE SYSTEM  3  1983 MAY 10 PM 2: 27 RECEIVED OFFICE OF THE CHAIPAN  2. 444  rtv WU  Mt'obAUL mtb  DJ!  WW1  1NrUMAbILK  1 -02443ODAIZY  .LL b  ii- nwt3WL  IWA  /IVOZZYZJJ  s•  lis-J/VY/b.5  Wbh  tVU'boi) I - U1,56/ZHIZY AL b  VZJ - VY rcv  VY„Itir KtO  tbl  bV  Wbh  UJ/v/ids5 wom  vV4iv ✓ no  Utivi  DuwHOM1NUIUN  nuNrHuL  ✓ tvLmilL LItHK  MN  UKUt  VULUNtM,  LIG  DU  ihHI  IUU  rift<  NUI  Iht.  LUmrUKHIJUN'b  Iht  LUHN  LILA\  bUtititNVEK  14.4  MILLIUN  ULH1Mb  Ur  WIlhUU I  IHArHlthb v uuNimiruilNU iu IflL  WMU  LnnIoLtm  INDIalci! UN  10  InHI  UNDtKIHKEN.  Ihttit  WHO Ur  ii.  brtt.N  GUMrtNbHilUN  imt  LIThibLcm  H  biUGN. Hr. HhbUKV. Kl st‘t Ur VI .Z bILL1uN rUK  H  Kt HbUNHtiLt  - UbUKY -  litotmvt  UUNURGOO  tULL  (Jr  brIHMtb  UUHKHNIttb  AritKIGHN  IdD4  4:4/1-  z:VjD1  int  biLL  VJ- VY  LhHINMHN:  wririmANib  r'ENNt1  84  MGDGMVG  wHoniNuIUN •  I.  HMLUI  MCLUVCh  tNI1MLLI lb  NU  I  .  int  LUN bibItNI  MtWpirlD  lht  rum  tuulli With  JUb litiLHIIN  rUm  Iht  MIUM  ri10N  rumtUU1NU  UNt  blNuthtLT. nc.ricitm  ur  LuNuKtbb  tbl  rtV  Ktb  AUL  DUINt   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  hLI  Wbh  3  1  II  May 23, 1q83  The Honorable William Proxmire United States Senate 20510 Washington, D.C. Dear Senator Proxmire: I basically agree with the points in your letter to me about the recent proposal by Chrysler that the government surrender the warrants to buy Chrysler stock obtained at the time loan guarantees were provided. Chrysler has not provided me with any written material beyond that submitted to the Guarantee Board, a copy of which I understand Secretary Regan is forwarding to you. Chrysler officials raised the question informally with me some months ago. I told them then that I believed such a request was unjustified, and I would oppose any such action. Consequently, I am surprised that the issue was pursued. That remains my position. I an enclosing a letter to Bill Green, who also raised the matter with me, responding in more detail. Sincerely,  444  Enclosure  (Ltr. to Cong. Green from Chrmn. Volcker dtd. 5/23/83.)  PAV:pjt (#V-87) bcc: Mrs. Mallardi (2   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action assigned Mr. Kichline  .1 / JAKE GARN, UTAH, CHAIRMAN JOHN TOWER, TEXAS JOHN HE'NZ. PENNSYLVANIA WILLIAM L. ARMSTRONG. COLORADO ALFONSE M DAMATO, NEVV YORK SLADE GORTON, WASHINGTON PAULA HAWKINS, FLORICA MACK MATTINGLY. GEORGIA CHIC HECHT, NEVADA PAUL TRIBLE, VIRGINIA  WILLIAM PROXMIRE, WISCONSIN ALAN CRANSTON. CALIFORNiA DONALD W RIEGLE. JR., MICHIGAN PAUL S SARBANES. MARYLAND CHRISTOPHER J DODD. CONNECTICUT ALAN J DIXON, ILLINOIS JIM SASSER, TENNESSEE FRANK R. LAUTENBERG, NEW JERSEY  tinittd eStates c$enate COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS  M DANNY WALL, STAFF DIRECTOR KENNETH A. McLEAORITY N, MIN STAFF DIRECTOR  WASHINGTON, D.C. 20510  f—CD CX) (.40 MM ›ft,  May 10, 1983 The Honorable Paul Volcker Chairman Federal Reserve Board Washington, DC 20551  r‘,)  Cr!  Dear Mr. Chairman: I I•ing to you in your capacity as a member of the Chrysler Corporaan Guarantee Board to let you know of my strong opposition to a reproposal by the Chrysler Corporation that the Federal Governme up its warrants to buy Chrysler stock. The reported request Chrysler Corporation is utrageous and should be firmly rejecte There is absolutely no justification for the Federal GcNernment to give away its warrants. The Federal Government guaranteed $1.5 billion in loans to Chrysler at a time when no bank in its right mind would loan it a single addonal penny. If the company failed, the U.S. taxpayers could have lost their entire $1.5 bon investment. In order to compensate the taxpayers for this enormous risk, the Chrysler loan legislation allowed the Board to enter into contractual arrangements with Chrysler for the purpose of letting the Federal Government share in the future profits (if any) should the company recover. Under this authority, the Board proposed and Chrysler agreed to sell to the Federal Government shares of its stock at $13 a share. W d hs n d  agr ie cn le t , i tds ke  was made, Chrysler shares were trading at a w rprye e n v l au e del d snf C as oe rr y2lt va. N w at h t nx dc em y eha p wlr e n tthhst$l n ska n aet s etweo o ooi ts d e al fenopotnar a n o u t rig eog2w0csi ft of t w e$agh1ra3er n nt s w h i c h e v a l ue d a t m i l l i o odnheuer.  I urge that you reject these outrageous proposals and take action to protect the taxpayer's interest. One option might be to sell the warrants to private investors. Another might be to sell them back to Chrysler at   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  —f f-71  TO:  The Honorable Paul Volcker May 10, 1983 Page 2 of 2  the current market price. Under no circumstances should they be given away as reportedly suggested by Chrysler. I would appreciate receiving a copy of any written material Chrysler may have submitted to you concerning these warrants. I would also appreciate being notified in advance if you are planning to take favorable action on the Chrysler request.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (  .• 0? GOVe •• 0%  411.0  BOARD OF GOVERNORS OF THE  •41:1  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  .RALRO • •..• • •  May 23, 1983  PAUL A. VOLCKER CHAIRMAN  The Honorable Stan Lundine House of Representatives Washington, D. C. 20515 Dear Mr. Lundine: During the February 2, 1983 hearings of the House Committee on Banking, Finance and Urban Affairs, you asked for clarification of the Federal Reserve's policy during the mid1970's on the supervision of commercial banks' lending to foreign governments, as it differed from supervision of U.S. banks' domestic lending practices. The supervisory treatment of credits to private borrowers has been developed over a long period of time. Criteria to be employed and the methodology to follow in the analysis of private credits are well established. For example, there are accepted criteria for determining when private borrowers constitute more than a normal risk to a lending bank and experience has provided guides for determination of the probabilities of loss in given lending situations. It is in the light of these considerations that bank examiners will adversely classify loans for credit risk reasons. This process was followed in domestic lending situations such as the Chrysler Corporation situation to which you have referred. By contrast, the supervisory treatment of foreign sovereign loans is still in the process of evolving. All such international lending is subjected to the same standard of evaluation of credit risk--based on the ability of the borrower to generate funds in his own currency--applied to domestic lending. However, international lending also has to be judged on the basis of transfer risk--whether the foreign exchange will be available to the country of the borrower so the debt can be serviced. It is the treatment of this latter aspect that has evolved since the mid-1970s. In large part, this results from the fact that international lending is a fairly recent development for U.S. banks. Substantial lending to foreigners, and particularly medium-term lending to foreign governments, is largely a phenomenon of the last ten years. Assessment of sovereign loans and of the transfer risk associated with those loans involves different elements than those found in credits to private borrowers. On the one hand, nations do not declare bankruptcy and do not cease to exist as a rule. Even when they do encounter difficulties in servicing external debt, those difficulties are normally overcome by adjustments in their economies and in their economic and financial policies. On the other hand, as experience shows,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Stan Lundine Page Two  difficulties in maintaining scheduled debt service can arise, including deferral of interest and other payments, that affect the liquidity and value of the loans for some time. But, unlike the case with commercial borrowers--domestic or foreign--ultimate repayment is foregone only very rarely. This aspect of international lending, and the uncertainties attached to the fortunes of countries, led to development in the late 1970s of new procedures by the banking supervisory agencies for treating country risk in the examination process. These procedures, which were described in detail in the appendix to my testimony, emphasized diversification as the best measure of protection for banks in their international lending. To this end, the procedures provided for comments on significant exposures to foreign countries in a bank's international portfolio. As noted in my testimony and the testimony of others, it is clear in retrospect that these procedures were not as effective as anticipated. They did not adequately temper the rapid increase in international lending by U.S. banks in recent years. As you know, the banking agencies submitted to Congress a joint memorandum outlining a five-point program for remedying the deficiencies of the existing procedures without impeding suitable flows of international credit. I hope this information is useful. I am sorry for the delay in this reply. Please let me know if I can he of further assistance. Sincerely,  FD:EMT:PAV:pjt bcc: Fred Dahl Ted Truman Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS  .*  OF THE  •go •C  FEDERAL RESERVE SYSTEM • •  • -4 of,  WASHINGTON, D. C. 20551  44, • •  PAUL A. VOLCKER  RAL RESt . • •• •• •  CHAIRMAN  May 20, 1983  Mr. Kenneth U. Jordan, J.D. Vice President for Administrative Affairs and General counsel Meharry Medical College 1005 Eighteenth Avenue, North Nashville, Tennessee 37208 Dear Mr. Jordan: Thank you for your letter regarding the financial assistance recently granted to the United Southern Bank of Nashville by the Federal Deposit Insurance Corporation. As you may be aware, the Federal Reserve provides loans for the purpose of accommodating the short term liquidity needs of banks. Although we appreciate your interest in and support for the United Southern Bank, the decision as to the terms and conditions upon which long term capital assistance is provided to banks rests with the Federal Deposit Insurance Corporation. In the interest of assuring that your views are known by the Federal Deposit Insurance Corporation, I have taken the liberty of forwarding a copy of your letter to that agency. Sincerely, ,  IDENTICAL LETTER SENT TO THE ATTACHED LIST  ft   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Congressional Mail Priority Handling Date:  Board of Governors of the Federal Reserve System  Control No. I  Please review promptly the attached cor respondence from St-me-teT/Congressman .)-----72A -and let me have your suggestions in roug h draft. In order to meet the chairman's requ irement for a response within five (5) working day s, it will be necessary for me to have your repl y by "1,14 The final letter will be signed by: (1 3 Chairman Volcker ( ) Governor Mr. Winn Please indicate below the name and ext ension of the person who drafts the reply. When revi ews are required within your Division, please complete these before forwarding the draft reply to me. Reply drafted by:  _ Ext._  If there are any problems or question s please give me a call; otherwise, please return this form directly to me with the draft reply and any atta chments that are appropriate. Carol O'Brien Room B-2125A, Ext. 2735  FR 7 (Rev. 9/80)  DISTRICT OFFICES  F_DJONE3 Room  8TH DISTRICT. TENNESSEE 108 CANNON HOUSE OFFICE BUILDING (202) 225-4714 ON AGRICULTURE  CCoM M ITTEE  CHAIRMAN  SUBCOMMITTEE ON CONSERVATION. CREDIT AND RURAL DEVELOPMENT COMMITTEE ON HOUSE ADMINISTRATION  B-7. POST  OFFICE BUILDIN,.  38301  JACKSON, TENNESSEE  (901) 423-4848  Congre55 of tbe tiniteb  tate5  31)ou5e of Representatibet Wagbington, D.C. 20315  CHAIRMAN  May 19, 1983  3179  NORTH WATKIN.,  MEMPHIS, TENNESSEE  38127  (901) 358-4094 P.O. Box  128  YORKVILLE, TENNESSEE  38389  (901) 643-6123  KELLY m. SHARBEL.JR ADMINISTRATIVE ASSISTAP1T  SUBCOMMITTEE ON HOUSE SERVICES  Mr. Paul A. Volcker Chairman Federal Reserve System 20th and Constitution Avenue, N. W. Washington, D. C. 20551 Re:  Mr. George Thompson Director of Public and Governmental Affairs U. S. Bank 200 4th Avenue, North 37219 Nashville, Tennessee  Dear Mr. Chairman: I am writing to you in behalf of Mr. George Thompson who has contacted me regarding a $25 million demand note the U. S. Mr. Bank has from the Federal Deposit Insurance Corporation. Thompson would like for this note to be converted into a longterm capital note with fixed maturity. Will you please review this situation and give Mr. Thompson's comments the consideration they merit. Your cooperation in this matter is greatly appreciated. With kindest regards an  best wishes, I am incer  ED JONES  rs,  M. C.  EJ/dt   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  —ro ••••3  Cr, C:=r  r17r, S2 , •—,-) SI ..1  ,  CD  I  BOARD OF GOVERNORS  •  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  May 19, 1983  PAUL A. VOLCKER CHAIRMAN  The Honorable Doug Barnard, Jr. Chairman Subcommittee on Commerce, Consumer and Monetary Affairs Committee on Government Operations House of Representatives Washington, D.C. 20515 Dear Chairman Barnard: I am writing in further response to your letter of April 11 requesting our review of the General Accounting Office (GAO) report regarding Bank Policies on Dormant Accounts. I am pleased to respond to the questions you raised, and to report on the status of the Board's work in this area. First you asked whether there is any valid basis for banks to impose service charges or discontinue interest payments on inactive checking and savings accounts. These bank practices were discussed in some detail at the Federal Reserve Board's Consumer Advisory Council meeting in January 1982. The Council's discussion suggested that a valid basis exists at least in some cases. The rationale advanced at the Council meeting for the service charges was much the same as indicated in the GAO report: that banks must employ special procedures to insure against unauthorized withdrawals from accounts that become inactive. The special procedures may involve, for example, maintaining a segregated listing of inactive accounts and special controls requiring a bank officer's approval for a withdrawal. The industry's justification for discontinuing interest payments is that the bank's earnings on small accounts are not sufficient to cover the cost associated with maintaining the accounts. This reasoning, of course, does not seem valid in cases where banks discontinue interest on inactive accounts regardless of the size of the account. It has been our understanding, however, that discontinuance of interest is not common at most banks, and it is encouraging that the GAO report confirms this. Your second question concerns the standards and methods of disclosure that a bank should adhere to to assure that customers are adequately informed of the bank's policy on service charges and interest suspension. As a general matter, we favor full disclosure of deposit terms including policies on inactive accounts. Much of the testimony at the 1980 hearings before the Subcommittee suggests that bank policies on inactive accounts should be disclosed at the time an account is opened.