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https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Collection: Paul A. Volcker Papers Call Number: MC279  Box 13  Preferred Citation: Congressional Correspondence, 1986 May-August; Paul A. Volcker Papers, Box 13; Public Policy Papers, Department of Rare Books and Special Collections, Princeton University Library Find it online: http://findingaids.princeton.edu/collections/MC279/c423 and https://fraser.sdouisfed.org/archival/5297 The digitization ofthis collection was made possible by the Federal Reserve Bank of St. Louis. From the collections of the Seeley G. Mudd Manuscript Library, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. 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Policy on Digitized Collections Digitized collections are made accessible for research purposes. Princeton University has indicated what it knows about the copyrights and rights of privacy, publicity or trademark in its finding aids. However, due to the nature of archival collections, it is not always possible to identify this information. Princeton University is eager to hear from any rights owners, so that it may provide accurate information. When a rights issue needs to be addressed, upon request Princeton University will remove the material from public view while it reviews the claim. Inquiries about this material can be 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  7 /a/ 2 %/1 14 2 BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  August 25, 1986  The Honorable Nicholas Mavroules Chairman Subcommittee on General Oversight and the Economy Committee on Small Business House of Representatives Washington, D.C. 20515 Dear Chairman mantter of August 21,  As indicated  letIIICouncils for 1986. Board has publisheIII: I am pleased to enclose copies of the booklet for your informa-  Please let me know if you need additional copies. Sincerely,  Lynn S. Fox Congressional Liaison Office  Enclosures  CO:pte (see V-150, 86-2904) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Merphil Kondo Ted Allison  BOARD OF GOVERNORS  El  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20SSI  August 22, 1986  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: Thank you for your letter of August 4 concerning mortgage credit issues and proposing that a task force be formed to look into improved consumer education. I've asked our staff to review our experience in developing the ARM brochure, and to make a preliminary assessment of the need for additional education materials in the mortgage area. They will be in touch with your staff as soon as this work is completed to more fully discuss your proposal. Sincerely,  IS Raul  GG:LSF:pte (V-165, 86-3482, 3483, 3484, 3485) bcc: Mr. Garwood Mrs. Mallardi (2)  IDENTICAL LETTERS SENT TO:  U3‘r crx   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ‘11-4-  Chrmn. Gonzalez and Ranking Minority Members Wylie & McKinney  4", si  tail,tek. s'yoA  QeA  FERN,FID J ST GERMAIN, RHODE ISLAND CHAIRMAN HENRY B GONZALEZ, TEXAS FRANK ANNUNZIO. ILLINOIS PAPPEN MITCHELL, MARYLAND WALTER E FAuNTROY, DISTRICT OF COLUMBIA STEPHEN L NEAL, NORTH CAROLINA CARROLL HUBBARD JR . KENTUCKY JOHN J LAFALCE NEW YORK STAN LUNDiNE. NEW YORK MARY ROSE °AKAR, BRUCE F VENTO MINNESOTA DOUG BARNARD JR GEORGIA ROBERT GARCIA NEW YORK CHARLES E SCHUMER NEW YORK BARNEY FRANK. MASSACHUSETTS B UDDY ROEMER LOUISIANA RICHARD H LEHMAN CALIFORNIA BRUCE A MORRISON CONNECTICUT JIM COOPER. TENNESSEE MARCY KAPTUR OHIO BEN ERDREICH. ALABAMA SANDER MI LEVIN MICHIGAN THOMAS R CARPER. DELAWARE ESTEBAN E TORRES, CALIFORNIA GERALD D KLECZKA WISCONSIN BILL NELSON FIORIDA PAUL E KANJORSKI PENNSYLVANIA BART GORDON TENNESSEE THOMAS J MANTON, NEW YORK JAIME B FUSTER. PUERTO RICO  OHIO  U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-NINTH CONGRESS 2129 RAYBURN HOUSE OFFICE BUILDING WASHINGTON, DC 20515  CHALMERS P WYLIE OHIO STEWART B McKINNEY, CONNECTICUT JIM LEACH, IOWA NORMAN D SHUMWAY, CALIFORNIA STAN PARRIS VIRGINIA BILL McCOLLUM FLORIDA GEORGE C WORTLEY. NEW YORK MARGE ROUKEMA NEW JERSEY DOUG BEREUTER. NEBRASKA DAVID DREIER. CALIFORNIA JOHN FIRER, INDIANA THOMAS J RIDGE, PENNSYLVANIA STEVE BARTLETT. TEXAS TOBY ROTH. WISCONSIN NOD CHANDLER WASHINGTON AL McCANDLESS. CALIFORNIA JOHN E GROTBERG ILLINOIS JIM KOLBE. ARIZONA J. ALEX McMILLAN. NORTH CAROUNA 002)221-4247  cry cy cry  August 4, 1986 G) C3  The Honorable Paul Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. 20551  IN)  - •  '71  Dear Chairman Volcker: Two years ago today we wrote you and Chairman Gray suggesting the voluntary establishment of an Ad Hoc Task Force of industry representatives for the purpose of developing a Public Information Brochure on Adjustable Rate Mortgages. As you may recall, this was prompted by a series of hearings on ARMs, as well as numerous consumer inquiries regarding this new mortgage instrument. Two years later we find ourselves in a very similar situation, however, this time it is not because of the complexities of a new mortgage instrument but over the unprecedent demand in home mortgage activity. This bullish market in home mortgages has caused some problems -- expiring commitments, record delays in appraisals, and new levels of consumer dissatisfaction. On July 23, 1986, the Housing and Community Development Subcommittee held a hearing on mortgage credit issues; and in particular, focused on the many consumer complaints with regard to mortgage lock-in periods not being met and consumers being forced to accept higher mortgage rates or points than originally promised by the lender. Based on the testimony from the industry, it appears to the Subcommittee that consumers do not have all the information they need when applying or shopping for a mortgage nor are they generally in a position to determine if the commitment being made by the lender will actually be met. We realize that the huge volume of mortgage activity and problems related to processing will not always exist but it appears that the potential for abuse by lenders could occur at any time if the consumer does not know the ground rules of the mortgage instrument going into the process. Based on the information provided at our hearing it appears that it would be in the best interest of the mortgage industry, as well as the consumers, if a task force to improve consumer education relating   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  I % The Honorable Paul Volcker  2  to mortgage credit were established. Along the same lines as the task force that developed the ARMs brochure we are suggesting the voluntary establishment of an Ad Hoc Task Force of industry representatives for the purpose of developing a public information brochure on the mortgage process. The task force would be convened by yourself and the Chairman of the Federal Home Loan Bank Board and be comprised of representatives from the following: National Association of Realtors Mortgage Bankers Association National Association of Home Builders Mortgage Insurance Companies of America U. S. League of Savings Institutions National Council of Savings Institutions Independent Bankers Association American Bankers Association Credit Union National Association National Association of Federal Credit Unions Department of Housing and Urban Development Federal National Mortgage Association Federal Home Loan Mortgage Corporation Consumer representatives Appraisal industry Veterans Administration In particular this brochure should spell out the exact meaning of a rate lock-in and also exactly what up front fees are being charged and why these fees are being charged. Since refinancing has made up a significant part of home mortgage activity, a separate chapter should address this issue. Further, the brochure should identify the process that a consumer may have at its disposal in filing a complaint or inquiry before a regulatory agency such as the Federal Home Loan Bank Board's Office of Consumer Affairs and Supervision. To the extent that trade organizations have information hot lines, such organizations and contacts should also be identified. We believe that an informed mortgage consumer will be better served by the home lending industry if consumer education begins early in the home purchase cycle. Therefore, primary responsibility for distribution of this brochure should rest with the realtors and homebuilders and secondarily with lending institutions. Since the public information brochure will be viewed as a vehicle to benefit   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ., N  The Honorable Paul Volcker  3  consumer education, we contemplate that the industry representatives would absorb the publication cost as a public service. In addition, due to the Congressional interest in the mortgage processing problems, it is suggested that Majority and Minority staff representatives from the House Committee on Banking, Finance and Urban Affairs and the Senate Committee on Banking, Housing and Urban Affairs be invited to participate in the task force's deliberations. We also recommend that the Ad Hoc Task Force look closely at many of the consumer complaints that have come to our attention and have been reported in the press. The task force should, after analyzing the difficulties that have occurred, develop a set of internal guidelines that they should all agree to work under. By doing this consumers would be assured that in the mortgage process their interests are not placed second to that of the lender and perhaps mitigate the need for guidelines being placed in statute. A copy of this letter is also being sent to Chairman Gray. Your previous efforts on the ARMs brochure have been most beneficial and your consideration of this request is most appreciated and we look forward to your response. Sincerely,  /  4  ers Ranking  e Member  •1  Fernand J. St Germain Chairman ,  S a McKinney anking Minority Membe Subcommittee on Hous g and Community Development //  /  BC:jr.(a) (VOLCKER)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  d' '' (AJtif enry B. Gonzale Chairman Subcomittee on Housing and Community Development  Action assigned Nr. Allison NICVLAS MAVROULES, MASSACHUSETTS CHAIRMAN  PERKLEY BEDELL. IOWA 'NORMAN SISISKY, VIRGINIA JIM COOPER. TENNESSEE JIM OLIN. VIRGINIA JOSEPH P ADDABBO. NEW YORK  "?liniteb 'tate pti)5e of RepreZentatibesS Committee on 41-)mati 3BusAne5E4 ubcommittee on enteral Obetligljt anb tbe economp 3R-363 ilapburn jPougt Office ,3uilbing Macsbington, Me 20515  SILVIO 0 CONTE. MASSACHUSETTS JOSEPH J. DroGUARDI, NEW YORK JIM KOLBE, ARIZONA STEWART B. M.:KINNEY, CONNECTICUT CATHLEEN GARMAN SUBCOMMITTEE STAFF DIRECTOR 202-225-8944 JOHN VITALI MINORITY SUBCOMMITTEE COUNSEL 202-226-3420  I  (-11  July 2, 1986 The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System 20th and Constitution Avenue, N.W. 20551 Washington, D.C.  ro F-1 77-7 •••••• PT', ail  Dear Chairman Volcker: As chairman of the Subcommittee on General Oversight and the Economy, I am pleased to see that the Small Business and Agriculture Advisory Councils to the Regional Federal Reserve Banks have now been in existence for over a year. With the support of Congressman Walter Fauntroy and other members of Congress, we have come closer to achieving a long-time goal of small business representation on the Board of the Federal Reserve Bank. We hope to hold hearings in the near future in order to monitor the effectiveness of these councils. It would be of great assistance, therefore, to my Subcommittee if your office would send a list of all the members of the Small Business and Agriculture Advisory Councils, their backgrounds as well as their current affiliations, employment and the length of their term. I thank you in advance for your help and support.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  Nicholas Mavroules Chairman  ./ -  •  1"-^1  POARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  August 21, 1986  PAUL A. VOLCKER CHAIRMAN  The Honorable Nicholas Mavroules Chairman Subcommittee on General Oversight and the Economy Committee on Small Business House of Representatives Washington, D.C. 20515 Dear Chairman Mavroules: I appreciate your interest in the Advisory Councils to the Federal Reserve Banks. As you are aware, each Reserve Bank established at least one Advisory Council in 1985. The Board of Governors requested that, at least initially, the membership of the Councils include persons from the small business and agricultural communities in the District. The size and composition of each Council was left to the discretion of the Reserve Bank. Three Reserve Banks chose to organize two Councils in 1985: one Bank established separate Councils for agriculture and for small business, and two Banks established a Council of persons from depository institutions. Systemwide, the membership of the Councils comprised predominantly persons from small business and agriculture, and also included persons from community banks, organized labor, and other sectors. Council membership this year totals 242 persons, of whom 24 are women. Also, there are 14 minorities among the Council members, who include blacks, hispanics, and a native American. The distribution of Council members by background or sector is given below: Small business Agriculture Labor  81 58 7  Banking Thrift  41 55  The enclosed list presents the composition of each Advisory Council for 1986. Regarding your request for a list of the members of the Councils, the name and business affiliation of each member of an Advisory Council will be published by the Board in a booklet which is being printed. Copies will be available in two weeks, and arrangements have been made to forward several copies directly to your office. Length of term for each person was not   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Nicholas Mavroules Page Two  included in this publication, as there are only a very few Councils that were established with fixed terms of service for their members. Most Reserve Banks ask their Council members to serve for one year at a time, both for purposes of rotation and in recognition of the variability of issues that would be of concern to the Councils from year to year. In October 1985, representatives of the Advisory Councils met in Washington to exchange views and to confer with the Board. Two Council members from each District attended--one from small business and one from agriculture. The Board and the Council members found this forum for communication a constructive addition to meetings that were held in the Districts with the Presidents and senior staff of the Reserve Banks. This year, several Reserve Banks decided to reconstitute their Monetary Control Act advisory groups as Advisory Councils. These advisory groups were originally organized after the passage of the Depository Institutions Deregulation and Monetary Control Act of 1980, and comprised executives of depository institutions that are not members of the Federal Reserve System. A number of them have remained active through the years. Thus, in 1986 there are 20 Advisory Councils to the Reserve Banks. The annual meeting of representatives of the Advisory Councils at the Board has been scheduled for October 29-30, 1986. This meeting date was chosen because it occurs late in the year so as not to interfere with the harvest activities of the members who are from the agricultural community. The Board would be in a better position to contribute to a hearing on Council activities after it has met with the Council members in October, and would appreciate the opportunity to report after the meeting on the discussions with Council members. Sincerely S Paul A. Volcker Enclosure MP:LSF:pte (V-150, 86-2904) bcc: Merphil Kondo Ted Allison Mrs. Mallardi (2)4/   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ,  ADVISORY COUNCILS TO THE FEDERAL RESERVE BANKS July 1986  4  Name of Council  BOSTON New England Advisory Council NEW YORK Advisory Council  Composition Of Council Membership  Agric-3; Sm Bus-5; Labor-1; Thrift-1 Agric-1; Sm Bus-7; Labor-1  PHILADELPHIA Credit Union Advisory Council Nonmember Bank Advisory Council Small Business/Agriculture Council Thrift Institution Council  Thrift-12 Banking-12 Agric-5; Sm Bus-7 Thrift-12  CLEVELAND Small Bank Advisory Council Small Business Advisory Council  Banking-11 Agric-1; Sm Bus-12  RICHMOND Small Business and Agriculture Advisory Council ATLANTA Advisory Council  Agric-3; Sm Bus-8; P1.r.  Financial Institutions Advisory Committee  Agric-7; Sm Bus-6; Labor-2 Banking-9; Thrift-9  CHICAGO Advisory Council on Agriculture Advisory Council on Small Business  Agric-11 Sm Bus-10  ST. LOUIS Eighth District Economic Advisory Council  Agric-6; Sm Bus-6  MINNEAPOLIS Advisory Council on Small Business, Agriculture, & Labor  Agric-6; Sm Bus-3; Labor-2; Banking-1  KANSAS CITY Small Business and Agriculture Advisory Council Thrift Advisory Council  Agric-3; Sm Bus-5 Thrift-17  DALLAS Advisory Council on Small Business & Agriculture Advisory Council on Financial Institutions  Agric-6; Sm Bus-6 Banking-8; Thrift 4  SAN FRANCISCO Advisory Council on Small Business & Agriculture  Agric-6; Sm Bus-6   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  August 21, 1986  The Honorable Steve Neal House of Representatives Washington, D.C. 20515 Dear Steve: That is a brilliant letter to Mr. McAdam on the IMF. Sincerely,  cc:   https://fraser.stlouisfed.org “,..1fty Federal Reserve Bank of St. Louis  Mrs. Mallardi  . I' JOHN J LA{ Al Cf. NI T SANDER M LEN.W4 MiCki.GAN WALTER E FAuNTRUY. D,STRICT OF COLUMBIA CHARLES E SCHUMER NEW YORK BARNEY FRANK. MASSACHUSETTS BRUCE A MORRISON. CONNECTICUT GERALD D KLECZKA. WISCONSIN BILL NELSON, FLORIDA THOMAS J MANTON. NEW YORK JAIME B. FUSTER, PUERTO RICO  jOotuse of rapreantatitmS  N D AY (.4;1 SIAN PAR,.:S BILL McCOLLUM. FLORIDA ROD CHANDLER, WASHINGTON JOHN E. GROTBERG, ILLINOIS JIM KOLBE, ARIZONA J. ALEX McMILLAN, NORTH CAROUNA  SUBCOMMITTEE ON INTERNATIONAL FINANCE, TRADE AND MONETARY POLICY OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-NINTH CONGRESS  MlasAington, Ele 20515 August 15, 1986  Mr. Robert S. McAdam, Executive Director The Republican Study Committee 433 Cannon House Office Bldg. U.S. House of Representatives Washington, D.C. 20515  Dear Mr. McAdam: I have carefully reviewed your letter of July 15, concerning the RSC publication on multinational lending institutions. The main points you make in this letter concerning the International Monetary Fund (IMF) are simply wrong, or grossly misleading. You assert that the United States is the largest contributor to the IMF, and that we "provide" dollars to the IMF, quoting a figure of some $21.3 billion since 1944. Words such as "contributor" and "provide" convey the notion that we "give" it funds, as we might give foreign aid to some country. In fact, we give the IMF nothing. Along with every other major country we do, from time to time, lend funds to the IMF. The IMF then repays these loans, with interest. The Fund's repayment record is, of course, perfect. If we "provided" $21.3 billion to the IMF it is also accurate to say the IMF "provided" us with $21.3 billion, since the IMF repays all the money it borrows. You also claim that we are losing money on our participation in the Fund, citing a figure of $1.5 billion since 1969. That, too, is grossly misleading. In accounting terms we can gain or lose small amounts, depending on the difference between the interest we earn on our loans to the IMF and the interest the Treasury pays on its own borrowings. We can also gain or lose through foreign exchange rate movements, since our loans to the IMF are denominated in SDRs, and the dollar moves against the SDR as it moves against the yen, DM, etc. In fact, the dollar's fall against the SDR since 1985 clearly translates into a substantial valuation gain on our SDR-denominated loans to the Fund over the past two years. We have reaped substantial profits on our IMF position due to these exchange rate changes. Your claim to the contrary is simply wron. More to the point, it is irrelevant, since we do not particiAte in the Fund in order to score bookkeeping profits or losses. If the IMF were only marginally successful in its real purpose -- promoting world   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  r•   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Congressman Steve Neal House of Representatives 2463 Rayburn Building Washington, D.C. 20515  Congressman Steve Neal House of Representatives  BOARD OF GOVERNORS OF THE SYSTE!..1 RESERVE FEDERAL  19B3 AUG 20  tl 12: 29  RECEIVED nIFICE F THE   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2economic growth and trade by helping all countries with balance-of-payments problems participation would be wel• l worth the bogus "cost" you cite. Perhaps by "contributor" you only meant to say that we are the Fund's largest creditor, the country with the largest outstanding loans to the Fund. At times we are. At times not. At times we have not been a creditor at all, but have drawn funds from the IMF for our own balance-of-payments needs. Indeed, since the inception of the Fund in 1947 we have been the third largest user of Fund resources. In fact, the major users, measured by total drawings of foreign currencies from the IMF for S.lance-of-payments purposes, have not been solely the developing countries that now face severe debt problems. Over the history of the Fund the major user, by far, has been the United Kingdom, with total drawings of about 12.5 billion SDRs. Second has been India, with 6 billion SDRs, while we have drawn 5.8 bon SDRs. Mexico, Argentina, and Brazil have been major users, but so have Italy, France and Spain. One should not forget that the Fund can and does serve any member country that needs balanceof-payments support. We needed it, to a major extent, in the 1970's, and, given the rate at which we are now borrowing from other countries to finance our huge trade deficits, we may well need to draw on the Fund once again in coming years.  itttIIS)f A  grievous fallacy in your letter is the claim that IMF adjustment programs "call for a reduction of imports and an increase in exports. This is one way an IMF loan hurts U.S. industries."  This statement betrays a fundamental misunderstanding of the role of the IMF. No IMF program "calls for" a reduction of imports and an increase in exports in the sense implied by your statement. Your statement conveys the notion that the IMF goes into a country, decides that the country is importing too much and exporting too little, and "calls for" a chanI•irection. In fact, what happens is precisely the opposite. A country only applies for an IMF loan because it cannot import as much as it wants to import. The whole point of an IMF program is to enable the country to import more than it otherwise would be able to import. I must dwell on this point for a moment, since, though it is the heart and soul of the IMF's very reason for existence, many critics of the Fund persistently fail to grasp .S developing countries have a high demand for imports, since they need capital to develop, and since they generally desire to consume more than they can produce. And we would like to sell them more exports. Our needs and desires are thus quite complementary and, in a well-functioning economic environment, developing countries would naturally have a trade deficit with us. But a trade deficit must 5e financed. That is, if developing   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -3countries are going to import more from us than they export to us, we, the developed countries, must lend them the funds to cover that deficit. Otherwise, they simply cannot run a trade deficit. You cannot spend more than you earn, except by borrowing, or by selling some of your existing assets. Neither can a country. Most developing countries have, in fact, run very large trade deficits for long periods of time. How did they do it? Obviously by borrowing large amounts over long periods of time. Can they borrow forever, without limit? Obviously not. What happens when a country, for whatever reason, reaches the limits of its capacity to borrow? Obviously its imports will fall to the level at which it can pay for them solely out of its own export earnings. Please note that no one, and certainly not the IMF, goes to the country and "calls for" a reduction in imports. The world credit markets force a reduction in imports simply by refusing to lend the country any more funds. Is that the end of the story? In a world without the IMF, that would be the end of the story! The drop in imports (relative to exports) that a developing country suffers when its foreign credit dries up can be very severe. Without the IMF it would have to struggle on its own, making do as best it can with severely reduced imports. What, then, does the IMF try to contribute? It tries to arrest the fall in imports the country would otherwise suffer. It does this in two ways. It lends the country some funds, which act immediately and directly to cushion the fall in imports. But the amount of IMF lending compared to the country's needs, and compared to the amount of commercial credit it had been receiving, is generally quite modest. By far the greater contribution the IMF makes is to require the country, as a condition of the loan, to implement new economic policies, to implement a so-called "adjustment program." The purpose of this program is to persuade the world credit markets that the country is following sound economic policies and is therefore (once again) a good credit risk, so the country can once again borrow enough to finance a trade deficit commensurate with its needs as a developing economy. The whole point of an IMF program is to help a country finance and pay for more imports than it could possibly finance and pay for without an IMF program! Your statement that the IMF "calls for a reduction in imports" is simply a perversion of what it really tries to do. Its programs will certainly contain projections of what it expects the country's exports and imports to be, if the country follows the Fund's recommended adjustment policies. These projections may well show lower imports (relative to exports) than the country was buying prior to its balance-of-payments crisis. But they simply record the inevitable impact of the country's debt crisis on its trade balance, as mitigated by the Fund's own   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -4program. That is, the country's imports would be much lower in the absence of a Fund program. Your claim that the Fund "calls for a reduction in imports" is even contradicted elsewhere in your own letter, which states that the IMF "gives credit ratings to Third World countries allowing them to obtain loans" from other creditors. The Fund gives no such thing as a "credit rating." It recommends an adjustment program which it thinks can work to persuade commercial creditors that the country is a sound credit risk. If those policies work, the country can borrow more on world credit markets. And for what purpose does it borrow? Obviously, to purchase more imports than it could otherwise afford. You may well think that I have misstated the purpose of IMF programs by insisting that they are designed to permit a country to import more than it otherwise would be able to import. Is it not their purpose, as many would argue, to help the country repay its bank loans rather than cushion the inevitable fall in its imports? In other words, doesn't the IMF just "bail out the banks" rather than help debtor countries buy more imports? No. By definition, a country in a debt crisis faces a serious problem in servicing its existing foreign debt. It must use its export earnings, plus whatever funds it can borrow from the IMF and other creditors, to pay for imports and to service its existing foreign debt. But it would be extremely misleading to imply there is some simple trade-off between these two uses. Most IMF programs, certainly those designed for the larger debtors, presume a rescheduling of existing debt plus new lending by commercial creditors. Since the amount of funds the IMF can lend is, in most cases, quite modest, an IMF program generally makes sense only as part of a larger refinancing package. Even if new commercial lending is not an integral part of the program itself, the very purpose of the program is to foster economic policy reforms that will eventually restore (or perhaps establish for the first time) a country's good standing in the world credit markets so that it can routinely finance trade deficits in the future. It should, therefore, be obvious that a debtor cannot simply trade-off debt service payments for more imports. A repudiation of debt service payments might make more funds available for imports for a very short period of time, but would quickly prove counterproductive, since the country would be unable, for some indefinite future, to borrow new funds on world credit markets. In short, maintaining debt service, to the extent possible, is likely to enable a debtor to import more, not less, over reasonable spans of time. I have left to the last your final fallacy, concerning the alleged relationship between IMF loans and textile exports to the United States. The table you present establishes nothing beyond flimsy circumstantial evidence -- which your letter admits, by recognizing that "IMF loans cannot be directly attributed to a   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -5specific industry increase in productivity or exports...." So, to establish the alleged link, you must resort to abstract speculation. But more plausible speculation really suggests the opposite conclusion, namely, that IMF loans to these countries could just as easily restrain as promote their textile exports. Before clarifying this point, however, I must note a curious omission from your table. If IMF funds help a country's textile industry, what about the United States? Recall that over the history of the Fund we have been the third largest user of IMF resources, only slightly behind India, and well ahead of any other country on your list! If the conclusion you want to draw is correct, why should it not also apply to us? Why shouldn't we conclude that the IMF has brought benefits to our own textile industry equal to or greater than those of any country on your list? Of course I IS necessarily believe that to be true, because I I. think you can draw any firm connection between IMF loans and the fate of any particular industry. But, on the logic of your own argument, I have to conclude that you should hold it to be true. Why is it more likely that IMF loans to the countries on your list have restrained rather than fostered their textile exports, assuming they have had any effect at all? If IMF loans, IMF recommended adjustment policies, and the subsequent new commercial credit such policies are designed to attract had not been available, the countries in question would have faced much more severe balance-of-payments problems than they did in fact face. They would have faced the prospect of a more severe compression of their imports (to the detriment of our exports) than they did in fact face. To forestall this more severe compression of imports, which would cut sharply into their consumption and standard of living, they would have had to increase their exports even more than they did. Or at least they would have tried to do so. And how would they have tried? By concentrating their efforts and, if need be, their subsidies, below-market prices, and other unfair trade practices, on precisely those industries in which they could expect to score the most penetration of U.S. markets. Among those, textiles would have been very prominent. One can only guess at the outcome, but a guess that textile exports to thewould have been even greater than they were, in the absence of IMF loans, is just as warranted as the opposite guess.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  tephen Neal Chairman, Subcommittee on International Finance, Trade and Monetary Policy  LI  *of GOte;_•. .*  • •co  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  • 11  WASHINGTON, D. C. 20551  • •  '.14" PAU L A. VOLCKER  Lst•••  CHAIRMAN  August 20, 1986  Honorable Fernand J. St Germain Chairman Committee on Banking, Finance and Urban Affairs U.S. House of Representatives 2129 Rayburn House Office Building Washington, D.C. 20515 Dear Chairman St Germain: I am writing in response to your letter of August 4, 1986, in which you urge the Board to consider carefully the effects of permitting banks to move their credit card operations to states which do not have laws limiting the amount of interest charged on credit cards. In applications brought to the Board, including applications from the states mentioned in your letter -- South Dakota and Delaware, the Board has noted its concern with state statutes that permit banks to move their credit card operations across state lines: 'While it has decided to approve this application, the Board wishes to reiterate the concerns it has expressed in previous orders about the proliferation of statutes that, like South Dakota's, permit the entry of out-of-state S. nk holding companies in order to shift jobs and revenues from other states, while limiting the banks owned by activities of in-state out-of-state holding companies so as to avoid competition with in-state banking organizations. These statutes IS not appear to be based on appropriate public policy considerations for assuring a stable and sound banking system locally and nationwide, and the end result of their adoption by other states can only be a serious impairment of banking standards and no IS net gains in or revenues because of the proliferation."1/  First City Bancorporation of 1/ Reserve Bulletin 716, 718 (1985)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Texas, Inc.,  71  Federal  )   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2-  While the Board has expressed concerns about both the public policy considerations on which these statutes are based and the effect on the banking system of the proliferation of statutes that compete for tax revenues and jobs on the basis of laxity of regulatory standards, the Bank Holding Company Act does not provide the Board with the statutory authority to prevent establishment of these credit card banks. Most of these acquisitions have been expressly authorized by state law enacted on the basis of the Douglas Amendment. With respect to your particular concerns about credit card rates, the Board generally has not conditioned its approval of bank holding company applications on the pricing of specific services to be offered by the applicant. As your letter notes, credit card rate ceilings traditionally have been regulated by the individual states, and attempts by the Board to influence the price of this bank service would raise serious question under the Act in addition to conflicting with state policies. The issues you raise concerning the issuance of credit card bank charters on an interstate basis is part of the larger problem, about which I have testified repeatedly, of states enacting legislation on the basis of parochial interests that may be inconsistent with the administration of an orderly and stable banking system and may impose additional burdens on the federal safety net. I continue to urge and support legislative initiatives to deal with this concern. Sincerely,  StRa:J1  JS:VM (V-163, 86-3430) bcc: Jim Scott Virgil Mattingly Mike Bradfield Mrs. Mallardi (2)1 Legal Records (2)  40 " •. of Gov.•• ti? • ..•41-o .  f  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. E. 20SSI  August 20, 1986  PAUL A. VOLCKER CHAIRMAN  The Honorable Tom Tauke House of Representatives Washington, D.C. 20515 Dear Mr. Tauke: Thank you for your letter of August 12 recommending Mr. Terry Tilton for a position on our Consumer Advisory Council. I can assure you that Mr. Tilton will receive full consideration when the Board selects sev en new Council members in the fall of this year. In selecting new members, the Board makes a special effort to achieve a geographic balance, to include an adequate representation of women and minorities, and to maintain an even balance of consumer and industry interests. We are fortunate to have a large number of individuals recomm ended for Council positions, and the Board appreciates your taking the time to call our attention to qualified individua ls who could contribute to the Council's work.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Thank you, again, for your recommendation. Sincerely, S I Paul A, Wicker  CO:pte (V-179, 86-3631) bcc: Mrs. Bray (w/copy of incoming) Mrs. Mallardi (2).,  TOM TAUKE  COMMITTEES AND SUBCOMMITTEES  niSTRICT, IOWA  ENERGY AND COMMERCE COMMERCE, TRANSPORTATION, AND TOURISM HEALTH AND THE ENVIRONMENT TELECOMMUNICATIONS, CONSUMER PROTECTION, AND FINANCE  EDUCATION AND LABOR  CONGRESS OF THE UNITED STATES  POSTSECONDARY EDUCATION HUMAN RESOURCES, RANKING MINORITY MEMBER  SELECT COMMITTEE ON AGING  August 12, 1986  RETIREMENT INC RANKING MIN TASKT-QRCE FO  MPLOYMENT, ER L ELIV1LY 72' •1  C:= ) C " .  ret  The Honorable Paul Volcker Chairman Board of Governors Federal Reserve System 20th St. and Constitution Ave., NW Washington, D.C. 20551  L.  r-r1  rrl Cr) C/..;  Cf  Dear Mr. Chairman: One of my recently wrote appointment to Reserve. This applied for an serving.  constituents, Terry Tilton, of Anamosa, Iowa, to you to alert you to his deep interest in an the Consumer Advisory Council for the Federal is the eighth consecutive year that Terry has appointment, a testament to his deep interest in  Terry is a succesful, respected, active small business owner. He attended the White House Conference on Small Busin ess. His appointment to the Advisory Council would bring the muchneeded, important perspective of the small business commu nity. I have known Terry for a number of years, and I can attest not only to his desire to serve, but also to his ability to bring fresh ideas and a clear perspective to the work of the Council. Thank you for your consideration of this request. Best wishes.  Tom Tauke Member of Congress TT:jw  COMMUNICATIONS SHOULD BE DIRECTED TO THE OFFICE INDICATED  Cl  2244 RAYBURN HOUSE OFFICE BUILDING WASHINGTON, DC 20515 (202) 225-2911   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  El 698 CENTRAL AVENUE DUBUQUE, IA 52001 (319) 557-7740  El  1756 FIRST AVENUE NE CEDAR RAPIDS, IA 52402 (319) 366-8709  0 116 SOUTH SECOND STREET CLINTON, IA 52732 (319) 242-6180  I •  •0 • Q3 •0  GOvi •.  BOARD OF GOVERNORS  434,• 0•  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551 PAUL A. VOLCKE R  .10AL RE . • •..• •  August 19, 1986  CHAIRMAN  ••  The Honorable Alfonse M. D'Amato United States Senate 20510 Washington, D.C. Dear Senator D'Amato: In response to a request from Chairman Cam, I am pleased to enclose my responses to the written questions you submitted in connection with the hearing held on July 23 on monetary policy. I have also sent a copy of these responses to Chairman Garn for inclusion in the record of the hearing. I hope this information is useful. if I can be of further assistance. Sincerely,  Enclosures  CC:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi (2)  Please let me know  Chairman Volcker subsequently submitted the following in response to written questions from Senator D'Amato in connection with the hearing held before the Senate Banking Committee on July 23, 1986. Question: Do you anticipate interest rate reductions in Germany or Japan? Answer:  Interest rates have declined in Germany and  Japan over the past year, although not as much as in the United States.  The decline in interest rates in Germany and Japan, and  to some extent elsewhere, have occurred in an environment of greater price stability and relatively weak economic growth in these countries, particularly growth arising domestically. While I and others have indicated that it is in these countries' interests, as well as the interest of the global economy, to pursue economic policies that would generate adequate and sustained "home grown" economic growth, it remains the responsibility of the national authorities to decide how to achieve it. Whether or not interest rates will decline further in the near-term in Germany and Japan depends upon developments in these economies more generally as well as upon policy choices open to the authorities.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2Question: If Japan and Germany won't agree to follow the U.S. lead and reduce their interest rates, how will the coordination of economic policies as outlined in the Tokyo Summit communique be achieved? Answer:  The question of coordination of economic  policies among industrial countries extends beyond whether other countries follow the lead of the United States.  Such policy  coordination in the end depends on an ongoing dialogue among officials of the major industrial countries concerning their assessments of economic performance and prospects in their respective countries and a policy environment conducive to achieving sustainable, non-inflationary growth in industrial countries and narrowing imbalances among them.  Institutions and  fora for such coordination have existed and have been reasonably effective for decades; with the political impetus derived from the Tokyo Summit, efforts are being made to render them more effective. Given the increasing interdependence of the major industrial countries, the effects of the actions or inactions by one country on others are becoming increasingly important. Authorities of the major industrial countries must take into account the effects on their own economies of economic conditions in their major trading partners and must similarly recognize that their economic performance affects others. Mutual awareness of this increasing interdependence over time could lead to a better coordination of economic policies among the industrial countries.