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Doug Barnard, Jr. Page Two  Two methods of giving the consumer advance notice of deposit terms are (1) posting notices in bank lobbies, and (2) giving the consumer a disclosure statement when an account is opened. Since, presumably, neither banks nor consumers anticipate inactivity on a deposit account at the time it is opened, and since the fees imposed on an inactive account may change from time to time, a more effective approach might be to notify the depositor at the time the account is about to be declared inactive. This is the approach taken by the National Conference of Commissioners on Uniform State Laws in the model Uniform Unclaimed Property Act of 1981. Under that Act, a bank or other holder of an account may not impose any fee or cease payment of interest due to inactivity unless (1) there is an enforceable written contract between the holder and the depositor permitting the holder to impose a charge or cease interest payments, and (2) the holder gives the depositor three months notice before the initial imposition of the charges or the cessation of interest payments. The uniform act's method of disclosure has the advantage of reminding depositors (or families of deceased depositors) of their accounts and of giving them accurate information about any charges that may be imposed and the timing of interest suspension. Without considering the cost or burden to banks, it seems then that full disclosure and protection of depositors would best be achieved by notice before or at the time of initial deposit along with subsequent notice before an account is declared inactive or interest is suspended. You also asked whether it can be concluded from the GAO survey results that substantially all banks, particularly large banks, employ suitable disclosure methods. Page 17 of the GAO report shows that 90% of the banks surveyed use one or more methods to notify depositors of inactivity charges, and 83% use one or more methods to notify depositors of interest suspension. Tables 13 through 16 of the GAO report suggest that large banks may use more notification methods than small banks, particularly information brochures at the time an account is opened and notification at the time inactivity is declared. While these high percentages can be viewed as encouraging, it is difficult to say conclusively that the notification methods are generally suitable, given the variety of methods that may have been used by the respondents and the fact that the GAO survey did not ascertain whether the notification attempts were successful. Assuming that depositors are keeping their banks informed of changes in address and phone numbers and that banks have some procedures in place to update their files, we think the notification methods used are probably adequate in a significant number of institutions.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Doug Barnard, Jr. Page Three  Last, you asked whether the Board will undertake further investigation or regulatory steps regarding bank practices on inactive accounts. The Board's staff has studied these practices for some time and will continue to do so. The Board has several procedures in place that are designed to identify potentially unfair and deceptive practices. Periodic consumer surveys are conducted to obtain information about consumer experiences with various banking practices. One of the surveys conducted in 1982 included questions concerning service charges on inactive accounts. This survey was not as extensive as the GAO study because it was designed to cover a large number of consumer credit issues. The results on the service charge questions, however, did not seem alarming. Only 19 of the 708 respondents reported accounts that had been service charged. Ten of the 19 who had been service charged reported having received written statements disclosing the terms of their accounts. Another procedure used by the Federal Reserve System and other bank regulatory agencies to identify potentially unfair and deceptive banking practices is the consumer complaint system. That system was recently updated to categorize complaints more precisely. The information generated by the system is analyzed quarterly in order to identify categories of complaints that might indicate a significant trend. Our records do not reflect a substantial number of consumer complaints about inactive account charges. Although no regulatory action regarding bank practices on inactive accounts is anticipated at this time, the hearings that your Subcommittee held on these practices and the results of the GAO report suggest that the banking industry should be encouraged to increase its efforts to bring about voluntary disclosure of these account terms. In this regard, we have taken the liberty of forwarding a copy of the GAO report to the American Bankers Association, and have been assured that the Association will formally consider the matter. Encouraging banks to examine their disclosure practices for these charges should also have the indirect effect of causing the amounts to be reevaluated as to their fairness. State regulation of inactive accounts should also alleviate some of the problems in this area. A number of states have laws requiring some notice of inactivity charges. The model Uniform Unclaimed Property Act of 1981, mentioned   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Doug Barnard, Jr. Page Four  in two states. The National d pte ado n bee y ead alr has r, lie ear m State Laws seems conConference of Commissioners on Unifor adopt this act, since 31 fident that many more states will of the uniform act. states had adopted the 1954 version l to your SubcomI hope this information is helpfu be of further assistance. can I if w kno me let ase Ple . tee mit Sincerely, S/Paul A. Volcker]  RS:CO:pjt (#V-67) bcc: Rugenia Silver Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • waste— to±:re  J9'  May 16, 1983  The Honorable Frank Annunzio Chairman SuLconnittee on Consumer Affairs and Coinage Committee on Banking, Finance and Urben Affairs Rouse of Representatives 20515 Washington, D.C. Dear Chairman Annunzios This is in further response to your letter of February 8, 1983, concerning the issue of whether advertisements by depository institutions for Nancy Market teposit Accountr ("mlnAs") and "Super NOW' eccounte are y letter to you of providing accurate informetion to 6epocitors. In February 17, 1983, / responded, in part, to the concerns you expressed by noting that I had recuested the staff to esk the Reserve Banks to aurvey the advertising of the banks in their areas. Before reviewing for you the results of the survey, I wen10 like to tress that the Federal Reserve has in place a framework of deposit advertising rules aimed at full disclosure of the material elements of deposit inetruments. First, as a general mnttar, Regulation Q prohibits any advertisements or solicitations relating to interest paid on deposits that are inaccurate, misleading, or misrepresentative of deposit contracts (12 CFR ,c 217.6(g)). Other provieions of the regulation require that specific typen of information appear in advertisements:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (a)  advertisements that display an effective annual yield Lased on compounding must state the annual rate of simple interest and the basim of compounding (12 CFR § 217.6(h));  (b)  no interest rate can be advertised that etatee a yield based on a period of more then one year in order to ensure that effective yields are not artifically inflated (12 CFR  The Ronoralae Frank Annunzio  (c)  -2-  it thnt meets if an advertised rate is pavahle only on a depos requirements must a specific time or amount requirement, such 217.6(e)); be stated clearly and conspicuously (12 CFP  (d)  that interest advertisements for time deposits must state rawal (12 CFR penalties enpiv in the event of early withd  (e)  ficates must state that advertisements for money market certi cyn 217.6(1)); and cmpounding of intereet is prohibited (12  (f)  at the time that member banks are required to inform customers be used in that an account is opened as to the method unt, includinc any computing and paying interest on the acco 217.14P). CFR previnion for nonpayment of interest (12  Federal Some Loan Rank The Fecieral Doronit Insurance Corporation and the institutions subject to their Board have virtually identical rnles for respective jurisdictions. ve ranks reviewed 197 With these rules as a background, the Pcser nts offered 1.1- all types of advertiserents for MMDAs and Super FICV accou from Decenher 1982 to February depository institutions covering a period me of dieclosure of intereet 1933 with the objective of reviewing the ter for which the advertised rates paid on accounts and on the period of time rate would he available. tirements clearly stated Appro=imately one-half of the 197 adver e balance of the account and that one interest rata wss paid on the entir state any interest rate at about one-fourth of the 197 did not explicitly general statements pronoting all. The latter group of advertisements yore cular account terms and only the availability of MMDAs and not parti expressed in your letter. The therefore did not raise the types of concerns included an interest rate but remaining 25 nercent of the 107 ndvertisements r‘e.te on the entire 14...lance. A did not stste with certainty that the rate is confirmed that they are paying follow-un sample of a number of institutions the advertised rate on the entire amount.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  s lit rate" accounts--eccounts The eds alee were surveye0 for " anplies only to amounts e'eove a where the interest rcte vhich is edvertieed is, in fact, required hv section cutoff level. Disclosure of this practice member hanks must include 217.6(d) of Peculation Q, which provides that receive a specific interest rate. amount regoirements that Nuet be it to we paid. In all of these ade it Six of the ads stated tilt a split rate in fact, in three of them, examplea was clear that a split rate applied and, for different levcle of balances. For of affective annul yieles wore shown itory institution for a split rate exanple, an aavertisement y a depos rate of 10.5 percent and included a account set forth a eirT,le interest appliefl only to balances above t2,500. conepicuous statement that the rate  The Honorable Frank Annunzio  -3-  The advertisement also stated in clear print that the rate on balances below *2,500 would be 5.25 percent and, in addition, included examplee of the effective yield on the account at different levels of balances. About 10 percent of the advertisements we have seen have included statements that service charges apply to an NM& or Super Now account. All of these advertiseeents clearly give specific information concerning the balance level at which service charges apply and most of them include the specific amount of the charges. It should be noted that about fifty percent of the advertisements stating an interest rate did not include any statement However, Pegulation Q provides additional concerning service charges. As protection for consumers concerning disclosure of service charges. stated above, under section 217.148, member banks are required to disclose the method of computing interest on an account and we have interpreted this provision specifically to require that service charges be disclosed to the customer at the time the, account is opened. Although it is undoubtedly preferable for significant service Charges to be disclosed in general advertising, there is in place a mechanism to assure that depositors have complete information concerning service charges prior to opening an account at a member bank. You also 'stated that, in many oases, depository institutions advertise interest rates on these accounts that aro available for only a very short period of time. When Winks were first authorised last December, some institutions in certain local markets paid rates of interest substantially in excess of market rates. For example, the Atlanta market was characterised by intensive rate competition as institutions attempted to obtain market shares by offering relatively high rates. In other markets, some institutions offered rates that were slightly above the rates offered by other institutions in the market. However, our surveys of rates paid on these accounts indicate that this type of behavior occurred for only a short period and was not characteristic of depository institutions generally. The practice of making rates available for only short periods results, in part, from a rule established by the D/DC which prohibits depository institutions from guaranteeing a rate on Minas and Super NOW accounts for more than one month. This rule was necessary in order to ensure that these accounts were not used to circumvent interest rate ceilings that continue to apply to certain longer term accounts. To bring additional attention to the Board's rules concerning fair and accurate advertising, a letter has been sent to member banks calling attention to the advertising provisions of Regulation Q, especially as they relate to MHDAs and Super NOWs. A copy of this letter is enclosed for your information. This letter states that where a member bank offers a split rate on an account, it cannot advertise the higher rate unless it (1) states clearly im close proximity to the rate that the rat, applies only to balances above • stated amount, and (2) includes the lower rate that applies to the amount of the account below the cutoff rate in the advertisement in equal prominence with the higher rate. With respect to service charges, it advises that any advertisement or other solicitation for an interest-bearing   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honoralle Frank Annunzio  -4-  account that fails to disclose the existence of such charges would be regarded as inaccurate, misleading, or misrepresentative of its deposit contracts in violation of section 217.6(9) of Regulation Accordingly, if . service charger or other similar fees are irposed on an interest-bearing account and an interest rate le acivertised, the existence of such fees must he stated conspicuously in the advertieement. We will continue to monitor merrer hank practices in this area. In addition, the Federal Reserve's examination procedrres will provide the opportunity for further reviey of advertising practices anl the Systela will continue to monitor corpliance with advertising rules through its consumer complaint procedure. Sincerely,  1040A iboat Enclosure  bcc:  Ms. Mr. Mr. Mr.  Mallard' (2) Bradfield Schwartz Pilecki  MB:GTS:PSP:bho   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  RON PAUL, TEX. THOMAS B. EVANS, JR., DEL. CHALMERS P. WYLIE, OHIO GREGORY W. CARMAN, N.Y.  FRANK ANNUNZIO, ILL. CHAIRMAN FERNAND J. ST GERMAIN, R.I. HENRY B. GONZALEZ, TEX. JOSEPH G MINISH, N.J. BILL PATMAN, TEX. STENY H. HOVER, MD.  U.S. HOUSE OF REPRESENTATIVES NINETY-SEVENTH CONGRESS  CURTIS A. PRINS, STAFF DIRECTOR  SUBCOMMITTEE ON CONSUMER AFFAIRS AND COINAGE OF THE  TELEPHONE 226-3280  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS ROOM 212 HOUSE OFFICE BUILDING ANNEX No. I  WASHINGTON, D.C. 20515  r•  February 8, 1983  7•1  Honorable Paul A. Volcker Chairman Federal Reserve Board 20th Street ama Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Chairman: The introduction of money market savings accounts on December 14, 1962, and super NOW accounts on January 5, 1983, have been announced with great fanfare and much advertising by financial institutions. Unfortunately, some of those advertisements require the consumer to read them with a close eye on the small print.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The majority of the advertisements announce above-market interest rates in large type. The consumer needs to read the small print very carefully to learn high the restrictions and limitations on the high interest. In SOME cases the rates are offered for only a short period. In other cases the rates only apply to balances over certain amounts. Still cther advertisements mention that there may be service charges in some circumstances without mentioning the amount of sethese fees or the conditions under which they will be imposed. Such adverti ments would appear to be unfair, misleading, and deceptive. I fear that these advertisements may be doing a serious disservice to ory consumers. It is the obligation of the Federal financial institution regulat agencies to assure that consumers are not misled by advertisements for the new accounts. Please inform me of the steps your agency has taken to monitor the advertisements and assure that they are not deceiving consumers. If you have taken any actions, either formally or at the staff level regarding certain your advertisements, please send me copies of the advertisements and the actions agency has taken. With every best wish, Sincerely,  Frank Annunzio Chairman   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  F  May 11, 1983  The Honorable Charles E. Bennett House of Representatives Washington, D.C. 20515 Dear Mr. Bennett: Thank you for your letter, of April 14 requesting information on the bidding procedure for the interior design and furniture procurement for the proposed new Federal Reserve Building in Jacksonville. The Federal Reserve Bank of Atlanta engaged the firm of Kemp, Bunch and Jackson, Architects, Inc., as the project architect for the building and interior design work. The contract bid documents for the furniture and furnishings portion of the project are scheduled for completion, and subsequent competitive bidding, by the end of this year. I have forwarded your letter to Mr. John T. Cleckley, Assistant Vice President, Federal Reserve Bank of Atlanta, and asked him to provide you more specific information regarding the qualifications of prospective bidders for the project. I am sure you will be hearing from Mr. Cleckley in the very near future. Sincerely,  WA:WPM:NS:CO:pjt (#V-72) bcc: Mr. Althausen Mrs. Mallardi (2)./ Mr. Cleckley (w/copy of incoming)  a  C,HARLES  Action assigned Mr. Allison  F. BENNETT  TRACY D CONNORS ADWINISTRATIVIMUNIITAIIT  MEMBER 30 DISTRICT. FLORIDA W DEKLE DAY ARMED SERVICES COMMITTEE CHAIRmAN OF SEAPOWER SUBCOMMITTEE MEMBER RESEARCH AND DEVELOPMENT SUBCOMMITTEE  LIONKATIVI ASSISTANT  Congress of dm United 1*tates  SHARON H. SIEGEL BARBARA L FETHEROLF DARLA E SMAU_WOOD WENDY 6 LEAVITT ELIZABETH Pt. P BOV/EN PATRICIA A. CANDELA GRETCHEN A. PEMBERTON  Ilona of Ittpresentatiots ithshington, D.C. 2015  HOUSE DEMOCRATIC STEERING AND POLICY COMMITTEE CHAIRMAN OF FLORIDA CONGRESSIONAL DELEGATION  STAFF  April 14,1983  JACKSONVILLE OFFICE 352 FEDERAL BUILDING 32202 TELEPHONE 1104-791-2567 JOHN W POLLARD. JR. BRENDA DONALDSON ALLISON R. ABBOTT  Mr. Paul Volcker, Chairman Federal Reserve System Federal Reserve Building Constitution Avenue and 20th Street, N.W. Washington, D.C. 20551  Dear Mr. Volcker: I am writing to you after talking with Mr. Joel B. Bagnal who is associated with Mr. Charles Suttles. They are both in interior design and their firm is an old and respectable one. I am seeking for Mr. Bagnal and Mr. • present Suttles a knowledge as to how they could enter the competition and their case concerning interior design work and decorative furniture for the new Federal Reserve building that is going to be built at the Riverside Avenue and Acosta Bridge complex in Jacksonville. The purpose of this letter is not to put any pressure on you about anything nor is it to get a contract for anyone; but merely to obtain information as _________ytoho_thEy_cDuld get on the competitive bid list, and who should they cobtact about this—matfer. Your idrices—irr-ttle this will be most Enclosed herein is Mr. Bagnal's Privacy Act form. appreciated. With kindest regard, I am Sin  rely, (I)  Ze CEB:gp Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  W10113 3111 13 331A10 0'0311 US1 VI :8 VII 8 1 114:1V Vi31SXS 3U3S311 TA13333 3111 30 SIM41131\00 -D THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  CHARLES E. BENNETT  JOHN W. PARLEY  ItsI name Durritsm Puma*  diAMMWMAIMMANWIRMIT  ARMEDSENVICMS COM MITT= CHAMHAN or aimPowiut SUECobi ITT=  Congresz of the liniteb *tato *muse of Itepruitntatibui  macomveuximmum aa Plzsitztiu. SuILINNO WOE Trucp•tomE 1104-71114E17  Illastington.M.C. 20515  THOMAS J. NILLZR UMMOMMAIMMWff  SHARON H.SEIGEL LAURA M.INSHOP SARAH J.SCOTT CHERYL I- WIUGHT 1110111111TAMUCII  JOHN W.POLLARD. JR. IRMO* DONALDSON   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  AUTHORIZATION FORM REQUIRED BY FEDERAL PRIVACY ACT  Under the Privacy Act of 1974, which recently went into effect, it will be necessary for your Congressman to supply the appropriate agency with written approval from you to allow them to release information from your files to Congressman Bennett regarding your case so he can help you. Please sign the appropriate spot at the bottom of this page and fill in the appropriate spaces as requested.  This authorizes Congressman Charles E. Bennett to have free access to my information and records relative to me so he can help me in this matter.  NAME  6A&Ndiai-Jotta (Please Print)  ADDRESS ZIP SOCIAL SECURITY NUMBER VA CLAIM NUMBER  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  May 11, 1983  The Honorable Fernand J. St Germain Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Chairman St Germain: Thank you for your letter of April 28 requesting an analysis of the situation relating to the recently announced proposal by Bank of America Corporation to acquire Seafirst Corporation. You also requested a description of the Federal Reserve's role in the proposed transaction. I am responding to your letter to Chairman Volcker since the application is now pending before the Board. Prior to the announcement of the proposed transaction, Federal Reserve staff had been in communication with senior officials of Seafirst regarding the company's performance and future prospects, and contingency plans relating to the availability of Federal Reserve discount facilities. We were also informed of various proposals to raise additional equity including those of Bank of America. Last Wednesday. May 4, an application was filed with the Federal Reserve Bank of San Francisco. The application seeks Federal Reserve approval for Bank of America Corporation to acquire control of Seafirst Corporation. It is anticipated that the application will come before the Board of Governors in the near future. In the normal course of processing Bank of America Corporation's application, the Federal Reserve will seek public comment, and interested parties will be afforded an opportunity to express their views.  I would be pleased to keep you informed of the status of this application. Sincerely, WT:CO:AFC:DJW:pjt (#V-80) bcc: Bill Taylor Mrs. Mallardi   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Donald J. Winn Assistant to the Board  1  FERNAND J ST GERMAIN, R.I., CHAIRMAN HENRY'S. GONZALEZ, TEX. JOSEPH G MINISH, N.J. FRANK ANNUNZIO. ILL PARREN J MITCHELL, MD. WALTER E FAUNTROY, D.C. STEPHEN L. NEAL. NC. JERRY M PATTERSON, CALIF. CARROLL HUBBARD. JR., KY. JOHN J. LAFALCE. N.Y. NORMAN E DAMOURS, N.H. STAN LUNDINE. NY MARY ROSE °AKAR. OHIO BRUCE F VENTO, MINN. DOUG BARNARD, JR.. GA ROBERT GARCIA, NY. MIKE LOWRY, WASH. CHARLES E SCHUMER, N.Y. BARNEY FRANK, MASS. BILL PATMAN, TEX. WILLIAM J. COYNE, PA. BUDDY ROEMER. LA. RICHARD H. LEHMAN. CALIF. BRUCE A. MORRISON, CONN. JIM COOPER, TENN. MARCY KAPTUR, OHIO BEN ERDREICH, ALA. SANDER M LEVIN, MICH. THOMAS R. CARPER DEL ESTEBAN E. TORRES. CAUF.  CHALMERS P WYLIE. OHIO STEWART B McKINNEY, CONN. GEORGE HANSEN. IDAHO JIM LEACH, IOWA RON PAUL. TEX ED BETHUNE ARK NORMAN D SHUMWAY, CALIF STAN PARRIS, VA. BILL McCOL L UM FLA GEORGE C WORTLEY, NY MARGE ROUKEMA. N.J. BILI LOWERY. CALIF DOUG BEREUTER, NEBR. DAVID DREIER. CALIF. JOHN HILER, IND THOMAS J RIDGE. PA STEVE BARTLETT. TEX.  24 U.S. HOUSE OF REPRESENTA  ES  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-EIGHTH CONGRESS 2129 RAYBURN HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515  225-4217  April 28, 1983  Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System 20th & Constitution Ave., N.W. Washington, D.C. 20551 Dear Mr. Chairman: As you know, considerable interest, both nationally and in the State of Washington, exists regarding the agreement between Bank of America and Seattle First National Bank through which Seattle First would be acquired by Bank of America. As part of its continuing effort to monitor changes in the banking industry and in light of the circumstances surrounding this acquisition, it would be appreciated if you would provide me with the Federal Reserve Board's analysis of this situation and a full description of its role in the transaction. Please furnish this information on or Irfore May 6, 1983.. Sincerely,  A  Germain  FJStG:gTj   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  May 9, 1983  The Honorable Dale Bumpers United States Senate Washington, D. C. 20510 Dear Senator Bumpers: Thank you for your recent. letter recommending Dr. Jack E. Adams as a possible director of the Little Rock Branch of the Federal Reserve Bank of - St. Louis. We maintain a constant search for talented 4 individuals for possible service in these positions, and we certainly appreciate having his biographical information to draw on in the future. I have also taken the liberty of sending a copy of your letter to Mr. Theodore H. Roberts, the President of the Federal Reserve Bank of St. Louis, so that he too will be familiar with Dr. Adams' qualifications. Sincerely,  z  -  CC:  Mr. Theodore H. Roberts (w/copy of incoming)  REB:CO:vcd (#V-79) bcc: Mr. Allison Mrs. Robinson (2) Mrs. Mallardi (2)--'  •  MARK 0 HATFIELD OREG  TED STEVENS ALASKA LOWEL. P WEICKER JR CONN JAMES A McCLURE IDAHO PAUL LAXALT NEV JAKE GARN UTAH THAD COCHRAN MISS MARK ANDREWS N OAK JAMES ABDNOR S DAK ROBERT W KASTEN. JR WIS ALFONSE M ()AMATO N MACK MATTINGLY GA WARREN RUDMAN N H ARLEN SPECTER PA PETE DOMENICi N MEX  CHAIRMAN  JOHN C STENNIS MISS ROBERT C BYRD W VA WILLIAM PROXMiRL WIS DANIEL K INOUYE HAWAII ERNEST F HOLLINGS S C THOMAS F EAGLETON MO LAWTON CHILES FLA J BENNETT JOHNSTON LA WALTER D HUDDLE STON KY QUENTIN N BURDICK N OAK PATRICK J LEAHY VT JIM SASSER TENN DENNIS DeCONCINI ARIZ DALE•ii,JMPERS ARK  J KEITH KENNEDY. STAFF DIRECTOR THOMAS L VAN DER VOORT MINORITY STAFc DIRECTOR   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  z," Z-  Unitcd *i tates e tnate COMMITTEE ON APPROPRIATIONS WASHINGTON, DC 20510  April 28, 1983  J  OF GuVu\NES OF WE FEHR;L. 1,ESERVE Sr IL:: BOA  1933 APR 29 MI 11: 5L; 1.ECEIvEi) C;;'111P  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System 20th and Constitution, N.W. 20551 Washington, D.C. Dear Chairman: I am writing on behalf of Dr. Jack E. Adams, a constituent of mine who is interested in working with the Federal Reserve System. Dr. Adams currently serves as a Professor of Economics He holds at the University of Arkansas at Little Rock. several degrees, including a Ph.D. in Economics from Oklahoma State University and a M.A. in Economics from In addition to the University Texas Tech University. of Arkansas, he has served on the faculty at both Southeastern Louisiana University and Southwestern Oklahoma Dr. Adams is a member of many profesState University. sional associations related to economics, including the American Economic Association and Southern Economic He is a member of the Labor Panel of the Association. American Arbitration Association. He is specifically interested in serving as a Class B Director of the Federal Reserve Branch in St. Louis or as a Director of the Little Rock Branch of the I am enclosing his resume for your Federal Reserve. Any consideration you can give to Dr. Adams' perusal. appointment will be greatly appreciated. Thank you for your assistance. Sincerely,  Dale Bumpers DB:gfm 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 personally identifiable information.  Citation Information Document Type: Resume Citations:  Number of Pages Removed: 12  Resume, Jack E. Adams, 1983.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  MM.  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  May 9, 1983  PAUL A. VOLCKER CHAIRMAN  The Honorable Thomas F. Eagleton United States Senate Washington, D.C. 20510 Dear Senator Eagleton: Thank you for your letter of March 14 requesting an elaboration of my views on the subject of tax indexing. Actually my view on the matter is part of a broader instinct-that indexing in general tries to evade the consequences of inflation, and we would be better advised to deal with the ailment directly. In any world approximating that in which we live today, inflation has many undesirable economic effects. In addition to the myriad inequities that it creates, these effects include distortions of the pattern of investment and capital accumulation. Indexation, in general, represents an attempt to neutralize these inequities and inefficiencies. But, even if this were totally successful, in a practical sense it is hard to imagine a world in which indexation made it possible to live with inflation and to escape the costs of the reduced long-run growth and short-term instability that have tended to accompany inflation in the past. Yet, the more we try indexing, the more the temptation to try to live with inflation. I realize strong arguments can be made for tax indexing along the lines of avoiding a "Government" incentive to inflate to drive people into higher tax brackets or, as you note, to spend more money. Those arguments need consideration, but I suspect that public concern with the effects of inflation in the presence of an unindexed tax system should serve to focus attention on the heart of the matter--discipline in both monetary and fiscal policies. But I would be concerned with indexing on the spending side as well (or more!). As a second alternative, your proposal to tie the implementation of indexing to achievement of a deficit which is no more than 2 percent of GNP has the advantage that it would help to attenuate the pressing problem of structural imbalance in the budget. For all the inequities and difficulties of an "unindexed" system in a period of inflation,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Thomas F. Eagleton Page Two  the direction of absence of tax indexing does at least work in inflationary closing the present huge budget gap and relieving is retained, other and interest rate pressures. If indexing means of closing the deficit should be found. I hope that you find these comments useful. Sincerely,  S/Paul A. VOIcket  DC:SL:JZ:PAV:pjt (#V-49) bcc: D. Cohen S. Lepper Ms. Wing Mrs. Mallardi (2) //   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  Action assigned Mr. Kichline N MARK 0. HATFIELD, OREG., CHAIRMA  TED STEVENS. ALASKA LOWELL P. WEICKER, JR.. CONN. 'JAMES A. MC CLURE, IDAHO PAUL LAXALT. NEV. JAKE GARN, UTAH THAD COCHRAN MISS. MARK ANDREWS, N. OAK. JAMES ABDNOR, S. OAK. ROBERT W. KASTEN. JR., WIS. ALFONSE M. D AMATO, N.Y. MACK MATTINGLY, GA. WARREN RUDMAN, N.H. ARLEN SPECTER, PA. PETE V. DOMENIC', N, MEX.  JOHN C. STENNIS, MISS. ROBERT C. BYRD. W. VA. WILLIAM PROXMIRE, WIS. DANIEL K. INOUYE, HAWAII ERNEST F. HOLLINGS. S.C. THOMAS F. EAGLETON, MO. LAWTON CHILES, FLA. J. BENNETT JOHNSTON, LA. WALTER D. HUDDLESTON. KY. QUENTIN N. BURDICK. N. OAK.  'Unite?' Zfatez Zenafe COMMITTEE ON APPROPRIATIONS WASHINGTON, D.C. 20510  PATRICK J. LEAHY, VT. JIM SASSER. TENN. DENNIS DE CONCINI, ARIZ. DALE MMAPERS. ARK.  