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -3Question: If interest rate reductions, combined with the drop in the dollar, don't stimulate growth in the U.S., what policy changes would you recommend? Answer: tion.  This is a very difficult, hypothetical ques-  It seems to me doubtful that declining interest rates and  the lower dollar would not have some stimulative effect, all other things being equal.  At the same time, I have repeatedly  emphasized the limitations on "easy money" and exchange rate changes as a solvent for our economic difficulties.  We already  have clearly excessive debt creation in the United States and we remain highly dependent on capital inflows from abroad.  Your  question does underscore the limitations of domestic demand stimulus in addressing satisfactorily the major problems we face.  For example, a healthy solution to the problem of the  uneven pattern of economic activity associated with our trade imbalance will require, in my judgment, healthy "home grown" growth in other major industrialized countries.  At the same  time, it is essential that we move forward with actions to reduce outsized federal deficits that have been intertwined with our foreign imbalances.  Clearly, there are other problems of a  structural nature, such as the Third World debt difficulties, that require continued efforts on many fronts to assure their satisfactory resolution.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -.4Question: The U.S., its allies, and the multilateral development banks just agreed to an emergency loan for Mexico. Given the size of this commitment: A.  Do you anticipate similar agreements for other oil-exporting debtor nations?  B.  Are there enough funds to assist the other oil-exporters such as Venezuela, Ecuador, Nigeria, Indonesia, et al?  C.  Do you see the oil price drop as temporary? Shouldn't these debtor nations be forced to adjust (as the oil-producing states in the U.S. are being forced to do) instead of increasing already heavy debt burdens?  D.  Won't increased commitments to these large debtors restrict the flow of funds (particularly concessional funds) to the least-developed debtor nations? Answer:  The bulk of the funds of the financial package  for Mexico is to come from international financial institutions (the International Monetary Fund and the World Bank) and commercial banks.  The international institutions are currently suffi-  ciently liquid to provide the new lending for Mexico, while at the same time remain able to meet calls on them by other potential borrowers, including other oil-exporting countries.  The  flow of nonconcessional funds to the least-developed debtor nations is relatively small and will not be restricted because of new lending to Mexico.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The concessional lending for these  countries is provided by other international institutions and by bilateral donors. All oil-exporting countries are being adversely affected by the decline in world oil prices.  However, the  impact on Mexico was particularly acute because of Mexico's heavy reliance on oil revenue and its limited international reserves.  -5The objective of the new financial arrangements for Mexico is to support Mexican efforts to adjust to the reality of lower oil prices.  In particular, the Mexican Government has  agreed to restructure its economy and, thereby, develop its non-oil export sector and become less dependent on oil, and at the same time, to continue to pursue complementary macroeconomic policies, including reducing the budget deficit and curbing the growth of consumption.  The increased borrowing on a moderate  scale is intended to limit somewhat the size of the immediate adjustment for the Mexican economy without reducing its longerrun magnitude. The outlook for oil prices is, of course, highly conjectural.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  .•• • •  •• of GOVt ••  BOARD OF GOVERNORS OF THE  •C  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  RAL RE-S" • • • •..• ••  PAUL A. VOLCKER  August 19, 1986  CHAIRMAN  The Honorable Alan J. Dixon United States Senate 20510 Washington, D.C. Dear Senator Dixon: In response to a request from Chairman Cam, I am pleased to enclose my response to the written question you submitted in connection with the hearing held on July 23 on monetary policy. I have also sent a copy of this response to Chairman Garn for inclusion in the record of the hearing. I hope this information is useful. if I can be of further assistance. Sincerely,  Enclosure  CC:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi (2)  Please let me know  Chairman Volcker subsequently submitted the following in response to written questions from Senator Dixon in connection with the hearing held before the Senate Banking Committee on July 23, 1986. Question: Mr. Chairman, the conference on the tax reform bill is now underway. Earlier this year, you expressed your concern over efforts to tax bank loan loss reserves. Do you continue to be opposed to taxing loan loss reserves? Bank failures are at a record rate. The rate of return for banks is falling, and banks are under increasing pressure to raise more capital. Can you tell the Committee what the impact on the banking system would be if loan loss reserves were taxed? Answer:  As I responded to the question posed by  Senator Mattingly, the taxation of loan loss reserves could have a negative effect on the safety and soundness of the country's banking system.  Banks might be discouraged from maintaining  loan loss reserves as large as they otherwise might have done under current tax law.  The elimination or restriction of the  deduction of loan loss reserve provisions could increase the costs banks incur in establishing and maintaining such reserves. In particular, the ability of banks to retain and attract capital would be affected adversely by the five-year recapture provision, which would subject 1985 reserve balances to taxation. I have stated to the Senate Banking Committee that, as a regulator, I am in favor of measures that will encourage banks to build up and maintain adequate loan loss reserves because I believe this will promote their safety and soundness.  The in-  creased taxation of loan loss reserves is inconsistent with this objective.  As you know, however, the conference report does  change existing provisions in this respect.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  PAUL A. VOLCKER  August 19, 1986  CHAIRMAN  The Honorable •Jake Garn Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Garn: In response to your request, I am pleased to enclose, for inclusion in the record, my responses to the written questions you submitted i•n connection with the hearing held on July 23. In addition, I have sent letters to Senators D'Amato, Dixon, Mattingly, Proxmire and Riegle enclosing my responses to their questions. I hope this information is useful. if I can be of further assistance.  Please let me know  Sincerely,  Enclosures cc: bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ed Malan, Senate Bkg. Cmte. Messrs. Bradfield, Mattingly, Kichline, Kohn, Taylor, Truman, Lindsey, Promisel Mrs. Mallardi (2)i/—  Chairman Volcker subsequently submitted the following in response to written questions from Chairman Garn in connection with the hearing held before the Senate Banking Committee on July 23, 1986. Question: last fall.  Nominal interest rates have declined since  For real interest rates to fall, however, nominal interest rates must fall faster than inflationary expectations.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  While it is impossible to measure inflationary expectations directly, the sharp decline in commodity prices since last year together with low measured rates of inflation this year suggest that inflationary expectations may have declined even faster than interest rates since last year. In spite of the decline in nominal interest rates since last fall, do you believe it possible that real interest rates may have actually risen and, if so, given the relatively weak economy thus far this year, shouldn't the Fed be pushing harder to lower interest rates? Answer:  Given the difficulties you note with respect  to the measurement of inflation expectations, one cannot state with certainty what has happened to real interest rates.  There  is survey evidence, however, that indicates that expected rates of inflation have fallen less than nominal interest rates over the past year; moreover, the behavior of exchange rates, of stock prices, and such interest-sensitive areas ot spending as housing is consistent with falling real rates. Be that as it may, the question remains whether the Federal Reserve should be "pushing harder to lower interest rates."  As I indicated to your Committee, we are endeavoring to  pursue a policy that is conducive to noninflationary growth of the economy.  But it is important to remember that monetary  policy is far from the only determinant of the course of economic developments, and there are limits to what we can do to   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2encourage growth without sowing the seeds of future difficulties.  Our economy is suffering from serious imbalances that  cannot be overcome through monetary expansion; sound U.S. fiscal policy and adequate growth of demand abroad clearly are two critical ingredients to rectifying those imbalances.  3 Question: In recent years, M1 has been growing much faster than nominal GNP and, as a result, M1 velocity has been falling. The Federal Reserve has sought to explain these developments in terms of factors, such as the availability of NOW accounts and lower interest rates, that have caused people to want to hold larger money balances relative to their spending. An alternative explanation is that transactions (such as the purchase and sale of financial instruments) which are not included in GNP have grown faster than GNP. Transactions balances must be held against these non-GNP transactions, and when velocity is measured as the quotient of GNP divided by Ml, velocity appears to have fallen. If this alternative explanation is correct, monetary policy has not been as expansionary as would be suggested by the rapid growth in M1 relative to GNP. What is your view of this alternative explanation of the decline in M1 velocity and its implications for monetary policy? Answer:  In principle, an increase in financial trans-  actions relative to GNP should add to the public's need for M1 balances relative to GNP, thereby tending to reduce velocity. The evidence suggests that in practice, however, a strong rise in financial transactions probably has played only a minor role in the recent strength of Ml.  A major reason may be that the  vast bulk of these transactions are undertaken by dealers, institutional investors, and other agents that are quite efficient in their use of M1 balances.  One type of financial  transaction that likely had some impact--in part because it involves the retail market--is mortgage financings.  The surge  in activity in this market probably boosted M1 growth to some extent this year.  However, the decline in M1 velocity appears  largely to reflect other factors--especially the decline in   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -4interest rates, which has reduced the income sacrificed ir holding such highly liquid assets.  The Federal Reserve has  considered all of these influences on M1 in evaluating its behavior.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -5Chairman Volcker subsequently submitted the following in response to written questions from Senator D'Amato in connection with the hearing held before the Senate Barking Committee on July 23, 1986. Question: Do you anticipate interest rate reductions in Germany or Japan? Answer:  Interest rates have declined in Germany and  Japan over the past year, although not as much as in the United States.  The decline in interest rates in Germany and Japan, and  to some extent elsewhere, have occurred in an enVironment of greater price stability and relatively weak economic growth in these countries, particularly gro wth arising dome stically. While I and others have indicated that it is in these countries' interests, as well as the interest of the global economy, to pursue economic policies that would generate adequate and sustained "home grown" economic growth, it remains the responsibility of the national authores to decide how to achieve Whether or not interest rates will decline further in the near-term in Germany and Japan depends upon developments in these economies more generally as well as upon policy choices open to the authorities.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -6Question: If Japan and Germany won't agree to follow the U.S. lead and reduce their interest rates, how will the coordination of economic policies as outlined in the Tokyo Summit communique be achieved? Answer:  The question of coordination of economic  policies among industrial countries extends beyond whether other countries follow the lead of the United States.  Such policy  coordination in the end depends on an ongoing dialogue among officials of the major industrial countries concerning their assessments of economic performance and prospects in their respective countries and a policy environment conducive to achieving sustainable, non-inflationary growth in industrial countries and narrowing imbalances among them.  Institutions and  fora for such coordination have existed and have been reasonably effective tor decades; with the political impetus derived from the Tokyo Summit, efforts are being made to render them more effective. Given the increasing interdependence of the major industrial countries, the effects of the actions or inactions by one country on others are becoming increasingly important. Authorities of the major industrial countries must take into account the effects on their own economies of economic conditions in their major trading partners and must similarly recognize that their economic performance affects others. Mutual awareness of this increasing interdependence over time could lead to a better coordination of economic policies among the industrial countries.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  7 Question: If interest rate reductions, combined with the drop in the dollar, don't stimulate growth in the ..,a policy changes would you recommend? Answer: tion.  This is a very difficult, hypothetical ques-  It seems to me doubtful that declining interest rates and  the lower dollar would not have some stimulative effect, all other things being equal.  At the same time, I have repeatedly  emphasized the limitations on "easy money" and exchan• ge rate changes as a solvent for our economic difficulties.  We dlready  havS clearly excessive debt creation in the United States and we remain highly dependent on capital inflows from abroad.  Your  question does underscore the limitations of domestic demand stimulus in addressing satisfactorily the major problems we face.  For example, a healthy solution to the problem of the  uneven pattern of economic activity associated with our trade imbalance will require, in my jud• g ment, healthy "home grown" growth in other major industrialized countries.  At the same  time, it is essential that we move forward with actions to reduce outsized federal deficits that have been intertwined with our foreign imbalances.  Clearly, there are other problems of a  structural nature, such as the Third World debt difficulties, that require continued efforts on many fronts to assure their satisfactory resolution.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -8 Question: The U.S., its allies, and the multilateral development banks just agreed to an emergency loan for Mexico. Given the size of this commitment: A.  Do you anticipate similar agreements for ether oil-exporting debtor nations?  13  Are there enough funds to assist the other oil-exporters such as Venezuela, Ecuador, Nigeria, Indonesia, et al?  C.  Do you see the oil price drop as temporary? Shouldn't these debtor nations be forced to adjust (as the oil-producing states in the U.S. are being forced to do) instead of increasing already heavy debt burdens? Won't increased commitments to these large debtors restrict the flow of funds (particularly concessional funds) to the least-developed debtor nations? Answer:  The bulk of the funds of the financial package  for Mexico is to come from international financial institutions (the International Monetary Fund and the World Bank) and commercial banks.  The international institutions are currently suffi-  ciently liquid to provide the new lending for Mexico, while at the same time remain able to meet calls on them by other potential borrowers, including other oil-exporting countries.  The  flow of nonconcessional funds to the least-developed debtor nations is relatively small and will not be restricted because of new lending to Mexico.  The concessional lending for these  countries is provided by other international institutions and by bilateral donors. All oil-exporting countries are being adversely affected by the decline in world oil prices.  However, the  impact on Mexico was particularly acute because of Mexico's heavy reliance on oil revenue and its limited international reserves.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -9The objective of the new financial arrangements for Mexico is to support Mexican efforts to adjust to the reality of lower oil prices.  In particular, the Mexican Government has  agreed to restructure its economy and, thereby, develop its non-oil export sector and become less dependent on oil, and at the same time, to continue to pursue complementary macroeconomic policies, including reducing the budget deficit and curbing the growth of consumption.  The increased borrowing on a moderate  scale is intended to limit somewhat the size of the immediate adjustment for the Mexican economy without reducing its longerrun magnitude. The outlook for oil prices is, of course, highly conjectural.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -10Chairman Volcker subsequently submitted the following in response to written questions from Senator Riegle in connection with the hearing before the Senate Banking Committee on July 23, 1986. Question: It is widely considered that a western economic growth rate of at least 3 percent is necessary to prevent an aggravation of the Third World's debt problems and to head off a further rise in western unemployment. Economists at the Organization for Economic Cooperation and Development in Paris now doubt whether their bellwether prediction that the world will just reach the magic 3 percent threshold this year can now be realized. Certainly the economic picture in Japan, Germany and the United States is not encouraging at the moment. What happens to the Third World's debt problems--and how much is that problem aggravated--if the western economic growth rate does not reach at least 3 percent? How much of a rise can we expect in western world unemployment? Answer:  The debtor countries need a global economic  environment that will provide them the assurance that they could earn enough export revenue with which to meet import require-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ments and to service their debt obligations.  I do not think 3  percent is a magical figure that must necessarily be met every year to provide such an environment, but it is entirely true that sustained and reasonably vigorous economic expansion in the industrial countries over time is a key ingredient in dealing with the debt problem.  The expansion in the major industrial  countries in the first half of the year has been disappointing, and has made it more difficult for developing countries to earn foreign exchange.  However, most debtor countries, with the  notable exception of the large oil exporters, have continued to make progress in dealing with their debt problems.  That effort  -11will need to be supported by more adequate growth in the industrialized world. Because of the relatively slow grov,th in foreign industrial countries, they have made only limited progress in reducing the high rates of unemployment that have been recorded in recent years, and in some cases unemployment rates have actually increased slightly.  Without an acceleration of growth  in these countries, the prospects for a significant reduction in unemployment rates is not favorable.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -12Question: What happens to the United States economy if we do not get the taster growth in key foreign economies that you say is desirable? Answer:  Sooner or later the U.S. external position  will have to improve.  Heavily indebted developing countries  also need to avoid large external deficits.  The other side of  the coin is that very large surpluses of some countries cannot reasonably continue to grow and thus provide support to their economic expansion.  Consequently, adjustments in these external  positions must be made. It is preferable that these adjustments take place by increasing our exports and those of the developing countries in the context of a healthy and growing world economy. The alternative might well mean that external imbalances will be   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  reduced in an environment of a relatively weak U.S. and world economy, a self-defeating process.  -13Question: In your statement you indicate that "there is some concern over the transitional effects of tax reform legislation." What do you see as some of the short- and long-term effects of the tax reform legislation we are currently considering and how is our economy likely to be affected in the short and longer term by passage of this legislation? Answer:  As comprehensive a tax restructuring as is  currently being considered obviously will significantly alter the context in which many economic decisions are made.  I don't  think anyone can predict with precision all of the ramifications of such action; certainly I don't feel I have the necessary expertise.  In the comment about "transitional effects" I had in  mind a number of phenomena, including the influence on business decisions of the current uncertainty about the structure and timing of the tax changes, and the possibilities that spending may be shifted forward or delayed as a consequence of the phasing in of the reform measures, among other things.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -14Question: There has been much concern expressed about the impact OT—Ihe Senate tax reform bill in existing real estate partnerships, many of which have issued mortgages held by commercial banks and savings and loan associations. Has the Federal Reserve Board conducted any studies or utherwise considered how banks and savings and loan associations could be affected by the retroactive application of the provisions of the Senate tax bill, including the so-called passive rule, particularly as they would apply to those partnerships with staged S. yments ot the equity? Answer: units  We are aware of the possibility that many  in the economy will be affected--some positively, some  negativSly--by changes in the tax laws that they did not antici• decisions. pate when they made investment and financing  It is  unlikely that any set of transition rules is going to be able to prevent all such effects.  We do not have any specific "studies"  of the partnership rules to which you refer.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -15Question: A great deal of importance for your projections regarding -Yuture iuflation and consumer spending seem to be based on low energy prices. Haven't we seen a bottoming out of energy prices and aren't they far more likely co go up than down--and if they do go up, what are the likely implications for the economy? Answer:  I can't tell you what will be happening to the  price of oil in the months ahead, although I would agree that the low prices reached a few weeks ago are not likely to be sustainable over a long period of time, given the implications for both consumption and exploration.  If the price of crude  were to move back up moderately--as it has in recent weeks-retail gasoline and fuel oil prices would presumably come under upward pressure but the prices of natural gas and electricity-competing energy sources--do not yet fully reflect the drop in oil prices. Obviously, if there were to be a major retracing of the oil price decline, it would--as you suggest--sharply alter the inflation outlook in an unfavorable direction.  Ihe effects on  spending and output are a more complex matter, as the experience of the first half of 1986 amply demonstrated, and much would depend in the short run on the degree of certainty people had   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  about the stability of any energy price level.  -16How concerned are you that "the personal saving rate hasremained at an historically lov level" and what will be the likely effects of such low savings rates during the next recession, or downturn in the business cycle? Question:  Answer:  I am concerned about the low personal saving  rate from a number of standpoints, including particularly the implications for spending should income grow more slowly or even decline.  The low saving rate has been mirrored in an enormous  expansion of household indebtedness, which I believe is a point of potential vulnerability for the economy generally.  One can  question whether, in such circumstances, consumer spending would show the kind of buoyancy that it has in past recessionary episodes.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1 -17Question: Do you expect activity in the housing market and the strength of consumer spending to continue and possibly accelerate in the second half of 1986? Answer:  I think there are good reasons to expect con-  tinued strength in these areas of the economy in the near term. Real income growth has been strong thus far this year, spending attitudes are very favorable, judging by the survey evidence, and interest rates have declined substantially.  However,  healthy growth in the economy over time will recuire a firming in business investment and an improvement in our trade position.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -18Question: In the past you and other bank regulators have expressed considerable concern about the adverse impact of low energy prices on banks in the Texas, Oklahoma, Louisiana and Southwest region of the country. *  What can you tell us about the overall condition of the banks in this area of the country since you last testified before us on the subject on May 13th? Answer:  Banks in the Southwest are generally con-  tinuing to operate under conditions of considerable stress.  The  problems at these banks stem primarily from the depressed co tion of the energy industry.  Given the sharp further decline in  energy prices that has occurred this year, asset quality problems in energ y loan portfolios have intensified.  Moreover, in  all too many cases, problems have spread increasingly to real Sstate and other loans as well, reflecting  npar  the adverse  impact of the energy price decline on the entire economic   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  infrastructure of the Southwest. Such problems have prompted many banks in the region to add heavily to their provision for loan losses. they have suffered poor earnings.  In so doing,  From the last quarter of 1985  through the second quarter of 1986, most of the largest institutions in the region, and many of the smaller ones, have reported at least one quarterly loss.  In the second quarter alone, three  of the largest banking organizations in the Southwest posted losses ranging from $29 million to $281 million. Economic problems in the Southwest are also manifested in the number of bank failures.  Through July 25, 1986, twenty-  three banks had failed this year in Texas, Oklahoma, and Louisiana.  These accounted f5r s5me 29 percent 5f t5tal 5ank  -19failures and 56 percent of the assets of all failed banks throughout the nation.  The recent failure (July 14, 1986) of  First National Bank and Trust Co., Oklahoma City, Oklahoma, a $1.6 billion subsidiary of First Oklahoma Bancorp, was the largest failure this year and the second largest in U.S.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  history. The road ahead poses serious challenges for banks in the Southwest.  The organizations have been facing up to these  challenges, by building loan loss reserves and by taking other measures, but adjustment to the sharply changed economic circumstances will continue to be quite difficult.  As you know, a  strong federal support apparatus is available to cushion and contain these strains, to protect depositors, and to avoid secondary repercussions.  At the same time, I hope the Congress  acts this year to deal with emergency interstate bank acquisitions to help reinforce the tools available to us.  -20Question: Venezuela recently approved a law that would convert into government issued bonds about $7 billion owed to foreign creditors by private Venezuelan borrowers. The bonds would bear a fixed annual interest rate of 5 percent, well below the banks' cost of funds. Venezuela in the past has been one of the more reliable debtor countries and I am wondering if this is the beginning of a pattern on the part of the debtor countries to pay off less of their debt? Answer:  The recent action by the Venezuelan Congress  converting debt into bonds is currently being reexamined in Venezuela.  I am very hopeful that Venezuelan authorities will  find ways to redesign this legislation to meet the Venezuelan objective of spreading out the debt-servicing obligations of private Venezuelan borrowers while at the same time respecting the rights of Venezuelan creditors in a responsible manner.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -21Question: What, if anything, do you believe should he the obligation of the Japanese, in light of their huge trade surplus with the United States, and their limited spending for defense, to increase their capital contributions to the lesser developed indebted countries? Answer:  account surplus also runs as a counterpart a capital account deficit.  Thus, the huge current account surpluses that Japan  has been recording are matched by equally large net capital outflows, to both industrial and developing countries. Private Japanese investors, like investors everywhere, base their investment decisions primarily on expectations of yields and other financial and safety considerations.  The  amount of Japanese capital flows to the developing debtor countries on the whole is determined by similar considerations. However, Japanese banks have recognized their responsibility to help support appropriate adjustment efforts in financially strained developing countries, and have participated in the various financial packages that have been arranged for individual debtor countries.  Moreover, the Japanese Government,  including entities such as Japan's Export-Import Bank, have negotiated special lending programs to particular borrowing countries.  Those and further efforts by a country with an  enormous current account surplus appear entirely appropriate in reducing the disturbing effects of that surplus on the world economy and helping to deal with particular points of strain.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  By definition, a country that runs a current  -22Question: In the past monetarists have been quick to point out the relationship between growth of the economy and growth of the money supply, but that relationship no longer seems to be there. How do you account for the confused readings we are now getting and what are the implications for future monetary policy of the economy's listless performance on the one hand and the money supply's explosive growth on the other? In terms of setting monetary policy, it seems to me that spotting and monitoring the money that matters the most has become increasingly difficult. How would you define the money that matters the most? M-1? M-2? M-3? Or some new variation? Answer:  Is it  A major factor boosting the growth of M1  relative to income has been sizable declines in market interest rates, which make it less costly--in terms of interest foregone--for the public to hold such liquid assets.  The sen-  sitivity of M1 to interest rate movements in recent years probably has been heightened by deposit deregulation and the spread of corporate cash management techniques.  Consequently,  the relationship of til to economic activity, prices, and in-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  terest rates remains quite uncertain at this time, and a firm conclusion regarding the properties of the behavior of this aggregate in an evolving institutional and economic setting probably will require considerably more experience. The broader monetary aggregates, which encompass many of the shifts between liquid and less liquid assets, have behaved more in line with their historical patterns, although they are currently also growing somewhat faster than nominal GNP. Both M2 and M3 are within their current target ranges, and maintenance of growth within their ranges for 1986 and 1987 is  -23believed to be consistent with a pickup in the pace of economic activity from that of the first half of this year. The behavior of all the traditional measures of money, though, at times has been substantially affected by financial innovations and deposit deregulation.  And, while research con-  tinues on alternative measures of the money stock, even with refinements, they too probably will be subject to many of the same influences.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  In this environment, the implementation of  monetary policy has involved continuing appraisal of the relationships among all the various measures of money and credit, their velocity trends, indicators of economic activity and prices, as well as conditions in domestic credit and foreign exchange markets.  So, in a sense, what "matters the most" is  not a single measure of money, but rather the monetary aggregates collectively viewed in a broader context.  -24Question: Recently one of your fellow Board members (Rice) gave a well-publicized speech entitled "Is Inflation Licked?". He concluded that the answer was "No" and warned that continued attention should be paid to this issue. He noted among other things that apart from energy, actual inflation rates still are in a range that, only a decade and a half ago, were viewed as being so intolerable that they led to a program of extensive wage and price controls. What are your views on whether inflation is likely to be a problem within the next 1 to 2 years? Answer:  It clearly is the case that our recent, highly  favorable price performance has owed much to the extraordinary drop in oil prices.  As those prices level off or rebound, and  as we absorb the impact of the lower dollar, some pickup in recorded inflation is highly likely, as is suggested by the forecasts of the Board members and Reserve Bank presidents in our report.  Looked at another way, a broad range of important  prices, particularly in the service area, have continued to rise persistently, lending an underlying inflationary momentum to the economy. I do believe that we have made solid progress in the fight to achieve and maintain reasonable price stability, but recent trends provide no grounds for complacency.  Certainly the  need to build on past progress in keeping the underlying trend of inflation down must remain a prime objective in considering appropriate monetary policy.  By its nature, the inflationary  process tends to perpetuate itself.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The price increases antici-  pated over the next year or two as we absorb higher import costs and oil prices level off or rebound may be moderate and temporary, but that will be true only if policy remains alert to the danger.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -25Chairman Volcker subsequently submitted the following in response to written questions from Senator Mattingly in connection with the hearing held before the Senate Banking Committee on July 23, 19896. Question: Assuming there is not sufficient time remaining in the current session to pass comprehensive banking legislation, would the Fed prefer a moratorium on the approval of new "nonbank bank" charters as opposed to not addressing the issue in any fashion before adjournment? Answer:  The Board on numerous occasions has urged  Congress to adopt comprehensive legislation to deal with the serious and urgent problems facing the depository institutions industry, including the provision of new products and services and the closing of loopholes that undermine the fundamental structure and basic safety and soundness of the banking system. The Board believes that these issues have been the subject of extensive public hearings, testimony, and debate, and that a sufficient record exists for Congressional action this year. However, with the understanding that a short moratorium on new nonbank banks (and with some limitations on the activities of existing nonbank banks) cannot be an effective substitute for more comprehensive action, such a moratorium would be clearly useful as a prelude to the needed larger effort.  I would hope,  of course, that a more comprehensive bill will be enacted at the earliest possible time.  -26Question: At a time when many financial institutions are in severe financial straits, would the safety and soundness of the country's financial system be threatened or adversely affected by Congressional elimination or restriction of the deduction for loan loss reserves? Answer:  The taxation of loan loss reserves could have  a negative effect on the safety and soundness of the country's banking system.  Banks might be discouraged from maintaining  loan loss reserves as large as they otherwise might have done under current tax law.  The elimination or restriction of the  deduction of loan loss reserve provisions could increase the costs banks incur in establishing and maintaining such reserves In particular, the ability of banks to retain and attract capital would be affected adversely by the five-year recapture provision, which would subject 1985 reserve balances to taxation. I have stated to the Senate Banking Committee that, as a regulator, I am in favor of measures that will encourage banks to build up and maintain adequate loan loss reserves because I believe this will promote their safety and soundness.  The in-  creased taxation of loan loss reserves is inconsistent with this objective.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  As you know, however, the conference report does  change existing provisions in this respect.  -27Question: Some financial publications have speculated that the Federal Reserve has tentatively agreed to approve the controversial Citicorp application interpreting the phrase "principally engaged" in the Glass-Steagall Act. Moreover, they allege the Fed will delay a formal decision until Congress adjourns to avoid incurring the wrath of the legislative branch. What is the status of the Citicorp application? Will you provide the Committee with the minutes of any discussions on the issue? How many other bank holding companies have submitted similar applications?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Answer:  The Board has discussed Citicorp's current  application to underwrite and deal in certain securities on the basis that it would not be "engaged principally" in that activity under Section 20 of the Glass-Steagall Act on three occasions:  nay 13 and December 4, 1983, and March 28, 1986.  The Board has not, however, reached a decision on the application.  While the application has not yet been rescheduled  for Board consideration, the Board has also made no decision to delay reaching a determination until after Congress adjourns. In addition to Citicorp's application, J.P. Morgan & Co., Incorporated, and Bankers Trust New York Corporation have filed applications to underwrite and deal in certain securities on the basis that they would not be "engaged principally" in that activity within the meaning of Section 20 of the GlassSteagall Act. With regard to the minutes of those meetings, the Board's practice has been not to release minutes prior to final Board action on an application, because such release could prejudice the Board's decisionmaking process on the application.  -28Question: Last November I introduced legislation, along with Sen. Bill Bradley, to establish U.S. policy on exchange rates and developing country debt. This legislation was also incorporated into the bipartisan Trade Enhancement Act, S. 1860. Sen. 3radley, in the meantime, has criticized the ineffectiveness of the so-called "Baker Plan" on Third World debt and has proposed a plan to cut interest rates as well as forgiveness of a certain percentage of the debt. Mr. Volcker, you have in the past rejected proposals that call for cancellation of Third World debt; would you please, for the record, comment on Sen. Bradley's proposal? Answer:  The "Bradley Plan" entails no new bank  lending, although it does provide substantial amounts (some $3 billion per year) in increased multilateral development bank lending.  Senator Bradley is opposed to solutions that involve  new bank debts.  Instead, his plan calls for interest rate  relief (3 percentage points for three years) and principal forgiveness (3 percent of outstandings for three years) from both commercial hank and official creditors.  These figures, however,  are targets to be negotiated each year and are to be conditional on the debturs making certain structural adjustments. The "Baker Plan" involves a significant amount of new bank lending and in that respect appears to be the opposite of what Senator Bradley wants.  However, it should be pointed out  that both the Baker Plan and the Bradley Plan have much in common, including the objectives of structural adjustment and growth in the debtor countries and more support from the multilateral development banks. Taking the recently announced Mexican program as an example of the Baker Plan approach, banks are expected to provide some $6 billion in net new lending to the public sector over a two-year period.  In contrast, the interest rate relief  granted to Mexico under the Bradley Plan, that is, external   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -29interest payments that would not have to be made, would amounC only to $2 billion per year, assuming all Mexican public sector and publicly guaranteed bank debts were affected.  From the  point of view of balance-of-payments financing, the forgiveness of principal involved in the Bradley Plan is irrelevant--other than the extra boost to interest relief that it contributes, which is included in the above figure--since no amortization of bank debts is included in the Mexican program. Quite aside from the amount of external finance provided by the two approaches, there is the fundamental question of how Senator Bradley's proposal could be implemented. How would consensus be reached at the "summit" among the representatives of the banks, the official creditors, and the World Bank?  What mechanism could be used to induce or force the banks  to provide the concessions?  What would be the implications for  the debtors' future access to credit markets?  How would the  • the deserving and less summit effectively discriminate among deserving borrowers? In my opinion, Senator Bradley's plan does not appear to be a practical or even desirable approach.  It provides less  immediate help on balance-of-payments financing than does the approach outlined in the Baker Plan.  Moreover, the help that  the Bradley Plan does provide--assuming that somehow the parties involved could agree on how to implement it for specific countries--would come in a way that affects adversely banks' financial health and probably would hamper the debtor countries'  -30access to commercial bank credits in the future.  Restricted  access to bank finance--including trade credits and interbank lines--would be a high price for the middle-income developing countries covered by the Baker Plan to pay for the amount of debt relief envisioned by Senator Bradley.  Finally, I believe  it would be very difficult, in the framework proposed, to in fact discriminate among borrowing countries as to the amount and nature of interest rate relief, raising a question about the efficacy of the approach in achieving its reform objectives.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -31Question: Yesterday's agreement between Mexico and tl- he Internati-C71-a-I Monetary Fund is being hailed as the first successful application of the "Baker Initiative". You were, I believe, instrumental in crafting the loan package. There are estimates that Mexico will now need as much as $6 billion in Pew commercial bank loans over the next two years for the package to succeed. Commercial bankin g interests have been, and I believe rig •htly so, reluctanc to expand in any way their exposure among the developing debtors. With regard to Mexico specifically, commercial banks are owed over $75 billion. Can the banks reasonably expect to recover the majority of this debt and, if not, what incentive is there for them to follow the lead of the IMF and the Treasury Department and make new loans? Wouldn't it make better sense for commercial banks to ren sig themse lves to writing off a certain portion of this debt? It seems like we are left to make the deon which is the lesse-r of two evils. Answer:  There are circumstances under which some  additional new lending can preserve the value of existing loans. This seems particularly to be the case for the new money that Mexico's commercial bank creditors are expected to lend to Mexico in the next two years as part of the recently announced package.  The new loans will be used to support a comprehensive  program of policy measures aimed at achieving macroeconomic stability, structural adjustment, and sustainable economic growth in Mexico.  Assuming they are successful, these measures  will protect the value (and ultimate collectibility) of Mexico's existing bank debts.  Thus, it seems to me reasonable that a  P. nk reach the judgment that it is in its own self-interest to support Mexico's economic and financial program by some new lending.  The key is, of course, the prospects for the Mexican  economy, 5iven the reform measures undertaken.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -32Question: We are seeing some signals that perhaps the U.S. economic recovery is not as robust or sustainable as we had predicted. What steps is the Fed prepared to take or endorse to encourage, for instance, business growth? How real a threat is inflation if adjustment "policies" are adopted? Answer: The economic expansion has been somewhat weaker this year than many had hoped or expected.  It is against this  backdrop, including favorable price performance, that the Federal Reserve has pursued an accommodative nonetary policy. Although we believe that many ingredients of stronger business expansion are in place, there are obvious strains Prld uncertainties in the economy today, and we shall have to continue monitoring developments closely to judge what further steps, if any, are needed.  I believe that your question  correctly calls attention to the fact that, while price pressures seem on the whole well-contained at present, we must be careful to avoid reinvigorating inflation down the road through monetary excesses.  This underscores the importance of bringing  a comprehensive approach to the achievement of our economic goals, including sound U.S. fiscal policy and policies abroad that promote satisfactory growth in the other industrialized economies.  -33Chairman Volcker subsequently submitted the following in response to written questions from Senator Dixon in connection with the hearing held before the Senate Banking Committee on July 23, 1986. Question: Mr. Chairman, the conference on the tax reform bill is now underway. Earlier this year, you expressed your concern over efforts to tax bank loan loss reserves. Do you continue to be opposed to taxing loan loss reserves? Bank failures are at a record rate. The rate of return for banks is falling, and banks are under increasing pressure to raise more capital. Can you tell the Committee what the impact on the banking system would be if loan loss reserves were taxed? Answer:  As I responded to the question posed by  Senator Mattingly, the taxation of loan loss reserves could have a negative effect on the safety and soundness of the country's banking system.  Banks might be discouraged from maintaining  loan loss reserves as large as they otherwise might have done under current tax law.  The elimination or restriction of the  deduction of loan loss reserve provisions could increase the costs banks incur in establishing and maintaining such reserves. In particular, the ability of banks to retain and attract capi-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  tal would be affected adversely by the five-year recapture provision, which would subject 1985 reserve balances to taxation. I have stated to the Senate Banking Committee that, as a regulator, I am in favor of measures that will encourage banks to build up and maintain adequate loan loss reserves because I believe this will promote their safety and soundness.  The in-  creased taxation of loan loss reserves is inconsistent with this objective.  As you know, however, the conference report does  change existing provisions in this respect.  z  -34Chairman Volcker subsequently submitted the following in response to written questions from Senator Proxmire in connection with the hearing held before the Senate Banking Committee on July 23, 1986. Question: In July of 1984 when you testified before this Committee you said that high interest rates in the United States, which were partly the result of the big federal budget deficit, had raised the value of the U.S. dollar, thereby hurting our exporters and boosting foreign imports to this country. I agree with you. In the last year the dollar has fallen dramatically against the yen, Deutschmark, franc and pound. Yet the U.S. still has massive budget deficits. Were we wrong in 1984 in attributing the over-valued dollar to our irresponsible budget deficits? Are such budget deficits still a major cause of our still growing trade deficit and if so how? Answer:  I do not think we were wrong to attribute much  of the rise in the exchange value of the dollar to our massive federal budget deficits.  These deficits contributed signifi-  cantly to the strong growth of demand in this country and to a level of domestic interest rates higher than they would otherwise have been.  Essentially, these interest rates attracted  savings from abroad that helped to finance our budget deficits, but in the process the exchange rate for the dollar was bid up. The high value of the dollar and the strong growth of domestic demand resulted in the high trade and current account deficits we have been experiencing. While our budget deficit persists at a high level, the economic environment has changed.  Inflation rates have come  down markedly from rates earlier in the 1980s, real economic growth has slowed, and interest rates have declined substan-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  tially.  The exchange rate for the dollar, too, has declined, by  about 30 percent from its peak in early 1985 (as measured on a multilateral-trade weighted basis).  -35The decline in the dollar's value will tend to reduce our trade deficit, but the lags in that process are considerable and somewhat uncertain.  The trade deficit will come down faster  and further if growth ot domestic demand in other major countries were to strengthen.  I might note, however, that as long  as our budget deficits persist, the inflow of capital from abroad that is the counterpart to our current account deficits is to some extent welcome.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -36Question: On pages 14 and 15 of your prepared statement you discuss the international debt problem. On June 25 our Committee had a hearing on that problem and it became clear that there are major differences of opinion between the more exposed and the less exposed banks about how each shoulc: deal with their exposure in various LDC countries. A witness from one large bank noted, for example, that the less exposed banks might well prefer to write the debt off while those with more exposure could not afford to do that. A witness for a smaller bank noted that "many smaller banks might prefer to drastically lower interest rates rather than contribute new funds." Is there such a split between the larger and smaller banks on how to deal with the debt problem? Answer:  I believe there is an underlying community of  views on the kinds of responses to international lending problems that are in the long-term interests of lending banks and major internatioral borrowers.  The lending institutions as well  as borrowing countries have a large stake in returning to an environment in which the creditworthiness of borrowers can be maintained. Given the large number of banks holding claims on major international borrowers facing debt-servicing problems, however, it is not surprising that there exist specific differences of viSws among creditors on how to deal with debt problems.  These  differences of views cut across the size of banks and reflect their exposure to particular debtor countries ard also reflect the financial condition and management position of the banks. Despite such differences, however, it is noteworthy that over the past four years the commercial banks as a group have found it in their overall interest to formulate financial arrangements that provide net new money and restructuring of outstanding debt for a wide range 5t borrowing countries.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -37Moreover, widespread expressions of support for the Initiative announced by Secretary Baker last fall have come from banks of all sizes and countries.  There seems to be general  agreement on the need for Secretary Baker's plan for dealing with debt problems through a program for sustained growth involving new loans to borrowing countries over a three-year period from multilateral institutions and commercial banks.  The  Baker initiative continues to offer the best approach for improving the ability of debtor countries to meet their international obligations while at the same time satisfying their domestic needs for economic growth.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -38-  Question:  Has the Fed discarded M-1?  Your statement and report indicate that M-1 will be given less attention than the other monetary aggregates. Indeed, some observers have concluded the Fed has decided to virtually ignore M-1 as a relevant monetary target. For example, in the first week of July, M-1 increased by a whopping .$1.4 billion or more than 1 percent. This would produce an annual growth rate of over 50 percent it continued. Would it be correct to conclude that the Fed is no longer paying any attention to M-1 as a monetary target? Answer:  The Federal Reserve is placing less emphasis  on M1 as a guide for monetary policy, but the growth of this aggregate continues to be evaluated in the conduct of policy. The episodes of surprisingly rapid growth of M1 relative to nominal GNP--that is, unusual declines in velocity--that have occurred in the 1980s have raised the degree of uncertainty surrounding the interpretation of this monetary aggregate's behavior.  As a result, the behavior of M1 is being judged in  light of movements in the other monetary aggregates, and against the background of developments in the economy and financial markets more generally. Concerning the M1 increase in the week of July 7, the Federal Reserve statistical release in which such data are published has indicated for some time that "special caution should be taken in interpreting week-to-week changes in money supply data, which are highly volatile and subject to revision."   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  In the subsequent week, for example, M1 fell nearly $1 billion, highlighting the range of week-to-week changes and the pitfalls of extrapolating weekly M1 growth.  -39Question: There are times when I think the concept of velocity is a magic wand that covers up a multitude of sins by the Federal Reserve. You refer to changes in velocity as reflecting changes in the public's demand for money balances. But it also reflects changes in the willingness of the Federal Reserve to supply more money balances. Indeed, a supply-side focus on velocity leads to the conclusion that the Federal Reserve is pursuing a •dangerous •and highly inflationary policy. Afterthe change in velocity is nothing more than the difference between the growth rate of the money supply and nominal GNP. If the Fed decides to supply a lot of new dollars in excess of nominal GNP growth, we will see a sharp decline in velocity as happened over the last 12 months. How can we be sure the decline in velocity really stems from the public's demand for more dollar balances and not to the Fed's excessive supply? Answer:  This is really a rather central question in  terms ot the conduct of monetary policy.  Clearly, the implica-  tions for the economy are quite different if we are, in essence, causing the supply of money to expand faster than the demand rather than meeting a rapidly expanding demand for money associated with a falling return on money balances in an environment of moderate growth and diminishing inflation.  Obviously, as  discussion of the events and our economic forecasts indicate, we believe that what has been going on is more the latter than the former.  In arriving at that judgment, we look at many bits of  information, including the patterns of money behavior.  But  prudence dictates that such a judgment must be regarded as only tentative, and we shall remain vant as addonal evidence accumulates about the effects of our actions.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -40-  Question: In your statement, you mentioned that the real economic growth rates of West Germany and other major countries have lagged behind U.S. growth rates, contributing to our massive trade deficit. And yet, no amount of persuasion by us seems to have been able to get these countries to pursue more stimulative economic policies. If that is the case, it raises serious questions about the ability of the major countries to manage exchange rates. As you know, a reasonable amount of economic policy coordination is an essential precondition for reducing exchange rate fluctuations. What is being done in the Federal Reserve and the Treasury to strengthen the machinery for economic coordination among the major trading nations? Answer:  I believe the machinery for economic coordina-  tion among the major trading nations is not lacking.  U.S.  officials, both from the Treasury and the Federal Reserve, have had for decades ongoing contact with their counterparts in the major industrial countries, both in bilateral meetings and in multilateral fora where ways to achieve disciplined and complementary domestic policies among the leading nations are discussed.  While at times the direct results of these discus-  sions are not apparent, over time the awareness of the effect of the economic performance and economic policies of each country on others is taken into account in the formulation of policies. What seems to be lacking now is a common judgment about what policy actions are necessary abroad or, indeed, whether any policy actions are necessary to yield a satisfactory growth of domestic demand.  No policymaker can be expected to pursue poli-  cies that he or she does not deem to be in the country's own   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  best interest.  The further question, for the United States and  others, is whether those judgments properly take into account  -41the indirect influences on the world economic environment, which in turn influence the sustainability ot domestic policies. is in this area that methods for achieving an international consensus are important.  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  It  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  PAUL A. VOLCKER  August 19, 1986  CHAIRMAN  The Honorable Mack Mattingly United States Senate Uashington, D.C. 20510 Dear Senator Mattingly: In response to a request from Chairman Garn, I am pleased to enclose my responses to the written questions you submitted in connection with the hearing held on July 23 on monetary policy. I have also sent a copy of these responses to Chairman Garn for inclusion in the record of the hearing. I hope this information is useful. if I can be of further assistance. Sincerely,  sgatO Enclosures  CC:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi (2)  Please let me know  Chairman Volcker subsequently submitted the following in response to written questions from Senator Mattingly in connection with the hearing held before the Senate Banking Committee on July 23, 19896. Question: Assuming there is not sufficient time remaining in the current session to pass comprehensive banking legislation, would the Fed prefer a moratorium on the approval of new "nonbank bank" charters as opposed to not addressing the issue in any fashion before adjournment? Answer:  The Board on numerous occasions has urged  Congress to adopt comprehensive legislation to deal with the serious and urgent problems facing the depository institutions industry, including the provision of new products and services and the closing of loopholes that undermine the fundamental structure and basic safety and soundness of the banking system. The Board believes that these issues have been the subject of extensive public hearings, testimony, and debate, and that a   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  sufficient record exists for Congressional action this year. However, with the understanding that a short moratorium on new nonbank banks (and with some limitations on the activities of existing nonbank banks) cannot be an effective substitute for more comprehensive action, such a moratorium would be clearly useful as a prelude to the needed larger effort.  I would hope,  of course, that a more comprehensive bill will be enacted at the earliest possible time.  -2Question: At a time when many financial institutions are in severe financial straits, would the safety and soundness of the country's financial system be threatened or adversely affected by Congressional elimination or restriction of the deduction for loan loss reserves? Answer:  The taxation of loan loss reserves could have  a negative effect on the safety and soundness of the country's banking system.  Banks might be discouraged from maintaining  loan loss reserves as large as they otherwise might have done under current tax law.  The elimination or restriction of the  deduction of loan loss reserve provisions could increase the costs banks incur in establishing and maintaining such reserves In particular, the ability of banks to retain and attract capital would be affected adversely by the five-year recapture provision, which would subject 1985 reserve balances to taxation. I have stated to the Senate Banking Committee that, as a regulator, I am in favor of measures that will encourage banks to build up and maintain adequate loan loss reserves because I believe this will promote their safety and soundness.  The in-  creased taxation of loan loss reserves is inconsistent with this objective.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  As you know, however, the conference report does  change existing provisions in this respect.  -3Iuestion: Some financial publications have speculated that the Federal Reserve has tentatively agreed to approve the controversial Citicorp application interpreting the phrase "principally engaged" in the Glass-Steagall Act. Moreover, they allege the Fed will delay a formal decision until Congress adjourns to avoid incurring the wrath of the legislative branch. What is the status of the Citicorp application? Will you provide the Committee with the minutes of any discussions on the issue? How many other bank holding companies have submitted similar applications? Answer:  The Board has discussed Citicorp's current  application to underwrite and deal in certain securities on the basis that it would not be "engaged principally" in that activity under Section 20 of the Glass-Steagall Act on three occasions:  May 13 and December 4, 1985, and March 28, 1986.  The Board has not, however, reached a decision on the application.  While the application has not yet been rescheduled  for Board consideration, the Board has also made no decision to delay reaching •a •determination  • ress adjourns. after •until Cong  In addition to Citicorp's application, J.P. Morgan & Co., Incorporated, and Bankers Trust New York Corporation have filS5 applications to underwrite and deal in certain securities on the basis that they would not be "engaged principally" in that activity within the meaning of Section 20 of the GlassSteagall Act. • ard With reg  •to the minutes •of those meetings, the  Board's practice has been not to release minutes prior to final Board action on an application, because such release could prejudice the Board's decisionmaking process on the application.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -4Question: Last November I introduced legislation, along with Sen. Bill Bradley, to establish U.S. policy on exchange rates and developing country debt. This legislation was also incorporated into the bipartisan Trade Enhancement Act, S. 1860. Sen. Bradley, in the meantime, has criticized the ineffectiveness of the so-called "Baker Plan" on Third World debt and has proposed a plan to cut interest rates as well as forgiveness of a certain percentage of the debt. Mr. Volcker, you have in the past rejected proposals that call for cancellation of Third World debt; would you please, for the record, comment on Sen. Bradley's proposal? Answer:  lending, although it does provide substantial amounts (some $3 billion per year) in increased multilateral development bank lending.  Senator Bradley is opposed to solutions that involve  new bank debts.  Instead, his plan calls for interest rate  relief (3 percentage points for three years) and principal forgiveness (3 percent of outstandings for three years) from both commercial bank and ofticial creditors.  These figures, however,  are targets to be negotiated each year and are to be conditional on the debtors making certain structural adjustments. The "Baker Plan" involves a significant amount of new bank lending and in that respect appears to be the opposite of what Senator Bradley wants.  However, it should be pointed out  that both the Baker Plan and the Bradley Plan have much in common, including the objectives of structural adjustment and growth in the debtor countries and more support from the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  The "Bradley Plan" entails no new bank  multilateral development banks. Taking the recently announced Mexican program as an example of the Baker Plan approach, banks are expected to provide some $6 billion in net new lending to the public sector over a two-year period.  In contrast, the interest rate relief  granted to Mexico under the Bradley Plan, that is, external  -5interest payments that would not have to be made, would amount only to $2 billion per year, assuming all Mexican public sector and publicly gua ranteed bank debts were affected.  Fro m the  S oint of view of balance-of-payments financing, the forgiveness of principal involved in the Bradley Plan is irrelevant--other than the extra boost to interest relief that it contributes, which is included in the above figure--since no amortization of bank debts is included in the Mexican program. Quite aside from the amount of external finance provided by the two approaches, there is the fundamental question of how Senator Bradley's proposal could be implemented. How would consensus be reached at the "summit" among the representatives of the banks, the official creditors, and the World I.  What mechanism could be used to induce or force the banks  to provide the concessions?  What would be the implications for  the debtors' future access to credit markets?  How would the  summit effectively discriminate among the deserving and less • borrowers? deserving In my opinion, Senator Bradley's plan does not appear to be a practical or even desirable approach.  It provides less  immediate help on balance-of-payments financing than dces the approach outlined in the Baker Plan.  Moreover, the help that  the Bradley Plan does provide--assuming that somehow the parties involved could agree on how to implement it for specific cS untries--would come in a way that affects adversely banks' financial health and probably w5uld hamper the debtor countries'   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -6access to commercial bank credits in the future.  Restricted  access to bank finance--including trade credits and interbank lines--would be a high price for the middle-income developing countries covered by the Baker Plan to pay for the amount of debt relief envisioned by Senator Bradley.  Finally, I believe  it would be very difficult, in the framework proposed, to in fact discriminate among borrowing countries as to the amount and nature of interest rate relief, raising a question about the efficacy of the approach in achieving its reform objectives.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  7 Question: Yesterday's agreement between Mexico and the International Monetary Fund is being hailed as the first successful application of the "Baker Initiative". You were, I believe, instrumental in crafting the loan package. There are estimates that Mexico will now need as much as $6 billion in new commercial bank loans over the next two years for the package to succeed. Commercial banking interests have been, and I believe rightly so, reluctant to expand in any way their exposure among the developing debtors. With regard to Mexico specifically, commercial banks are owed over $75 billion. Can the banks reasonably expect to recover the majority of this debt and, if not, what incentive is there for them to follow the lead of the IMF and the Treasury Department and make new loans? Wouldn't it make better sense for commercial banks to resign themselves to writing off a certain portion of this debt? It seems like we are left to make the decision which is the lesser of two evils. Answer:  There are circumstances under which some  additional new lending can preserve the value of existing loans. This seems particularly to be the case for the new money that Mexico's commercial bank creditors are expected to lend to Mexico in the next two years as part of the recently announced package.  The new loans will be used to support a comprehensive  program of policy measures aimed at achieving macroeconomic stability, structural adjustment, and sustainable economic growth in Mexico.  Assuming they are successful, these measures  will protect the value (and ultimate collectibility) of Mexico's existing bank debts.  Thus, it seems to me reasonable that a  bank reach the judgment that it is in its own self-interest to support Mexico's economic and financial program by some new lending.  The key is, of course, the prospects for the Mexican  economy, given the reform measures undertaken.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -8 Question: We are seeing some signals that perhaps the U.S. economic recovery is not as robust or sustainable as we had predicted. What steps is the Fed prepared to take or endorse to encourage, for instance, business growth? How real a threat is inflation if adjustment "policies" are adopted? Answer: The economic expansion has been somewhat weaker this year than many had hoped or expected.  It is against this  backdrop, including favorable price performance, that the Federal Reserve has pursued an accommodative monetary policy. Although we believe that many ingredients of stronger business expansion are in place, there are obvious strains and uncertainties in the economy today, and we shall have to continue monitoring developments closely to judge what further steps, if any, are needed.  I believe that your question  correctly calls attention to the fact that, while price pressures seem on the whole well-contained at present, we must be careful to avoid reinvigorating inflation down the road through monetary excesses.  This underscores the importance of bringing  a comprehensive approach to the achievement of our economic goals, including sound U.S. fiscal policy and policies abroad that promote satisfactory growth in the other industrialized economies.   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  August 19, 1986  CHAIRMAN  The Honorable William Proxmire United States Senate 20510 Washington, D.C. Dear Senator Proxmire: In response to a request from Chairnan Garn, I am pleased to enclose my responses to the written questions you submitted in connection with the hearing held on July 23 on monetary policy. I have also sent a copy of these responses to Chairman Garn for inclusion in the record of the hearing. I hope this information is useful. if I can be of further assistance. Sincerely,  Enclosures  cc:  Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Please let me know  Chairman Volcker subsequently submitted the following in response to written questions from Senator Proxmire in connection with the hearing held before the Senate Banking Committee on July 23, 1986. Question: In July of 1984 when you testified before this Committee you said that high interest rates in the United States, which were partly the result of the big federal budget deficit, had raised the value of the U.S. dollar, thereby hurting our exporters and boosting foreign imports to this country. I agree with you. In the last year the dollar has fallen dramatically against the yen, Deutschmark, franc and pound. Yet the U.S. still has massive budget deficits. Were we wrong in 1984 in attributing the over-valued dollar to our irresponsible budget deficits? Are such budget deficits still a major cause of our still growing trade deficit and if so how? Answer:  I do not think we were wrong to attribute much  of the rise in the exchange value of the dollar to our massive federal budget deficits.  These deficits contributed signifi-  cantly to the strong growth of demand in this country and to a level of domestic interest rates higher than they would otherwise have been.  Essentially, these interest rates attracted  savings from abroad that helped to finance our budget deficits, but in the process the exchange rate for the dollar was bid up. The high value of the dollar and the strong growth of domestic demand resulted in the high trade and current account deficits we have been experiencing. While our budget deficit persists at a high level, the economic environment has changed.  Inflation rates have come  down markedly from rates earlier in the 1980s, real economic growth has slowed, and interest rates have declined substantially.  The exchange rate for the dollar, too, has declined, by  about 30 percent from its peak in early 1985 (as measured on a multilateral-trade weighted basis).   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2The decline in the dollar's value will tend to reduce our trade deficit, but the lags in that process are considerable and somewhat uncertain.  The trade deficit will come down faster  and further if growth of domestic demand in other major countries were to strengthen.  I might note, however, that as long  as our budget deficits persist, the inflow of capital from abroad that is the counterpart to our current account deficits is to some extent welcome.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -3Question: On pages 14 and 15 of your prepared statement you discuss the international debt problem. On June 25 our Committee had a hearing on that problem and it became clear that there are major differences of opinion between the more exposed and the less exposed banks about how each should deal with their exposure in various LDC countries. A witness from one large bank noted, for example, that the less exposed banks might well prefer to write the debt off while those with more exposure could not afford to do that. A witness for a smaller bank noted that "many smaller banks might prefer to drastically lower interest rates rather than contribute new funds." Is there such a split between the larger and smaller banks on how to deal with the debt problem? Answer:  I believe there is an underlying community of  views on the kinds of responses to international lending problems that are in the long-term interests of lending banks and major international borrowers.  The lending institutions as well  as borrowing countries have a large stake in returning to an environment in which the creditworthiness of borrowers can be maintained. Given the large number of banks holding claims on major international borrowers facing debt-servicing problems, however, it is not surprising that there exist specific differences of views among creditors on how to deal with debt problems.  These  differences of views cut across the size of banks and reflect their exposure to particular debtor countries and also reflect the financial condition and management position of the banks. Despite such differences, however, it is noteworthy that over the past four years the commercial banks as a group have found it in their overall interest to formulate financial arrangements that provide net new money and restructuring of outstanding debt for a wide range of borrowing countries.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -4Moreover, widespread expressions of support for the come from Initiative announced by Secretary Baker last fall have banks of all sizes and countries.  There seems to be general  dealing agreement on the need for Secretary Baker's plan for with debt problems through a program for sustained growth e-year involving new loans to borrowing countries over a thre period from multilateral institutions and commercial banks.  The  imBaker Initiative continues to offer the best approach for rproving the ability of debtor countries to meet their inte national obligations while at the same time satisfying their domestic needs for economic growth.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  5 Question:  Has the Fed discarded M-1?  Your statement and report indicate that M-1 will be given less attention than the other monetary aggregates. Indeed, some observers have concluded the Fed has decided to virtually ignore M-1 as a relevant monetary target. For example, in the first week of July, M-1 increased by a whopping $7.4 billion or more than 1 percent. This would produce an annual growth rate of over 50 percent if continued. Would it be correct to conclude that the Fed is no longer paying any attention to M-1 as a monetary target? Answer:  The Federal Reserve is placing less emphasis  on M1 as a guide for monetary policy, but the growth of this aggregate continues to be evaluated in the conduct of policy. The episodes of surprisingly rapid growth of M1 relative to nominal GNP--that is, unusual declines in velocity--that have occurred in the 1980s have raised the degree of uncertainty surrounding the interpretation of this monetary aggregate's behavior.  As a result, the behavior of M1 is being judged in  light of movements in the other monetary aggregates, and against the background of developments in the economy and financial markets more generally. Concerning the M1 increase in the week of July 7, the Federal Reserve statistical release in which such data are published has indicated for some time that "special caution should be taken in interpreting week-to-week changes in money supply data, which are highly volatile and subject to revision." In the subsequent week, for example, M1 fell nearly $1 billion, highlighting the range of week-to-week changes and the pitfalls of extrapolating weekly M1 growth.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -6Question: There are times when I think the concept cf velocity is a magic wand that covers up a multitude of sins by the Federal Reserve. You refer to changes in velocity as reflecting changes in the public's demand for money balances. But it also reflects changes in the willingness of the Federal Reserve to supply more money balances. Indeed, a supply-side focus on velocity leads to the conclusion that the Federal Reserve is pursuing a dangerous and highly inflationary policy. After all, the change in velocity is nothing more than the difference between the growth rate of the money supply and nominal GNP. If the Fed decides to supply a lot of new dollars in excess of nominal GNP growth, we will see a sharp decline in velocity as happened over the last 12 months. How can we be sure the decline in velocity really stems from the public's demand for more dollar balances and not to the Fed's excessive supply? Answer:  This is really a rather central question in  terms of the conduct of monetary policy.  Clearly, the implica-  tions for the economy are quite different if we are, in essence, causing the supply of money to expand faster than the demand rather than meeting a rapidly expanding demand for money associated with a falling return on money balances in an environment of moderate growth and diminishing inflation.  Obviously, as  discussion of the events and our economic forecasts indicate, we believe that what has been going on is more the latter than the former.  In arriving at that judgment, we look at many bits of  information, including the patterns of money behavior.  But  prudence dictates that such a judgment must be regarded as only tentative, and we shall remain vigilant as additional evidence accumulates about the effects of our actions.  -7-Question: In your statement, you mentioned that the real economic growth rates of West Germany and other major countries have lagged behind U.S. growth rates, contributing to our massive trade deficit. And yet, no amount of persuasion by us seems to have been able to get these countries to pursue more stimulative economic policies. If that is the case, it raises serious questions about the ability of the major countries to manage exchange rates. As you know, a reasonable amount of economic policy coordination is an essential precondition for reducing exchange rate fluctuations. What is being done in the Federal Reserve and the Treasury to strengthen the machinery for economic coordination among the major trading nations? Answer:  I believe the machinery for economic coordina-  tion among the major trading nations is not lacking.  