J. KEITH KENNEDY. STAFF DIRECTOR J. SULLIVAN MINORITY STAFF DIRECTOR  FRANCIS  March 14, 1983  Paul A. Volcker, Chairman Board of Governors Federal Reserve System 20th and Constitution Avenue, NW Washington, D.C. 20551   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Dear Mr. Chairman: I understand that you and I share the same negative ✓ iew of tax indexing. Since your thoughts have not been offered in prepared testimony, but only in answer to ion questions, I would appreciate having a fuller explanat of why you think tax indexing is a bad idea and what conn sequences you foresee from letting the indexing provisio take effect as scheduled in 1985. The strongest argument for indexing, of course, is that ge without it taxes will increase without benefit of a chan . in law and Congress will find ways to spend the revenues How do you respond to that? a Finally, I would appreciate having your reaction to Rather possible compromise approach to the idexing problem. and inviting than repealing or indefinitely deferring indexing tie the a political battle with the Administration, why not cit which implementation of indexing to achievement of a defi kind is no more than two percent of GNP? This is the same in connection of triggering event proposed by the Administration the deficitw ith its contingency taxes except that I would set oach avoids GNP ratio a bit lower. It seems to me, this appr dumb idea, the provocation of saying indexing is an outright afford it. but rather, proposes to wait at least until we can and Your thoughts on this matter would be much valued appreciated. Regards,  ii  )t-c;?., LETON .-717(;, F. T'AG  THOMAS UNITED STATES SENATOR TFE:jld  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  PAUL A. VOLCKER CHAIRMAN  May 6, 1983  The Honorable Fernand J. St Germain Chairman Committee on Banking, Finance & Urban Affairs House of Representatives Washington, D.C. 20515 Dear Mr. Chairman: In anticipation of the full Committee mark-up of H.R. 2930, introduced on May 5, I would like to share with you my thoughts on this proposed legislation. In a separate letter to you, I expressed my concerns regarding two amendments to the IMF authorization provisions of H.R. 2930 with respect to limits on SDR allocations and on voting against loans to any country practicing apartheid. I would also like to convey to you my concern about some of the provisions dealing with international lending. In considering the policy problems arising from foreign lending by banks both here and abroad, I believe we both share two basic policy objectives. First, we seek to establish a framework to assure the application of prudent banking standards to international lending and to protect the integrity of the banking system. Second, within this context we wish to assist in bringing about the necessary adjustments by the debtor countries in a way that has least adverse effect on economic growth and world trade. These two goals are fundamentally consistent, but they require a balanced approach. We constructed our recommendations to you to assure that we have set up a mechanism to accomplish our first objective in a way that does not adversely affect the ability of borrowers and banks to deal constructively with the current adjustment problems by avoiding impediments to an adequate level of financing for sound adjustment programs. I was therefore pleased that the major features of the regulators' five-point program, as reflected in the draft bill that was submitted to you on April 11 by the banking agencies, have been incorporated in H.R. 2930. However, two major changes have been made in this bill which could seriously impair the current economic adjustment efforts without materially aiding in promoting prudent international lending standards. The first of these provisions, contained in Section 206 on "Sustaining Economic Growth," attempts to establish criteria for economic adjustment programs including the restructuring of external debt, and would require the U.S. Executive   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  %a  The Honorable Fernand J. St Germain  -2-  Director of the Fund to vote against loans by the Fund that do not meet these criteria. The second provision, in Section 304 on "Reserves," would require special reserves to be established where a loan "cannot reasonably be expected to be repaid in accordance with its original terms and conditions without additional borrowing or a major restructuring." My concern about the first provision is that it would launch the IMF into an entirely new endeavor of establishing terms and conditions for the restructuring of foreign debt to private parties in a manner that may be inconsistent with the analysis and objectives of others necessarily concerned. This kind of major rearrangement of the international credit structure should only be taken after the most serious consideration of the If it were consequences, and with full analysis of its likely effects. applied as contained in the bill, this provision could well have the effect of choking off essential bank financing of adjustment programs, a most serious result that would have a major adverse impact on the United States economy as well as on the world economy. Moreover, it could have the perverse effect of encouraging excessive use of the Fund's resources by a wide range of developing countries anxious to take advantage of this framework for debt restructuring. The "Reserves" provision, in my judgment, could have a more It would clearly immediate damaging effect on international lending. discourage a bank from lending to a country at precisely the time such lending could well be appropriate -- when a restructuring accompanies a comprehensive economic adjustment program by the country concerned. Indeed, the provision could well, in some instances, undercut the possibilities of achieving sound restructuring, partly because it easily could be considered tantamount to an expression of official disapproval. Our recommendations to you contain provisions which address the same concerns as those contained in the added provisions on the IMF role in debt restructuring and on reserves. Section 207 would request the Fund to examine the trend and volume of external indebtedness, consider placing limits on public sector external short- and long-term borrowing, and provide for publication of periodic evaluations of the trend and volume of international lending. The provisions on reserves in Section 304(a)(1) in cases of protracted inability to pay should introduce additional elements of caution at the stage of loan authorization so as to avoid loans that may Moreover, this provision will be have to be reserved against later. supplemented by a greatly strengthened program of supervision of international lending required by Section 303, as well as by improved public disclosure of material international lending data as required by Section 306. I would supported by the Adequate capital essential aspect   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  also like to stress that these requirements are further provision on adequate capital contained in Section 308. to sustain both domestic and international operations is an of a sound banking system. As you are aware, we have had  ..  The Honorable Fernand J. St Germain  -3-  specific capital standards for our community and regional banks, but have relied on a more qualitative approach for the larger multinational banks. Consistent with our urging, we have been pleased to see a general increase in capital ratios of those banks in the past year. But we also believe it is now appropriate to implement specific minimum standards for all categories of banks. These guidelines will be supported by section 308, providing that the regulators shall require banking institutions to maintain adequate capital levels. I believe this approach will make a major contribution to the objectives that we seek through this legislation, without having an adverse impact on the financing needed to facilitate the international adjustment process. We expect to be able to implement this approach shortly, and will keep you fully informed. I believe members of my staff have been in contact with your staff about our concerns about certain other provisions of the bill dealing with the authority of the FFIEC, the GAO, and a legislative veto. While they are not of the same potentially crippling impact, I do believe they raise substantial questions of procedure, and do not appear to be at all necessary.  Sincerely,  cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Chalmers P. Wylie The Honorable Jim Leach  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  May 6, 1983  The Honorable Rudolph E. Boschwitz United States Senate Washington, D.C. 20510 Dear Senator Boschwitz: Senator Garn has asked fotx my views on a monetary policy amendment to be offered by Senator Moynihan to the Budget Resolution. I thought you would like .tosee my letter to Senator Garn. Sincere),y,  Enclosure (Ltr. to Chrmn. Garn from Chrmn. Volcker dtd. 5/6/83.) DJW:pjt bcc: Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  May 6, 1983  The Honorable John G. Tower United States Senate 20510 Washington, D.C. Dear Senator Tower: Senator Garn has asked for my views on a monetary policy amendment to be offered by Senator Moynihan to the Budget Resolution. Knowing of your interest .in this matter, I am enclosing a copy of my letter to Senator Cam. Sincerely,  Enclosure  (Ltr. to Chrmn. Garn from Chrmn. Volcker dtd. 5/6/83.)  DJW:pit bcc: Mrs. Mallardi (2)  •  • G011ew.  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM • •  WASHINGTON, El. C. 20551  -1`••• ./6ALREs°1:'• '•.. • •  May 6, 1983  PAUL A. VOLCKER CHAIRMAN  The Honorable Jesse Helms United States Senate 20510 Washington, D.C. Dear Senator Helms: Your letter of May 2 asks for my views about the amendment to the Budget Resolution to be proposed by Senators Moynihan and Hart and which was discussed in the Committee report on the resolution. It seems to me that the economy is now well poised for a long period of sustained growth. We can realize that promise if the progress against inflation can be maintained and if inflationary expectations--which have diminished considerably as actual price performance has improved --continue to abate. Those developments seem to me essential to support strong credit markets, lower interest rates over time, and an overall economic environment encouraging to private investment and employment. As I am sure you realize, concern about future inflation has by no means disappeared from thinking in the markets or among consumers and businessmen; a deep-seated skepticism is understandable given the strong inflationary pressures of recent years and the failure of past policies to deal with it. In that context, Congressional action that will in fact substantially reduce looming structural budget deficits seems to me one essential element to ensure that inflationary and market pressures will not revive in the course of economic recovery. Another key, of course, is maintenance of a monetary policy alert to the dangers of excessive money and credit growth during the period of economic expansion--even if, as you suggest, the precisely appropriate growth rate cannot be fixed now. While I am not certain as to the operational significance of the proposed wording of the resolution on monetary policy, I am greatly concerned that the broad thrust would be counterproductive; it will inescapably raise doubts about the thrust of fiscal and monetary policies. It seems to suggest that economic recovery should be "forced" to meet some minimum arithmetic near-term objective for real growth without any acknowledgment of the risk of reigniting inflation. The clear danger--indeed, the probability--is that if we, in fact, do not pay attention to the possibility of a resurgence of inflation and inflationary expectations, we would doom the prospects for sustaining recovery.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  of-The 7onorable Jess-_-! 7elms Page Two  I recognize the economic "analysis" behin -1, the resolution (judging from Senator Moynihan's remarks recently in the Congressional Record) suggests that the consequent price inflation will he limiter --two percentage points or so a year as ti-le goes on. Put I believe the risks are very high that price inflation could accelerate still more if, after the hard-won pro7ress recently achieved, such a resolution is interpreted as indicating the Congress is now willing to abandon concern about inflation. The irony would be that policies proposal to hnve the TIractical support and sustain real growth would effect before very long of thwarting that very objective because of adverse effects on financial marts. I might add that the "substantial and permanent reductions" in the structural bu'lget deficit referrel to in the resolution language may not carry conviction to many peol,-)le until there is, in the first instance, clear agreement on a budrlet resolution nointing firmly toward that result, and then a willinIness to enact the measures necessary to carry out the fiscal int,mt. Any doubts on that score would reinforce mv concern about the implications for monetary policy, inflation, an -1 interest rates. My ,7)o1nt is not that a recovery of the dimensions cite in the resolution is necessarily inconsistent with our monetary targets or progress on the nrice front; rather, it is that our approoch 'lust be a balanced one, seeking expansion in a context of stability so that the expansion can he sustained. In that broad sense, Your comment about the need for a commitment to the stabili7ation of the value of the dollar seems to me entirely appropriate. The net effect of the proposed resolution seerns to rle all too likely to deflect attention away from the crucial imnortance of carrying through on the budgetary and the disinflationary effort as a key to sustaining both lower interest rates and the recovery itself. Sincerely,  PAV:pjt (#V-82) bcc: Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  JESSE HELMS holTH CAROLINA   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  rce  „ 'ATnifeb Ziafez'Senate WASHINGTON. D.C. 20510  May 2, 1983  The Honorable Paul A. Volcker Chairman Federal Reserve System Constitution Avenue and 21st Street Washington, DC 20551 Dear Mr. Chairman: I recently received the enclosed letter from two of my colleagues. I would appreciate it if you would tell me this: if this resolution were adopted, would you construe it to mean that Congress is urging a greater rate of money supply growth?  •  It is my inclination to support it. Not, however, because I think the money supply growth rates should be faster or slower. Frankly, I don't think that Senators Moynihan, or Hart, or you or I know if money supply growth should be faster or slower. I do, however, think that the Fed could help foster faster economic growth as good as (if not better than) any experienced in any postwar recovery. I think, however, that it has to be via monetary policy practiced during those recoveries: the commitment to the stabilization of the value of the dollar. I look forward to receiving your views. With best personal regards, I am Sincerely,  JESSE HELMS:hcm  DANIEL P. MOYNIHAN NEW YORK  'ZCrtiteb Zialez'Senate WASHINGTON, D.C. 20510  April 28, 1983  Dear Colleague: The American economy stands poised at a crossroads. We can importantly affect its course during the debate over the Budget Resolution. A central element, of course, is fiscal restraint, and the Budget Committee has done substantial work in this regard. Vigorous economic recovery, however, cannot be sustained unless fiscal restraint is coordinated with monetary policy to achieve economic growth. We will offer an amendment to the Budget Resolution, an amendment discussed in the Committee report on the Resolution, to help achieve sustained economic growth: It is the sense of the Congress that the substantial and permanent reductions in the structural budget deficit contained in this Budget Resolution shall be coordinated with a growth-oriented monetary policy. It is the further sense of the Congress that, in light of these substantial reductions in the deficits for fiscal year 1984 and beyond, and in light of marked reductions in inflationary pressures, the Federal Reserve System shall conduct monetary policy so as to foster vigorous economic growth consistent with previous postwar recoveries. We have studied the record of previous postwar recoveries. The economy has grown, in inflation-adjusted terms, at an average annual rate of 7.6 percent during the first full quarter of recovery, and 5.4 percent annually over the first two years. May we tell you that during the first quarter of this year, the economy grew at a real rate of just 3.1 percent, -- only twofifths of the historic average. And assuming current monetary policies, both CB0 and the Administration have projected a recovery over the next two years less than two-thirds as strong as our historic average. When CB0 and the Administration first released these projections last February, we asked the Joint Economic Committee to analyze whether the Federal Reserve could coordinate monetary policy with fiscal policy, to achieve 5.4 percent real annual growth. Working with one of the nation's preeminent econometric forecasting firms, Data Resources Inc. (DRI), the staff of the JEC reported it could be done, with striking economic consequences. For example:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Page 2  * Unemployment would fall to 7.6 percent by 1985 -- instead of the 8.9 percent projected for 1985 by the Administration in its budget. * Corporate profits by 1985 would be 28.6 percent higher than under the Administration's forecast. * By 1985, the nation's GNP would be $203 billion more than under the monetary policies assumed by the Administration in its forecast. of Surely Congress has the responsibility to set the goals nsinational economic policy. Just as surely, it is the respo policy bility of the Federal Reserve, like every other economic ve institution, to work with the rest of Government to help achie and this goal. With more than 11 million Americans unemployed ity, U.S. manutacturing operating at less than 70 percent capac the goal today must be economic growth. Monetary policy is no magical panacea, but economic growth can and will make a difference. To give you some idea of how much difference, we projected unemployment in every state for -the fourth quarter of 1984 (October-November-December 1984) nt comparing joblessness under the CBO forecast, assuming curre by monetary policy, with joblessness under the growth implied this amendment. In Wisconsin, for example, some 28,000 fewer men and women to would be jobless late next year under an expansion comparable previous postwar recoveries, than under CBO's latest forecast. fewer More than 69,000 fewer unemployed in Ohio, nearly 126,000 ders, jobless in California, some 4,000 fewer unemployed Rhode Islan d and so on across the country -- if monetary policy is coordinate with fiscal policy to achieve 5.4 percent real growth. We urge you to check the enclosed table for the potential impact of this amendment on joblessness in your state. And we ask for your support. If you wish to cosponsor this amendment or have any questions, please contact Robert Shapiro at X4-4451. Sincerely,  a>,p IAALA Daniel Patrick McUynihan   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Gary Hart  PROJECTED UNEMPLOYMENT, MONETARY POLICY AMENDMENT VERSUS CURRENT MONETARY POLICY (CBO)  Projected Unemployment, 1984: IV Jobless Rate 1982: IV  State  Number, 1984: IV Current Policy Amendment  Difference  215,564  240,505  24,941  8.7  16,792  18,729  1,937  8.4  9.4  115,665  129,434  13,769  10.1  7.9  8.9  83,639  94,226  10,587  10.8  8.5  9.5  1,077,508  1,204,273  126,765  Colo.  8.5  6.7  7.5  90,305  102,012  11,707  Conn.  6.9  5.4  6.1  88,564  100,045  11,481  Delaware  7.7  6.0  6.8  18,658  21,145  2,485  10.7  8.4  9.4  27,518  30,794  3,276  Florida  9.4  7.4  8.3  363,869  408,121  44,252  Georgia  7.8  6.1  6.9  168,624  190,738  22,114  Hawaii  6.9  5.4  6.1  25,721  29,056  3,335  Idaho  9.3  7.3  8.2  33,329  37,437  4,108  Illinois  12.4  9.7  10.9  563,617  633,342  69,725  Indiana  12.5  9.8  11.0  264,380  296,754  32,374  Iowa  8.5  6.7  7.5  98,806  110,604  11,798  Kansas  6.9  5.4  6.1  66,550  75,176  8,626  Kent.  11.0  8.6  9.7  149,812  168,974  19,162  Louis.  11.6  9.1  10.2  175,557  196,778  21,221  15.4%  12.1%  13.5%  9.9  7.8  Arizona  10.7  Arkansas Calif.  Alabama Alaska  D.C.  ..  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ..  Rate, 1984: IV Current Policy Amendment  Projected Unemployment, 1984: IV Jobless Rate 1982: IV  State  Rate, 1984: IV Amendment Current Policy  Maine  7.8%  6.1%  6.9%  Maryland  8.3  6.5  Mass.  6.9  Mich.  Number, 1984: IV Current Policy Amendment  Difference  32,672  36,956  4,284  7.3  146,084  164,063  17,979  5.4  6.1  169,379  191,335  21,656  16.2  12.7  14.2  564,774  631,480  66,706  Minn.  8.0  6.3  7.0  141,916  157,685  15,769  Miss.  11.4  8.9  10.0  97,928  110,032  12,104  Missouri  9.2  7.2  8.1  173,047  194,679  21,632  Mont.  8.6  6.7  7.6  27,245  30,905  3,660  Nebr.  6.2  4.9  5.4  40,106  44,198  4,092  10.8  8.5  9.5  42,874  47,918  5,044  N.H.  7.5  5.9  6.6  29,882  33,428  3,546  N. Jersey  8.8  6.9  7.7  260,058  294,205  34,147  N. Mexico  9.7  7.6  8.5  46,792  52,333  5,541  New York  9.0  7.1  7.9  592,640  659,416  66,776  N. Carolina  9.0  7.1  7.9  217,385  241,879  24,494  N. Dakota  5.7  4.5  5.0  14,742  16,380  1,638  13.8  10.8  12.1  575,303  644,552  69,249  6.9  5.4  6.1  82,443  93,130  10,687  Oregon  11.2  8.8  9.8  120,349  134,025  13,676  Penn.  11.8  9.3  10.4  530,219  592,933  62,714  Nevada  Ohio Oklahoma  .•   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Projected Unemployment, 1984: IV  S tate  Jobless Rate 1982: IV  Rate, 1984: IV Current Policy Amendment  Number, 1984: IV Current Policy Amendment  Difference  167,955  187,881  19,926  8.3  37,596  41,606  4,010  8.6  9.6  132,908  148,362  15,454  5.5  4.3  4.8  14,668  16,374  1,706  Tenn.  12.0  9.4  10.5  208,327  232,705  24,378  Texas  7.5  5.9  6.6  451,180  507,710  53,530  Utah  8.3  6.5  7.3  45,157  50,713  5,558  Vermont  6.8  5.3  6.0  14,607  16,536  1,929  Virginia  7.8  6.1  6.9  168,116  190,164  22,048  Washington  12.5  9.8  11.0  205,063  230,173  25,110  W. Virginia  15.9  12.5  14.0  99,970  111,966  11,996  Wisc.  11.0  8.6  9.7  219,128  247,156  28,028  7.2  5.7  6.3  14,998  16,557  1,579  8.4%  9.4%  9,330,000  10,460,000  1,130,000  22.6%  17.7%  19.8%  R.I.  9.5  7.5  S.C.  10.9  Puerto Rico  S. Dakota  Wyoming  U.S.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  10.7%  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 205S1  PAUL A. VOLCKER  May 6, 1983  CHAIRMAN  The Honorable Jake Garn Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Garn: You have asked for my views on the amendment to the Budget Resolution to be proposed by Senators Moynihan and Hart and which was discussed in the Committee report on the resolution. It seems to me that the economy is now well poised for a long period of sustained growth. We can realize that promise if the progress against inflation can be maintained and if inflationary expectations--which have diminished considerably as actual price performance has improved--continue to abate. Those developments seem to me essential to support strong credit markets, lower interest rates over time, and an overall economic environment encouraging to private investment and employment. As I am sure you realize, concern about future inflation has by no means disappeared from thinking in the markets or among consumers and businessmen; a deep-seated skepticism is understandable given the strong inflationary Pressures of recent years and the failure of past policies to deal with it. In that context, Congressional action that will in fact substantially reduce looming structural budget deficits seems to me one essential element to ensure that inflationary and market pressures will not revive in the course of economic recovery. Another key, of course, is maintenance of a monetary policy alert to the dangers of excessive money and credit growth during the period of economic expansion--even if, as you suggest, the precisely appropriate growth rate cannot be fixed now. While I am not certain as to the operational significance of the proposed wording of the resolution on monetary policy, I am greatly concerned that the broad thrust would be counterproductive; it will inescapably raise doubts about the thrust of fiscal and monetary policies. It seems to suggest that economic recovery should be "forced" to meet some minimum arithmetic near-term objective for real growth without any acknowledgment of the risk of reigniting inflation. The clear   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Jake Garn Page Two  danger--indeed, the probability--is that if we, in fact, do not pay attention to the possibility of a resurgence of inflation and inflationary expectations, we would doom the prospects for sustaining recovery. I recognize the economic "analysis" behind the resolution (judging from Senator Moynihan's remarks recently in the Congressional Record) suggests that the consequent price inflation will be limited --two percentage points or so a year as time goes on. But I believe the risks are very high that price inflation could accelerate still more if, after the hard-won progress recently achieved, such a resolution is interpreted as indicating the Congress is now willing to abandon concern about inflation. The irony would be that policies proposed to support and sustain real growth would likely have the practical effect before very long of thwarting that very objective because of adverse effects on financial markets. I might add that the "substantial and permanent reductions" in the structural budget deficit referred to in the resolution language may not carry conviction to many people until there is, in the first instance, clear agreement on a budget resolution pointing firmly toward that result, and then a willingness to enact the measures necessary to carry out the fiscal intent. Any doubts on that score would reinforce my concern about the implications for monetary policy, inflation, and interest rates. My point is not that a recovery of the dimensions cited in the resolution is necessarily inconsistent with our monetary targets or progress on the price front; rather, it is that our approach must be a balanced one, seeking expansion in a context of stability so that the expansion can be sustained. In that broad sense, your comment about the need for a commitment to the stabilization of the value of the dollar seems to me entirely appropriate. The net effect of the proposed resolution seems to me all too likely to deflect attention away from the crucial importance of carrying through on the budgetary and the disinflationary effort as a key to sustaining both lower interest rates and the recovery itself. Sirere1y,  aeogatPAV:pjt bcc: Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • of GOvt • •  BOARD OF GOVERNORS OF THE  •co 21  •  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  Eff[ii QtA  PAUL A. VOLCKER  RE. • •.. • •  CHAIRMAN  May 6, 1983  The Honorable Fernand J. St Germain Chairman Conunittee on Banking, Finance and Urban Affairs House of Representatives Washington, DC 20515 Dear Chairman St Germain: The Subcomnittee on International Trade, Investment and Monetary Policy of the Committee on Banking, Finance, and Urban Affairs yesterday adopted an amendment to the IMF legislation that would require congressional authorization of a U.S. vote to approve any new allocation of Special Drawing Rights (SDR). I understand that there is some doubt about the Federal Reserve's position on this proposal. I am, therefore, writing to make my position clear and to urge the removal of this provision from the legislation. I believe that this provision, if incorporated into law, would have strong negative implications for the potential role of the SDR, would raise questions about U.S. support for the SDR and the IMF, and thereby adversely affect the functioning of the international monetary system. Since the strength of my concern on this question may surprise you, let me try to explain my views carefully. The SDR provisions were the central element of the first amendment of the IMF Articles of Agreement in 1969. The basic criteria that are to be met with respect to the allocation and cancellation of SDR are clearly stated in the Articles of Agreement (Article XVIII, Section 1):   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Fund shall seek to meet the long-term global need, as and when it arises, to supplement existing reserve assets in such manner as will promote the attainment of its purposes and will avoid economic stagnation and deflation as well as excess demand and inflation in the world.  Chairman St Germain  Page 2  Since the incorporation of the SDR provisions in the IMF Articles of Agreement, these provisions have been applied very conservatively. Less • I. 21-1/2 than billion have been allocated over 14 years. Nevertheless, • the SDR has taken on • a symbolic importance beyond the volume that has been created, and it potentially could play a significant role in a more stable international monetary environment. Indeed, the second amendment of the Articles of Agreement in 1978 included a provision calling upon the members of the IMF to facilitate the proper use of special drawing rights in accordance with the provisions of the Articles of Agreement and "with the 5objective of making pecial drawing right the principal reserve asset in the international monetary system" (Article XXII). -  It is right that great care should be taken in reaching any positive decision to allocate SDR. The SDR is • a monetary excessive creation of SDR could have inflationary consequences for the functioning of the international monetary system. For this reason, such a decision requires an 85 percent majority vote. Such a requirement, by neccesity, requires careful consideration and debate among nations to achieve the necessary consensus. The added uncertainty consequent upon a need for Congressional action could inpair the possibility of reaching agreement in timely fashion. Should other countries follow the same procedure there are 146 member countries -- the possibilities for action could be undercut entirely. •asset;  I should emphasize that the interests of the United States in the health of its own economy as well as in the smooth functioning of the international monetary system might at times be well served by a prompt, positive U.S. decision on SDR allocation, for example, to forestall a global contraction of aggregate demand or to promote sustainable, non-inflationary economic growth and recovery in the face of a contraction in global liquidity. Since the United States has 19 percent of the votes in the IMF, a positive U.S. vote is required to approve any SDR allocation; valuable time could be lost if Congress had to authorize formally that vote.  •al ocation,  Let me be clear, I believe that Conaress should play a role in or cancellation, of SDR. U.S. Government deons to favor the It is for this reason that the Bretton •Woods Agreements Act contains a provision requiring congressional authorization before any U.S. vote in favor of SDR in any basic period, that would result in allocations to the United States during that period in excess of the U.S. quota in the IMF. In addition to this formal limitation, and in support of its intent to prevent excessive allocations and to provide for congressional is appropriate that Congress be review of experience with the P. consulted before the U.S. Governor in the IMF votes, or merely expresses U.S. support, for an allocation of SDR. Such consultations have occurred on the two occasions in the past when affirmative decisions were reached. I firmly expect them t5 take 5lace in'similar circumstances in the future.