U.S.  officials, both from the Treasury and the Federal Reserve, have had for decades ongoing contact with their counterparts in the major industrial countries, both in bilateral meetings and in multilateral fora where ways to achieve disciplined and complementary domestic policies among the leading nations are discussed.  While at times the direct results of these discus-  sions are not apparent, over time the awareness of the effect of the economic performance and economic policies of each country on others is taken into account in the formulation of policies. What seems to be lacking now is a common judgment about what policy actions are necessary abroad or, indeed, whether any policy actions are necessary to yield a satisfactory growth of domestic demand.  No policymaker can be expected to pursue poli-  cies that he or she does not deem to be in the country's own best interest.  The further question, for the United States and  others, is whether those judgments properly take into account   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  8 the indirect influences on the world economic environment, which in turn influence the sustainability of domestic policies. is in this area that methods for achieving an international consensus are important.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  It  ••0 • •C  ..77p4a,  GOV• • 0• .•  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  !:...1100f1H  4-  Arfif .  .  RAL RE ••• •  PAUL A. VOLCKER  August 19, 1986  CHAIRMAN  The Honorable Donald W. Riegle, Jr. United States Senate 20510 Washington, D.C. Dear Senator Riegle: In response to a request from Chairman Garn, I am pleased to enclose my responses to the written questions you submitted in connection with the hearing held on July 23 on monetary policy. I have also sent a copy of these responses to Chairman Garn for inclusion in the record of the hearing. I hope this information is useful. if I can be of further assistance. Sincerely,  Enclosures  cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi (2) ,/".-  Please let me know  Chairman Volcker subsequently submitted the following in response to written questions from Senator Riegle in connection with the hearing before the Senate Banking Committee on July 23, 1986. Question: It is widely considered that a western economic growth rate of at least 3 percent is necessary to prevent an aggravation of the Third World's debt problems and to head off a further rise in western unemployment. Economists at the Organization for Economic Cooperation and Development in Paris now doubt whether their bellwether prediction that the world will just reach the magic 3 percent threshold this year can now be realized. Certainly the economic picture in Japan, Germany and the United States is not encouraging at the moment. What happens to the Third World's debt problems--and how much is that problem aggravated--if the western economic growth rate does not reach at least 3 percent? J..  How much of a rise can we expect in western world unemployment? Answer:  The debtor countries need a global economic  environment that will provide them the assurance that they could earn enough export revenue with which to meet import requirements and to service their debt obligations.  I do not think 3  percent is a magical figure that must necessarily be met every year to provide such an environment, but it is entirely true that sustained and reasonably vigorous economic expansion in the industrial countries over time is a key ingredient in dealing with the debt problem.  The expansion in the major industrial  countries in the first half of the year has been disappointing, and has made it more difficult for developing countries to earn foreign exchange.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  However, most debtor countries, with the  notable exception of the large oil exporters, have continued to make progress in dealing with their debt problems.  That effort  -2will need to be supported by more adequate growth in the industrialized world. Because of the relatively slow growth in foreign industrial countries, they have made only limited progress in reducing the high rates of unemployment that have been recorded in recent years, and in some cases unemployment rates have actually increased slightly.  Without an acceleration of growth  in these countries, the prospects for a significant reduction in unemployment rates is not favorable.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -3Question: What happens to the Lnited States economy if we do not get ITe- faster growth in key toreign economies that you say is desirable? Answer:  Sooner or later the U.S. external position  will have to improve.  Heavily indebted developing countries  also need to avoid large external deficits.  The other side of  the coin is that very large surpluses of some countries cannot reasonably continue to grow and thus provide support to their economic expansion.  Consequently, adjustments in these external  positions must be made. It is preferable that these adjustments take place by increasing our exports and those of the developing countries in the context of a healthy and growing world economy. The alternative might well mean that external imbalances will be reduced in an environment of a relatively weak U.S. and world economy, a self-defeating process.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -4Question: In your statement you indicate that "there is some concern over the transitional effects of tax reform legislation." What do you see as some of the short- and long-term effects of the tax reform legislation we are currently considering and how is our economy likely to be affected in the short and longer term by passage of this legislation? Answer:  As comprehensive a tax restructuring as is  currently being considered obviously will significantly alter the context in which many economic decisions are made.  I don't  think anyone can predict with precision all of the ramifications of such action, certainly I don't feel I have the necessary expertise.  In the comment about "transitional effects" I had in  mind a number of phenomena, including the influence on business decisions of the current uncertainty abcut the structure and timing of the tax changes, and the possibilities that spending may be shifted forward or delayed as a consequence of the phasing in of the reform measures, among other things.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  5Question: There has been much concern expressed about the impact of the Senate tax reform bill in existing real estate partnerships, many of which have issued mortgages held by commercial banks and savings and loan associations. Has the Federal Reserve Board conducted any studies or otherwise considered how banks and savings and loan associations could be affected by the retroactive application of the provisions of the Senate tax bill, including the so-called passive rule, particularly as they would apply to those partnerships with staged payments of the equity? Answer: units  We are aware of the possibility that many  in the economy will be affected--some positively, some  negatively--by changes in the tax laws that they did not anticipate when they made investment and financing decisions.  It is  unlikely that any set of transition rules is going to be able to prevent all such effects.  We do not have any specific "studies"  of the partnership rules to which you refer.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -6Question: A great deal of importance for your projections regarding future inflation and consumer spending seem to be based on low energy prices. Haven't we seen a bottoming out of energy prices and aren't they far more likely to go up than down--and if they do go up, what are the likely implications for the economy? Answer:  I can't tell you what will be happening to the  price of oil in the months ahead, although I would agree that the low prices reached a few weeks ago are not likely to be sustainable over a long period of time, given the implications for both consumption and exploration.  If the price of crude  were to move back up moderately--as it has in recent weeks-retail gasoline and fuel oil prices would presumably come under upward pressure but the prices of natural gas and electricity-competing energy sources--do not yet fully reflect the drop in oil prices. Obviously, if there were to be a major retracing of the oil price decline, it would--as you suggest--sharply alter the inflation outlook in an unfavorable directicn.  The effects on  spending and output are a more complex matter, as the experience of the first half of 1986 amply demonstrated, and much would depend in the short run on the degree of certainty people had about the stability of any energy price level.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  7  Question: How concerned are you that "the personal saving rate has remained at an historically low level" and what will be the likely effects of such low savings rates during the next recession, or downturn in the business cycle? Answer:  I am concerned about the low personal saving  rate from a number of standpoints, including particularly the • implications for spending decline.  •should income grow more slowly or even  The low saving rate has been mirrored in an enormous  expansion of household indebtedness, which I believe is a point of potential vulnerability for the economy genersally.  One can  question whether, in such circumstances, consumer spending would show the kind of buoyancy that it has in past recessionary episodes.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  8Question: Do you expect activity in the housing market and the strength of consumer spending to continue and possibly accelerate in the second half of 1986? Answer:  I think there are good reasons to expect con-  tinued strength in these areas of the economy in the near term. Real income growth has been strong thus far this year, spending attitudes are very favorable, judging by the survey evidence, and interest rates have declined substantially.  However,  healthy growth in the economy over time will require a firming in business investment and an improvement in our trade position.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  9 Question: In the past you and other bank regulators have expressed considerable concern about the adverse impact of low energy prices on banks in the Texas, Oklahoma, Louisiana and Southwest region of the country. *  What can you tell us about the overall condition of the banks in this area of the country since you last testified before us on the subject on May 13th? Answer:  Banks in the Southwest are generally con-  tinuing to operate under conditions of considerable stress.  The  problems at these banks stem primarily from the depressed condition of the energy industry.  Given the sharp further decline in  energy prices that has occurred this year, asset quality problems in energy loan portfolios have intensified.  Moreover, in  all too many cases, problems have spread increasingly to real estate and other loans as well, reflecting in part the adverse impact of the energy price decline on the entire economic infrastructure of the Southwest. Such problems have prompted many banks in the region to add heavily to their provision for loan losses. they have suffered poor earnings.  In so doing,  From the last quarter of 1985  through the second quarter of 1986, most of the largest institutions in the region, and many of the smaller ones, have reported at least one quarterly loss.  In the second quarter alone, three  of the largest banking organizations in the Southwest posted losses ranging from $29 million to $281 million. Economic problems in the Southwest are also manifested in the number of bank failures.  Through July 25, 1986, twenty-  three banks had failed this year in Texas, Oklahoma, and Louisiana.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  These accounted for some 29 percent of total bank  -10failures and 56 percent of the assets of all failed banks throughout the nation.  The recent failure (July 14, 1986) of  First National Bank and Trust Co., Oklahoma City, Oklahoma, a $1.6 billion subsidiary of First Oklahoma Bancorp, was the largest failure this year and the second largest in U.S. history. The road ahead poses serious challenges for hanks in the Southwest.  The organizations have been facing up to these  challenges, by building loan loss reserves and by taking other measures, but adjustment to the sharply changed economic circumstances will continue to be quite difficult.  As you know, a  strong federal support apparatus is available to cushion and contain these strains, to protect depositors, and to avoid secondary repercussions.  At the same time, I hope the Congress  acts this year to deal with emergency interstate bank acquisitions to help reinforce the tools available to us.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -11Question: Venezuela recently approved a law that would convert into government issued bonds about $7 billion owed to foreign creditors by private Venezuelan borrowers. The bonds would bear a fixed annual interest rate of 5 percent, well below the banks' cost of funds. Venezuela in the past has been one of the more reliable debtor countries and I am wondering if this is the beginning of a pattern on the part of the debtor countries to pay off less of their debt? Answer:  The recent action by the Venezuelan Congress  converting debt into bonds is currently being reexamined in Venezuela.  I am very hopeful that Venezuelan authorities will  find ways to redesign this legislation to meet the Venezuelan objective of spreading out the debt-servicing obligations of private Venezuelan borrowers while at the same time respecting the rights of Venezuelan creditors in a responsible manner.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -12-Question: What, if anything, do you believe should be the obligation ot the Japanese, in light of their huge trade surplus with the United States, and their limited spending for defense, to increase their capital contributions to the lesser developed indebted countries? Answer:  By definition, a country that runs a current  account surplus also runs as a counterpart a capital account deficit.  Thus, the huge current account surpluses that Japan  has been recording are matched by equally large net capital outflows, to both industrial and developing countries. Private Japanese investors, like investors everywhere, base their investment decisions primarily on expectations of yields and other financial and safety considerations.  The  amount of Japanese capital flows to the developing debtor countries on the whole is determined by similar considerations. However, Japanese banks have recognized their responsibility to help support appropriate adjustment efforts in financially strained developing countries, and have participated in the various financial packages that have been arranged for individual debtor countries.  Moreover, the Japanese Government,  including entities such as Japan's Export-Import Bank, have negotiated special lending programs to particular borrowing countries.  Those and further efforts by a country with an  enormous current account surplus appear entirely appropriate in reducing the disturbing effects of that surplus on the world economy and helping to deal with particular points of strain.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  A  -13k to Question: In the past monetarists have been quic economy and point out the relationship between growth of the no longer growth of the money supply, but that relationship seems to be there. now How do you account for the confused readings we are tary mone getting and what are the implications for future one hand policy of the economy's listless performance on the r? and the money supply's explosive growth on the othe me In terms of setting monetary policy, it seems to the most has that spotting and monitoring the money that matters become increasingly difficult. ? How would you define the money that matters the most M-1? M-2? M-3? Or some new variation? Answer:  Is it  A major factor boosting the growth of M1  interest relative to income has been sizable declines in market rest forerates, which make it less costly--in terms of inte gone--for the public to hold such liquid assets.  The sen-  nt years sitivity of M1 to interest rate movements in rece tion and the probably has been heightened by deposit deregula spread of corporate cash management techniques.  Consequently,  es, and inthe relationship of M1 to economic activity, pric , and a firm terest rates remains quite uncertain at this time of this conclusion regarding the properties of the behavior setting aggregate in an evolving institutional and economic probably will require considerably more experience. The broader monetary aggregates, which encompass many have beof the shifts between liquid and less liquid assets,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  although they haved more in line with their historical patterns, nal GNP. are currently also growing somewhat faster than nomi es, and Both M2 and M3 are within their current target rang and 1987 is maintenance of growth within their ranges for 1986  -14believed to be consistent with a pickup in the pace of economic activity from that of the first half of this year. The behavior of all the traditional measures of money, though, at times has been substantially affected by financial innovations and deposit deregulation.  And, while research con-  tinues on alternative measures of the money stock, even with refinements, they too probably will be subject to many of the same influences.  In this environment, the implementation of  monetary policy has involved continuing appraisal of the relationships among all the various measures of money and credit, their velocity trends, indicators of economic activity and prices, as well as conditions in domestic credit and foreign exchange markets.  So, in a sense, what "matters the most" is  not a single measure of money, but rather the monetary aggregates collectively viewed in a broader context.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -15Question: Recently one of your fellow Board members ation (Rice) gave a well-publicized speech entitled "Is Infl warned that Licked?". He concluded that the answer was "No" and noted continued attention should be paid to this issue. He n among other things that apart from energy, actual inflatio ago, rates still are in a range that, only a decade and a half ram were viewed as being so intolerable that they led to a prog of extensive wage and price controls. be a What are your views on whether inflation is likely to problem within the next 1 to 2 years? Answer:  It clearly is the case that our recent, highly  aordinary favorable price performance has owed much to the extr drop in oil prices.  As those prices level off or rebound, and  up in as we absorb the impact of the lower dollar, some pick the recorded inflation is highly likely, as is suggested by idents in forecasts of the Board members and Reserve Bank pres our report.  Looked at another way, a broad range of important  inued to rise prices, particularly in the service area, have cont momentum to the persistently, lending an underlying inflationary economy. I do believe that we have made solid progress in the ility, but fight to achieve and maintain reasonable price stab   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  recent trends provide no grounds for complacency.  Certainly the  ng trend need to build on past progress in keeping the underlyi considering of inflation down must remain a prime objective in appropriate monetary policy.  By its nature, the inflationary  process tends to perpetuate itself.  The price increases antici-  import costs pated over the next year or two as we absorb higher and oil prices level off or rebound may be moderate and t to temporary, but that will be true only if policy remains aler the danger.  •0 • OfGOv. R4% **•0 'co . '0 • -n • —A tr‘ • of`  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  Ft' 4•5 •  ll1Jj  WASHINGTON, O. C. 20551  August 18, 1986  The Honorable Robert J. Lagomarsino House of Representatives Washington, D.C. 20515 Dear Mr. Lagomarsino: I am writing to acknowledge receipt of your letter of August 11 requesting comment on correspondence you received from Ms. Edna L. Blaha concerning a problem she has encountered with Western Savings Bank's transferal of funds to Bank of America. The Federal Reserve's primary supervisory jurisdiction is limited to state banks that are members of the Federal Reserve System. Since the Federal Home Loan Bank Board has primary supervisory and regulatory authority for Western Savings Bank, I have referred your request to that agency for reply. I am sure you will be hearing from the Federal Home Loan Bank Board in the near future. Sincerely,  Lynn S. Fox Congressional Liaison Office  CO:pte (V-168, 86-3558) bcc: Mrs. Mallardi ,, Congressional Liaison, FHLBB   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ROBeRT J. LAGOMARSINO 19TH DISTRICT, CALIFORNIA 2332 RAYBURN BUILDING WASHINGTON, DC 20515 202-225-3601 CONFERENCE SECRETARY  LOARil 0'. CU •  '  (Congresscsoftfeniteb  CONGRESSIONAL OBSERVER GENEVA ARMS CONTROL TALKS  COMMITTEE ON FOREIGN AFFAIRS suecomwmEs WESTERN HEMISPHERE AFFAIRS  3i)out  asbington De 20515A  :7+)  tatel5  RANKING MINORITY MEMBER  INTERNATIONAL ECONOMIC POLICY AND TRADE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS SUBCOMMITTEES  NATIONAL PARKS AND RECREATION RANKING MINORITY MEMBER  August 11, 1986  PUBLIC LANDS MINORITY REPRESENTATIVE FOR TERRITORIAL AFFAIRS  Paul A. Volcker Chairman Federal Reserve System Constitution Ave. and 21 st St. Washington D.C. 20551 Dear Mr. Volcker: Enclosed please find th e letter from my cons tituent, Edna L. Blaha of Santa Maria, CA, regarding the problem she has had with Western Sa vings of Arizona and the transfer of her funds to Bank of Am erica in Santa Mar a. Your review and comments of the is/ raised by is very much apprecia Ms. Blaha ted. Sincerely,  J. of Congre  RJL:ebb enclosure  Sum 101 5740 RALSTON VENTURA, 93003 642-2200/656-4344   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  STUDIO 121 EL PASS° 814 STATE STREET SANTA BARBARA, 93101 953-1708  104 E. BOONE ST. #E SANTA MARIA, 93454 922-2131  /1  7)- P-i - .J-f-er"  nizr?--i,7r  P-r-rp-rp   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  P.y2 e-1-0777/r a9 q/ene-172 -rfi ;GI/ 7-x7,z -  PD 1A-I ?-7177 (P77 7  274,-vivi .,{/  2/17 1 I I•  7L2  r2Are-r-?p.  7  726 )  , e-Lipid-irr71  ,-(77?-71,  -7??' ,t I  '72 a-t--0 r ‘y  79-1  .7 1 ri) P—r 77  ?1'f -YD  cTr  2_7  r-?-p---y-)--v,--1r  (7-  r  7r2r  7‘c  ( -22  ,  - )--z95r2,7  C_7.)  72/2-?7  L-X-r  rvo-  P"--X  ? "2 r  7 • 5,5-,  104  e  g C4  i42~7  Zet-ZdZ  Eit43-411 ;tvtiZ a/ eicz J-a,;(41 t/a, 7Zetic&h  "  /2-4.e_1  t 4L  i--ttAL j   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -7.st  21Z  4  tiLL  (--v/ A 11-  aWt-e2t,e-et-  e_  1  1A,k-e;a:„ to  , ?4 7,  Zst i  ct.42-td_,  , • -12--4-4-  01--e  tLL a--ee _12-042(-60 0-7 cLd  , 44212-  kte  OkZ-ve.-et  z.c.4/ZiL.) ti/  <_et)  _ 4La <44.,  33-7>,k BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20SEI  PAUL A. VOLCKER CHAIRMAN  August 12, 1986  The Honorable Jake Garn Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Cam: I have not had an opportunity to consider carefully all of the issues raised by Senator Heinz's proposed "Export Revitalization Act." I have written to you separately with my comments on Title II, concerning bank export services. I would like at this point to offer some reactions to Title I of that draft bill, concerning exchange rates and developing country debt. While I share many of the objectives of this Title, I believe that a number of the proposed legislative remedies to achieve these objectives could be counterproductive. The basic objectives of Subtitle A ("Measures Relating to Exchange Rates") -- the achievement of a sustainable pattern of U.S. international transactions and more stability in exchange rates -- are ones with which I am sympathetic. I am concerned, however, about the proposed approach: legislation to "institutionalize" the process of policy coordination (section 102) or to mandate international negotiations (section 103). It tends to draw attention away from the fundamental economic policy actions needed here and abroad to redress external imbalances in the world today. Moreover, efforts are already under way to follow-up on the initiatives made at the Group-of-Five meeting in New York in September 1985 and at the Tokyo Economic Summit in May 1986. The proposed legislation could seriously reduce the flexibility that U.S. officials need to build on those initiatives. Such flexibility has proved to be essential in previous successful international cooperative efforts in the area of macroeconomic policy, including stabilization of exchange rates.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  The Honorable Jake Garn Page 2  I also question the necessity of creating a new "Strategic Exchange Reserve" (section 103(b)) because the Exchange Stabilization Fund has been available to serve the indicated purposes for five decades. Subtitle B concerns measures relating to developing country debtors. Here again, I am sympathetic with most of the objectives set forth in section 112: reducing barriers to trade and investment in developing countries, reducing the burden of indebtedness on U.S. and international trade and on U.S. and international banking systems, encouraging structural reforms in developing countries to promote efficiency and growth, and ensuring appropriate financial support for reform efforts of developing countries. It is my view that the initiative put forward by Secretary Baker last fall represents the best way to achieve those objectives. I believe that legislation is not needed to implement Secretary Baker's initiative. Section 113(a) would amend the International Lending Supervision Act of 1983 to authorize a regulatory study. The proposed study and associated report would risk undercutting the objectives of the draft legislation by suggesting that regulatory and accounting rules can provide easy answers to the complex and serious problems of international debt. It could also send wrong signals to both borrowers and creditors. It might suggest that regulatory or accounting changes in creditor countries can substitute for needed structural changes in borrowing countries. The focus on a reduction of the existing stock of debt is inconsistent with the need for prudent amounts of additional financing for borrowing countries from private sources that will be necessary in the future if these countries are to achieve sustainable economic growth in the context of increasingly open and competitive markets. My final reactions concern section 113(b) of the draft bill. The proposal to eliminate the IMF's Compensatory Financing Facility appears to be based on a misunderstanding about the role and rationale of that facility. It is not a separate entity with its own resources and assets, and it is not designed to promote the production of commodities for export. It is a means by which a member of the IMF can borrow from that institution to help to cushion short-term shortfalls in export earnings that are beyond the control of the member, as long as that member is cooperating with the IMF to overcome any longer-term balance of payments difficulties. I believe that the Compensatory Financing Facility has been useful in the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  % ‘  The Honorable Jake Garn Page 3  past in encouraging members of the IMF, especially those heavily dependent on commodity exports, to adopt economic adjustment policies that are "pro-trade" and internationally responsible. I am also concerned about the proposals to amend the Articles of Agreement of the International Bank for Reconstruction and Development. First, the World Bank now has sufficient capital to implement an appropriate lending policy under current operating rules. If, at some point in the future, that capital base is judged to be insufficient, the preferable response by its members would be to raise the Bank's capital. The alternative of allowing the Bank to raise its gearing ratio unnecessarily entails a risk of impairing the Bank's exceptionally good credit standing in financial markets. Second, I am skeptical that a meaningful way can be found to differentiate among countries in order to vary the spreads on the Bank's loans based on economic conditions in the borrowing countries. Third, the World Bank already is moving, in part at the urging of the United States, to link its lending programs to the removal of existing trade and investment barriers and to the promotion of development of the private sector. I hope these comments will be helpful to you. Si  erely,  eWailLA LP:ET:MB:RT bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  Mr. Promisel Mr. Truman Mr. Bradfield Ms. Tigert Legal Records (2) Mrs. Mallardi (2),/  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  VtA't  WASHINGTON, D. C. 20551  PAUL A. VOLCKER CHAIRMAN  August 12, 1986  The Honorable Jake Garn Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Garn: I understand that the Banking Committee will mark up a bill entitled the "Export Revitalization Act," which contains amendments to the Export Trading Company Act proposed by I wanted to reiterate the Board's Senator Heinz in S. 1934. view, expressed in testimony by Governor Manuel Johnson to the Subcommittee on International Finance and Monetary Policy of the Senate Banking Committee on June 17, 1986, that the amendments should not be adopted at this time. The Federal Reserve and Department of Commerce are currently considering the problems faced by export trading companies (ETCs) and have agreed to undertake a joint survey of ETCs in an effort to identify any problems they may have encountered and to determine whether existing regulations hinder their performance or planning for future activities. Following analysis of the survey results, which we expect to accomplish by mid -September, the Board intends to work with the Commerce Department in an attempt to resolve several of the Both Secretary issues raised by the proposed legislation. Baldridge and I are committed to this effort, and in my view enacting legislation at this time would be premature. I should also note that the Board opposes several of the proposed amendments to the Export Trading Company Act that raise questions related to the safety and soundness of banking organizations investing in ETCs. Transactions with Affiliates -- The bill would 1. exempt transactions between a bank and its affiliated ETC from the requirements of section 23A of the Federal Reserve Act. In order to protect banks from transactions with affiliates that   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2-  may not be based upon arms-length commercial judgments, section 23A limits the amount of transactions with an affiliate and requires that certain collateral requirements be met. The Board as a matter of policy rarely waives those requirements but has done so in one area with respect to ETCs where it believed the risks were within acceptable limits. We have concluded that it would be a serious mistake to establish a total exemption for ETCs from the requirements of section 23A. 2. Capital Adequacy -- The bill would take away the Board's discretion to disapprove a proposed investment by a U.S. banking organization in an ETC solely on the basis of an assets to equity ratio of less than 25:1. Capital adequacy is a critical determinant of the financial strength of an ETC and of its ability to withstand unexpected adverse developments. The Board's flexible case-by-case approach to judging the equity ratios of ETCs in which banking organizations propose to invest is in line with Congress' directive in the International Lending Supervision Act that the bank regulatory agencies "cause banking institutions to achieve and maintain adequate capital by establishing minimum levels of capital." U.S. banks are now required to maintain a minimum capital to total assets ratio of 6 percent. There appears to be no justification for a statutory rule allowing a capital level of 4 percent for ETCs, as the bill would seem to suggest, when their businesses are likely to be outside the normal range of banking operations, therefore presenting greater risks. Indeed, I find it ironic that the Committee would even consider such 'a provision at a time when the Committee has been consistent in urging bank regulators to encourage stronger capital. As you know, we have under consideration further efforts in that direction and the thrust of this provision would clearly be damaging to those efforts. Exporting services -- The bill would amend the 3. definition of an ETC to include companies that principally export goods and services produced by the ETCs themselves or any of their affiliates. This revision of the statute would permit banking organizations to invest in any service company, regardless of the nature of its business, and regardless of whether the business in export related. Thus, there is a serious potential and more for undermining the basic separation of banking and commerce embodied in the Bank Holding Company Act. We are convinced that the practical effect of S. 1934 as proposed would be to change the Congressionally intended emphasis in the Act from promoting U.S. exports and employment to providing a vehicle by which commercial banks, through the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -3-  medium of an ETC, could acquire ove rseas service organizations without any significant benefit to the United States trade or balance of payments position. The pro posal would thus have the effect of changing the incentive in the Act to promote U.S. exports, while potentially undermining the public policy objectives embodied in the separation of banking and commerce. Such important public policy issues should be addressed directly and not indirectly through technical changes in the BESA. Should the Committee determine that it wants to move ahead with consideration of amendments to the Export Trading Company Act, I would hope that any action would be limited to those provisions that do not pose proble ms of safety and soundness. As the statement of Governor Johnson indicated, the Board believes that the provisions of the bill regarding the revenues test and inventories raise few questions' related to the safety and soundness of U.S. banking organizations. It should be understood, however, that the proposal to exempt third country transactions from the revenues calculation would amount to a substantial alteration of Congressional intent as to the purposes of ETCs to promote the export of U.S. goods and services. Sincerely,  d_ec,ded„, IDENTICAL LTR. TO SEN. PROXMIRE  LSF:RT bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ms. Tigert Mrs. Mallardi (2)1,/ Legal Records (2)  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  PAHL A. VOLCKER CHAIRMAN  August 12, 1986  The Honorable William Proxmire United States Senate Washington, D.C. 20510 Dear Senator Proxmire: Your letter of August 11, 1986, asks for my views on whether Congress should enact a one-year moratorium on the approval of new nonbank bank affiliations and restrict the geographic expansion and the joint marketing activities of existing nonbank banks. As you know, the Board has repeatedly urged Congress to adopt comprehensive legislation to deal with the serious and problems facing urgent depository institutions. That legislation should modernize existing law by eliminating undesirable restrictions on the one hand, including authorizing new products and services and, on the other hand, strengthening the fundamental structure and basic safety and soundness of the banking system, including reaffirmation of the basic distinction between banking and commerce. Left unattended, the pressures of change will continue to alter the financial and banking structure in haphazard and, I believe, dangerous ways, dictated by the vagaries of. now outmoded provisions of law. I do not believe this is in the interest of the financial community, consumers of financial services or the public generally. These issues have been the subject of extensive public hearings and debate over a number of years, and an ample record exists for Congress to legislate. Accordingly, I believe Congress should act as soon as possible to adopt comprehensive banking legislation and that a balanced bill provides the best approach. I do, of course, share your concern that in the absence of congressional action on comprehensive legislation at this time the present situation could continue to deteriorate. While the Comptroller of the Currency, given current litigation, will probably be unable to issue new federal nonbank bank charters for some time, the entry of commercial and industrial concerns into banking can continue through   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2  ,1=••  That acquisitions of existing banks and new state charters. situation is difficult to deal with by a limited moratorium on new "nonbanks" because there are implications for parallel treatment of thrifts and for existing institutions. With the understanding that a short moratorium on new nonbank banks (and with some limitations on the activities of existing nonbank banks) cannot be an effective substitute for more comprehensive action, such a moratorium would clearly be As I useful as a prelude to the needed larger effort. indicated earlier, I hope a more comprehensive bill will be enacted at the earliest possible time. Sincerely,  Ii?Oii(A  MB:VM bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  /  2-1  Mr. Bradfield Mr. Mattingly Legal Records (2) Mrs. Mallardi  jjr-Td?67  JAXE GARN, UTAH, CHAIRMAN JOHN HEINZ. PENNSYLVANIA WiLLiA.M L ARMSTRONG. COLORADO ALFONSE M DAMATO. NEW YORK SLADE GORTON. WASHINGTON MACK MATTINGLY. GEORGIA CHIC HECHT. NEVADA PHIL GRAMM. TEXAS  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  IA DANNY WALL STAFF DIRECTOR KENNETH A. McLEAN, MINORITY STAFF DIRECTOR  United eStates eSenate COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS  ryl  WASHINGTON, DC 20510  77.  CP  .....4 -  ..) C‘ 7  August 11, 1986  Chairman Paul Volcker Board of Governors of the Federal Reserve System Washington, D.C. Dear Chairman Volcker: I would appreciate your views on the enclosed amendment I intend to offer to the Committee Print of S. 2592 when the Banking Committee meets next Wednesday. The amendment would establish a one-year moratorium on the creation of new nonbank banks while placing certain restrictions on existing non-bank banks. The purpose of the amendment is to maintain the options of the Congress for dealing with the non-bank bank and related issues in the next Congress. I would also be interested in any comments you may have on Comptroller Clarke's letter of August 8 to Chairman Garn concerning the current legal restrictions on the chartering of non-bank banks and whether these restrictions are an adequate substitute for a statutory moratorium.  WP:km   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Explanation of Non-Bank Bank Amendment rium on the The amendment provides a one year morato It prohibits not establishment of any new non -bank banks. ks by the Comptroller only the chartering of new non -bank ban n of existing national of the Currency but also the conversio roval of FDIC banks to non-bank bank status or the app nk banks. insurance for state-chartered non -ba establishment of The moratorium does not apply to the is engaged exclusively credit card banks providing the bank location and does not in credit card operations at a single time or savings accept transaction accounts or retail ieposits. ons on The amendment also places certain restricti the owners of these existing non -bank banks to insure that ve advantage over tanks do not secure an unfair competiti the moratorium regulated bank holding companies during period. These restrictions include: es not 1. cross-marketing products or servic company; otherwise available to a bank holding 2. establishing new locations; an affiliate. 3. initiating overdrafts on behalf of the competitive The amendment is intended to maintain l definitively with all status-quo until the Congress can dea luding the extent to which of the banking issues before it inc mitted to offer a broader bank holding companies should be per ng, it preserves the variety of financial services. In so doi the structure of our options of the Congress for re-shaping financial system next year. ng this year's The amendment is consistent with limiti continued bill to absolutely essential items. The le can only undercut availability of the non-bank bank loopho minimal cost and the the recapitalization of the FSLIC at horities. If non -bank emergency interstate acquisition aut poses of these other two banks remain a viable option, the pur er bids for failing or titles is undermined. There will be few bank option offers a less failed institutions if the non -bank restrictive alternative.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  the following new At the appropriate place in the bill add title: "Title III:,  MORATORIUM ON CERTAIN ACTIONS REGARDING NONBANK  BANKS. (a)  "SEC. 301.  Prior to August 13, 1987, the Comptroller  oval of any application of the Currency shall not grant final appr s Articles of for a charter, for amendment of an institution' rs, or for the Association to eliminate restrictions on powe 26-103(b) of the exercise of banking powers pursuant to section -or entity that is District of Columbia Code, by any association not be) a bank not (or upon the commencement of business, will Holding Company within the meaning of section 2(c) of the Bank Act of 1956 ((12 U.S.C. 1841(c)). (b)  Prior to August 13, 1987, the Federal Deposit  oval of any Insurance Corporation shall not grant final appr Deposit Insurance application under section 5(a) of the Federal not a bank within the Act, as amended, by a State bank which is Company Act of 1956 meaning of section 2(c) of the Bank Holding (12 U.S.C. 1841(c))  to become an insured bank, unless the bank  sit insurance and, is required by State Law to obtain Federal depo such company on if controlled by a company, was controlled by August 13, 1986. (,c)  ral Prior to August 13, 1987, the appropriate Fede  r section 7(j) of banking agency shall disapprove any notice unde 1817(j)) involving the Federal Deposit Insurance Act (12 U.S.C. which is not, or the acquisition of control of an insured bank   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Page 2  ,upon consummation will ncit be, operated as a bank within the 1956. meaning of section 2(c) of the Bank Holding Company Act of (d)  Prior to August 13, 1987, the Board of Governors  n of the Federal Reserve System shall not approve any applicatio ng by a bank holding company under section 4 of the Bank Holdi of an Company Act of 1956, to acquire or expand the activities on insured bank that is not a bank within the meaning of secti y in 2(c) of that Act, unless such insured bank engages solel ation activities permissible for bank holding companies by regul before adopted pursuant to section 4(c)(8) of the Act on or August 13, 1986. (e)  This section shall not apply to an insured bank  that -(1)  engages exclusively in credit card  (2)  does not accept demand deposits or deposits  operations;  payment the depositor may withdraw by check or similar means for making to third parties or others and is not in the business of commercial loans; (3)  does not accept any savings or time deposits  000; and unless such deposit is in an amount of more than $100, (4) (f)  maintains only one office.  For purposes of this section, "insured bank" shall  of the have the meaning ascribed to such term in section 3(h) Federal Deposit Insurance Act (12 U.S.C. 1813(h)).   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Page 3  SEC. 302.  ded, The Bank 'Holding Company Act of 1956, as amen  ng at the end thereof (12 U.S.C. 1841 et seq.), is amended by addi the following new section: "SEC. 13.  RESTRICTIONS ON INSURED BANKS -- (a)  Prior to  rolled by a company August 13, 1987 no insured bank that is cont that is not a bank holding company shall -an offer or market the products or services of  "(1)  ble for bank holding affiliate engaged in an activity not permissi or services to be companies under this Act or permit its products affiliate; offered to or marketed by or through any such as engage in activities that would make it a bank  (2)  defined in this Act; it increase the number of locations from which  "(3)  conducts business after August 13, 1986; or permit any overdraft, including an intra-day  "(4)  such overdraft is overdraft, on behalf of an affiliate, unless accounting error, or the result of a computer error, inadvertent nt securities unanticipated delivery of book -entry governme of the bank and against payment, and is beyond the control affiliate. (b) , "  bank For purposes of this section, (1) an insured  section 3(h) of the has the meaning ascribed to such term in (h)); and Federal Deposit Insurance Act (12 U.S.C. 1813   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  "(2)  'affiliate' means any company that directly  Page 4  h insured bank and any subsidiary of suc an ls tro con y ctl ire ind or company.".   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  PIP •  AFFAqt....  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  • it)H .  WASHINGTON, 0. C. 20551  PAHL A. VOLCKER  .RAL RE- • •  ••  CHAIRMAN  August 12, 1986  The Honorable William Proxmire United States Senate Washington, D.C. 20510 Dear Senator Proxmire: Your letter of August 11, 1986, asks for my views on whether Congress should enact a one-year moratorium on the approval of new nonbank bank affiliations and restrict the geographic expansion and the joint marketing activities of existing nonbank banks. As you know, the Board has repeatedly urged Congress to adopt comprehensive legislation to deal with the serious and problems facing urgent depository That institutions. legislation should modernize existing law by eliminating undesirable restrictions on the one hand, including authorizing new products and services and, on the other hand, strengthening the fundamental structure and basic safety and soundness of the basic reaffirmation of the banking system, including distinction between banking and commerce. Left unattended, the pressures of change will continue to alter the financial and banking structure in haphazard and, I believe, dangerous ways, I dictated by the vagaries of. now outmoded provisions of law. do not believe this is in the interest of the financial community, consumers of financial services or the public generally. These issues have been the subject of extensive public hearings and debate over a number of years, and an ample record Accordingly, I believe exists for Congress to legislate. Congress should act as soon as possible to adopt comprehensive banking legislation and that a balanced bill provides the best approach. I do, of course, share your concern that in the absence of congressional action on comprehensive legislation at this time the present situation could continue to deteriorate. While the Comptroller of the Currency, given current litigation, will probably be unable to issue new federal nonbank bank charters for some time, the entry of commercial and industrial concerns into banking can continue through   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2 That acquisitions of existing banks and new state charters. situation is difficult to deal with by a limited moratorium on new "nonbanks" because there are implications for parallel treatment of thrifts and for existing institutions. With the understanding that a short moratorium on new nonbank banks (and with some limitations on the activities of existing nonbank banks) cannot be an effective substitute for more comprehensive action, such a moratorium would clearly be As I useful as a prelude to the needed larger effort. indicated earlier, I hope a more comprehensive bill will be enacted at the earliest possible time. Sincerely,  de-eze."_ MB:VM (V-17 bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ) 2 33--701  Mr. Bradfield Mr. Mattingly Legal Records (2) Mrs. Mallardi (2),/  JAKE GARN, UTAH, CHAIRMAN JOHN HEINZ. PENNSYLVANIA INK LIAR: L ARMSTRONG. COLORADO ALFONS( M DAMATO. NEW YORK SLADE GORTON, WASHINGTON MACK MATTINGLY, GEORGIA CHIC HECHT. NEVADA PHIL GRAMM, TEXAS  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  M DANNY WALL STAFF DIRECTOR KENNETH A McLEAN, MINORITY STAFF DIRECTOR  7,u  Unittd eStates *mate COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS WASHINGTON, DC 20510  CD  ••••  CP CO 7••-)  August 11, 1986  Chairman Paul Volcker m Board of Governors of the Federal Reserve Syste Washington, D.C. Dear Chairman Volcker: amendment I would appreciate your views on the enclosed S. 2592 when the I intend to offer to the Committee Print of dment would Banking Committee meets next Wednesday. The amen of new nonestablish a one-year moratorium on the creation on existing bank banks while placing certain restrictions to maintain non-bank banks. The purpose of the amendment is the non-bank the options of the Congress for dealing with bank and related issues in the next Congress. may have I would also be interested in any comments you Chairman Garn on Comptroller Clarke's letter of August 8 to the chartering concerning the current legal restrictions on ns are an of non -bank banks and whether these restrictio . adequate substitute for a statutory moratorium  WP:km   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CO.  ‘2-;:. ; 44'  ent Explanation of Non-Bank Bank Amendm atorium on the The amendment provides a one year mor banks. It prohibits not establishment of any new non-bank banks by the Comptroller only the chartering of new non -bank sion of existing national of the Currency but also the conver approval of FDIC banks to non-bank bank status or the nk banks. insurance for state-chartered non -ba establishment of The moratorium does not apply to the k is engaged exclusively credit card banks providing the ban location and does not in credit card operations at a single time or savings accept transaction accounts or retail deposits. trictions on The amendment also places certain res that the owners of these existing non -bank banks to insure itive advantage over banks do not secure an unfair compet ing the moratorium regulated bank holding companies dur period. These restrictions include: vices not I. cross-marketing products or ser ding company; otherwise available to a bank hol 2. establishing new locations; of an affiliate. 3. initiating overdrafts on behalf in the competitive The amendment is intended to mainta l definitively with all status-quo until the Congress can dea luding the extent to which of the banking issues before it inc mitted to offer a broader bank holding companies should be per doing, it preserves the variety of financial services. In so g the structure of our options of the Congress for re-shapin financial system next year. limiting this year's The amendment is consistent with The continued bill to absolutely essential items. loophole can only undercut availability of the non -bank bank at minimal cost and the the recapitalization of the FSLIC authorities. If non -bank emergency interstate acquisition purposes of these other two banks remain a viable option, the fewer bids for failing or titles is undermined. There will be nk bank option offers a less failed institutions if the non -ba restrictive alternative.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I. owing new At the appropriate place in the bill add the foll title: "Title III:  ANK MORATORIUM ON CERTAIN ACTIONS REGARDING NONB  BANKS. (a)  "SEC. 301.  Prior to August 13, 1987, the Comptroller  of any application of the Currency shall not grant final approval s Articles of for a charter, for amendment of an institution' rs, or for the Association to eliminate restrictions on powe 26-103(b) of the exercise of banking powers pursuant to section -or entity that is District of Columbia Code, by any association not be) a bank not (or upon the commencement of business, will Holding Company within the meaning of section 2(c) of the Bank Act of 1956 ((12 U.S.C. 1841(c)). (b)  Prior to August 13, 1987, the Federal Deposit  oval of any Insurance Corporation shall not grant final appr Deposit Insurance application under section 5(a) of the Federal a bank within the Act, as amended, by a State bank which is not Company Act of 1956 meaning of section 2(c) of the Bank Holding (12 U.S.C. 1841(c))  to become an insured bank, unless the bank  deposit insurance and, is required by State Law to obtain Federal by such company on if controlled by a company, was controlled August 13, 1986. (F)  Federal Prior to August 13, 1987, the appropriate  r section 7(j) of banking agency shall disapprove any notice unde 1817(j)) involving the Federal Deposit Insurance Act (12 U.S.C. which is not, or the acquisition of control of an insured bank   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  41,  Page 2  the upon consummation will ndit be, operated as a bank within of 1956. meaning of section 2(c) of the Bank Holding Company Act (d)  Prior to August 13, 1987, the Board of Governors  ication of the Federal Reserve System shall not approve any appl Holding by a bank holding company under section 4 of the Bank of an Company Act of 1956, to acquire or expand the activities ion insured bank that is not a bank within the meaning of sect ly in 2(c) of that Act, unless such insured bank engages sole regulation activities permissible for bank holding companies by before adopted pursuant to section 4(c)(8) of the Act on or August 13, 1986. (e)  This section shall not apply to an insured bank  that -(1)  engages exclusively in credit card  (2)  does not accept demand deposits or deposits  operations;  s for payment the depositor may withdraw by check or similar mean making to third parties or others and is not in the business of commercial loans; (3)  does not accept any savings or time deposits  $100,000; and unless such deposit is in an amount of more than (4) (f)  maintains only one office.  " shall For purposes of this section, "insured bank  3(h) of the have the meaning ascribed to such term in section Federal Deposit Insurance Act (12 U.S.C. 1813(h)).   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Page 3  SEC. 302.  as amended, The Bank 'Holding Company Act of 1956,  by adding at the end thereof (12 U.S.C. 1841 et seq.), is amended the following new section: "SEC. 13.  RESTRICTIONS ON INSURED BANKS -- (a)  Prior to  controlled by a company August 13, 1987 no insured bank that is ll -that is not a bank holding company sha "(1)  es of an offer or market the products or servic  permissible for bank holding affiliate engaged in an activity not products or services to be companies under this Act or permit its such affiliate; offered to or marketed by or through any (2)  a bank as engage in activities that would make it  defined in this Act; "(3)  ch it increase the number of locations from whi  or conducts business after August 13, 1986; "(4)  ra-day permit any overdraft, including an int  ess such overdraft is overdraft, on behalf of an affiliate, unl rtent accounting error, or the result of a computer error, inadve government securities unanticipated delivery of book-entry trol of the bank and against payment, and is beyond the con affiliate. "_(b)  ured bank For purposes of this section, (1) an ins  section 3(h) of the has the meaning ascribed to such term in 1813(h)); and Federal Deposit Insurance Act (12 U.S.C.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  "(2)  ectly 'affiliate' means any company that dir  Page 4  d bank and any subsidiary of such ure ins an ls tro con y ctl ire ind or company.".   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •• • °of GOVi •. 0 RA.• • qv • )• •  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  •0 • •vi • .4  WASHINGTON, D. C. 20551  • • RAL Rt5 • • • .. • • •  August 8, 1986  The Honorable Jake Garn Chairman Committee on Banking, Housing, and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Cam: Thank you for your letter of July 25 requesting comment on correspondence you received from Mr. Gregory J. Pulles. Mr. Pulles, General Counsel of Twin City Federal Savings and Loan of Minneapolis, wrote regarding the liability limitations for unauthorized transfers contained in Section 909 of the Electronic Fund Transfer Act (EFTA). That section generally limits a consumer's liability for unauthorized transfers to $50. Specifically, Mr. Pulles objects to the fact that a consumer's liability is not based on a negligence standard. He recommends an exception to the $50 liability limit when the financial institution can establish that the loss was due to the consumer's negligence in safeguarding the access code. The proper allocation of liability between consumers and financial institutions for unauthorized transfers was reviewed by the Congress during its 1978 consideration of two bills to establish an Electronic Fund Transfer Act. The Congress generally believed that a $50 limitation on consumer liability established an appropriate sharing of risk between the consumer and the financial institution. The limitation was viewed as providing sufficient incentive for the consumer to avoid carelessness in guarding the access code, and an incentive also for the financial institution (because of its liability for any additional loss) to develop a secure electronic fund transfer system. Moreover, the Congress considered it likely that future technological advances would enable automated teller machines to be activated by other, more secure means than an access code --for example, voice or fingerprint recognition, or signature verification. In setting a limitation on consumer liability, the Congressional Committees specifically considered the use of a negligence standard, but believed its adoption would inhibit wide acceptance of electronic fund transfer systems. A number of reasons were given for this decision in the 1978 House and Senate committee reports on S. 3156 and H.R. 13007. The Commi ttees expressed concern that such a standard would lead to  The Honorable Jake Garn Page Two  lawsuits in the case of most unauthorized transfers, and that consumers would incur the expense and delay of litigation while losing access to their money. Moreover, there would be great uncertainty over potential liability, since negligence is an ambiguous concept meaning one thing to one court and something else to another court. The House Committee in particular noted that, even in the circumstance where it could be shown that the access code was written on the card, it would be virtually impossible to determine who wrote the number on the card. The concept ot the $50 liability limitation was first used by the Congress in 1969 in the Truth in Lending Act. In incorporating a like limitation into the electronic fund transfer bills, the committees noted its success in limiting cardholder liability for lost or stolen credit cards while encouraging careful credit card handling and prompt notice of loss by cardholders. They pointed to the favorable experience with the $50 liability limitation applicable to credit cards as supporting a similar measure of liability for electronic fund transfers. (Under the EFTA, of course, the $50 ceng applies only if the consumer reports the loss or theft within two b ness days of discovering it; if the consumer waits longer, the consumer's liability could increase to I hope this information will be helpful in your consideration ot Mr. Pulles' proposal. Please let me know if I can be of further assistance. Sincerely,  Donald J. Winn Assistant to the Board  (HH:LF):vcd/pte (V-160, 86-3333) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi  JAKE GARN. UTAH CHAIRMAN •  JOHN HEINZ PENNSYLVANIA • .•,!LLIAM L ARMSTRONG, COLORADO ALFONSE N D AMATO, NEW YORK SLADE GORTON. WASHINGTON MACK MATTiNGLY GEORGIA CHICHECHTNEVADA PHIL GRAMM, TEXAS  WILLIAM PROXMIRE. WISCONSIN ALAN CRANSTON. CALIFORNIA DONALD W RIEGLE. JR., MICHIGAN PAUL S SARBANES, MARYLAND CHRISTOPHER J DODD, CONNECTICUT ALAN J DIXON. ILLINOIS JIM SASSER, TENNESSEE  M DANNY WALL, STAFF DIRECTOR KENNETH A McLEAN, MINORITY STAFF DIRECTOR  United e$tates c$Ernate COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS ••••••••1  WASHINGTON, DC 20510 X"••• 7'7 t=I  July 25, 1986 (79  Honorable Paul A. Volcker Chairman Board of Governors Foderal Rcserve Svntem 20th & Constitution Ave., N.W. Washington, D.C. 20551 Dear Chairman Volcker: I am enclosing a letter from an official at a Minnesota savings and lean association, Mr. George Pulles, commenting on a provision of the Electronic Funds Transfer Act which limits a consumer's loss to $50.00 for unauthorized electronic fund transfers. Mr. Pulles points out that the $50.00 limitation may well be unfair when the consumer has been negligent, and has, for example, written their personal identification number on a card which is later stolen. I would be very interested in your views on Mr. Pulles' sugaestion. Sincerely,  ake Garn hairman JG:lza Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  ia4=4 jutt,23 v;i:\  -2: oa  PEDERAV-SAN'INGS AND LOAN ASSOCIATION  801 MARQUETTE AVE!'s:UI.  •  MINP, :E.APOLIS.MINNESOTA 5540'2  61: • 370-16  •  GREGOR1 1. PULLE ..Srnscrr Vine Premiant: G enera.. nm.  June 12, 1986  Senator Rudy Boschwitz 210 Bremer Building 419 Robert Street North St. Paul, Minnesota 55101 Senator Dave Durenberger 1020 Plymouth Building 12 South 6th Street Minneapolis, Minnesota 55402 Dear Senator Boschwitz and Durenberger: I am writing to you as General Counsel for Twin City Federal Savings and Loan Association ("TCF") concerning the federal Electronic Funds Transfer Act, 12 U.S.C. 1601, et. seq., and specifically the provisions of that law that pertain to consumer's • liability for unaud thorize electronic fund transfers. As you know, under federal law, with limited exceptions, consumers are not liable for unauthorized electronic fund transfers over $50.00. Thus, if a consumer's bank card is stolen, and the thief uses it at an automated teller machine ("ATM") to make withdrawals, the consumer will in most cases be responsible only for the first $50.00. We don't quarrel with the general proposition that a consumer should not be responsible beyond $50.00 for losses due to theft of the bank card. However, we do object to the law insofar as it imposes the loss on the financial institution, even where the consumer has been negligent. As you probably know, a consumer can only access his or her account through an ATM by the use of a combination of the bank card and a secret number. Only the consumer has access to the secret number. When the secret number is given to the consumer, he or she is advised to keep the number secret, not to keep the number with the bank card, and not to write it down and keep it in his or her purse or wallet.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Senator Rudy BoschwiL, Senator Dave Durenberger Page Two June 12, 1986  Like many other financial institutions, TCF loses thousands of dollars annually from unauthorized withdrawals at ATM's. A large proportion of these losses are due to consumer naeligence in handling the secret number. In these cases, the consumer usually has the secret number written down in his or her purse or wallet. Some customers have even written their secret number on the bank card itself. If the purse or wallet is stolen with the accompanying secret number, then it is a simple matter for a thief to make withdrawals. We firmly believe that consumers should not be liable beyond $50.00 for losses not caused by their own negligence. However, we firmly believe that consumer should be responsible for their own negligence. We believe that Section 909 of the law should be revised as to provide an exception to the $50.00 maximum liability, where the financial institution demonstrates that the loss was due to the consumer's negligence in safeguarding the secret identification number. We would very much appreciate your consideration of our comments and a reply. Very truly yours, ,  Gregory kV. Pulles I GJP:kd cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  U.S. League of Savings Institutions  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  PAUL A. VOLCKER  August 8, 1986  CHAIRMAN  The Honorable Frank Horton House of Representatives Washington, D.C. 20515 Dear Frank: Thank you for your recent letter on behalf of Mr. Jeffrey L. Solomon, who is interested in employment with the Board of Governors of the Federal Reserve System. Mr. Solomon's material is currently being reviewed by our Division of Personnel, who will contact him directly regarding their review of his qualifications. We appreciate having your recommendation on behalf of Mr. Solomon.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  Si_Paul  KW:ls:jhe (#V-161, 86-3334) bcc: K. Warehime Mrs. Mallard]. (2)  FRANK HORTON  314 KENNETH B KEATING BUILDING ROCHESTER, NY 14614 (716) 263-6270 FTS 963-6270  S REPRESENTATIVE 20TH DISTRICT OF NEW YORK COMMITTEES GOVERNMENT OPERATIONS RANKING MINORITY MEMBER POST OFFICE AND CIVIL SERVICE  DISTRICT OFFICES  Action assigned to Mr. Shannon.  Congrelz of the liniteb itpui‘r of 1kepre5entatibe5  DEAN. NEW YORK  assbington, IBC 20515  REPUBLICAN DELEGATION WASHINGTON OFFICE 2229 RAYBURN BUILDING WASHINGTON, DC 20515 (202) 225-4916  July 29, 1986  tateg  WAYNE COUNTY OfF!CE BUILDING LYONS, NY 14489 307 METCALF PLAZA 144 GENESEE STREET AUBURN NY 13021 (315) 255-1125 FIS 953-2244/953-2220 RIVERFRONT OFFICE BUILDING OSWEGO, NY 13126 (n11) 34 688 44 Ell 95 1  RueYGMoY ADMINISTRATIVE ASSISTANT  r---  The Hon. Paul Volcker, Chairman Board of Governors of the Federal Reserve System Constitution Avenue and 21st Street, N.W. Washington, DC 20551 Dear Paul: Enclosed is the resume of Jeffrey L. Solomon. Jeffrey is the grandson of a good friend of mine, and he is looking for employment in Washington. I know Jeffrey to be a capable and responsible young man. He has just graduated from Brandeis University with a degree in political science, and he has had experience working for a Federal savings and loan association. This combination makes him suitable for a position with the Federal Reserve. I would appreciate your giving Jeffrey every consideration. I believe he would be an asset to the Federal Reserve. If you have any questions, please do not hesitate to contact Ruby Moy of my office at 225-4916. With best personal regards, Si  erely,  rank Horton FH:SL Enclosure cc: Jeffrey L. Solomon •   https://fraser.stlouisfed.org I. 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: 1  Resume, Jeffrey L. Solomon, 1986.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • oF GOV 4't •.  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  August 8, 1986  Mr. and Mrs. Peter M. Vieira 6013 Schoolhouse Woods Road Burke, Virginia 22015 Dear Mr. and Mrs. Vieira: I am writing in further response to your correspondence, forwarded to the Federal Reserve by Chairman St Germain, concerning the difficulty you encountered with the processing of a mortgage loan by the Union Home Loan Corporation (Union), a subsidiary of Union Trust Bank of Maryland. You wrote that Union had accepted your money and application for a loan but refused to process the application without imposing higher points if processing took longer than 60 days. You stated, however, that Union initially offered to continue processing the application without increasing the points and believe that the bank should honor its commitment. We asked the Federal Reserve Bank of Richmond to look into this matter, and I would like to report the results of that inquiry. In response to the Reserve Bank's request for information, Union indicated that it had agreed to settle your loan at the original terms of 10 percent and 2 points because rates had returned to their previous levels. We understand that your loan was tentatively scheduled to close on July 29 and that you had indicated by telephone your intent to close the loan. Consequently, we assume that you are satisfied with this resolution of the matter. Please let me know if I may be of further assistance. Sincerely, :OoD.ald  Fi rzz.•  Donald J. Winn Assistant to the Board cc:  Chairman Fernand J. St Germain  SP:CO:DJW:jhe/vcd (V-152, 86-2983) bcc:  Ms. Potkai Mrs. Mallardi  FERNAND .1 ST GERMAIN. RHODE ISLAND, CHAIRMAN FRANK ANNUNZIO. ILLINOIS CARROLLHUBBARD.JR.KENTUCKY DOUG BARNARD. JR GEORGIA JOHN J LAFALCE, NEW YORK MARY ROSE ()AKAR. OHIO BRUCE F VENTO. MINNESOTA ROBERT GARCIA. NEW YORK CHARLES E. SCHUMER. NEW YORK BARNEY FRANK. mAssAcHusErrs RICHARD H LEHMAN. CALIFORNIA JIM COOPER, TENNESSEE BUDDY ROEMER. LOUISIANA MARCY KAPTUR, OHIO BILL NELSON. FLORIDA PAUL E. KANJORSKI PENNSYLVANIA BART GORDON. TENNESSEE THOMAS J. MANTON. NEW YORK   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON FINANCIAL INSTITUTIONS SUPERVISION, REGULATION AND INSURANCE  CHALMERS I WYLIE. OHIO JIM LEACH. IOWA STEWART B McKINNEY. CONNECTICUT NORMAN 0 SHUPAWAY CALIFORNIA SILL McCOLLUM FLORIDA GEORGE C WORTLEY NEW YORK DAVID DREIER. CALIFORNIA STAN PARRiS. VIRGINIA MARGE ROUKEMA. NEW JERSEY DOUG BEREUTER NEBRASKA STEVE BARTLETT TEXAS TOBY ROTH. WISCONSIN  OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-NINTH CONGRESS  WASHINGTON, DC 20515 t'TT5  July 8, 1986  C-4  •••••,.. a'  ._  Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th and Constitution Avenue, N.W. Washington, D.C. 20551  Dear Chairman Volcker: Enclosed you will find correspondence I have received from Mr. and Mrs. Peter Vieira concerning problems they have had with the processing of their mortgage application. As you can see, their situation involves the Union Home Loan Corporation and the Union Trust Bank of Baltimore, and concerns an application about which the Vieiras state, "the company initially offered to continue processing" without increasing their points. Given the facts presented by the Vieiras, I can only agree with them that the refusal to process their application is not appropriate nor is it in the best interests of the banking community generally. Inasmuch as the companies mentioned are subsidiaries of a bank holding company, I would appreciate your looking into this matter and responding directly to the Vieiras with a copy forwarded to me for my records as well.  cerely,  $1"‘% F rnand IT St Germain C airman  FStG:sTf Enclosures  . 1ECEIVED June 25, 1986 rmain, Chairman Honorable Fernand St Ge utions, Supervision, it st In l ia nc na Fi r fo ee Subcommitt e Regulation and Insuranc tatives Subcommittee on Financial Institut:onU.S. House of Represen 03 B3 om Ro , ng di il Bu Rayburn House Office 5 Washington, D.C. 2051 rmain Dear Congressman St Ge from Wakefield, I have t en tu ti ns co nd la Is e As a former Rhod activity in assuring the l na io ss re ng Co ur yo d always respecte ates operated in the best St ed it Un e th in em st U.S. banking sy recent weeks my wife and In . er um ns co an ic er Am interest of the nk that we consider to ba a th wi g in al de ty ul I have had diffic Although the to the public interest. ry ra nt co g in at er op be x and try are extremely comple un co is th in ws la g in nk ba lly understand we are fu to n ze ti ci e ag er av a difficult for the g whether we must pursue in in rm te de in ce an st seeking your assi relief and whether the in ta ob to nk ba is th t legal action agains the Federal Reserve. re fo be t gh ou br be ld ou issue in question sh recently , the banking system has ow kn y ad re al ly ab ob pr loan As you for refusing to process m is ic it cr ed nd te ex r and come unde ve accepted applications ha ey th gh ou th en ev ns applicatio m involves the Union le ob pr ic if ec sp r Ou e. money at stated terms. n Trust Bank of Baltimor io Un e th d an n io at or rp to Home Loan Co d money but has refused an n io at ic pl ap r ou ed pt This bank acce would not accept higher we e us ca be n io at ic pl process our ap m is eded 60 days. The proble ce ex an lo e th if ts in po any initially offered to mp co is th at th ct fa e complicated by th out increasing our th wi n io at ic pl ap r ou ng continue processi r and agreed to wait fe of e th g in it wr in d me points. We confir er) as a nd not seek another lend (a ys da 0 -6 30 al on ti di an ad nk did not respond in ba e Th . rt pa r ou on h token of good fait the bank arned, by telephone, that le w no ve ha we d an g in writ believe this action We n, io at ic pl ap r ou s wi.11 no longer proces general business practice a om fr e at ri op pr ap r he is neit y at s of the banking communit st re te in e th in r no nt standpoi large. iner but do not wish to ta re on er wy la a ve ha y a We currentl battle. We feel that if t ur co e iv ns pe ex d an pursue a long the banking laws in this , ed ir qu re is at wh is court battle American consumer. We e th t ec ot pr ly te ua eq ad country do not ed all rong case and have attach st ry ve a ve ha we e ev li be We are not only seeking n. io at ic pl ap r ou to ng documents relati   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  take r the bank has a right to he et wh g in in rm te de in nts your advice ty to honor its commitme li bi si on sp re y an t ou th wi to our money d regulations empowered an ws la e ar e er th r he et but also wh . Federal Reserve) to .e (i es ci en ag ry to la gu one of the re uing. of this bank from contin s ce ti ac pr e th t en ev pr Sincerely yours,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Peter M. Vieira  Pamela J.Vieira  June 23, 1986 Mr. Dave Turner Union Home Loan Corporation 7777 Leesburg Pike, Suite 404 22034 Falls Church, VA Dear Mr. Turner, of our April 7 This is a letter of inquiry into the status We have not received a application and May 27, 1986 letter. and are under the writ:en response to our most recent letter ess the assumption that the bank is continuing to proc If this is letter. application at the rates specified in the us of the the not :he case please specify in writing the stat been provided application and identify any reasons we have not 's intentions. with a written response informing us of the bank was necessary Our letter clearly stated that a written response ng our if the bank did not intend to continue processi For our part we have offered a 30-60 day application. her lender and we extension in consideration of not seeking anot ing constituted feel that the bank's failure to respond in writ acceptance of the stated terms. following address: You should forward your response to us at the Mr. and Mrs. Peter M. Vieira  of your response It is also requested that you forward a copy ined to oversee to the following individual who has been reta our interests at the closing of our loan: Mr. Ron Cohen, Attorney at Law 2300 South 9th St., Suite 112 22204 Arlington, VA. mutual We look forward to a prompt response that is in the interest of all parties concerned. Si -.rely  s,  Peter M. Vieira Lt-e4CG‘s Pamela J.Vieira  cc.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Fernand St Germain, Chairman Subcommittee for Financial Institutions Supervision, Regulation and Insurance, ress U.S. House of Representatives, United States Cong   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  May 27, 1986 • Ms. Nita Collins Union Home Loan Corporation 7777 Leesburg Pike Suite 404 22043 Falls Church: VA. Dear Ms. Collins, This is to confirm in writing our May 23 conversation regarding the processing of our application at the amounts specified in our April 7 application. As I mentioned on the telephone we expect your company to continue processing our application at the 10 percent rate plus two points even if our application We understand that the processing time in exceeds the 60 days. the banking system is very long and are willing to wait an additional 30-60 days for the internal backlog to clear up. As we discussed on the telephone, it is our understanding that our application will automatically be extended at the current rates if the processing time exceeds 60 days. If I have misstated anything in this letter, please advise us We can be reached at the above immediately in writing. If we can be of additional assistance in any other address. matter we can be reached at the above address or by phone as follows: Peter M. Vieira Pamela J. Vieira Sincerely yours,  Peter M. Vieira  Pa ela J. Vieira  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: Loan application forms Citations:  Number of Pages Removed: 14  Residential loan application materials, 1986.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  11%  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20E51  RAUL A. VOLCKER  August 7, 1986  CHAIRMAN  The Honorable Jake Garn Chairman Committee on Banking, Housing, and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Garn: Under the Paperwork Reduction Act of 1980, the Office of Management and Budget (OMB) establishes targets for reducing the paperwork burden imposed by reporting, recordkeeping, and disclosure requirements of federal agencies. Last year OMB set the Federal Reserve Board's paperwork reduction target for cal 1986 at 2.4 percent of the Board's total paperwork burden at the beginning of fiscal year 1986. OMB identified Truth in Lending requirements •as •an •area in which the Board should seek a reduction in burden hours. This letter is to recommend that the Congress amend the Truth in Lending Act to meet the paperwork reduction target set by OMB. In order to comply with the requirements of the Paperwork Reduction Act and to meet the burden reduction suggested by OMB, the Board has reviewed the Truth in Lending Act and Regulation Z. We first considered Truth in Lending requirements not specified by •statute, to determine whether reductions could be achieved at the regulatory level. There are no nificant possibilities for reductions in this group, however. Most regulatory requirements are directly related to statutory requirements. A few others, though not directly based on specific statutory provisions, provide consumer •information that the Board considers fundamental. Others offer little potential for reduction in paperwork burden, either because the existing disclosure •burden per transaction small •is or because the requirement applies to relatively few transactions. Our review next considered the requirements that are drawn directly from the statute. In this area, the Board has identified one particular provision that we would recommend deleting: the requirement in the Truth in Lending Act for itemization of the "amount financed" in closed-end credit transactions, section 128(a)(2)(B) of the Truth in Lending Act. The Board recommended this deletion to Congress in connection with the enactment of the Truth in Lending Simplification and Reform   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Jake Garn Page Two Act of 1980, but the recommendation was not adopted. We believe it would be appropriate for Congress to reconsider the itemization requirement at this time. Although there are instances in which the information provided in the itemization will be useful, we question whether the additional information is particularly valuable to consumers in the majority of cases, and believe that it may well detract attention from more important disclosures. Moreover, the requirement presents compliance problems for creditors. It has been difficult to devise simple, accurate, and comprehensive categories of amount financed components that make sense for all types of transactions. Since the categories on the Regulation Z model form may not correspond to those in a creditor's actual transaction, the itemization requirement prompts many questions from creditors who have difficulty in understanding and complying with it. For example, there has been uncertainty about which category a particular amount should appear in (and whether it may appear in more than one category); about the permissibility of adding, deleting, or revising the categories listed; and about whether creditors may include items that are not part of the amount financed. Our staff in the Division of Consumer and Community Affairs would be pleased to provide assistance in this matter, or to answer questions that may arise. Sincerely,  IDENTICAL LETTERS SENT TO SENATOR PROXMIRE, CHAIRMAN ST GERMAIN AND CONG. WYLIE GLG:JW:DS:vcd bcc :   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Griff Garwood Dolores Smith John Wood Nancy Steele Mrs. Mallardi (2) -------  .• GOvt •„ .*0of• R4,•  ;-, ''''1,-,`7. -„:  'cc) •0 71; i • -ri • -A .1 .fo  .•  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  /— • (,) • tn. 44...  WASHINGTON, 0. C. 20 551  PAUL A. VOLCKER  August 7, 1986  CHAIRMAN  The Honorable Ernest F. Hollings United States Senate Washington, D.C. 20510 Dear Senator Hollings: Thank you for your letter of August 6, recommending Mr. R. B. (Joe) Dean for a position on our Consumer Advisory Council. I can assure you that Mr. Dean will receive full consideration when the Board selects seven new Council members in the fall of this year. In selecting new members, the Board makes a special effort to achieve a geographic balance, to include an adequate representation of women and minorities, and to maintain an even balance of consumer and industry interests. We are fortunate to have a large number of individuals recommended for Council positions, and the Board appreciates your taking the time to call our attention to qualified individuals who could contribute to the Council's work. Thank you, again, for your recommendation. Sincerely, Bgaurl. A...y(730:4mi"  CO:vcd (V-164, 86-3451) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Bray (w/copy of incoming) Mrs. Mallardi (2) L./.  ERNEST F. HOLLINGS SOUTH CAROLINA  COMMITTEES• COMMERCE, SCIENCE, AND TRANSPORTATION RANKING DEMOCRAT  OFFICES " 1835 ASSEMBLY STREET UMBiA, SC 29201 803-765-5731 103 FEDERAL BUILDING SPARTANBURG, SC 29301 803-585-3702 126 FEDERAL BUILDING GREENVILLE, SC 29603 803-233-5366 112 CUSTOM HOUSE 200 EAST BAY STREET CHARLESTON, SC 29401 803-724-4525  United eStates eSenatt 125 RUSSELL OFFICE BUILDING WASHINGTON, DC 20510 202-224-6121  APPROPRIATIONS STATE, JUSTICE, COMMERCE AND THE JUDICIARY. RANKING DEMOCRAT DEFENSE LABOR, HEALTH AND HUMAN SERVICES, EDUCATION ENERGY AND WATER DEVELOPMENT LEGISLATIVE BUDGET INTELLIGENCE DEMOCRATIC POLICY COMMITTEE  August 6, 1986  /it  233 FEDERAL BUILDING FLORENCE, SC 29503 803-662-8135  OFFICE OF TECHNOLGY  ; 7 1 FF.  