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •allocations,  •it  Page 3  Chairman St Germain  Thus, I would be greatly concerned if the provision now contained in the draft IMF legislation before your Committee were enacted into law. Such an action might be interpreted as a U.S. attempt to cripple the SDR and weaken the IMF at the very time when we are trying to strengthen the Fund. Congress should be consulted on such decisions, as it has been in the past, and I would support legislation that formalized existing consultation procedures. Moreover, some modification of the current limitation on the amounts that could be agreed without further congressional action could be considered if thought desirable. What seems to me crucial is that the Administration be provided with enough flexibility to commit in a timely way to allocations within a reasonable limit. For many of the same reasons, I am also concerned about another provision that was incorporated into the IMF legislation yesterday: the provision requiring that the President instruct the U.S. Executive Director of the IMF to oppose any credit drawings on the IMF by any country which practices apartheid. We can agree that the practice of apartheid is repugnant and that apartheid may contribute to balance of payments problems. But there are other avenues for examining those concerns, and I do not believe that this provision in the IMF legislation is an effective response under the circumstances. The plain danger is that the introduction of legistated political criteria into multilateral IMF decisions by the United States or other countries could easily proliferate, in the end undermining the role of the IMF as an effective economic institution. In that connection, the possibility obviously exists, in some instances, that some other countries would be tented to achieve political purposes in the IMF contrary to our interests. I believe our basic approach through the years in trying to insulate the IMF, to the extent feasible, from political judgment remains appropriate. Thus, I would hope that the full committee will remove this provision from the legislation. Sincerely,  IDENTICAL LETTERS TO CONG. CHALMERS P. WYLIE (RANKING MINORITY MEMBER) CHAIRMAN STEPHEN L. NEAL (SUBCMTE. ON INTERNATIONAL TRADE, INVESTMENT AND MONETARY POLICY); AND CONG. JIM LEACH (RANKING SUBCMTE. MEMBER)  EMT bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Truman Mrs. Mallardi  • •• • GOV,E- ••  BOARD OF GOVERNORS  • •'co . -'" •0 11111446'efites ****  OF THE .• 'r  H. •  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  44 ';•  PAUL A. VOLCKER  ••fRAL Rf-S. • • • ••  CHAIRMAN  May 6, 1983  The Honorable Fernand J. St Germain Chairman Committee on Banking, Finance & Urban Affairs House of Representatives Washington, D.C. 20515 Dear Mr. Chairman: In anticipation of the full Committee mark-up of H.R. 2930, introduced on May 5, I would like to share with you my thoughts on this proposed legislation. In a separate letter to you, I expressed my concerns regarding two amendments to the IMF authorization provisions of H.R. 2930 with respect to limits on SDR allocations and on voting against loans to any country practicing apartheid. I would also like to convey to you my concern about some of the provisions dealing with international lending. In considering the policy problems arising from foreign lending by banks both here and abroad, I believe we both share two basic policy objectives. First, we seek to establish a framework to assure the application of prudent banking standards to international lending and to protect the integrity of the banking system. Second, within this context we wish to assist in bringing about the necessary adjustments by the debtor countries in a way that has least adverse effect on economic growth and world trade. These two goals are fundamentally consistent, but they require a balanced approach. We constructed our recommendations to you to assure that we have set up a mechanism to accomplish our first objective in a way that does not adversely affect the ability of borrowers and banks to deal constructively with the current adjustment problems by avoiding impediments I was to an adequate level of financing for sound adjustment programs. therefore pleased that the major features of the regulators' five-point program, as reflected in the draft bill that was submitted to you on April 11 by the banking agencies, have been incorporated in H.R. 2930. However, two major changes have been made in this bill which could seriously impair the current economic adjustment efforts without materially aiding in promoting prudent international lending standards. The first of these provisions, contained in Section 206 on "Sustaining Economic Growth," attempts to establish criteria for economic adjustment programs including the restructuring of external debt, and would require the U.S. Executive   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Fernand J. St Germain  -2-  Director of the Fund to vote against loans by the Fund that do not meet these criteria. The second provision, in Section 304 on "Reserves," would require special reserves to be established where a loan "cannot reasonably be expected to be repaid in accordance with its original terms and conditions without additional borrowing or a major restructuring." My concern about the first provision is that it would launch the IMF into an entirely new endeavor of establishing terms and conditions for the restructuring of foreign debt to private parties in a manner that may be inconsistent with the analysis and objectives of others necessarily concerned. This kind of major rearrangement of the international credit structure should only be taken after the most serious consideration of the consequences, and with full analysis of its likely effects. If it were applied as contained in the bill, this provision could well have the effect of choking off essential bank financing of adjustment programs, a most serious result that would have a major adverse impact on the United States economy as well as on the world economy. Moreover, it could have the perverse effect of encouraging excessive use of the Fund's resources by a wide range of developing countries anxious to take advantage of this framework for debt restructuring. The "Reserves" provision, in my judgment, could have a more immediate damaging effect on international lending. It would clearly discourage a bank from lending to a country at precisely the time such lending could well be appropriate -- when a restructuring accompanies a comprehensive economic adjustment program by the country concerned. Indeed, the provision could well, in some instances, undercut the possibilities of achieving sound restructuring, partly because it easily could be considered tantamount to an expression of official disapproval. Our recommendations to you contain provisions which address the same concerns as those contained in the added provisions on the IMF role in debt restructuring and on reserves. Section 203 would request the Fund to examine the trend and volume of external indebtedness, consider placing limits on public sector external short- and long-term borrowing, and provide for publication of periodic evaluations of the trend and volume of international lending. The provisions on reserves in Section 304(a)(1) in cases of protracted inability to pay should introduce additional elements of caution at the stage of loan authorization so as to avoid loans that may have to be reserved against later. Moreover, this provision will be supplemented by a greatly strengthened program of supervision of international lending required by Section 303, as well as by improved public disclosure of material international lending data as required by Section 306. I would supported by the Adequate capital essential aspect   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  also like provision to sustain of a sound  to stress that these requirements are further on adequate capital contained in Section 308. both domestic and international operations is an banking system. As you are aware, we have had  •  I The Honorable Fernand J. St Germain  -3-  specific capital standards for our community and regional banks, but have relied on a more qualitative approach for the larger multinational banks. Consistent with our urging, we have been pleased to see a general increase in capital ratios of those banks in the past year. But we also believe it is now appropriate to implement specific minimum standards for all categories of banks. These guidelines will be supported by section 308, providing that the regulators shall require banking institutions to maintain adequate capital levels. I believe this approach will make a major contribution to the objectives that we seek through this legislation, without having an adverse impact on the financing needed to facilitate the international adjustment process. We expect to be able to implement this approach shortly, and will keep you fully informed. I believe members of my staff have been in contact with your staff about our concerns about certain other provisions of the bill dealing with the authority of the FFIEC, the GAO, and a legislative veto. While they are not of the same potentially crippling impact, I do believe they raise substantial questions of procedure, and do not appear to be at all necessary.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  tve   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  May 6, 1983  The Honorable Jake Garn Chairman Committee on Banking, housing, and Urban Affairs United States Senate Washington, D. C. 20510 Dear Chairman Garn: I am pleased to submit comments on S. 42, which would provide for minting of U.S. gold coins. I find the bill before you acceptable in most respects, but I believe the tax provisions should he eliminated. The bill follows closely the provisions of the Gold Commission's recommendation favoring minting of a gold coin of specified weights and without dollar denomination. If a gold coin is to be minted, these features would be desirable in that they would avoid any suggestion that the United States is prepared to attempt fixing the price of gold again. The Commission also reconrnended that the coin have no legal-tender status. This feature would prevent the confusion and inefficiency that would otherwise develop from establishment of a dual system of legal tenders whose relative value would fluctuate. Section 402(g) of the bill provides, however, only that the coins not have status as legal tender for public payments. Thus the coins could came to be conferred with legal-tender status for private transactions, arousing the confusion and inefficiency that the bill seeks to avoid. In most respects, the coins to be minted under S. 42 are undifferentiated from the U.S. medallions now being minted from the nation's gold stock and sold through a private distribution network. I see no difficulties in principle with replacing the medallion program at its expiration with a similar coin scheme. Some Commission members and many other people have suggested that some potential buyers would more readily accept a coin in contrast to a medallion. Duplication of the medallion program by a simultaneous coin offering, however, would seem unnecessarily burdensome to the Mint, wasteful, and confusing to the public.  Chairman Garn  Page 2  The chief difference between the current medallions and the proposed coins, besides design, is tax treatment. I have serious reservations about the proposed exemption of the coins from specified taxes, particularly capital-gains taxes. This feature of the bill parallels a provision of the Commission recomuendation about which my three colleagues on the Federal Reserve Board who served on the Gold Commission expressed their strong misgivings during deliberations and in the Commission report. The main argument advanced in support of the tax exemption was the view that it would improve the feasibility of the coins' use on a voluntary basis among private parties as a medium of exchange. In light of current and prospective gold prices, gold coins of one-half and one ounce weights are unlikely ever again to be widely used as hand-to-hand circulating currency. The current bullion value of such coins would be over $200 and $400 respectively. Nonetheless, private transactors might come to make more widespread use than heretofore of their right under current law to denominate certain contractual obligations in gold. U.S. gold coins if available might sometimes be used to discharge such obligations, in conjunction with other forms of gold such as U.S. medallions, foreign coins, and bullion. In most cases, however, settlement would probably be made for convenience by more conventional payment means in an amount determined by reference to a market gold price. It is doubtful that the proposed tax exemptions for a coin issue would greatly improve the attractiveness of the coins as a medium of exchange, although the effect of taxation on the attractiveness of assets as means of payment is by no means clear. Certain recent financial innovations, such as NOW accounts, have become widely accepted as means of payment with no special tax treatment. Since tax exemption for the proposed coins would likely lead to suggestions of additional tax exemptions for other assets, with obvious effects on Treasury revenues, the Congress may wish to move cautiously in this area at least until the relevant relationships are better understood. A more easily predictable implication of the introduction of taxexempt gold coins is that investors holding or planning to hold gold in portfolios could substitute the tax-exempt coin for taxable forms of gold. Furthermore, the coins' unique tax exemption might lead some investors not otherwise planning to hold gold to substitute the coins for part of their positions in other, taxable assets, such as equities and corporate and government bonds. The rise in yields on conventional assets that would be associated with such shifts would not be especially welcome. A coin with features as provided in S. 42 could be expected to trade in a secondary market at a premium reflecting its tax advantages. The magnitude of the premium would depend in part on the volume of the coin issue,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Chairman Garn  Page 3  which would be limited in early years by Mint capacity. (The ultimate volume of the coin issue would of course be limited to 10 million ounces of the existing 264-million gold stock, but a larger volume of coins might well be demanded by those who, under section 405(a), transform their existing, taxable bullion and foreign-coin holdings into tax-exempt U.S. coins.) The Treasury would cover its minting and related expenses in pricing the coin under the bill's provisions, while the initial coinholders -- those acquiring the coins directly from the Treasury -- would in effect collect the tax-related premium. These benefits would thus accrue mainly to the distribution system provided for in section 403 and those who avail themselves of the bullion and foreigncoin exchange provisions mentioned above. I also note a technical inconsistency in section 405 that might give rise to unintended consequences. While holders of both bullion and foreign gold coins are permitted to exchange them at the Mint for U.S. cold coins at bullion parity less expenses, only the bullion received by the Mint is eligible for use in minting the U.S. coins. In tandem with the 10-million ounce limit on use of the existing U.S. gold stock for coins, this provision could require the Treasury to purchase in the market additional amounts of bullion from which to mint U.S. coins if sizeable amounts of foreign coins are deposited pursuant to section 405(a). As noted above, the differing tax treatment proposed for U.S. and foreign coins considerably enhances the prospects for such exchanges. In sum, I have no fundamental objections to the minting of a denaminationless U.S. gold coin without legal-tender status. I do, however, see serious distortionary problems in the coin's tax-exempt status, which would be accorded to only one of the many assets available to the public. Sincerely,  DBA:jef bcc: Mrs. Mallardi (2)V/ Mr. Edwin Truman Mrs. Kathy Brown Mr. Donald Adams   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .• • FGC01/e•  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 PAUL A. VOLCKER  .RALRO. •..• •  CHAIRMAN  May 5, 1983  Honorable Robert J. Dole Chairman, Subcommittee on Courts Committee on the Judiciary United States Senate Washington, D.C. 20510 Dear Chairman Dole: Thank you for your letter of May 3, 1983, on the repurchase agreement ("repo") amendments to the Bankruptcy Code adopted by the Senate. I was seriously concerned about certain changes in S.445 that became part of the bill as adopted by the Senate. I am pleased to hear that the changes were inadvertant and that you and your colleagues will seek to restore the original provisions of S.445 in Conference. I would like to assure you that the Board continues to support the repo amendments to strengthen the legal framework for the conduct of this very important financial market. We very much appreciate your leadership role in this matter.  Sincerely,  JN:MB: (V-83) Mr. Bradfield bcc: Ms. Ness Mr. Mattingly Mrs. Mallardi (2) Legal Records (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi Action assigned to Mike Bradfield  linitcd *tato  cliatt  COMMITTEE ON THE JUDICIARY WASHINGTON, D.C. 20510 STROM THURMOND, S.C., CHAIRMAN CHARLES McC. MATHIAS, JR., MD PAUL LAXALT, NEV ORRIN G. HATCH, UTAH ROBERT DOLE, KANS, ALAN K SIMPSON. WYO. JOHN P EAST, N C CHARLES E. GRASSLEY, IOWA JEREMIAH DENTON, ALA. ARLEN SPECTER, PA.  JOSEPH R BIDEN, JR. DEL. EDWARD M KENNEDY. MASS. ROBERT C BYRD. W VA HOWARD M METZENBAUM, OHIO DENNIS DECONCINI, ARIZ. PATRICK J. LEAHY. VT. MAX BAUCUS, MONT. HOWELL HEFLIN, ALA.  SUBCOMMITTEE ON COURTS ROBERT DOLE, KANS , CHAIRMAN STROM THURMOND, S C ALAN K SIMPSON, WY0 JOHN P EAST, N C  HOWELL HEFLIN, ALA MAX BAUCUS MONT. DENNIS DECONCINI. ARIZ  COMER CHIEF COUNSEL AND STAFF DIRECTOR ARTHUR B BRISKMAN. MINORITY CHIEF COUNSEL  DOUGLAS B  VINTON DEVANE LIDE, CHIEF COUNSEL AND STAFF DIRECTOR DEBORAH K OWEN, GENERAL COUNSEL SHIRLEY J FANNING, CHIEF CLERK MARK H. GITENSTEIN, MINORITY CHIEF COUNSEL  may 3, 1983  Honorable Raul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. RE:  REPO AMENDMENTS  Dear Mr. Volcker: As you know, the Repo Amendments were passed by the Senate on April 27, 1983, as part of the bankruptcy courts and omnibus bankruptcy amendments bills. in the legislative process some technical errors found their way into the bill, in the definition of "repurchase agreement." Specifically, as passed, the definition contained the term "securities" in lieu of intended language referring to government issued and guaranteed obligations and it referred to a period of two years as opposed to the intended one year. I am writing to assure you that I expect the House version of the bill to conform to the text as reported out by the Senate Judiciary for which you have indicated support, and that 1 will insist on the elimination of those unintended errors when the legislation reaches Conference. I have already discussed this matter with other Senators who would be conferees on this legislation and they are in agreement with me that the errors must be corrected. Sincerely yours,  BOB DOLE United States Senate   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  May 4, 1983  The Honorable Bill Gradison House of Representatives Washington, D. C. 20515 Dear Bill: Thank you for your recent letter on behalf of Mr. E. Quirk McGrath.  I have turned his resume  over to the appropriate people here and have asked them to contact Mr. McGrath directly regarding their review of his qualifications. Your interest in the Board's employment program is appreciated. Sincerely, 1SL bug  KW:vcd (V-78) bcc:  Ms. Warehime Mrs. Mallardi (2) v//  3  Action assigned Mr. Frost 2311 RA"cue-!. Hour Orricr DU.LD!P•G  BILL GRADISON 2P4O DISTRIZ, OH.°  WA5HINGTON. C.C.  2'..)515  TELEPHCNE (2)22"-3154 MA RG A, 'ET TOTTEN FEDERAL  Congre55 of tbe Uniteb tate5 30ousq of ikepre5entatibei5  E•  ntsei  TELEPHO.:7 (513) 634-2456  ("7"5  astington,;D.C. 20515  OrFlr.E  551) MA:N STFt•: CIACahHATI. OHIO 4522  r773 rrl 190[74PM2df4merrIC  BocrAvW0Hio5103 TLLEpoio.Ki513t52-17105:71 r11 fon 5 r; N)  {/3  "rn  April 26, 1983  Paul A. Volcker Chairman, Board of Governors Federal Reserve 20th and C Streets, NW Washington, D.C. 20551 Dear Paul: I just learned last week that Quirk McGrath would consider relocating from the Cincinnati area, and wanted to call his qualifications to your attention. Quirk is a mature, proven financial executive and for years was the chief executive of a large and successful thrift institution in Cincinnati. I have no idea what openings there might be at the Fed and would appreciate your passing along Quirk's resume, which is enclosed, to the appropriate people. If I can supply additional information I would be delighted to do so; Quirk McGrath would be a valuable addition to your staff. Sincerely,  Bill Gradison Representative in Congress BG/a 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, E. Quirk McGrath, 1983.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  .•,; c Of GOVidi•. .• i•0 •. cc. . *0 • -n  tr *.  OF THE  FEDERAL RESERVE SYSTEM  41 -..• s'l•  .• : • 41 * . •If.`  BOARD OF GOVERNORS  WASHINGTON, 0. C. 20551  { [i [F I 1  •  '=•••'";  PAUL A. VOLCKER  •4RA L RESt ••  CHAIRMAN  ••• • • • ••  May 4, 1983  The Honorable James Abdnor United States Senate Washington, D.C. 20510 Dear Senator Abdnor: Your letter of April 11, 1983 requests that the Board keep you informed of any actions by the Board concerning the recently adopted legislation in South Dakota to authorize insurance activities for State-chartered banks and the announced intention of Citicorp to acquire control of a State-chartered bank in Rapid City. This insurance authorization legislation raises significant policy issues which I addressed as part of my testimony on bank deregulation on April 26, 1983 before the Senate Committee on Banking, Housing and Urban Affairs. I am enclosing a copy of my testimony. In this testimony, I suggested that a review be made of the Board's general policy of permitting State-chartered bank affiliates of bank holding companies to engage in any activities such a bank is permitted to engage in under its State charter. I made this comment in the context of an analysis of a number of developments that suggest a need for Congressional review of the present Federal laws governing the nonbanking powers of banks. One of the forces for change has been action by several States to authorize new banking activities to be conducted on a nationwide basis. While State experimentation and innovation has had, and will continue to have, a major role in our dual banking system, I feel that we have to be concerned at the national level where State action affects national financial policy and the genuine Federal concern about the safety and soundness of banks, particularly in view of the Federal interest arising This is from deposit insurance and discount window responsibilities. especially the case where State legislation, as in South Dakota, discourages the conduct of the new activities within the authorizing State's boundaries. In this connection, I would note that general insurance activities had not been authorized for bank holding companies under the Bank Holding Company Act, and that late last year the Congress -- in an action opposed by the Board -- specifically and narrowly circumscribed these activities in an amendment to the Bank Holding Company Act. Actions in other States could   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  p.  The Honorable James Abdnor  -2-  similarly affect Federal policies on banking activities including those on securities underwriting and equity participation in real estate development. It was in view of these concerns that I suggested a review of our existing policy on automatic authorization for bank holding company participation through subsidiary banks in activities authorized by State law. The review by the Board, and by the Congress, should focus on whether it is appropriate to step back and refrain from precipitous and possibly competing conflicting actions within the States pending the completion of the Congressional review of banking activities. I have proposed this kind of action to halt temporarily nondepository institution acquisitions of banks and thrifts, and a decision should be made on applying this concept to newly authorized nonbanking activities for State-chartered banks. Should Citicorp submit an application to the Board under the Bank Holding Company Act to acquire a South Dakota State-chartered bank, the Board will process that application in accordance with the provisions of the Act. I would, of course, be pleased to keep you advised of the results of any consideration of such an application.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  S/Paul A. Volcket  143:11Aln.  Action assigned Messrs. Bradfield and Ryan JAMES ABDNOR  COM M TTEI3:  SOUTH DAKOTA  APPROPRIATIONS  SH-309 HART SENATE OFFICE BUILDING (202)224-2321  VERNON C. LOEN ADMINISTRATIVE ASSISTANT  ENVIRONMENT AND PUBLIC WORKS  Ztafez'So-tale  JOINT ECONOMIC  WASHINGTON. D.C. 20510  April 11, 1983 ! 1. ) :41:  d/f'c  Honorable Paul Volcker Chairman Federal Reserve System 21st Street and Constitution Avenue Washington, D.C. 20551 Dear Chairman Volcker: It is my understanding that the Federal Reserve is undertaking a study of the recent action of Citibank of South Dakota, which is in the process of acquiring the controlling interest of a state-chartered bank in Rapid City, South Dakota. As you know, the issue of allowing banks and bank holding companies to become involved with insurance operations is central to Citibank's action. I would appreciate being apprised fully and expeditiously of your study, findings and recommendations. Thank you for your consideration of my request. My staff assistant, Dale Jahr, is following this matter on my behalf. Members of your staff can contact him if they have any questions. With best wishes,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  rely,  ES ABDNOR nited States Senator JA/djr  ) c=  a  Vs" •=•"4 C.) =C: ) •i< Vrl rrt  c.n  —c Gf3  rri  C=7.  •  fo  Gol/k- ••  •.q-V  BOARD OF GOVERNORS OF THE  • co •0 • -n  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20 551  RAL RES ••••••  May 2, 1983  PAUL A. VOLCKER CHAIRMAN  The Honorable William V. Roth, Jr. Chairman Committee on Governmental Affairs United States Senate 20510 Washington, D.C. Dear Chairman Roth: I am pleased to respond to your request for comments on S.854, a proposal to amend the Congressional Budget Act to establish procedures for budgetary control of federal credit programs. The Board of Governors has strongly endorsed efforts already made in establishing a credit budget. Information on federal credit programs is now more readily available to the Congress and the public, and procedures for subjecting federal credit programs to budgetary scrutiny and control have been tried on an experimental basis in recent sessions of Congress. These are very important accomplishments. Now there is need to establish procedures to enforce credit budget targets more uniformly. With the continuing efforts of the Administration and Congress to curb the growth in federal spending, it would be most inappropriate for federal credit programs to provide a less conspicuous substitute for direct federal spending. To ensure that the nation's real and financial resources are allocated in a manner that best serves our private and public needs, there must be mechanisms for a careful evaluation of all credit programs. It is my impression that most of the procedures proposed in S.854 are the same as those recently adopted on an experimental basis and found successful by the Congress. This amendment would, however, represent a step toward effective enforcement of the credit budget targets by making bills out of order for consideration by the House or Senate if they breached the credit budget totals in the Second Budget Resolution. This seems entirely appropriate. Another provision of S.854, which appears to be contemplated in Section 11, is the mandatory application of appropriations limitations to all new loan insurance or loan guarantee commitments. Appropriations limitations are, of course, central to the budgetary control process proposed by   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Yonorahle ,illiam V. Roth, Jr. Pale Two  last 70ministration ant:! endorsel by the nresent Administration. P.oth Mministrations, however, have sought anpropriations limitations on direct loan obligations as well as on loan guarantee commitments. I am led to wonder whether the omission of language relating to direct loans in Section 11 is simply an oversight. In addition, both Administrations have exempted soiio esnrcloncy assistance and entitlement programs from annroPriations limitations. The grounds for these exemptions were that such limitations could hamper the ability of certain nrolrams to res?ond quickly awl adequately to emergencies and that entitlement oroqrams cannot he efectively limited by annropriations. This annears to be a sensible anproach and sugqests that application of appronriations limitations to emernencv and entitlemnt nrograms nee-/F; to be considererl on a case-by-case basis. This sulgests that Section 11 milht anropriatelY 1x mcy9ifier7, at least for the time heing, to exclude emergency and ntitleientnrograms. Perhaps, after more exnerience is gainel with the credit budget procss, it will annear feasible--or indeed, necnssarv--to write such exclnsions morr, narroylv than is likely to be possible at the resont time. tht  I really don't thinl': that the Roanl is in a position to shed any light on the rem/latory and nanerwork "mrdens to which your letter refers. Other agencies and the Congressional :1113get Office nresumal-Jv would he better nrenarel to make such an assessment. Than:vou for this opportunity to comment on S.954. ho the Congress will continue the Progress it has alreay male in developing an effective credit budget process. Sincerely, Sgaul k Wicket DC:SL:MP:JZ:vcd (V-70) bcc: Mr. Cohen Ms. Lepper Mr. Prell Ms. Wing Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I  1P111106""  Action assigned Mr. Michline  WILUAM V. ROTH, JR., DEL., CHAIRMAN CHARLES H PERCY, ILL TW STEVENS. ALASKA CHARLES MC C MATHIAS. JR., MD. WILLIAM S COHEN, MAINE DAVID DURENBERGER. MINN. WARREN B RUDMAN. N.H. JOHN C DANFORTH, MO. THAD COCHRAN, MISS WILLIAM L ARMSTRONG, COLO.  THOMAS F. EAGLETON, MO. HENRY M JACKSON, WASH. LAWTON CHILES, FLA SAM NUNN. GA. JOHN GLENN, OHIO JIM SASSER. TENN. CARL LEVIN. MICH. JEFF BINGAMAN, N. MEX.  JOAN IA MC ENTEE. STAFF DIRECTOR IRA S. SHAPIRO, MINORITY STAFF DIRECTOR  United e$tats eStnate COMMITTEE ON GOVERNMENTAL AFFAIRS WASHINGTON, D.C. 20510  April 8, 1983  The Honorable Paul A. Volcker, Chairman Board of Governors Federal Reserve System 20th and Constitution, NW Washington, D.C. 20551  4.  C=3  '"r11  cA..1  Fi r-rt  -mrl rn C:3 rrl  C=b 7:1^*  7›. r—  — c=. r-n --n ) Crn 7:3 si< rn  C:=> -4-1 rri "c  3%=) :  • Cr-) r▪ rl  Dear Mr. Chairman:  r=> C.e)  00  The enclosed copy of a bill which has been referred to sent for your review the Committee on Governmental Affairs and comment. Your views concerning the provisions of this bill and recommendations for possible Committee action would assist us in our study of the measure.  