Dear Mr. Chairman: Mr. P. B. (Joe) Dean has been nominated to be a member of the Federal Reserve Board's Consumer Advisory Council, and I heartily endorse him. For over 30 years, he has been involved in our banking system, and since 1981, he has served as the Administrator of Community and Consumer Affairs for the South Carolina National Bank. In addition, Mr. Dean is a member of the Consumer Compliance and Regulatory Committee of the South Carolina Bankers Association and of the Society of Consumer Affairs Professionals. Mr. Dean's long experience with the banking system in general, and with consumer affairs in particular, woud make him an outstanding addition to the Consumer Advisory Council. I am sure that a close examination of his record will lead the Board to the same conclusion and result in the appointment of Mr. Dean to the Council. If I can be of any assistance in your consideration of this nomination, please do not hesitate to let me know. re  nest   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •••••••  Q)  The Honorable Paul Volcker Chairman, Federal Reserve Board 20th and Constitution Avenue Washington, DC 20551  EFH:drb  ESSMENT  NATIONAt OCEANLI/dILICY4IUDY  Hollin  OF G0v...  ; .."c  • co ,• „ 0 ' 42 •C .,, • -4 *.l. crs  BOARD OF GOVERNORS OF THE  1:  FEDERAL RESERVE SYSTEM  •  WASHINGTON, O. C. 20551  Hllil  August 5, 1986  •.RAL RE`g:• • •.• • •  The Honorable Frank Annunzio Chairman Subcommittee on Consumer Affairs and Coinage Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Chairman Annunzio: In a letter sent to you on January 9 by Chairman Volcker (copy enclosed), we responded to your concerns regarding the right of rescission provided for in the Truth in Lending Act and Regulation Z. As a result of concerns about the effect of the rescission rule on homeowners who refinance their mortgages, the Board's staff undertook an analysis of the issue. The staff evaluated several proposals to deal with the problem of interest accrual during the three-day rescission period when funds cannot be disbursed. Following staff analysis, the Board examined the rescission issue and has proposed for comment an amendment to Regulation Z to exclude some refinancings from the right of rescission. I have enclosed a copy of the Board's proposal, which is open for comment until September 10, 1986. Please let me know if I can be of further assistance. Sincerely,  Donald J. Winn Assistant to the Board Enclosures LSF:vcd (V-230, 85-6267) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Chanin Mrs. Mallardi  -   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  80/,=- 7 7F GOVERNORS OF THE  FEDERAL RESERVE SYSTEM wASH:N3TON, D. C. 20 551  August 4, 1986  PAUL A. VOLCKER CHAIRMAN  The Honorable Frank Annunzio Chairman Subconiluittee on Consumer Affairs and Coinage Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Chairman Annunzio: Thank you for your letter of July 30 regarding your Subcommittee's hearin g on H.R. 1575, legislation to amend the Equal Credit Opportunity Act. I am pleased to let you know tha t Governor Martha R. Seger will app ear on behalf of the Board on Tuesday, August 12, at 10:00 a.m. Sincerely,  vcd (V-159, 86-3319) bcc:  Coy. Seger Griff Garwood Dolores Smith Barbara Lowrey Mrs. Mallardi  S  Mrs. Mallardi Gov. Seger will testify. Action assigned to Griff Garwood, Dolores Smith and Barbara FERNANO J. ST GERMAIN, RHODE ISLAND Lowrey '4.ENRY B GONZALEZ, TEXAS FRANK ANNUNZIO, ILLINOIS, CHAIRMAN  PARREN J. MITCHELL, MARYLAND STEPHEN L. NEAL, NORTH CAROLINA DOUG BARNARD, JR , GEORGIA BRUCE A. MORRISON, CONNECTICUT CURTIS A PRINS, STAFF DIRECTOR TELEPHONE: (202) 226-3280  U.S. HOUSE OF REPRESENTATIVES  JOHN HILER, INDIANA CHALMERS P. WYLIE, OHIO THOMAS J RIDGE. PENNSYLVANIA TOBY ROTH, WISCONSIN JIM KOLBE. ARIZONA  NINETY-NINTH CONGRESS SUBCOMMITTEE ON CONSUMER AFFAIRS AND COINAGE OF THE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS ROOM 212, HOUSE OFFICE BUILDING ANNEX No. 1  WASHINGTON, DC 20515  July 30, 1986  Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: The House Banking, Finance and Urban Affairs Subcommittee on Consumer Affairs and Coinage plans to hold a hearing on Tuesday, August 12, 1986, on H.R. 1575, legislation to amend the Equal Credit Opportunity Act. I wish to invite you to appear before the Subcommittee on Tuesday, August 12, at 10:00 a.m. The hearing will be held in Room 2128 Rayburn House Office Building. Your presentation should be limited to ten minutes. Because of budgetary constraints, each written statement or exhibit submitted for the record of a hearing must be in a form that is capable of being photocopied for printing. All prepared statements or exhibits will appear in the back of the printed hearing within the appendix. The only exception to this will be charts and graphs referred to within the text. Statements must contain the name and capacity in which the witness will appear. All statements and any accompanying exhibits for the printed hearing must be typed in single space on legal -size paper and may not exceed a total of ten pages. Committee rules require a minimum of 100 copies of the prepared statement be delivered to the Subcommittee office by Monday, August 11. The statements should be delivered to Room 212 Annex #1, 300 New Jersey Avenue, S.E. If you have ary questions, please contact Mr. Curtis Prins, Staff Director of the Subcommittee at (202)226-3280.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  With every best wish, Sincerely,  Frank Annunzio Chairman   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  99TH CONGRESS 1ST SESSION  Li to  .1575  LI.• IX  To amend the Equal Credit Opportunity Act.  IN THE HOUSE OF REPRESENTATIVES MARCH 19, 1985 Mr. MITCHELL (for himself and Mrs. BoGGs) introduced the following bill; which was referred to the Committee on Banking, Finance and Urban Affairs  A BILL To amend the Equal Credit Opportunity Act. 1  Be it enacted by the Senate and House of Representa-  2 lives of the United States of America in Congress assembled, 3 That subsection (a) of section 703 of Public Law 93-495 is 4 amended to read as follows: 5  "(a)(1) Subject to the provisions of paragraph (2) the  6 Board shall prescibe regulations to carry out the purposes of 7 this title. These regulations may contain but are not limited 8 to such classifications, differentiation, or other provision, and 9 may provide for such adjustments and exceptions for any 10 class of transactions, as in the judgment of the Board are 11 necessary or proper to effectuate the purposes of this, title, to   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  2 1 prevent circumstances or evasion thereof, or to facilitate or 2 substantive compliance therewith. 3  "(2) In no event shall any regulation promulgated pur-  4 suant to paragraph (1) of this subsection exempt from the  5 provisions of this title any class of transactions that are pri6 manly for7  "(A) personal, family, or household purposes; or  8  "(B) business or commercial purposes except that  9  a particular type or class of business or commercial  10  transaction may be exempted if the Board determines,  11  after a hearing conducted on the record pursuant to  12  chapter 5 of title 5, United States Code, that the appli-  13  cation of this title or of any provision of this title to  14  such transaction would not contribute substantially to  15  effecting the purposes of this title.  16  "(3) An exemption granted pursuant to paragraph (2)(B)  17 shall be for no longer than five years and shall be extended 18 only if the Board makes a subsequent determination, in the 19 manner prescribed by such paragraph, that such exemption 20 remains appropriate.". 0  HR 1575 LH  4   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, 0. E. 20551  August 4, 1986  PAUL A. VOLCKER CHAIRMAN  The Honorable Charles E. Grassley United States Senate Washington, D.C. 20510 Dear Senator Grassley: Thank you for your letter of July 29, recommending Mr. Terry Tilton for a position on our Consumer Advisory Council. I can assure you that Mr. Tilton will receive full consideration when the Board selects seven new Council members in the fall of this year. In selecting new members, the Board makes a special effort to achieve a geographic balance, to include an adequate representation of women and minorities, and to maintain an even balance of consumer and industry interests. We are fortunate to have a large number of individuals recommended for Council positions, and the Board appreciates your taking the time to call our attention to qualified individuals who could contribute to the Council's work. Thank you, again, for your recommendation. Sincerely,  V.  CO:pte (V-162, 86-3335) bcc: Mrs. Bray (w/copy of incoming) -, Mrs. Mallardi (2)_  103 FEDERAL COURTHOUSE BUILDING 320 6TH STREET SIOUX CITY, IA 51101 (712) 233-3331  135 HAR"...SENATE OFFICE BUILDING W. HINGTON, DC 20510 (202', 224-3744 721 FEDERAL BUILDING 210 WALNUT STREET DES MOINES. IA 50309 (515) 284-4990  United *taus  enate  CHARLES E. GRASSLEY  206 FEDERAL BUILDING 101 1ST STREET S E CEDAR RAPIDS, IA 52401 (319) 399-2555  210 WATERLOO BUILDING 531 COMMERCIAL STREET WATERLOO, IA 50701 (319) 232-6657 116 FEDERAL BUILDING 131 E 4TH STREET DAVENPORT, IA 52801 (319) 322-4331  July 29, 1986  '"  Mr. Paul A. Volcker Chairman Federal Reserve System 20th Street and Constitution Avenue, N.W. Washington, D.C. 20551  vvv.vi  C.  Dear Chairman Volcker: Enclosed please find a letter I received from a constituent, Terry Tilton, who is interested in serving on the Consumer Advisory Council of the Federal Reserve. I would certainly appreciate your review of his letter and his credentials, and I would hope that he will be given serious consideration in filling this position. Thank you for your help in this matter  C rles E. Grassley United States Senator CEG/clm enclores  Committee Assignments: BUDGET  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  FINANCE  JUDICIARY  LABOR AND HUMAN RESOURCES  SPECIAL COMMITTEE ON AGING  July 23, 1986  Fnul A. V cker, Chairman Board o Governors Federal Reserve System 4ashi/ ton, D. C. 20551 De  Ni'. Volcker:  Re: T. Tilton, small business nom inee to the Consumer Advisory Counci l  ::„/ key nominee factors are: 1. 2.  3.  Successful, respected active sma ll business owner, member of numerous professionL1 and civic associations. Attended the WHITE HOUSE CON FERENCE ON SMALL BUSINESS Endorsement from business leader s and the IOWA Congressional delegation.  4.  Currently, seven states, Massac husetts, Virginia, New York, Michigan, Illinois, Minnesota and Missouri have 50% of the CAC members.  5.  Financial (Credit) Institutions com pose 47% of members with lawyers at 26%. In two occupa tions 73% are members of CAC. educators 20% and 770 Federal/Stat e employees.  This is my eighth consecutive year to apply. All the growth in employment in America from 1975-1985 has occurred in small busine ss. While the nation's 1)000 largest com panies eliminated one million jobs, smaller organizations added 20 millions jobs during the dec ade. The development of small business peo ple who understand our business. vho are excited about our goals and who have the talent to make innovative contributions is essential to have at least one on the CAC Board. My appointment will bring a fresh point of view to the Council's deliberations. Once appointed to the CAC, I will have sufficient time to attend meeings and fulfill the responsibilities. Successfully yours,  T. T. T:Iton TTT:em cc V Charles Grassley V.S. SENAT0a (I)wa) 135 Hart Senate Office Bldg Washington, D. C. 20510 PS:  Tom Tauke, U. S. Representative Second District (Iowa) 22414 Rayburn House Office Building Washington, D. C. 20515  NO IMAII HAS EVER. BEEN APPOINTED TO THE CAC!   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  A**   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  RAL Rt•S • •• •.• • • •  PAUL A. VOLCKER  August 4, 1986  CHAIRMAN  The Honorable Richard H. Lehman House of Representatives Washington, D.C. 20515 Dear Mr. Lehman: Thank you for your letter of July 28 requesting the Board's views on the revised draft of H.R. 2282. As earlier stated in testimony by Governor Manuel Johnson before the House Banking Subcommittee on Financial Institutions Supervision, Regulation and Insurance on June 4, the Board supports clear and accurate advertising and full disclosure of account information to customers of depository institutions, and has proposed for comment revisions to update and clarify its advertising rules. The Board continues to believe that additional statutory advertising and disclosure requirements are not necessary. We do recognize that the revised draft of H.R. 2282 incorporates many of the suggestions made by the Board in its testimony. Nevertheless, if legislation is to be adopted, additional mocations to the bill to provide that the Board has sufficient flexibility to tailor the requirements to individual account characteristics and individual customers' use of accS unts are essential. I have enclosed with this letter comments on the revised draft of H.R. 2282 prepared by the Board's staff which discusses several changes to introduce additional flexibility in the bill. I would also note a new provision of H.R. 2282 which mandates the use of an average daily balance method of computing interest. We believe that mandatory interest computation provisions would be excessively rigid, costly to depository institutions, and would not provide significant benefits to consumers. I hope that this information is useful to you. let me know if I can be of further assistance. Sincerely,  Enclosure LC:MB:vcd (IN-157, 86-3284) bcc: Mr. Bradfield Mr. Chanin Mrs. Mallardi (2) Legal Files (2)  Please  Aug  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Staff Comments on Substitute to H.R. 2282 1.  Section 3(b) provides the Board flexibility to exempt advertisements in  broadcast or electronic media from  certain advertising requirements in section 3(a). exception include  provided  3(b) should  billboards or other  customer  cannot  quickly. forth  in  media  and  The  retain  detailed  should  to  not  so  thus  may  be  necessarily in  important  broadened  that the must  advertising  requirement be  be  media  and  section 3(a)(3)  advertising appear  by  to  potential  understand  requirements  confusing  set  such  in  required.  be  The  The  section 3(a)(4) does as  to  required  be  not in  advertisements in media that cannot be retained. 2.  In  Section 3(a)(7), the  deleted. now  word  Generally, early  at the discretion  of  "substantial" should  withdrawal  the  penalties  depository  be  are  institution  and may not be substantial. 3.  Section 4(b) requires the fee schedule to include all fees  or  periodic  assessed. be  service  charges  that  may  This language is extremely broad.  preferable  to limit the required  be It would  schedule  to the  charges specified in the original version of H.R. 2282. 4.  Section 4(e) disclosure  provides  requirement  certain for  flexibility  accounts  with  in  the  rates  guaranteed for less than one year, rates that are not  e  *Oft'  k   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  e  -2-  guaranteed, and  variable and  This flexibility should  multiple rate accounts.  also expressly apply to the  advertising requirements. 5.  Section 5(a) requires the disclosure schedules for all accounts to be provided to all account holders.  This  disclosure requirement should be limited to applicable portions of the schedule. 6.  Section 6 average  requires  daily  variations in appear  to  involved  balance the  provide in  interest  to  be  method.  computed  by  removal  The  the of  way interest is computed does not benefits  converting  that outweigh  to  this  the  system.  costs  While  standardizing  interest computation  variable from  the features depositors must consider,  would  remove  one  the bill does not remove others such as variations in practices in crediting interest.  Further, this method  is used by a minority of depository institutions. In  addition,  the  section 6(h)(1) will the standard  in  cost  benefit  be difficult  test  in  to administer  section 6(b)(2)(B) relating  and  to size  and access to technology is too restrictive and should be  deleted.  Finally,  section 6(b)(2)(C) disclosure most,  is  the  advertising  calling  impractical  advertisements  for for  should  full  standard  and  complete  advertisements.  indicate  the  in  At  alternate  method of computing interest.  ‘   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -3  7.  Section 7(b)(2) provides that depository institutions must use Board prescribed forms.  It is impractical to  develop forms for all situations. Truth to  in Lending forms, the Board should  publish  being  As in the case of  standard  optional  and  forms the  with  burden  be required  use  of other  being  placed  forms on  the  depository institution to justify such other forms. 8.  Section 9 states that it does not preempt state laws concerning  disclosure  of  interest  This provision  accounts."  rates on  is too narrow  "savings  and  should  refer to all accounts. 9.  Sections 10(5) and 10(8) require the use of a 365 day year 365  in computing day  improve  year a  calculated produce  the  different  is  yield.  A requirement for  unnecessary  because  consumer's  shopping  through  use of  same  the  rankings  compounding  as  yield  not  Yields  formulas  institutions would  have been converted to a 365-day basis. appears to specify a  does  ability.  uniform  among  methods  it  use of a  formula.  will  using  yields  that  Section 10(8)  While  a  general  definition of yield can be stated, the actual formula for determining yield should be left up to the Board.  Rease Respond to:  RICHARD H. LEHMAN 18TH DISTRICT CALIFORNIA  FRES40 OFFICE SUIT) 301 190, 11ARIPOSA MALL FRESIO, CALIFORNIA 93721 1209 187 5760  •1319 LONGWORTH BUILDING WASHINGTON D C 20515 12021 225-4540 REGIONAL WHIP COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  Tungress cif t1 Unite  COMMITTEE ON INTERIOR AND INSULAR AFFAIRS  qates  House of Wawrsentatiues illastlington. B.O.... 20515  STCY:XTON OFFICE 801E 111ORTH CENTER STREET STCCKTON CALIFORNIA 95202 1209 946 6353 SCPAORA OFFICE 48 *EST YANEY AVENUE ALSERT N FRANCISc.p BUILDING , F°AVIA 9537%7 SONORA, cr-7 rail& 533 142153  r, ,  0-1  •MP' .0"  July 28, 1986  r -1 ,  cD r  IMP  (c?  Dear Chairman Volcker: As you may recall, on June 4 and 5 the House Banking Subcommittee on Financial Institutions Supervision, Regulation and Insurance conducted hearings on my "Truth in Savings" legislation, H.R. 2282. The intent of the legislation is to provide for the uniform disclosure of information regarding interest rates and yields on savings and other similar interest bearing accounts. Because of recommendations at the hearings, I have made a number of changes in the original legislation. Enclosed is a copy of a section -by -section summary and a copy of a draft amendment in the nature of a substitute which I plan to offer should the subcommittee schedule consideration of the bill in the next few I would appreciate knowing of the position of the Federal weeks. Reserve as it relates to the specific changes proposed by this new language. As you well know, very little time remains on the congressional calendar and any assistance that you might be able to provide to facilitate the review of this legislation would be most appreciated. If you have any questions my staff and I remain at your disposal. Sincer'el  RICHARD H. LEHMAN Member of Congress   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Cr i  ,_ •  Honorable Paul A. Volcker Chairman Federal Reserve System 20th St. & Constitution Avenue, NW Washington, D.C. 20551  RHL/sn  rn  •  H.R. 2282 "TRUTH IN SAVINGS ACT' Section 1.  Short Title.  - "Truth in Savings Act".  Section 2. Findings and Purpose. States Congressional findings that economic stability, competition among depository institutions, and the ability of consumers to make decisions with regard to savings instruments would be improved if there was uniform disclosure of the annual percentage yield payable on deposit accounts and of the terms and conditions on which interest is paid. Purpose is to require clear and uniform disclosue of interest rates for meaningful comparison by consumers on savings instruments. Section 3. Disclosure of Interest Rates and Terms of Accounts. Requires that each advertisement, announcement, or solicitation made by any depository institution regarding a specific rate of interest payable on any demand or interest bearing account to state: the annual percentage yield (APY) in greater prominence than any other stated rate; - the period during which such an APY is in effect; - all minimum balance and time requirements to earn advertised rate of interest; any initial deposit requirements; - annual rate(s) of simple interest; - if applicable, a statement that regular fees or other conditions could reduce the yield; - if applicable, a statement that a substantial interest penalty is required for early withdrawal - that a written statement of deposit account schedules is available upon request. The Federal Reserve by regulation may exempt advertisements, announcements, or solicitations made by electronic media from some o f the above requirements. Section 4. Account Schedule. Requires that each depository institution maintain a schedule o f fees, charges, interest rates, and terms and conditions applicable to each account offered by the depository institution. This section lists those items to be included in the schedule. The schedule shall also include all other disclosures that are n ecessary for consumers to understand and compare accounts, including but not limited to information on those accounts u tilizing multiple or variable rates and accounts on which interest is not yuraranteed for a full year. Section 5. Distribution of Schedules. Schedules shall be made available to account holders within 90 days after promulgation of regulations prescribed by the Act. Thereafter, schedules shall be made available to any person uopn request, within ten days if an account is not opened in person, w ithin 3U days prior to an change which may reduce the yield or   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  adversely affect the account, to only one person on an account w ith more than one depositor, and on an annual basis. Section 6. Average Daily Balance. Requires that balance on which interest is computed in any account shall be the average daily balance during which the period for which interest is calculated unless otherwise determined by the Federal Reserve. Section 7. Regulations. Directs the Federal Reserve to promulgate regulations to carry o ut the purpose and provisions of this Act. Section 8. Administrative Enforcement. Provides for enforcement of the Act by the primary regulator o f the respective depository institutions. Section 9. State Law. Provides that the Act does not annul, alter, or affect state laws relating to the disclosure of interest rates payable on savings accounts except to the extent that those state laws are inconsistent with the provisions of this Act. Section 10. Definitions. Defines the terms used in this Act.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Pruposed amendment to H.R. 2282-On page 3, line 1 delete the text and insert the following: SECTION 3. DISCLOSURE OF INTEREST RATES AND TERMS OF ACCOUNTS (a) IN GENERAL. -- Except as provided in Section 3(b), each advertisement, announcement, or solicitation made by any depository institution regarding a specific rate of interest, yield, or earning which is payable on any demand or interest bearing account shall state in a clear and conspicuous manner -(1) the annual percentage yield(s), which shall be noted in greater prominence than any other stated rate; (2) the period duriny which such an annual percentage yield is in effect; (3) all minimum balance and time requirements to earn advertised rate of interest; in the case of multiple rate accounts, the lower and higher rates and the amount requirements have associated with such rates shall be in close proximity and equal prominence; (4) any initial deposit required to open the account that pays the interest rate advertised; (5) the annual rate(s) of simple interest; (6) if applicable, a statement that regular fees or other conditions could reduce the yield;   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (I) if applicable, a statement that a substantial interest penalty is required for early withdrawal. (8) that a written statement of deposit account schedules is available upon request; (b) The Board may by regulation exempt advertisements, any announcements or solicitations made by electronic media from  disclosures required by .3(a)(5) through (6) if the Board finds that such disclosure would be unnecessarily burdensome. (c) No advertisement, announcement, or solicitation may refer to free or no-cost account if-(1) there is any minimum balance or maximum number of transactions to avoid fees or service charges or; (2) such account has any regular service, per transaction or similar charge. (d) No depository institution shall make any advertisement, announcement, or solicitation relating to a deposit account that is inaccurate or misleading or that misrepresents its deposit contracts.  SECTION 4.  ACCOUNT SCHEDULE.  (a) IN GENERAL.--A depository institution shall maintain a schedule of fees, charges, interest rates, and terms and conditions applicable to each account offered by the depository institution, according to regulation prescribed by the board under this Act. (I) The schedule required by this Section shall include the following information regarding fees and charges: (A) all fees, periodic service charges, and penalties, which may be charged to the consumer pursuant to such account, and the conditions under which each will  be assessed;  (B) all minimum balance requirements that affect fees, charges and penalties including a clear description of how each such minimum balance is calculated;   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (C) any initial deposit to open the account.  (2) The schedule required by this Section shall include the following information applicable to each account offered by the depository institution regarding interest rates: (A) the annual percentage yield; (B) the period during which this yield will be in e ffect; (C) the annual rate(s) of simple interest; (D) the frequency with which interest will be compounded and credited; (E) if applicable, the information contained in clauses (A) through (D) above that will take effect at the end of the period referred to in clause (B), or the method for computing such terms; (F) any minimum balance(s) requirements necessary for the depositor to earn the rates disclosed in this subsection and a clear description of how any such minimum balance(s) is calculated; (G) a clear description of any time requirement that must be met for a depositor to receive interest and the terms u nder section 3(a)(3) that apply if any time requirement is not met; (H) a statement, where applicable, that a depositor w ill lose interest that has accrued but not been credited if funds are withdrawn before interest has been credited. (I) any provision regarding nonpayment of interest, including any charge or penalty for early withdrawal; and the conditions under which such charge or penalty is assessed;   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (3) The schedule required by this section shall include all other disclosures that are necessary for consumers to u nderstand and compare accounts, including but not limited to interest rate adjustments, time requirements, and renewal policies for time accounLs.  In addition, the Board shall require such  differentiations in the disclosure of annual percentage yield(s) as are necessary to effectuate the purposes of this Act for accounts in which the yield disclosed is based on an annual rate of interest that is not guaranteed for a period of at least one year, for variable rate accounts, for accounts which by law do not guarantee payment of a stated rate, and for multiple rate accounts.  Schedules shall be written in clear and plain English  and be desiyned in a format such that consumers can readily understand the terms of the accounts offered.  SECTION 5. DISTRIBUTION OF SCHEDULES. (a) IN UENERAL.--The schedule described in section (4) shall be provided -(1) in the first regularly scheduled mailing to the account holders of each depository institution which occurs not more than 9U days after the the effective date of the initial regulations prescribed by the Board under this Act; (2) to any person upon request; (3) to any potential customer before an account is opened o r a service is rendered.  It the depositor is not physically  present at a branch office of the depository institution at the time the initial deposit is accepted and the written statement has n ot been furnished previously, the bank shall deliver the written  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  statement to the depositor at the address shown on the records of the depository institution for that account no later than 10 days after the date of the initial deposit; (b) In the event of any change in the schedule which may reduce the yield or adversely affect any holder of the account, all account holders who will be affected shall be notified and provided with a description of the change by mail at least 30 days prior to the effect of such change; (c) If there is more than one depositor with respect to an account, the institution need furnish the information required by this section to one of them. (d) Schedules shall subsequently be made available to account holders of each depository institution on an annual basis.  SECTION 6. AVERAGE DAILY BALANCE. (a) Except as provided in subsection (b), the balance on which interest is computed in any account shall be the average daily balance during the period for which interest is calculated; (b) the Board may by regulation permit the use of other balance methods upon a finding that the costs of complying with subsection (a) outweigh the benefits to consumers.  Such a  regulation shall: (1) permit the use of an alternative method only to the extent such a method was in use before the effective date of this Act; (2) permit use of an alternative method only by those institutions which used such method before the effective date ot   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  this Act and which, by reason of size or lack of access to technoloyy, are unable to reasonably comply; (3) require full and complete disclosure of the alternative method in any announcement, advertisement, solicitation or schedule referring to an account for which such method is used.  SECTION 7. REGULATIONS. (a) IN GENERAL.-(1) Not later than one year after the date of the enactment of this Act, the Board shall prescribe regulations to carry out the purpose and provisions of this Act.  These  regulations may contain such classifications, differentiations, or other provisions, and may provide for such adjustments and exceptions for any class of accounts, as in the judgment of the Board are necessary or proper to effectuate the purposes of this Act, to prevent circumvention or evasion thereof, or to facilitate compliance therewith. (b) The Board shall publish standard formats and clauses for common disclosures to facilitate the compliance with this Act.  A  depository institution shall be in compliance with this Act only if it uses such forms and clauses. (c) Standard disclosure forms and clauses shall be adopted by the Board after duly given notice in the Federal Register and an opportunity for public comment in accordance with section 553 of title 5, United States Code.  SECTION 8. ADMINISTRATIVE ENFORCEMENT.  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (a) IN GENERAL.--Compliance with the requirements imposed u nder this Act shall be enforced under-(1) section 8 of the Federal Deposit Insurance Act-(A) by the Comptroller of the Currency with respect to n ational banks; (B) by the Board of Governors of the Federal Reserve System with respect to member banks of the Federal Reserve System (other than national banks); and (C) by the Board of Directors of the Federal Deposit Insurance Corporation with respect to any depository institution of described in clause (1), (ii), or (iii) of section 19(b)(1)(A) the Federal Reserve Act (other than national banks and member banks of the Federal Reserve System); (2) section 5(d) of the Home Owners' Loan Act of 1933, 17 section 407 of the National Housing Act, and sections 6(i) and o f the Federal Home Loan Bank Act, by the Federal Home Loan Bank Loan Board (acting directly or through the Federal Savings and Insurance Corporation) with respect to any depository institution described in claused (v) or (vi) of section 19(b)(1)(A) of the Federal Reserve Act; and (3) the Federal Credit Union Act, by the National Credit Union Administration Board with respect to any depository of the institution described in clause (iv) of section 19(b)(1)(A) Federal Reserve Act. (b) ADDITIONAL ENFORCEMENT POWERS.-(1) For purposes of the exercise by any agency referred to in such in subsection (a) of its powers under any Act referred to Act subsection, a violation of a requirement imposed under this  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  shall ',.)e deemed to be a violation of a requirement imposed under that Act. (2) In addition to its powers under any provision of law referred to in subsection (a), each agency referred to in such with subsection may exercise, ,or purposes of enforcing compliance any requirement imposed under this Act, any other authority conferred on it by law. (c) Regulations.--The authority oF the Board to issue of any regulations under this Act does not impair the authority ding other agency designated in this section to make rules regar rements its own procedures in enforcing compliance with the requi imposed under this Act.  SECTION 9. STATE LAW. This Act does not annul, alter, or affect the laws of any connection with State relating to the disclosure of information in t interest rates payable on savings accounts, except to the exten this Act, that those laws are inconsistent with the provisions of and then only to the extent of the inconsistency.  SECTION 10. DEFINITIONS. For the purposes of this Act -(1) the term "depository institution" has the meaning 19(b)(1)(A) given such term in clauses (i) through (vi) of section of the Federal Reserve Act; (2) the "Board" means the Board of Governors of the Federal Reserve System;   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (3) the term "account" means any account offered by a depository institution into which a customer deposits funds including demand accounts, time accounts, negotiable order of w ithdrawal accounts, and share draft accounts; (4) the term "check" means any check, negotiable order of w ithdrawal, or share draft or other similar item used for purposes o f making payments or transfers to third parties or others; (5) the term "year" shall mean 365 days; (6) the term "interest" shall include dividends; and (7) the term "multiple rate account" means any account that has two or more annual  rates of simple interest which take  e ffect in succeeding periods and which are known at the time of disclosure. (8) the term "annual percentage yield" means the amount which shall  be equal to the total amount of interest that would be  received on a $10U deposit under the terms contained in subparagraph 4(a)(2)(C) and (2)(U) over a 365-day year expressed as a percentage;   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  July 30, 1986  PAUL A. VOLCKER CHAIRMAN  The Honorable John D. Dingell Chairman Subcommittee on Oversight and Investigations Committee on Energy & Commerce U.S. House of Representatives Washington, D.C. 20515 Dear Chairman Dingell: This is in response to your letter of July 16, 1986, requesting the Board's current views with respect to the recommendation of the Task Group on Regulation of Financial Services (Bush Task Force) for transfer of responsibilities for administration and enforcement of the disclosure and various other proons of the Securities Exchange Act of 1934 from bank and thrift regulatory agencies to the SEC and for deletion of the exemption for publicly offered securities of banks and Your thrift institutions from the Securities Act of 1933. supports a inquires the Board whether also letter recommendation that would transfer to the SEC all its responsibilities under the federal securities laws. It was in the context of the overall set of recommendations of the Bush Task Group that the Board of Governors supported, and continues to support, deletion of the exemption for publicly offered securities of banks and thrifts from the Securities Act of 1933 and the transfer to the SEC of its authority under section 12(i) of the Securities Exchange Act of 1934 to administer the disclosure, proxy solicitation and beneal ownership reporting requirements of the Act This proposed in recommendation 5.2 of the Bush Task Force. context of approval of the entire set of recommendations as a package was an essential element of the Group's report. Pages 10 and 11 of the report state:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Group's the Task Each of recommendations was unanimously adopted. Together they form a balanced and workable program for reorganizing and streamlining the existing federal financial regulatory As such the recommendations were system. designed as an interdependent set of proposals that should be considered as a whole.  The Honorable John D. Dingell Page 2  Accordingly, the report's rec ommendations should be viewed in their entirety and not individua lly as proposing action on separate legislation on some poi nts but not others. The second question in your let ter suggests transfer of responsibilities given to the Federal Reserve (and other bank regulatory agencies) to the SEC in addition to those contained in section 12(i). For example, the bank regulatory agencies also have supervisory responsibility under the Securities Exchange Act to sup ervise banks conducting municipal security dealer, transfer agent and clearing agency activities (sections 3(a)(34), 15B, and 17(A)(c) and (d)). However, transfer of authority to superv ise municipal dealer, transfer agent and clearing agency activi ties was never considered by the Task Force. This supervisory responsibili ty over banks conducting these types of securi ties functions was maintained in the bill to regulate govern ment security dealer operations (H.R. 2032) that was passed by the House of Representatives on September 17, 1985 and a shifti ng of responsibilities would be inconsistent with the approach taken in that bill. The Board of Governors also has responsibility under section 7 of the Securities Exc hange Act to promulgate and administer margin requirements. In January 1985, the Board of Governors sent you and other mem bers of Congress a staff study entitled A Review and Evaluatio n of Federal Margin Regulatio n. In its transmittal letter (a copy of which is enclosed for your convenient reference) the Board questioned the need for continuing federal regulation to foster the objectives originally sought by Congress in enacting section 7 and recommended that Congress give serious consideration to a new approach to margin regulation. Various approaches were suggested in the Board's letter and we would be happy to discuss them in more detail with you. you.  We trust that the above comments will be helpful to Sincerely,  d  ( L '  Enclosure  (Ltr. dtd. 1/11/85 to Chrmn. Helms, et al., from Chrmn. Volcker)  RSP:SMR:MB:cmk (V-154, 86-3110) bcc: Mr. Plotkin Mr. Roberts Mr. Bradfield Legal Records (2) Mrs. Mallardi (2),   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CI 4e-  NINETY-NINTH CONGRESS  ROOM 2323 RAYBURN HOUSE OFFICE BUILDING PHONE (202) 225-4401  • JOHN D DINGELL, MICHIGAN. CHAIRMAN RON WYDEN. OREGON DENNIS E ECKART. OHIO JIM SLATTERY, KANSAS GERRY SIKOFtSKI. MINNESOTA JAMES H. SCHEUER. NEW YORK JAMES J. FLORIO, NEW JERSEY THOMAS A LUKEN. OHIO JOHN BRYANT, TEXAS HENRY A. WAXMAN, CALIFORNIA RICHARD C. SHELBY, ALABAMA  JAMES T BROYHILL NORTH CAROLINA BOB WHITTAKER, KANSAS THOMAS J BLILEY. JR . VIRGINIA MICHAEL G OXLEY, OHIO MICHAEL BILIRAKIS, FLORIDA DAN SCHAEFER, COLORADO FRED J. ECKERT. NEW YORK  MICHAEL F. BARRETT, JR CHIEF COUNSEL/STAFF DIRECTOR  11.6. 31)ouise of Reprezentatibefi ibubcommittee on  bertigtt anb inbettigations of the Committee on entrap anb Commerce  afsb n gton, Ile 20515 July 16, 1986  The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th Street & Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Volcker: Since February 1985, the Subcommittee on Oversight and Investigations has conducted sixteen hearings regarding the administration and enforcement of financial reporting and accounting provisions of the Federal securities laws. Most of these hearings have dealt with the application of those provisions to financial institutions. The Subcommittee is now preparing a report, based upon its findings, which we expect will include a recommendation that Congress enact legislation that will make the Securities and Exchange Commission solely responsible for administering and enforcing the Federal securities laws for all organizations subject to those laws. The Federal Reserve Board participated as a member of the Task Group on Regulation of Financial Services, whose members included the Vice President of the U.S. and the heads of twelve major departments andagencies. On July 2, 1984, this Task Force issued its final report, "Blueprint for Reform", which set forth many unanimous recommendations for reform of the present financial regulatory system. Among these was the following recommendation on page 91:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  5.2 - Centralization of Securities Responsibilities The registration requirements of the Securities Act of 1933 should be made applicable to publicly offered securities of banks and thrifts (but not deposit instruments), and administration and enforcement of disclosure and other requirements of the Securities Exchange Act of 1934 for bank and thrift securities should be transferred from the bank and thrift regulatory agencies to the SEC, as is currently the case for securities of all other types of companies (including bank and thrift holding companies).  The Honorable Paul A. Volcker July 16, 1986 Page 2  You approved the "Blueprint for Reform" in your capacity as Chairman of the Board of Governors of the Federal Reserve System. This approval shows your recognition and support for a recommendation that would transfer to the Securities and Exchange Commission all responsibilities under the Federal securities laws which are presently held by the Federal Reserve Board. The Chairman of the Securities and Exchange Commission also recommended this transfer through approval of the "Blueprint for Reform" report and in subsequent testimony before the Subcommittee. In order for the Subcommittee's report to be current regarding the Federal Reserve Board's position on this issue, the Subcommittee requests that you provide a letter stating that the Federal Reserve Board still recommends that Congress enact legislation which would transfer to the Securities and Exchange Commission all responsibilities under the Federal securities laws which are presently held by the Federal Reserve Board. Because of time constraints, the Subcommittee requests that you provide it with such a letter no later than the close of business on Wednesday, July 30, 1986. Please direct any questions regarding this request to Messrs. John Chesson or R.C. Norwood of the Subcommittee staff at 225-5365. erely,  John D. Dingell Chairman Subcommittee on Oversight and Investigations  JDD:JCdb   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .  .•  •... ',0of _GON4, ...st.  BOARD OF GOVERNORS  • cl-/4.1-'W:all  OF THE  • co '.4.: • •' '0 / 1  FEDERAL RESERVE SYSTEM  •-,  • .4 0. •..<,  UM  WASHINGTON, ID. C. 20551  ,-)• A.. 44,  July 30, 1986  • RAL  • •..• •  The Honorable Jake Garn Chairman Committee on Banking, Housing, and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Garn: I am writing to acknowledge receipt of your letter of July 7 requesting comment on correspondence you received from Ms. Rachel Wheeler concerning a problem she has encountered • with the Hardwick Bank & Trust Company of Dalton, Georgia. Since Hardwick Bank is not a member of the Federal Reserve System, but is an insured bank under the jurisdiction of the Federal Deposit Insurance Corporation, I have referred your request to that agency for reply. Sincerely, S/ Donald U. Winn Donald J. Winn Assistant to the Board  cc:  Cong. FDIC  son Office  CO:vcd (#V-155, 86-3191) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi V/  JAKE GARN, UTAH, CHAIRMAN JOHN HEINZ, PENNSYLVANIA WILLIAM L ARMSTRONG, COLORADO ALFONSNA DAMATO, NEW YORK SLADE GORTON. WASHINGTON MACK MATTINGLY, GEORGIA CHIC HECHT. NEVADA PHIL GRAMM, TEXAS  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  M DANNY WALL STAFF DIRECTOR KENNETH A. McLEAN, MINORITY STAFF DIRECTO R   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  FEr,7_ crioirviRNthr4 wiz sysTEtt  United eStat; COMMITTEE ON BANKING, HOU URBAN AFFAIRS WASHINGTON,  ,2bpit ii(ef,v 1I  D(139141.1V  2: 0,  Trri tfiAID  July 7, 1986  Honorable Paul A. Volcker Chairman Federal Reserve Board 20th & Constitution Ave., N.W. Washington, D.C. 20551 Dear Chairman Volcker: Enclosed is a letter from Ms. Rachel Whe eler explaining her complaint with the Hardwi ck Bank & Trust Company of Dalton, Georgia. Thank you for any help that you can give her in this matter. Please let me know the res ults of your investigation so that I can get back to her. Sincerely,  Jake Garn Chairman JG:jbn Enclosure  19B6 JUN 3n,  11: 2E June 24, 1986  The Honorable Jake Garn, Chairman Committee on Banking... The United Sttes Senate Washington, D.C. 20510 Der Senator Garb, Herein I bring to your attent ion a serious matter involving hardwick & Trust Company of Dalton, Geo rgia, an institution in the jurisdiction of the Atlant a regional office of the FDIC. hardwick Bank is guilty of wro ngdoinE in several respects: granting and transferring an ill egal mortgage; allowinF an illegal bank box con tract that unlawfully eliminated my access as deputy; violating subpoena (estate matters) by incompletely issuing checkin:: account st tem ents and signature cards, and failing to show at lea st one large depcsit on a st,Aement; yd withholding several months of statements, all of which were req uired by subpoena; covering up these acts of wrcngd oing before the supErior court of Whitfield 'dounty, Geo rgia, and to me as a leg71 heir, and to the FDIC. For four years I 1131/r7' triad to obtain information and the viewing of original documents at hardwick Bank in the process of estate investigation as an heir. For five or six decades that bank has been the sole reposi tory of family accounts and fiduciaries, at some estate valuables and docume nts were held in :the family's safe deposit box. How ever, fA.lowinF Hardwick's reicorporation and refinancing (after its failure as a subsidiary of hamilton Bank of Tennes see in 1976), its dealings with me -- and its overall operation s -- have been suspect. In lookin g into tLis ratter, may I suggest that the committee acquaint itself with details of Hardwi ck's refinancing, its subsequent releae of lonp.-time officers, and the restaffinP.... The local oolitical activities of its curren t president, Hulan Barbaree, ought to be instructive as wel l, in underst-,ndinsg some of the bank's efforts to put up a good front. The problem I bring to your attent ion also deals with the sad refusal of the FDIC to invest igate these irregularities. l'or eight months somone at the Atlanta office or in Washingto n Is indulging in deceit where my reques t for investigation are concerned.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I  2-  Lately, the Atlanta office has been assuring ir. Shumway, of bank operations in tashington, ad others I have asked for qssistance le-, making the FDIC dispatch a bank examiner, that the Atlanta office and the state banking commissioner have investigated my complaints. This is untrue. No bank examner or other party has gone to Hardwick to examine original documents or check any of the details I have supplied. The Atlanta office claims, through counsel, that the matter is entirely civil. .This is untrue; it is well within the jurisdiction of the FDiu, and your committee also, I am informed. The cunning sugFestinE of counsel to the Atlanta office that I proceed with it throuFh counsel of my own, i- the courts of Whitfield c - unty, Georgia, seeks to ensure delay and defer- t of my effort to prove that wrongdoing has taken place Nor is it my resonsibility to carry the responsibilitLes of the DIC's mandate. I alsc believe that Hardwick needs to be investigated overall. Hardwick's tre.J.tment of me has been cavalier at best, and, in fact, shows contempt for resuectible b2nking procedures. If they were blameless, the would let me see the or_ginal document and welcome the inspection by a bank exminer. hut, they La ve gone to great lengths to prevent review. 4=-<)meone at the FDIC is assistin tnem in that shameless effort. I can substantiate my allegations. I have sent copies of documents to the Atlanta office with accompanying exr)lanations. May I suggest that your committee request from the FDIC all copies th:-A I have submitted to them in Atlanta? It miFht be instructive to see if they send you all that I have shown them. Two former bank examiners have informed me thA the facts I hpsve reported warrant investigation; one cf these informants is presently an F1-2I agent. I stand on firm ground in a)pealing to you and to the FDIC. Sincerely,  Rachel Wheeler  * The courts of the county hve demonstrated reluctance to proceed against local benks.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  MEM.  Li5 .''' ' Ofcoli : 442., •SS) .1.  .,  •(o /4. •40,44.; .• •o . ••te, , , RAI_ •••..•••  0.  BOARD OF GOVERNORS  1; /---• ,..,• .1.. ,-)• / 1 4‘.  FEDERAL RESERVE SYSTEM  OF THE WASHINGTON, D. C. 20551  PAUL A. VOLCKER  July 29, 1986  CHAIRMAN  The Honorable Fernand J. St Germain Chairman Subcommittee on Financial Institutions Supervision, Regulation and Insurance Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Chairman St Germain: Thank you for your letter of July 1 requesting information on the off-balance sheet exposures of the 25 largest bank holding companies for the years 1981-85. As you know, the off-balance sheet activities of large banking institutions have grown dramatically in recent years. In view of the potential risks associated with these activities, bank supervisory authorities in major industrial countries have made a special effort to increase their knowledge and understanding of the types and magnitudes of risk that these activities entail. In general, bank supervisors in these countries have agreed that the supervisory approach to offbalance sheet risk should encompass three main elements: (1) monitoring of new developments through an ongoing dialogue with banks and other interested parties; (2) development and periodic review of prudential reporting systems to ensure that the information collected on off-balance sheet activities is adequate; and (3) review of supervisory policies to ensure that they take full account of the development of off-balance sheet business. At the Federal Reserve, we fully subscribe to this three-part approach. In addition to discussing the management of off-balance sheet risks with bankers and others, we have recently revised our data collection systems for banks and bank holding companies to capture additional information on the scale of off-balance sheet commitments and contingencies. We will continue to reexamine the adequacy of these data for supervisory purposes, and will collect additional information on off-balance sheet activities if necessary. In the area of supervisory policy, in January of this year, the Federal Reserve issued for public comment a proposal to amend the capital guidelines for bank holding companies and   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  Jr  ..  The Honorable Fernand J. St Germain Page Two state member banks by adding a Supplemental Adjusted Capital Measure. Among other things, this measure is specifically designed to explicitly factor certain off-balance sheet risks, such as standby letters of credit, commercial letters of credit, and loan commitments, into the assessment of capital adequacy. We are actively reviewing the risks associated with other offbalance sheet activities. If appropriate and feasible, we will consider factoring other off-balance sheet items into this new measure. With regard to your request, we can provide you with most, but not all, of the information you requested. At present, we do not collect data on currency swaps, off-balance sheet lease obligations, securitized bank assets, collateral, municipal bond issuance, or note issuance facilities. (Note issuance facilities are included in loan commitments and some banks apparently include currency swaps with interest rate swaps.) At present, virtually all of the information that we collect on off-balance sheet activities is from banks, rather than bank holding companies. The statistical information on off-balance sheet activities of commercial banks that is currently available in our files is reported on Schedule RC-L of the Report of Condition. (A copy of Schedule RC-L is enclosed.) With regard to bank holding companies, standby letters of credit are the only off-balance sheet item that is available for the period 1981-85. We have recently revised our reporting requirements for bank holding companies, however, and beginning with the June 30, 1986 reporting date, they will report the same information on off-balance sheet activities that banks now report. The enclosed table presents data on twelve off-balance sheet items for the 25 largest bank holding companies for the five-year period. The data on standby letters of credit is the total amount of such letters outstanding on a fully consolidated basis. The data presented on the eleven other off-balance sheet items is the aggregate amount reported by all subsidiary banks of each of the bank holding companies, and thus does not include any off-balance sheet exposures of the bank holding company parent or its nonbank subsidiaries. Although your letter specifically requested the total amount of off-balance sheet commitments, I feel that it is important to stress that the sum of the amounts outstanding of   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  The Honorable Fernand J. St Germain Page Three the different items can be a very misleading indicator of aggregate off-balance sheet risk. The risk associated with different off-balance sheet activities varies significantly. In fact, certain of these activities may reduce risk. For example, futures, forward and options contracts, and interest rate swaps can be used to hedge interest rate risk, and, as a matter of Federal Reserve policy, the use of these instruments by banking organizations under our supervision is generally limited to risk-reducing strategies. Thus, the assessment of off-balance sheet risks requires much more detailed information than can be captured in a simple, standardized reporting form like Schedule RC-L. At the Federal Reserve, we generally use these data only as indicators of the scale of a bank's involvement in off-balance sheet activities. The detailed information required for assessing risk can be obtained only through on-site examination. We understand that the Office of the Comptroller of the Currency is providing you with off-balance sheet data on the 25 largest national banks. I hope this information is useful to your Subcommittee. Please let me know if I can be of further assistance. Sincerely,  Enclosures  AGC:CO:vcd (V-145, 86-2835) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Cornyn Mr. Taylor Mrs. Mallardi (2)  FERNAND J ,ST GERMAIN. RHODE ISLAND ,:htARMAN FRAN.< ANNUNZIO, ILLINOIS . CVis.:OLL HUBBARD, JR . KENTUCKY .1.0CAJG BARNARD. JR GEORGIA JOHN J LAFALCE. NEW YORK MARY ROSE OAKAR, OHIO BRUCE F VENT°. MINNESOTA ROBERT GARCIA, NEW YORK CHARLES E SCHUMER. NEW YORK BARNEY FRANK, MASSACHUSETTS RICHARD H LEHMAN. CALIFORNIA JIM COOPER, TENNESSEE BUDDY ROEMER, LOUISIANA MARCY KAPTUR. OHIO BILL NELSON, FLORIDA PAUL E. KANJORSKI, PENNSYLVAN BART GORDON. TENNESSEE THOMAS J. MANTON, NEW YORK  Action assigned Bill Taylor  U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON FINANCIAL INSTITUTIONS SUPERVISION, REGULATION AND INSURANCE  CHALMERS WYLIE. OHIO JIM LEACH. IOWA STEWART B. McKINNEY. CONNECTICUT NORMAN D SHUMWAY. CALIFORNIA BILL McCOLLUM. FLORIDA GEORGE C. WORTLEY NEW YORK DAVID DREIER. CALIFORNIA STAN PARRIS, VIRGINIA MARGE ROUKEMA. NEW JERSEY DOUS BEREUTER, NEBRASKA STEVE BARTLETT. TEXAS TOBY ROTH. WISCONSIN  WTI*  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-NINTH CONGRESS  WASHINGTON, DC 20515 July 1, 1986  Honorable Paul A. Volcker Chairman, Board of Governors F.;.K'ral Reserve System :Otn and Constitution Avenue, N.W. 'iashington, D.C. 20551 D ar Chairman Volcker: At the Subcommittee's hearing on April 9, 1986 on the condition of the U.S. banking system, the Camptroller of the Currency reported that the capital-to-assets ratios of the largest U.S. banks were growing favorably. I asked if those figures included off-balance sheet items. He answered that they did •not. I then requested that he provide the Subcommittee with the capital-to-assets ratio including off-balance sheet items for the 25 largest banks and the 25 largest bank holding campanies for the last five years. Mr. Clarke's letter of June 5, 1986, in response to that request, provided such information using standby letters of credit as a proxy for all off-balance sheet items. The information supplied by the Camptroller of the Currency concerning standby letters of credit is useful. However, we are concerned that standby letters of credit may not be a useful or accurate proxy for all off-balance sheet activity. According to the 1985 Annual Reports of five large U.S. money center banks (Bank of America, Chase Manhattan, Citicorp, Morgan Guaranty Trust, and Manufacturer's Hanover Trust), standby letters of credit camprise only 6% to 10% of the total dollar value of off-balance sheet cammitments at those banks. Has the Federal Reserve conducted research into or collected data about the items camprising the remaining 90%-94% of off-balance sheet commitments? Without such information, we doubt if it is possible to properly track the growth of off-balance sheet risk and its implications for the soundness and stability of the U.S. banking system. To assist us in our efforts to fully understand capital adequacy in a context including off-balance sheet items, I ask that you provide the Subcommittee, on or before August 1, 1986, with the following information for the 25 largest national banks and the 25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  largest bank holding campanies by individual bank and bank holding campany, for the years 1981-1985:  1. 2. 3.  4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.  Standby letters of credit Loan commitments Interest rate swaps a. notional amount b. estimated risks Currency swaps Foreign currency sales or purchases Futures, options, money market instruments Note issuance facilities Forward rate agreements Securitized bank assets Leases Collateral Municipal bond issuance Other instruments (specify) Total off-balance sheet commitments Total bank assets Total primary capital  Similar requests have been made to the FDIC and the Comptroller of the Currency. You may want to coordinate your information gathering and responses with them. If you have questions regarding this request, please contact Mr. Robert Dugger of the Subcommittee Staff. Thank you for your cooperation.  Since  J. St Germain rman FJStG:dMv   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, O. C.20551  July 29, 1986  PAUL A. VOLCKER CHAIRMAN  The Honorable Strom Thurmond President Pro Tempore United States Senate Washington, D.C. 20510 Dear Senator Thurmond: Thank you for your letter of July 28, recommen ding Mr. R.B. Dean, Jr. for a position on our Cons umer Advisory Council. I can assure you that Mr. Dean will receive full consideration when the Board selects seven new Council members in the fall of this year. In selecting new members, the Board makes a special effort to achieve a geographic balance, to include an adequate representation of women and minorities, and to maintain an even balance of consumer and industry interests. We are fortunate to have a large number of individuals recommended for Council positions, and the Board appreciates your taking the time to call our attention to qualified individuals who could contribute to the Council's work. Thank you, again, for your recommendation. Sincerely,  CO:pte (V-158, 86-3300) bcc: Mrs. Mallardi (2) L -Mrs. Bray (w/copy of incoming)  STROM THURMOND  •  SOUTH CAROUNA  aftle ALTresibent Pro Tempar UNITED STATES SENATE  C")  CC)  rrl  .c•--I •-•,-1  CT,  t-n 7.1,  :r„..,_7-. 6_.- „,,,=,. -,.r7_1-,"  July 28, 1986  r— c=1 Po rrt -n  -_--  C") r-r1 •••-•4  x. —  1›..) rft.  "`"C Ce) ----t  rn  -2......-  Dear Mr. Volcker: with My constituent John H. Holladay, Jr., has been in touch serving on the me on behalf of R.B. Dean, Jr., who is interested in d. Consumer Advisory Council of the Federal Reserve Boar nity and Joe Dean presently serves as Administrator for Commu Columbia. He Consumer Affairs for South Carolina National Bank in y in my State, is highly-regarded by members of the banking communit deration for an and I hope you will give him your careful consi appointment to the Consumer Advisory Council. in I understand that Mr. Dean's name has been placed already have nomination for this position, and I assume that you he would do pertinent information about him. I am confident that Reserve Board all he could to promote the policies of the Federal and those of the Administration.  Sincerely,  Strom Thurmond ST/r   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Cn  ..< rwl "cry; rn =,  ....4  With kindest regards and best wishes,  Cri ct>  2 C-' = ...... :..  Mr. Paul Volcker, Chairman Federal Reserve Board 20th and Constitution Avenue Washington, DC 20551  c..... P NJ co  „. ;X' C.!  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  PAUL A. VOLCKER  July 28, 1986  CHAIRMAN  The Honorable Dante B. Fascell House of Representatives Washington, D.C. 20515 Dear Mr. Fascell: Thank you for your letter of July 25, recommending Mr. Paul A. Lester for a position on our Consumer Advisory Council. I can assure you that Mr. Lester will receive full consideration when the Board selects seven new Council members in the fall of this year. In selecting new members, the Board makes a special effort to achieve a geographic balance, to include an adequate representation of women and minorities, and to maintain an even balance of consumer and industry interests. We are fortunate to have a large number of individuals recommended for Council positions, and the Board appreciates your taking the time to call our attention to qualified individuals who could contribute to the Council's work.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Thank you, again, for your recommendation. Sincerely,  'Ete.aul  CO:pte (V-156, 86-3254) bcc: Mrs. Bray (w/copy of incoming) Mrs, Mallark (ibpv/  DANTE B. FASCELL •  Cong. Liaison Office drafting response  19TH DISTRICT, FLORIDA  FOREIGN AFFAIRS COMMITTEE CHAIRMAN ARMS CONTROL INTERNATIONAL SECURITY AND SCIENCE SUBCOMMITTEE CHAIRMAN SELECT COMMITTEE ON NARCOTICS ABUSE AND CONTROL MEMBER  CHARLES R O'REGAN ADMINISTRATIVE ASSISTANT  Congress of the United eStats  COMMISSION ON SECURITY AND COOPERATION IN EUROPE MEMBER  lutist of Represtntatitns Vashington, DO 20515  NORTH ATLANTIC ASSEMBLY CHAIRMAN HOUSE DELEGATION  July 25, 1986  CANADA-UNITED STATES INTERPARLINANTARY GROUP MEMBER, U43DELEWION C-0  rN)  ,.3  The Honorable Paul A. Volcker Chairman Federal Reserve Washington, DC 20551  r-r-1  Dear Mr. Chairman: It has come to my attention that the Federal Reserve is seeking nominations for the Consumer Advisory Council. I am very pleased to recommend one of my constituents, Mr. Paul A. Lester of Miami. Mr. Lester is a well-respected attorney with outstanding experience in financial and international banking law. He is a former staff attorney and assistant to the Director of the Bureau of Consumer Protection at the Federal Trade Commission, and has served as Vice Chairman of the Consumer Law Committee of the Florida Bar. His firm specializes in corporate and commercial law with emphasis on banking and consumer law. I believe Mr. Lester would be an excellent choice for the Consumer Protection Advisory Council and that his selection would provide important representation for Florida. I urge that he be accorded every possible consideration. With best wishes, Sincerely,  DANTE B. FASCELL Member of Congress DBF/KH   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ..”11  1  -  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  July 25, 1986  The Honorable Fernand J. St Germain Chairman Subcommittee on Financial Institutions Supervision, Regulation and Insurance Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Chairman St Germain: Thank you for your recent letter forwarding correspondence that Congressman Eldon Rudd received from his constituent, Mr. Robert Lauber. Mr. Lauber is concerned that lack of notification to bond owners of a bond call may result in financial loss for the bond owners, and he suggests that banks acting as the paying agent on the bonds be required to notify bond owners of any such call. He states that such notification could be made through normal banking channels similar to the process used for returning uncollectible interest coupons. There are, generally, two types of bonds--registered and bearer. Bearer bonds are payable to the bearer and ownership is not recorded. Interest payments for these bonds occur only when the interest coupons are submitted for collection to the paying agent of the bond issuer. The principal of the bond is paid when the bond itself is submitted to the paying agent on or after maturity of the issue. If a bearer bond issue is called before maturity, the documents establishing the bond issue generally provide that notice of the call is to be published in named periodicals such as the Bond Buyer or the Wall Street Journal. When an interest coupon is submitted for payment after the bonds have been called, the paying agent for that bond issue will return the coupon unpaid through the collection chain with a notice that the bond issue has been called. For investors that do not monitor regularly the status of their bond investments, the returned coupon may be the first notice they receive that their bond has been called. Although these procedures may on occasion result in situations where coupons continue to be paid after the call date so that bondholders are not aware their bond has been called, as happened to Mr. Lauber, the anonymity of bearer bond owners makes prior notification of a call to individual bondholders impracticable other than through publication of the notice of call in selected periodicals.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Fernand J. St Germain Page Two  Registered bonds do not present the notice issues associated with bearer bonds. With registered bonds, transfer agents and paying agents maintain ownership records for the bonds and are therefore able to notify bondholders of a call. In practice, the procedures for providing such notice are established by the bond documents. Generally these procedures require that notice of the call be provided to bondholders of record as of a certain date. With regard to the specific circumstances of Mr. Lauber's problems, conversations with his bond's paying agent, First National Bank of Chicago ("Bank"), confirmed that Mr. Lauber's bond was a bearer bond. Consequently, Mr. Lauber should have been informed of the call with a return of either his July 1, 1984, or January 1, 1985, interest coupons as provided in written procedures of the Bank. Apparently these coupons, as well as his July 1, 1985, coupon, were not returned due to errors by temporary employees. The Bank has informed us that they have settled Mr. Lauber's claim to his satisfaction and that all employees have received copies of the written procedures for processing bearer bonds and coupons to prevent recurrence of this problem. I hope this information is helpful to you. me know if I can be of further assistance. Sincerely, Si Donald J. Winn Donald J. Winn Assistant to the Board DR:CO:vcd (V-146, 86-2866) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Rhoads Mr. Ireland Mr. Bradfield Legal Records (2) Mrs. Mallardi.  Please let  FERNAND J. ST GERMAIN. RHODE ISLAND, CHAIRMAN FRANK ANNUNZIO. ILLINOIS CARROLL HUBBARD, JR , KENTUCKY DOUG BARNARD, JR GEORGIA JOHN J LAFALCE. NEW YORK MARY ROSE OAKAR. OHIO BRUCE F VENTO, MINNESOTA ROBERT GARCIA. NEW YORK CHARLES E SCHUMER. NEW YORK BARNEY FRANK, MASSACHUSETTS RICHARD H LEHMAN CALIFORNIA JIM COOPER, TENNESSEE BUDDY ROEMER. LOUISIANA MARCY KAPTUR, OHIO BILL NELSON. FLORIDA PAUL E KANJORSKI. PENNSYLVANIA BART GORDON. TENNESSEE THOMAS J MANTON. NEVI YORK   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON FINANCIAL INSTITUTIONS SUPERVISION, REGULATION AND INSURANCE  CHALMERS P. WYLIE. OHIO JIM LEACH. IOWA STEWART e rAcciNNty. CONNECTIVE NORMAN 0 SHUMWAY, CALIFORPAN SILL McCOLLUM, FLORIDA GEORGE C WORTLEY NEW YORK DAVID DREIER. CALIFORNIA STAN PARRIS, VIRGINIA MARGE ROUKEMA, NEW JERSEY DOW' BEREUTER. NEBRASKA STEVE BARTLETT. TEXAS TOBY FIOTH, WISCONSIN  OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-NINTH COGRESS N  WASHINGTON, DC 20515 c•—•5  July 1, 1986 <3  rr I Fri C—D rT1  Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th and Constitution Avenue, N.W. Washington, D.C. 20551  :7*  (.9 1:=)  Dear Mr. Chairman: Enclosed you will find a letter which I have received from Congressman Eldon Rudd enclosing specific legislative suggestions by his constituent, Mr. Robert Lauber, with regard to notification of bondholders, through "normal" banking channels, of when their bonds are "called" so as to avoid lost interest. I would appreciate your thoughts and comments on Mr. Lauber's suggestions sent to me so that I may reply directly to Congressman Rudd. Sincerel  and J. St Germain irman  FStG:sTf Enclosure  ,.ELDON RUDD  WASHINGTON OFFICE 2465 RAYBURN BUILDING WASHINGTON, DC 20515 (202) 225-3361  4iNDIsmuARI2ow, COMMITTEE ON APPROPRIATP  Congre.52; of tbr Zinittb z"wr elY  S  0 V  tates5  DISTRICT OFFICE 6900 E CAmcLeAcK ROAD SCOrTSDALE AZ 85251 (602) 241-2801  j0ouge of 2rpregentatibr55  .  •  \e. V  gilagbington, Me 20515 May 22, 1986 7 - •••-•••  t  ?—  D  Hon. ernand St. Germain Chairman House Committee on Banking, Finance and Urban Affairs 2129 Rayburn H.O.B. Washington, DC 20515 Dear Fred, A constituent of mine, Mr. Rober Lauber, has contacted me to express his concern over the failure of banks to notify bondholders when their bond investments mature, and their last interest payments are deposited. In his letter he details his own experiences with banks on such a situation. I am enclosing a copy of Mr. Lauber's letter for your review and comments. Thank you in advance for your attention to this matter. With every good wish,  Sincerely, e '  Eldon Rudd Member of Congress ER:pp Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ROBERT LAUBER  April 2, 1986  To: The Banking Committee of Congress Re: Banks failure to notify Bondholders of Called Bonds AND a smooth legislative solution--  to require  notification of call when the last interest amount is paid. SITUATION - ( an exact case ) Sample I have been retired for over 15 years and deoend upon a return on my investments, social security, etc. of Illinois Health Facility Bonds since I owned January 1975, on the Luthern Hospital in Moline, Illinois, paying 8.10% interest, tax exempt, coupon bonds, paying on January 1st and July 1st. These bonds, I have been recently told, were called as of an interest payment date- July 1, 1984. However, my coupons of were paid on July 1, 1984 with no indication to me that these bonds were called, on that day. Interestingly, the coupons due January 1,1985 and July 1, 1985 were also Paid, in the normal manner, with no notice to me of the fact that the bonds had been called. Upon presentation of the January 1, 1986 coupons, I was eventually advised thirty days later that the bonds had been called on July 1, 1984. Accordingly the bonds were submitted for payment-- but since the January 1, 1985 and July 1, 1985 were not attached, having been paid ( improperly ) the paying Bank needed a letter agreeing to a reduction of the principal for the amount of these coupons, which we gave promptly, to get my funds. Accordingly, on March 31, 1986 I received a credit to my account for , a deduction of having been made for the two improperly paid coupons. The final paying Bank was the First National Bank of Chicago and my account here is at the Valley National Bank in Phoenix. OBSERVATION-- Normally when coupons are not paid by the paying Bank, for any reason, the coupons are returned to the customer through the same bank channels that they were originally sent, and the customers account is properly charged. Demonstrating that bank channels have the information theY need to get back to the customer, normally, even in the case of coupon bonds. Therefore, it would be in the Public Interest to have a Law on the federal books or in the FDIC rules, that when the last couponprior to or at call date is paid, the paying Bank is required to notify the holder of the bond, through normal  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  rank channels ( the same as returned couDons ). In the above example, I have lost interest for one full year and nine months, because no such ( kindly ) advise was given. ar•—•  Thank you for your consideration and help.  Very sincerely  Robert Lauber  Delay in notification cost as follows: 18 -months @ 8.10%- actual bond rate, on . Reinvestment rate for similar bonds, in July-August 1984 was 10%. Rate in April 1986 is about 71 %. Accordingly, 2i % times 10 years is times  $  ./Alt  Uuly 21, 1986  The honorable William E. Uannemeyer noue ci Representatives Washington, D.C. 20515  Oear Mr. bannemeyer: I an pleased to respond on behalf dt my Federal Reserve r Gold Standard colleagues and myself to your letters concerning you bill, H.R. 44U1.  Enclosed is a memoranduia prepared by the Federal  l. Reserve staff discussing several aspects of the oil information will be useful to you.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  S, PL A Wolcicec Enclosure Lir. 11.8Z 1i13A/EM1:;yw ucc:  Mr. Mallardi (2)1 Mr. Truman Ms. Long Mr. Adams  I hope this   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  July 21, 1986 Federal Reserve Board Staff Comments on H.R. 4401, The Gold Standard Act of 1986  Congressman Dannemeyer's Gold Standard bill, H.R. 4401, provides for the minting of gold coins and a phased linkage of the coins to, first, Treasury debt and, later, Federal Reserve notes.  Treasury  obligations issued after September 30, 1986, would be redeemable in gold on coins; Federal Reserve notes would become redeemable in the coins October 1, 1987.  In addition, the redeemable Treasury debt would be  long-term (25 years or more) and could yield no more than 2-1/2 percent. Several important issues are raised by H.R. 4401, some of which are common to most proposals for returning to a gold standard. selection of Of primary importance to any gold -standard proposal is the the fixed dollar price of gold.  Both excess private demand for gold and  to excess private offerings to the authorities at the chosen price need set be avoided; otherwise, deflationary or inflationary forces will be in motion.  H.R. 4401 attempts to address this issue by having the  s Secretary of the Treasury set daily bid and ask prices for a year' time before final convertibility takes place.  The Treasury would presumably  aining the U.S. conduct transactions at these prices with an eye to maint spelled gold stock at its initial volume, although this mandate is not out in the bill.  Economists who have studied the price -choice problem  tion of have been unable as yet to describe a method for insuring selec  A  - 2 ed an equilibrium price at convertibility, and the success of the propos procedure therefore cannot be guaranteed. Even if the "right" price should be selected, the central longer -run issue of a gold standard would arise.  After a nominal dollar  price for gold is fixed, the real value of gold -- its capacity to purchase other commodities, goods, and services -- would continue to be determined by the normal market forces of supply and demand.  In  for particular, fluctuations in the world supply of gold and in demand gold. gold in nonmonetary uses would greatly influence the real value of A fixed link between gold and the dollar would mean that dollar prices . of all items other than gold would be influenced by those fluctuations Economic activity and employment would be adversely affected by the instabilities that resulted.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  This problem is often overlooked by modern  advocates of a gold standard, because their recommendations recall historical episodes of fixed gold prices.  In the past, however, both  demand for gold and, to a lesser extent, its supply were relatively unsusceptible to fluctuation compared to current conditions.  The  widespread appearance of gold in nonmonetary roles in communications, medicine, space exploration, and other economic activity and of gold technological advances in the discovery, mining, and processing ore have significantly changed the expected stability of the real value of gold. Two other significant issues are raised by other provisions of H.R. 4401.  The bill would attempt to fix a permanent ceiling on real  long-term interest rates of 2-1/2 percent.  No reliable way exists,  would however, to ensure that this limit -- or any realistic limit -not be breached, since real returns on physical capital vary cyclically  - 3-  •  and secularly, and capital can flow across borders to its most productive uses.  At a minimum, this provision of the bill would tend to  impart a tilt toward a persistent deflationary bias in monetary policy to force declining prices of goods and services in terms of gold. Falling prices of goods and services would increase the purchasing power of the gold -coin interest payments on federal debt issued under the bill. Without that boost, bonds yielding 2-1/2 percent would not attract purchasers at times when they could alternatively make investments in higher -yielding capital projects or financial instruments here and abroad.  Perpetual deflation, if realized, would produce no fewer  hardships and distortions than the perpetual inflation that recent economic policy has aimed at avoiding, although the winners and losers would be different. Finally, H.R. 4401 would have the immediate effect of greatly increasing the Treasury's real cost of servicing its currently outstanding debt, thereby producing just the opposite of its intended benefits.  Existing bondholders would have no incentive to exchange  their high -yielding bonds for the new ones, because the linkage after October 1, 1987, between Federal Reserve notes and the gold coins would mean that subsequent coupon payments could be exchanged for the coins. The Treasury would therefore face the prospect of paying a real servicing cost equal to the full amount of the nominal coupon rate for the life of the outstanding bonds.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  W.G.(BILL) HEFNER  DISTRICT OFFICES  §TH DISTRICT, NORTH CAROLINA  P0 BOX 385 101 UNION STREET, SOUTH CONCORD, NC 28025 (704) 933-1615 OR 786-1612  1......." . "fr61 RAYBURN HOUSE OFFICE BUILDING WASHINGTON, DC 20515 (202) 225-3715  Congress of the  COMMITTEES: COMMITTEE ON APPROPRIATIONS SUBCOMMITTEE ON DEFENSE CHAIRMAN: SUBCOMMITTEE ON MILITARY CONSTRUCTION COMMITTEE ON THE BUDGET  'ad *tam tom of Representatitms Washington, ve 20515  P0 BOX 4220 HOME SAVINGS AND LOAN BLDG 507 WEST INNES STREET, SUITE 225 SALISBURY, NC 28144 (704) 636-0635  May 28, 1986  P0 801r1503 202 EAST FRANKLIN STREET ROC,K15G HA 1*,--141C 283 19(997.70  .."4  on *11  CD  The Honorable Paul A. Volcker Chairman Federal Reserve Board 20th St. & Constitution Ave. Washington, DC 20551  -13  rct  70  'X)  •"A" )  CO  Dear Mr. Chairman: I deeply appreciate your willingness to speak at my 8th District Chamber of Commerce Washington Issues Seminar. Enclosed please find a copy of the seminar's agenda. Each speaker is allocated approximately 30 minutes which will include time for questions and answers. The seminar will be held in 345 Cannon which is the Cannon Caucus Room (225-6450). Once again your participation in this seminar is greatly appreciated and I look forward to seeing you.