In addition, Senate rules require each Committee to estimate the regulatory and paperwork impact of any legislation it reports. To assist the Committee in complying with this requirement, we would appreciate receiving your Agency's assessment of the possible paperwork and regulatory burdens which might result from the passage of the enclosed legislation. would greatly appreciate your providing us with your response within the next 30 days so that we might have it in time for Committee action. We  Please address all correspondence to the attention of Marikay Riney, Committee on Governmental Affairs (224-2788). Thank you for your participation in this effort. Sincerely,  William V. Roth, Jr. Chairman WVR/mr Enclosure S. 854   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1  98TH CON.GRESS 1ST SESSION  S.854  To amend the Congressional Budget Act of 1974 to establish procedure s for setting targets and ceilings, in the congressional budget process, for loa ns and loan guarantees under Federal cre dit programs.  IN THE SENATE OF THE UNIT ED STATES MARCH 18 (legislative day, MARCH 14), 1983 Mr. PERCY (for himself, Mr. HATFIE LD, Mr. DOMENICI, Mr. HELMS, and Mr. GORTON) introduced the following bill; which was read twice and ref erred jointly, pursuant to the order of Aug ust 4, 1977, to the Committees on the Budget and Governmental Affairs wit h instructions that if one committee reports, the other committee has thi rty days of continuous session to rep ort or be discharged  A BILL To amend the Congressional Budg et Act of 1974 to establish procedures for setting targets and ceilings, in the congressional budget process, for loans and loan guarantees under Federal credit programs. 1  Be it enacted by the Senate and Ho use of Representa2 lives of the United States of Am erica in Congress assembled, 3 That this Act may be cited as the "Federal Lending Program 4 Control Act of 1981". 5   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  SEC. 2.(a) The Congress finds and dec lares that—   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2 1 2 3 4 5 6  tees are becoman ar gu an lo d an s an lo (1) Federal s of providing Govan me t an rt po im ly ng si ing an increa of direct loans me lu vo l ta to e th th wi ernment services 80 being 9 1 in g in nd ta ts ou s on and guaranteed obligati er, respectively, gh hi um nt ce r pe 3 5 d 58 per centum an than in 1976;  e economy is th in it ed cr of me lu vo (2) the total 7 vings, level of insa of ly pp su e th by d te finite and limi 8 ry policy; ta ne mo l ra de Fe d an s, terest rate 9 not costless to the e ar ms ra og pr it ed cr l (3) Federa 10 d individan ps ou gr to it ed cr te ca economy, as they allo 11 difficult to obtain; it ed cr nd fi e is rw he ot uals who would 12 teed loans an ar gu d an ct re di r fo (4) while plans 13 rams are reviewed og pr it ed cr l ra de Fe under individual 14 m in either is an ch me ic at em st sy each year, there is no 15 r reviewing the fo ch an br e iv ut ec ex e the Congress or th 16 vity, and, therefore, ti ac it ed cr l ra de Fe l ta volume of to 17 source allocare e th g in er id ns co of no systematic way 18 an guarantees or the lo d an s an lo l ra de Fe tion effects of 19 of the total volume; and ss ne le ab on as re 20 is to allocate its nt me rn ve Go l ra de Fe (5) if the 21 that allocate na di or co d an y tl en ci credit resources effi 22 expenditures, it ct re di d an cy li po al tion with its fisc 23 activities as it ed cr l ra de Fe er ov must exercise control 24 rect spending activities. di er ov es do it 25  S 854 IS  3 1  (b) It is therefore declared to be the policy of the Con-  2 gress and the purpose of this Act to provide a statutory basis 3 for a Federal credit program control system by establishing 4 procedures within the congressional budget process to set 5 targets and ceilings for the gross amount of direct loans 6 which the Federal Government may make, and the gross 7 amount of loan guarantees which the Federal Government 8 may enter into, during each fiscal year.  f  9  SEC. 3. (a) Section 202(a) of the Congressional Budget  10 Act of 1974 is amended by striking out "and (3)" and inserthe  11 ing in lieu thereof "(3) information with respect to direct 12 loans and guarantees of loan principal, and (4)". 13  (b) Section 202(0 of such Act is amended by striking out  14 "and (B)" and inserting in lieu thereof "(B) the levels of 15 direct loans and guarantees of loan principal, and (C)". 16 r  SEC. 4. (a) Section 301(a) of the Congressional Budget  17 Act of 1974 is amended(1) by redesignating paragraphs (6) and (7) as  18 19  paragraphs (8) and (9), respectively; and (2) by inserting after paragraph (5) the following  20 21  new paragraphs:  22  "(6) the appropriate level of total gross obliga-  23  tions for the principal amount of direct loans and the  24  appropriate level of total commitments to guarantee  25  loan principal;   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  S 854 IS  [   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4 1  "(7) an estimate of gross obligations for the prin-  2  cipal amount of direct loans and an estimate of com-  3  mitments to guarantee loan principal for each major  4  functional category, based on allocations of the appro-  5  priate level of total gross obligations for the principal  6  amount of direct loans and the appropriate level of  7  total commitments to guarantee loan principal;".  8  (b)(1) Section 301(c)(2) of such Act is amended by strik-  9 ing out ", and budget outlays resulting therefrom," and in10 serting in lieu thereof "and budget outlays resulting there11 from, and of the total amounts of gross obligations for the 12 principal amount of direct loans and commitments to guaran13 tee loan principal,". 14  (2) Section 301(c) of such Act is further amended by  15 inserting after "1946." the following new sentence: "The 16 Committee on Banking, Finance and Urban Affairs of the 17 House of Representatives and the Committee on Banking, 18 Housing, and Urban Affairs of the Senate shall each also 19 submit to the Committee on the Budget of its House its rec20 ommendations as to the appropriate level of total gross obli21 gations for the principal amount of direct loans and the 22 appropriate level of total commitments to guarantee loan 23 principal.". 24  SEC. 5. (a) Section 302(a) of the Congressional Budget  25 Act of 1974 is amended-  S 854 IS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  5 1  (1) by inserting "and the appropria te levels of total gross obligations for the pri ncipal amount of direct loans and total commitments to guarantee loan  2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20  principal" after "total new budget aut hority"; and (2) by inserting "or authorizing su ch obligations and commitments" after "such new bu dget authority". (b) Section 302(b) of such Act is amende d(1) by striking out "and" after the semicolon at the end of paragraph (1); (2) by redesignating paragraph (2 ) as paragraph (3); and (3) by inserting after paragraph (1) the following new paragraph: "(2) the Committee on Appropriatio ns of each House shall also, after consulting with the Committee on Appropriations of the other House, subdivide among its subcommittees the allocation of gr oss obligations for the principal amount of direct loan s and of commitments to guarantee loan principal all ocated to it in the joint explanatory statement accomp anying the confer-  21  ence report on such concurrent resolutio n; and".  22  SEC. 6. Section 307 of the Congressional Bu  dget Act of  23 1974 is amended by inserting ", an  d the appropriate levels of  24 total gross obligations for the pri ncipal amou  nt of direct loans  S 854 IS  6 1 and of total commitments to guarantee loan principal," after 2 "new budget authority". 3  SEC. 7. (a) Section 308(a)(1) of the Congressional  4 Budget Act of 1974 is amended5 6  (1) by striking out "and" after the semicolon at the end of subparagraph (B); and  7  I  8  (2) by adding after subparagraph (C) the following new subparagraph:  9  "(D) how the limitations on gross obligations  10  for the principal amount of direct loans and on  11  commitments to guarantee loan principal provided  12  in that bill or resolution compare with the gross  13  obligations for the principal amount of direct loans  14  and commitments to guarantee loan principal set  15  forth in the most recently agreed-to concurrent  16  resolution on the budget for such fiscal year and  17  the reports submitted under section 302; and".  .•  r   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  18  (b) Section 308(b) of such Act is amended-  19 20  (1) by striking out "and" after the semicolon at the end of paragraph (3);  21 22  (2) by striking out the period at the end of paragraph (4) and inserting in lieu thereof "; and"; and  23 24  I  (3) by adding after paragraph (4) the following new paragraph:  S 854 IS  I   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  U.  41 ,  7 1  "(5) an up-to-date tabulation comparing the gross  2  obligations for the principal amount of direct loans and  3  the commitments to guarantee loan principal for such  4  fiscal year in bills or resolutions on which the Congress  5  has completed action to the gross obligations for the  6  principal amount of direct loans and the commitments  7  to guarantee loans set forth in the most recently  8  agreed-to concurrent resolution on the budget for such  9  fiscal year and the reports submitted under section  10  302.".  11  SEC. 8. (a) Section 309 of the Congressional Budget  12 Act of 1974 is amended by inserting "or providing limitations 13 on gross obligations for the principal amount of direct loans 14 or on commitments to guarantee loan principal for such fiscal 15 year," after "such year," where it first appears in paragraph 16 (1). 17  (b)(1) The heading of section 309 of such Act is  18 amended by striking  Out "AND  CERTAIN NEW SPENDING AU-  19 THORITY" and inserting in lieu thereof ", LIMITING DIRECT 20 LOANS OR LOAN GUARANTEE COMMITMENTS, OR PROVID21 ING CERTAIN NEW SPENDING AUTHORITY". 22  (2) The table of contents for such Act is amended (in the  23 item relating to section 309) by striking out "and certain new 24 spending authority" and inserting in lieu thereof ", limiting  S 854 IS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  8 1 direct loans or loan guarantee commitments, or providing 2 certain new spending authority". 3  SEC. 9. Section 310(a) of the Congressional Budget Act  4 of 1974 is amended-  5 6  (1) by striking out "or" after the semicolon at the end of paragraph (3);  7  (2) by redesignating paragraph (4) as paragraph  8  (5) and (in such paragraph) striking out "and (3)" and  9  inserting in lieu thereof "(3), and (4)"; and (3) by inserting after paragraph (3) the following  10  11  new paragraph:  12  "(4) specify the total amount by which gross obli-  13  gations for the principal amount of direct loans or corn-  14  mitments to guarantee loan principal are to be changed  15  and direct the committees having jurisdiction to recom-  16  mend such change; or".  17  SEC. 10. (a) Section 311(a) of the Congressional Budget  18 Act of 1974 is amended19  (1) by inserting "increasing the limitations on  20  total gross obligations for the principal amount of  21  direct loans or on total commitments to guarantee loan  22  principal for such fiscal year," after "effective during  23  such fiscal year," in the matter preceding paragraph  24  (1); and  S 854 IS  ,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I 1  •  iIf)  (2) by  "would cause the appropriate  2  level of gross obligations for the principal amount of  3  direct loans or of commitments to guarantee loan Fin-  4  cipal set forth in such concurrent resolution to be ex-  5  ceeded," after "exceeded," in the matter following  6  paragraph (3).  7  (b)(1) The heading of section 311 of such Act is amend-  8 ed by inserting ", LOAN 9 10  MENTS  AND LOAN GUARANTEE COMMIT-  after "SPENMNG AUTHOIZIrrY".  (2) The table of contents for such Act is amended (in the  11 item relating to section 311) by inserting 12 guarantee commitments 13  loans and loan  after "spending authority".  SEC. 11. (a) Title IY of the CongresskInal Budget Act  14 of 1974 is amended by adding at the end thereof the follow15 ing new section: 16 17 18  "LEGISLATION  PROVITh[NG AUTHORITY TO GUARANTEE  THE REPAYMENT OF INDEBTEDNESS  "SEc. 405. It shall not be in order in either the House  19 of Representatives or the Senate to consider any bill or res120 lution which provides, extends, or enlarges authority to  21  insure or guarantee the repayment of indebtedness incurred  ill(s) any amendment which 22 13y another person or government 23 provides, extends, or enlarges such authority) unless that bill, 24 resolution, or amendment also provides that such authority is   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  10 1 to be effective for any fiscal year only to such extent or in 2 'such amounts as are provided in appropriation Acts.". 3  (b) The table of contents for such Act is amended by  4 adding at the end of the matter relating to title IV the follow5 ing new item: "Sec. 405. Legislation providing authority to guarantee the repayment of indebtedness.".  6  SEC. 12. Section 402(a) of the Congressional Budget  7 Act of 1974 is amended by inserting "or which authorizes 8 the insurance or guarantee of the repayment of indebtedness 9 incurred by another person or government for a fiscal year," 10 after "for a fiscal year,". 11  SEC. 13. Section 2 of the Congressional Budget and  12 Impoundment Control Act of 1974 is amended— 13 14  (1) by striking out "and" after the semicolon at the end of paragraph (4);  15 16  (2) by redesignating paragraph (5) as paragraph (6); and , (3) by inserting after paragraph (4) the following  17 18  new paragraph:  19  "(5) to provide for the congressional determination  20  each year of the appropriate level of gross obligations  21  for the principal amount of direct loans and of commit-  22  ments to guarantee loan principal; and".  S 854 IS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  11 SEC. 14. Section 3 of the Congressional Budget and 2 Impoundment Control Act of 1974 is amended by adding at 3 the end thereof the following new paragraph: 4  "(6) The term 'direct loan' means a disbursement  5  of funds by the United States or any officer or age ncy thereof (not in exchange for goods or services) und er a contract which requires the repayment of such funds  6 7 8  with or without interest, and in addition includes-  9  "(A) direct participation in a loan made and held by another person or government;  10 11  "(B) the purchase (through secondary market  12  operations) of a loan made by another person or government; and  13 14  "(C) the acquisition of a federally guaranteed  15  loan made by another person or government, as collateral or in satisfaction of default or other  16 17 18  guarantee claims.". SEC. 15. Section 201(d) of the Budget and Accountin g  19 Act, 1921 (31 U.S.C. 11(d)), is amended by striking out 20 "items enumerated in section 301(a)(1)-(5)" and inserting in 21 lieu thereof "items enumerated in section 301(a)(1) -(7)". 22  SEC. 16. Section 201(a) of the Budget and Accountin g  23 Act, 1921 (31 U.S.C. 11(a)), is amended24 25  (1) by striking out "and" after the semicolon at the end of paragraph (12);  S 854 IS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  12 1  (2) by striking out the period at the end of para-  2  graph (13) and inserting in lieu thereof ", and"; and  3  (3) by adding after paragraph (13) the following  4  new paragraph:  5  "(14) all essential facts regarding direct lending  6  by the Government, and guarantees by the Govern-  7  ment of the repayment of indebtedness incurred by an-  8  other person or government.".  9  SEC. 17. The amendments made by this Act shall be  10 effective with respect to fiscal years beginning on and after 11 October 1, 1980. 0  S 854 IS
Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102