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  With kindest regards, I am Sincerely,  BILL HEFNER Member of Congress  •p  44P   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  8TH CONGRESSIONAL DISTRICT CHAMBER OF COMMERCE WASHINGTON ISSUES SEMINAR  JUNE 10th 1:30 pm - 4:00 pm Opening Remarks - Congressman Bill Hefner 1:30 pm  Majority Leader Jim Wright (TX)  2:00 pm  Honorable John Marsh, Jr. Secretary of the Army  2:30 pm  Congrosoman Bill Gray (PA) Chairman, House Committee on Budget  3:00 pm  Mr. Carlos Moore Executive Vice President of American Textile Manufacturing  3:30 pm  Senator Bill Bradley (NJ) Senate Finance Committee  JUNE 11th 12:00 pm - 5:00 pm 12:00 noon  Luncheon  12:45 pm  Congressman Bill Hefner Opening Remarks  1:00 pm  Congressman Richard Gephardt (MO) Member of the House Committee on Ways and Means  1:30 pm  Congressman Jim Florio (NJ) Chairman of the Subcommittee on Commerce, Transportation and Tourism  2:00 pm  Congressman Don Fuqua (FLA) Chairman of the Committee on Science and Technology  2:30 pm  Congressman Ed Jones (TN) Chairman of the Subcommittee on Conservation, Credit and Rural Development  3:00 pm  Congressman Ed Jenkins (GA) Member of the Ways and Means Subcommittee on Trade  3:30 pm  Senator Sam Nunn (GA) Ranking Minority Member of the Armed services Committee  4:00 pm  Congressman Bill Nelson (FL) Chairman, Subcommittee on Space Science and Applications  4:30 pm  Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System  6  • BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  PAUL A. VOLCKER CHAIRMAN  May 12, 1986  The Honorable Fernand J. St Germain Chairman Subcommittee on Financial Institutions Supervision, Regulation, and Insurance Committee on Banking, Finance, and Urban Affairs U.S. House of Representatives Washington, D.C. 20515 Dear Chairman St Germain: This is in response to questions raised at the hearing on H.R. 4701 concerning the scope of in-state expansion rights allowed an out-of-state acquiror as well as the rights of dissenting shareholders. First, a question was raised whether, if the state in which an acquired bank is located had enacted regional interstate banking legislation, the out-of-state bank holding company could acquire banks in other states in the region. If the acquiring bank holding company is within the region then the proposed bill would not limit subsequent expansion. If, on the other hand, the out-of-state bank holding company is located in a state that is not within the region, and it acquires a bank in a state that is in a regional compact, the out-of-state holding company could acquire additional banks in any states in the region, but only if such additional regional acquisitions were permitted by the other states participating the regional arrangement. in However, most regional arrangements have provisions preventing such so-called "leap frogging." In this connection I would also like to note, in response to a question posed by Congressman Barnard, that the bill does not affect in any way the provisions of existing law that recognize that a failed bank acquired by an out-of-state banking organization may branch within the state to the same extent as national banks in the state. Following this   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Fernand J. St Germain Page 2  precedent, a bank "in danger of closing" that is acquired by an out-of-state organization under H.R. 4701 could continue to branch to the same extent as any national bank in the state, as under current law. whether the also You asked, Mr. Chairman, authorization for additional bank acquisitions in the three largest metropolitan areas in a state would terminate when the provisions of the bill terminate under its sunset provisions. The bill, as currently drafted, merely extends the expiration date of the authorities contained in the bill from July 15, Once the bill expires, authorization 1986 to April 15, 1991. for additional acquisitions would consequently expire and an out-of-state holding company that had previously made an acquisition would thereafter be prohibited from acquiring additional banks in the three largest metropolitan areas, or anywhere else in the state, unless, of course, the state had enacted legislation in the meantime authorizing additional acquisitions. The sunset provisions should be amended to make it clear that this limited three cities-metropolitan area expansion provision of the Act should not be subject to the sunset provision. It would seem fair and reasonable to provide instead that an out-of-state holding company that acquires a failed or failing bank should be permitted to continue to have the authority to acquire banks in the three largest metropolitan areas, but only in those areas, even after the other provisions of the bill terminate. Finally, toward the conclusion of the hearing you asked about the rights of shareholders in a transaction authorized under the bill. As I indicated, under H.R. 4701 no acquisition of a bank in danger of closing may be permitted without the specific approval of the bank's board of directors. In addition, under state corporate law which governs these matters, the approval of shareholders would generally be required for a merger or sale of the banking Under state law, dissenting assets of a bank holding company. shareholders may also have certain appraisal rights with respect to their holdings. You specifically asked about shareholders' rights to prevent a sale. In this case final action would, in almost all cases, be taken by the Board, which action would be subject to judicial review by an aggrieved person, including an aggrieved   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Fernand J. St 6tmain Page 3  shareholder. The test that the court would be required to apply is whether the Board's findings of fact are supported by substantial evidence. I am advised that shareholders may also bring a derivative action to prevent the sale, but, in accordance with generally applicable principles of corporate democracy, where the majority has acted reasonably and in good faith in the best interest of the corporation, it is unlikely the transaction could be enjoined or set aside by the courts. I would be pleased to provide any further assistance the Subcommittee may need in its consideration of H.R. 4701. Sincerely,  VM:MB:cmk (Hearing date was 5/7/86) bcc: Mr. Mattingly Mr. Bradfield Legal Records (2) Mrs. Mallardi (2),   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. E. 20551  May 5, 1986  PAUL A. VOLCKER CHAIRMAN  The Honorable Fernand J. St Germain Chairman Subcommittee on Financial Institutions Supervision, Regulation and Insurance Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Chairman St Germain: Enclosed are my responses to the seven specific questions forwarded in your letter dated May 1, with respect to H.R. 4701, the Financial Institutions Emergency Acquisitions Amendments of 1986. I am looking forward to appearing before the Subcommittee on Wednesday to testify on the proposed legislation. Sincerely,  EftEnclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  SGA:VM:DJW:pt, (V-108, 86-2133) bcc: Scott Alvarez Virgil Mattingly Mike Bradfield Mrs. Mallardi (2) L/ Legal Records (2)  Responses to Questions posed by Subcommittee on Financial Institutions Supervision, Regulation and Insurance  1. H.R. 4701, the Financial Institutions Emergency Acquisitions Amendments of 1986, would allow assisted and unassisted extraordinary acquisitions of insured banks (and their parent holding companies and affiliates) if the bank is "in danger of closing." Please provide the Subcommittee with the number of institutions presently qualifying under the legislation's definition of "in danger of closing," the location on a state-by-state basis of these institutions, and the asset size levels of these institutions. Answer:  A determination of the number of institutions  presently qualifying under  the legislation's definition of "in  danger of closing" would require a detailed examination of each bank  by  its  chartering  authority,  and  would  depend  significantly on the particular facts of each case, including the  type  of  position.  problems  faced  by  the  We do not anticipate a  bank  and  capital  its  large number.  However, as  the Subcommittee is aware, there are a significant number of problem banks in the country at this time.  The number of bank  failures has increased steadily in the past several years, with 120 bank failures in 1985.  The FDIC has indicated  that it is  likely there will be at least as many this year and that there are over 1100 banks on its problem bank list. no implication  that a  danger of closing.  bank  purpose  of  the  a  few  that  legislation  in this bill.  bank  in  is  is  to  avoid  use  Nevertheless, among  may qualify over  institutions infecting others.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  problem  problems without FDIC assistance or  of the procedures provided banks are  as a  be  The vast majority, as in the past, will be  able to resolve their  these  listed  There should  time, and  those  the  particular  -2-  2. Is it possible for a nprifinancial institution to avail itself of any of the provisions of H.R. 4701 in order to acquire an insured bank? Answer: H.R. 4701 does not alter in any way the provisions of section 4 of  the  Bank  Holding  Company  Act  that  prohibit  a  nonbanking company from acquiring a bank. Thus, a insured  bank  nonfinancial institution  under  the  provisions  of  may  not acquire  H.R. 4701.  an  H.R. 4701  permits the interstate acquisition of a failed or failing bank only by a bank holding company.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  3  3. H.R. 4701 would dispense with the notice and hearing requirements of section 3(b) of the Bank Holding Company Act. Section 3 of that Act, which establishes certain procedures for the Federal Reserve's approval of a bank holding company's acquisition of bank shares or assets, already includes an expedited procedure whereby the Federal Reserve can waive the notice and hearing requirements of section 3(b) if it finds it must do so immediately to prevent a probable failure. In light of the existing provisions in section 3(b) providing for waivers of notice and hearing requirements, why is another waiver needed for approval of these assisted and unassisted extraordinary acquisition transactions? Answer: In order to facilitate the acquisition of a failed or failing  bank,  H.R. 4701  would  permit  an  holding company to acquire non-failing the  troubled  procedures  bank  in  currently  the  same  provided  bank in  out-of-state  bank  banks affiliated  holding  company.  section 3(b)  of  the  with The Bank  Holding Company Act that permit the Board to waive the notice and  hearing  rights  afforded  to  the  appropriate  chartering  authority under the Act for a failed or failing bank would not permit  the  Board  to authorize  the  immediate  acquisition  of  these affiliated non-failing banks, even though the acquisition of these banks may be essential to or an integral part of the proposal bank. hearing  to acquire  and  rehabilitate  the  failed  or  failing  H.R. 4701 would permit the Board to waive the notice and provisions as  they  apply  to  these  affiliated  banks  where the acquisition of the affiliated banks is in connection with the acquisition of the troubled bank provided in the bill.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  under  the procedures  -4-  It is important to note  ttrat  while  H.R. 4701  would  permit waiver of the notice and hearing provisions of the Act, it also establishes another procedure requiring that the state bank  supervisor  be  given  notice  H.R. 4701 is contemplated and  that  a  permitting  transaction  under  the state supervisor  an opportunity to express views regarding the proposal and prevent  an  out-of-state  acquisition  where  an  in-state  to  or  regional resolution of the problems of the troubled bank may be arranged.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  5  4. H.R. 4701 would either.. reduce or eliminate the post-approval waiting period required under section 11 of the Bank Holding Company Act, which sets forth certain time frames for the consummation of mergers and acquisitions under section 3 of that Act, as well as setting guidelines for Section 11 antitrust actions challenging such transactions. acquisition already includes language stating that a merger or under section 3 can be immediately consummated upon the Federal Reserve's approval, if the Board finds it must act to prevent the probable failure of a bank or bank holding company involved in the merger. In light of the existing language of section 11 that allows for the elimination of this post-approval waiting period when a probable failure is involved, why is another provision needed eliminating this post-approval waiting period for these assisted and unassisted extraordinary acquisition transactions? Answer:  the  notice  and  hearing  would  permit  the  Board  As with Act, H.R. 4701  requirements of  to reduce  the  the  normal  30-day post-approval waiting period to permit the expedited or immediate acquisition of non-failing banks that are affiliated with  the  troubled the  failing bank  30-day  bank.  Otherwise,  the  acquisition  of  the  would generally have to await the expiration of  waiting  period  applicable  to  its  affiliated  non-failing banks, even though in interstate transactions there are generally no substantial competitive issues.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -6-  Section 11 of the Bank Holding Company Act 5. requires that antitrust actions ariing out of a merger or acquisition under section 3 must be started "prior to the In earliest time" a section 3 approval may be consummated. eliminating the post-approval waiting period before which a section 3 transaction may be consummated, H.R. 4701 could affect the timely filing of antitrust actions challenging these transactions. Please comment on the antitrust implications of eliminating the such section 11 for in period waiting post-approval transactions. Please state whether the Department of Justice's Antitrust Division has been notified of this change, their reaction to such a change, and indeed their reaction to the legislation as a whole. Answer: The Department of Justice has been consulted regarding the provisions of this bill and I understand that  it  has no objection  to  provisions  the  it has indicated permitting  the  reduction of the post-approval waiting period to 5-days for all banks acquired period  would  initiate an The  to  transaction  H.R. 4701 because  under  this  permit the Department sufficient opportunity action  Department  objection  in a  has  under also  permitting  the  antitrust laws that  indicated waiver  of  the  it  post  if  to  appropriate.  would  have  approval  no  period  entirely for an interstate transaction under H.R. 4701 with the concurrence of the Attorney General.  The Board  would continue  to follow its current practice of notifying and consulting with the  Department  at  the  time  an  application  emergency acquisition is received.  involving  an  This permits the Department  an opportunity to express its views to the Board  regarding the  antitrust implications of an acquisition and, where necessary,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -7  to  initiate  an  action  under  the  antitrust  laws.  Further,  H.R. 4701 does not in any way reduce the responsibility of the Board  under  the  Bank  Holding  Company  Act  to  consider  the  antitrust implications of a proposed acquisition and to deny an application that would Act.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  violate the antitrust standards in  the  -8-  6. H.R. 4701 would allow t4e Federal Reserve to waive the notice and hearing requirements'of section 4(c)(8) of the Bank Holding Company Act for applications filed in connection with an assisted or unassisted extraordinary interstate transaction. Is this waiver in contemplation of possible mergers and acquisitions made in connection with an assisted or unassisted may involve extraordinary interstate transaction, which institutions engaging in activities which are not closely related to banking, directly or indirectly, either as an acquiror or an acquiree under this legislation? Answer: No. Board  The provisions of H.R. 4701 that would permit the the  waive  to  of  section 4(c)(8)  and  notice  Holding  Bank  the  hearing  requirements Act  Company  do  of not  eliminate the requirement of section 4 of the Act that a bank holding  only  engage  company  banking  in  activities  ana  actives deemed to be closely related to banking and a proper incident  Accordingly,  thereto.  permitting  the  waiver of would  section 4(c)(8) acquiring a bank  notice  not  under  the  provisions  and  hearing  permit  a  bank  of  H.R. 4701  requirements of  holding  company  H.R. 4701 to engage in any nonbanking  actives that are not closely related to banking. These Board  to  affiliated  provisions of H.R. 4701 would  authorize with  a  the  immediate  troubled  bank  only  acquisition that  engage  of in  permit  the  companies nonbanking  actives that are closely related to banking or are otherwise permissible for bank holding companies where the acquisition of these nonbanking companies is part of the same transaction in which an affiliated bank in danger of closing is acquired.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  9  7. H.R. 4701 would preserve the eligibility of insured banks (or their parent holding company or affiliated banks) to be acquired by an out-of-state bank or bank holding company, even after FDIC assistance has been granted under section 13(c) of the Federal Deposit Insurance Act, provided such assistance was initially granted after April 15, 1986 and remains outstanding. Should out-of-state banks and bank holding companies continue to acquire institutions receiving FDIC to be allowed assistance, even after those institutions may no longer be in danger of closing or when the severe financial conditions which precipitated the assistance have subsided? Answer: purpose  The  acquire  to  companies  of  permitting  institutions  out-of-state receiving  bank  holding  assistance  FDIC  which remains outstanding is to permit the FDIC to reduce any ongoing cost that the FDIC may bear from continued assistance to the institution and, wherever possible, to recover of its financial assistance to the bank. provisions required that  the  Garn-St  to follow  give  Moreover, a 4701 after would  of  the  priority bank  bidding  the  would  FDIC  depository  for  an  FDIC assistance only  if  interstate acquisition  bill at the time FDIC assistance was provided  be  provided  institutions.  be eligible for acquisition  it has received  have qualified  Act,  the current  procedures currently  in-state  to  would  Germain  As under  the cost  under the under  H.R. bank the  (i.e., the bank  had total assets of $250 million or more, and was closed or in danger of closing).   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  FERNAND J. ST GERMAIN, RHODE ISLAND, CHAIRMAN FRANK ANNUNZIO, ILLINOIS CARROLL HUBBARD, JR., KENTUCKY DO -IG BARNARD, JR.. GEORGIA JOHN J. LAFALCE, NEW YORK MARY ROSE OAKAR. OHIO BRUCE F VENT°. MINNESOTA ROBERT GARCIA, NEW YORK CHARLES E. SCHUMER. NEW YORK BARNEY FRANK, MASSACHUSETTS RICHARD H. LEHMAN, CALIFORNIA JIM COOPER, TENNESSEE BUDDY ROEMER. LOUISIANA MARCY KAPTUR OHIO BILL NELSON, FLORIDA PAUL E. KANJORSKI. PENNSYLVANIA BART GORDON. TENNESSEE THOMAS J. MANTON. NEW YORK  CHALMERS P WYLIE. OHIO JIM LEACH. IOWA STEWART B. McKINNEY. CONNECTICUT NORMAN D. SHUMWAY, CALIFORNIA BILL McCOLLUM FLORIDA GEORGE C WORTLEY. NEW YORK DAVID DREIER, CALIFORNIA STAN PARRIS, VIRGINIA MARGE ROUKEMA, NEW JERSEY DOUG BEREUTER, NEBRASKA STEVE BARTLETT, TEXAS TOBY ROTH, WISCONSIN  U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON FINANCIAL INSTITUTIONS SUPERVISION, REGULATION AND INSURANCE OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-NINTH CONGRESS  ROOM B-303 RAYBURN HOUSE OFFICE BUILDING WASHINGTON, DC 20515-6051 May 1, 1986  Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th and Constitution Ave., N.W. Washington, D.C. 20551 Dear Chairman Volcker: To assist this Subcommittee in the discharge of its responsibilities, you are requested to appear on Wednesday, May 7, 1986, in Room 2128 Rayburn House Office Building at 10:00 a.m., to provide testimony to the Subcommittee on H.R. 4701, the Financial Institutions Emergency Acquisitions Amendments of 1986, legislation proposed by the Federal bank regulatory agencies, and on related issues. More specifically, you are asked to testify on the matters of concern to the Subcommittee set forth in the enclosure. In accordance with Committee Rules, please deliver 175 copies of your prepared statement to Room B303 Rayburn House Office Building twenty-four hours in advance of your scheduled appearance. Your statement in its entirety will be included in the hearing record and, if delivered as requested, the statement will be made available to all Subcommittee Members in advance of the hearing. To provide all Subcommittee Members with sufficient time for questioning, the oral presentation of your prepared statement must be limited to twenty minutes. Sincerely, •  Enclosure FJStG:dTv   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  J. St Germain a Chairman  1. H.R. 4701, the Financial Institutions Emergency Acquisitions Amendments of 1986, would allow assisted and unassisted extraordinary acquisitions of insured banks (and their parent holding companies and affiliates) if the bank is "in danger of closing." Please provide the Subcommittee with the number of institutions presently qualifying under the legislation's definition of "in danger of closing," the location on a state-by-state basis of these institutions, and the asset size levels of these institutions. 2. Is it possible for a nonfinancial institution to avail itself of any of the provisions of H.R. 4701 in order to acquire an insured bank?  3.  H.R. 4701 would dispense with the notice and hearing requirements of section 3(b) of the Bank Holding Company Act. Section 3 of that Act, which establishes certain procedures for the Federal Reserve's approval of a bank holding company's acquisition of bank shares or assets, alreacty includes an expedited procedure whereby the Federal Reserve can waive the notice and hearing requirements of section 3(h) if it finds it must do so immediately to prevent a probable failure. In light of the existing provisions in section 3(h) providing for waivers of notice and hearing requirements, why is another waiver needed for approval of these assisted and unassisted extraordinary acquisition transactions? 4. H.R. 4701 would either reduce or eliminate the post-approval waiting period required under section 11 of the Bank Holding Company Act, which sets forth certain time frames for the consummation of mergers and acquisitions under section 3 of that Act, as well as setting guidelines for antitrust actions challenging such transactions. Section 11 already includes language stating that a merger or acquisition under section 3 can be immediately consummated upon the Federal Reserve's approval, if the Board finds it must act to prevent the probable failure of a bank or bank holding company involved in the merger. In light of the existing language of section 11 that allows for the elimination of this post-approval waiting period when a probable failure is involved, why is another provision needed eliminating this post-approval waiting period for these assisted and unassisted extraordinary acquisition transactions?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • -25. Section 11 of the Bank Holding Company Act requires that antitrust actions arising out of a merger or acquisition under section 3 must be started "prior to the earliest time" a section 3 approval may be consummated. In eliminating the post-approval waiting period before which a section 3 transaction may be consummated, H.R. 4701 could affect the timely filing of antitrust actions challenging these transactions. Please comment on the antitrust implications of eliminating the post-approval waiting period in section 11 for such transactions. Please state whether the Department of Justice's Antitrust Division has been notified of this change, their reaction to such a change, and indeed their reaction to the legislation as a who 6. H.R. 4701 would allow the Federal Reserve to waive the notice and hearing requirements of section 4(c)(8) of the Bank Holding Company Act for applications filed in connection with an assisted or unassisted extraordinary interstate transaction. Is this waiver in contemplation of possible mergers and acquisitions made in connection with an assisted or unassisted extraordinary interstate transaction, which may involve institutions engaging in activities which are not closely related to banking, directly or indirectly, either as an acquiror or an acquiree under this legislation?  7.  H.R. 4701 would preserve the eligibility of insured banks (or their parent holding company or affiliated banks) to be acquired by an out-of-state bank or bank holding company, even after FDIC assistance has been granted under section 13(c) of the Federal Deposit Insurance Act, provided such assistance was initially granted after April 15, 1986 and remains outstanding. Should out-of-state banks and bank holding companies continue to be allowed to acquire institutions receiving FDIC assistance, even after those institutions may no longer be in danger of closing or when the severe financial conditions which precipitated the assistance have subsided?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CARROLL HUBBARD, JR., KENTUCKY, CHAIRMAN HENRY B GONZALEZ, TEXAS FRANIZ ANNUNZIO, ILLINOIS DOUG BARNARD, JR., GEORGIA ROBERT GARCIA, NEW YORK MARCY KAPTUR, OHIO GERALD D. KLECZKA, WISCONSIN PAUL E. KANJORSKI, PENNSYLVANIA BART GORDON, TENNESSEE JAIME B. FUSTER, PUERTO RICO  U.S. HOUSE OF REPRESENTATIVES  STAN PARRIS, VIRGINIA GEORGE C. WORTLEY, NEW YORK DAVID DREIER, CALIFORNIA STEVE BARTLETT, TEXAS ROD CHANDLER, WASHINGTON AL McCANDLESS, CALIFORNIA  NINETY-NINTH CONGRESS  SUBCOMMITTEE ON GENERAL OVERSIGHT AND INVESTIGATIONS OF THE  TELEPHONE:(202) 225-2828  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS ROOM B-304 RAYBURN HOUSE OFFICE BUILDING  WASHINGTON, DC 20515  April 28, 1986  Honorable Paul A. Volcker Chairman Federal Reserve System 20th Street and Constitution Avenue, Washington, DC 20551  Cito 27.10 . =Z. 1::=) =.• NW  Cip Fr" C=ni FYI Az  , C. 1%  Dear Paul:  2r)  lam writing about a matter of concern and interest to a good friend of mine and fellow Kentuckian, Chester Porter of Shepherdsville, Kentucky. Mr. Porter has contacted my office and inquired about the status of an application pending for six months with the Board between Peoples Bank of Mt. Washington and Bullitt County Bank at Shepherdsville. I have been advised that the application has been approved, subject to confirmation in writing. I would be most appreciative if a response to this letter could be given in order that I could then contact Mr. Chester Porter about this important matter. Thank you for your assistance and consideration.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  With best wishes for you, I am Sincerely yours,  ..;:64•44114212.CARROLL HUBBARD Chairman Subcommittee on General Oversight and Investigations CH/mmf  ••of Govk. •. 4' •  BOARD OF GOVERNORS OF THE  • „ro . -o  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  • •„<t‘An  L.); PAUL A. VOLCKER • •..•  May 1, 1986  CHAIRMAN  The Honorable Fernand J. St Germain Chairman Subcommittee on Financial Institutions Supervision, Regulation and Insurance 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 29 asking the Federal Reserve to participate in your Subcommittee's hearings on money laundering. I am pleased to let you know that Governor Martha R. Seger will appear on behalf of the Board on Wednesday, May 14, at 10:00 a.m. Sincerely,  T1S Eaul CO:vcd (V-105, 86-2119) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Gov. Seger Mrs. Mallardi (2)  tRNAND J  Governor Seer will testify, preparin statement  rt GERMAIN. RHODE ISLAND. CHAIRMAN  FRANK ANNui.110. ILLINOIS CARROLL HuBBARD. JR KENTuCKY CIOuG BARNARD JR GEoRGiA JOHN J LAFALCE NEW YORK MARY ROSE OAKAFI. OHIO BRUCE F vENTO MINNESOTA ROBERT GARCIA. NEW YORK CHARLES E SCHumER NEW YORK BARNEY FRANK. MASSACHUSETTS RKHARD H LEHmAN CALIFORNIA JIM COOPER TENNESSEE BUDDY ROEMER. LOUISIANA MARCY KAPTuR. OHIO BILL NELSON FLORIDA KANJORSKI PENNSYLVANIA PAuL BAJIT GORDON. TENNESSEE THOMAS J MANTON. MEW YORK  E&P, and Legal  U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON FINANCIAL INSTITUTIONS SUPERVISION, REGULATION AND INSURANCE  CHALMERS r WYLIE. OHIO Am LEACH. IOWA STEwART • McKINNEY. CONNECTICLry ROWAN 0 SHUMwAY CALIFORMA RILL McCOLLUM FLORIDA GEORGE C wORTLET NEW YORK DAM MIER. CALIFORRLA 111AN 'NAME villGoduL MARGE 1110uKEEAA. HEW JERSEY DOUG BEREUTTX. NEORASEA RARTI.M. TEXAS • TOW, ROTK WISCONSW  Of THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-NINTH CONGRESS  WASHINGTON, DC 20515  April 29, 1986  The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: On May 14, 1986, the Subcommittee on Financial Institutions Supervision, Regulation and Insurance will continue its hearings on proposals to protect against financial institutions becoming havens for tax evaders, drug traffickers and launderers of funds derived from criminal activity. It is requested that you, or your designee, appear and testify before the Subcommittee on May 14, 1986, at 10:00 a.m. in Room 2128, Rayburn House Office Building, to discuss the following matters. In addition to several bills dealing with money laundering (copies of which are enclosed), there are four titles of the Financial Institutions Regulatory and Interest Rate Control Act of 1978 (FIRICA), also known as the Safe Banking Act of 1978, which the Subcommittee intends to review. It is our intent to revisit the four titles to determine whether any of these statutes could be used or need to be strengthened to keep criminal elements from using financial institutions for their illegal gains. They are Titles I, VI, VII and XI of FIRICA. The Subcommittee would appreciate your comments on the legislative proposals and your opinions on those titles of FIRICA which are applicable to the Federal Reserve's supervisory powers and authority, as they relate to our efforts to stem the flow of narcotics trafficking and the use of financial institutions by individuals to launder proceeds from that activity or to launder money from any other illegal source. The Subcommittee would also be interested in hearing what role the Federal Reserve plays, if any, or should play in the exchange of information between it and other central banks and support it provides to U.S. law enforcement authorities regarding the flow of international banking transactions that would help those authorities detect, investigate and prosecute those involved in activities such as drug trafficking and money laundering.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2-  -  The Subcommittee received testimony from the Assistant Attorney General for the Criminal Division of the Department of Justice, who briefed the Subcommittee on the status of the negotiations between the United States and other countries in efforts to enact a mutual legal assistance treaty. Should the central banks provide assistance to their respective countries in these deliberations, as they relate to international banking transactions? It is acknowledged that financial institutions, both U.S. and foreign, have rapidly expanded their overseas offices. The Basle Committee, recognizing that such activity may create safety and soundness problems, attempts to deal with these concerns through efforts to coordinate bank supervision. Why shouldn't the Basle Committee, or some other international banking committee which included the Federal Reserve as a participant, provide an exchange of information on suspected illegal activities which have to rely on the international banking network as a vital support system? The Subcommittee looks forward to the Federal Reserve's testimony and responses to the issues raised above.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  e nand J. St Germain Chairman  -4   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  99TH CONGRESS 1ST SESSION  •  R.1367  To amend chapter 35 of title 12, chapters 95 and 119 of title 18, chapter 53 of title 31 of the United States Code relating to money laundering.  IN THE HOUSE OF REPRESENTATIVES FEBRUARY  28, 1985  Mr. McCoLLum introduced the following bill; which was referred jointly to the Committees on the Judiciary and Banking, Finance and Urban Affairs JANUARY  10, 1986  Additional sponsors: Mr. WOLF, Mr. KANJORSKI, Mr. LAGOMARSINO, Mr. YOUNG of Florida, Mr. FAUNTROY, Mr. MARTINEZ, Mr. GOODLING, Mr. SWINDALL, Mr. MAZZOLI, Mr. LUNGREN, Mr. SOLOMON, and Mr. BOLTER  A BILL To amend chapter 35 of title 12, chapters 95 and 119 of title 18, chapter 53 of title 31 of the United States Code zelating to money laundering. 1  Be it enacted by the Senate and House of Representa-  2 lives of the United States of America in Congress assembled, 3 That this Act may be cited as the "Money Laundering Act of 4 1985". 5  TITLE I MONEY LAUNDERING OFFENSE  6  SEC. 101. (a) Chapter 95 of title 18, United States  7 Code, is amended by adding the following new section:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2 1 "§ 1956. Laundering of monetary instruments 2  "(a) Whoever conducts or causes to be conducted a  3 transaction or series of transactions involving one or more 4 monetary instruments in, through, or by a financial institu-  5 tion which is engaged in, or the activities of what affect, 6 interstate commerce, or attempts so to do 7  "(1) with intent to promote, manage, establish,  8  carry on, or facilitate the promotion, management, es-  9  tablishment, or carrying on, of any unlawful activity,  10  Or  11  "(2) with knowledge or reason to know that such  12  monetary instruments represent income derived, direct-  13  ly or indirectly, from any unlawful activity, or the pro-  14  ceeds of such income,  15 shall be fined not more than $250,000 or twice the value of 16 the monetary instruments, whichever is greater, or impris17 oned not more than five years, or both, for the first such  18 offense, and shall be fined not more than $1,000,000 or five 19 times the value of the monetary instruments, whichever is  20 greater, or imprisoned not more than ten years, or both, for 21 each such offense thereafter. 22  "(b) As used in this section-  23  "(1) the term 'conducts' includes, but is not limit-  24  ed to, initiating, concluding, or participating in con-  25  ducting, initiating, or concluding a transaction;  Ii 1367 SC   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  B .1  "(2) the term 'transaction' includes, but is not  2  limited to, a deposit, withdrawal, transfer between ac-  3  counts, exchange of currency, loan, extension of credit,  4  purchase or sale of any stock, bond, certificate of de-  5  posit, or other monetary instrument, or any other pay-  6  ment, transfer, or delivery by, through, or to a finan-  7  cial institution, by whatever means effected;  8  "(3) the term 'monetary instruments' means mon-  9  etary instruments as defined in section 203(1) of the  10  Currency and Foreign Transactions Reporting Act, as  11  revised (31 U.S.C. 5312(a)(3));  12  "(4) the term 'financial institution' means financial  13  institution as defined in section 203(e) of the Currency  14  and Foreign Transactions Reporting Act, as revised  15  (31 U.S.C. 5312(a)(2)); and "(5) the term 'unlawful activity' means any act or  16 17  acts constituting-  18  "(A) a pattern of racketeering activity or col-  19  lection of unlawful debt, as those terms are de-  20  fined in section 901(a) of the Organized Crime  21  Control Act of 1970 (18 U.S.C. 1961-1968);  22  "(B) a continuing criminal enterprise, as that  23  term is defined in section 408 of the Controlled  24  Substances Act (21 U.S.C. 848);  B 1367 SC  4 1  "(C) an offense under any of the following  2  '(iprovisions of title 18, United States Code: section  3  201 (relating to bribery), section 224 (relating to  4  bribery in sporting contests), sections 471-473  5  (relating to counterfeiting), section 659 (relating  6  to theft from interstate shipment) if the offense is  7  felonious, section 664 (relating to embezzlement  8  from pension and welfare funds), sections 891-  9  894 (relating to extortionate credit transactions),  10  section 1084 (relating to the transmission of gam-  11  bling information), section 1341 (relating to mail  12  fraud), section 1343 (relating to wire fraud), sec-  13  tions 1461-1465 (relating to obscene matter), sec-  14  tion 1503 (relating to obstruction of justice), sec-  15  tion 1510 (relating to obstruction of criminal in-  16  vestigations), section 1511 (relating to obstruction  17  of State or local law enforcement), section 1951  18  (relating to interference with commerce by threats  19  or violence), section 1952 (relating to racketeering  20  enterprises), section 1953 (relating to interstate  21  transportation of wagering paraphernalia), section  22  1954 (relating to unfair welfare fund payments),  23  section 1955 (relating to prohibition of illegal  24  gambling businesses), sections 2314 and 2315 (re-  25  lating to interstate transportation of stolen proper-  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  IR 1367 SC  5 sections 2341-2346 (relating to trafficking in 2  contraband cigarettes), or sections 2421-2424 (re-  3  lating to white slave traffic); offense under title 29, United States  5  Code, section 186 (relating to restrictions on pay-  6  ments and loans to labu organizations) or section  7  501(c) (relating to embezzlement froin uthon  8  funds); or offense involviilg the felonious manufacture,  10  bnportation,  receiving, concealmeiA,  buying, selling, or otherwise dealing SRliarcotic or 12  other dangerous drugs, punishable under any law  13  of the United States. The provisions of this section shall be liberally con-  El   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  15 strued to effectuate its remedial purpose. 16  "(d) Nothing in this section shall supersede any provi-  17 sion of Federal, State or other law imposing criminal•penal18 ties or affording civil•reiliedies in addition to those provided 19 for in this section. 20  "(e) Violations of this section shall•be investigated by  21 the Federal Bureau of Investigation, the Drug Enforcement 22 Administration, and the Internal Revenue Service, as appro23 priate. 24  "(f) There is extratenitorial jurisdiction over the con-  25 duct prohibited 1)y this section.".   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  6 1  (b) The table of sections at the beginning of chapter 95  2 of title 18 is amended by adding at the end the following new  3 item: "1956. Laundering of monetary instruments". 4 TITLE II—CURRENCY AND FOREIGN TRANSAC5  TIONS REPORTING ACT AMENDMENTS  6  SEC. 201. Section 5318 of title 31, United States Code,  7 is amended8  (1) by inserting "(a)" after "SEc. 5318.";  9  (2) by inserting ", except as provided in subsec-  10  tion (c)" before the semicolon at the end of paragraph  11  (1);  12 13  (3) by striking out "and" at the end of paragraph (2);  14  15  (4) by redesignating paragraph (3) as paragraph  (4);  16  (5) by inserting after paragraph (2) the following:  17  "(3)(A) examine any books, papers, records, or  la  other data of domestic financial institutions pursuant to  19  the recordkeeping and reporting requirements under  20  this subchapter;  21  "(B) summon an officer or employee of a financial  22  institution, or any person having possession, custody,  23  or care of the reports or records required under the  24  subchapter, to appear before the Secretary of the  25  Treasury or his delegate at a time and place named in  U 1167 SC  ur wirerma-,. :2wr-n.e .   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  a  1  the summons and to produce such books, papers,  2  records, or other data, and to give testimony, under  3  oath, as may be relevant or material to such inquiry;  4  and  5  "(C) take such testimony of the officer, employee,  6  or person having possession of the relevant reports or  7  records, under oath, as may be relevant or material to  8  such inquiry; and"; and  9  (6) by adding at the end thereof the following:  10  "(b) The purposes for which the Secretary of the Treas-  11 ury may take any action described in paragraph (3) of subsec12 tion (a) include the purpose of investigating any offense con13 nected with the administration or enforcement of this sub14 chapter, section 21 of the Federal Deposit Insurance Act, 15 section 411 of the National Housing Act, or chapter 2 of 16 Public Law 91-508. 17  "(c)(1) The Secretary of the Treasury may not delegate  18 the powers conferred by subsection (a)(3) to an appropriate 19 supervising agency. 20  "(2) A summons may be issued under subsection  21 (a)(3)(B) only by, or with the approval of, the Secretary of the 22 Treasury or a supervisory level delegate of the Secretary of 23 the Treasury.". 24  SEC. 202. Section 5319 of title 31, United States Code,  25 is amended by inserting before the period at the end of the  II 1367 SC  8 1 first sentence the following: ", or when the Secretary has 2 reason to believe that making such information available to 3 the agency would further or facilitate the exercise of the Sec4 retary's supervisory or regulatory functions under this sub5 chapter". 6  SEC. 203. Section 5312(a)(5) of title 31, United States  7 Code, is amended to read as follows: 8  "(5) 'United States' means the States of the  9  United States, the District of Columbia, and, when the  10  Secretary prescribes by regulation, the Commonwealth  11  of Puerto Rico, the Virgin Islands, Guam, the North-  12  ern Marianas, American Samoa, the Trust Territory,  13  any other territory or possession of the United States,  14  or a military or diplomatic establishment.".  •  15 16  TITLE III—WIRETAP AMENDMENTS SEC. 301. Section 2516 of title 18, United States Code,  17 is amended-  41111". .   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  18  (1) by inserting "section 1956 (laundering of mon-  19  etary instruments)," after "section 1955 (prohibition of  20  business enterprises of gambling)," in subsection (c);  21 22  (2) by striking out "or" at the end of subsection (g);  23 24  (3) by redesignating subsection (h) as subsection (i); and  Q 1367 SC  9 las to  Lb-  es  1 2  (4) by inserting the following new subsection after subsection (g):  3  "(h) a violation of section 5322 of title 31, United  4  States Code (dealing with the reporting of currency  5  transactions); or".  6  TITLE IV  7 he he th h-  38,  8  RIGHT TO FINANCIAL PRIVACY ACT AMENDMENTS  SEC. 401.(a) Subsection (c) of section 1103 of the Right  9 to Financial Privacy Act of 1978 (12 U.S.C. 3403(c)) is 10 amended to read as follows: 11 "NOTIFICATION OF EXISTENCE, AND DISCLOSURE, OF 12  RELEVANT INFORMATION IN RECORDS; FEDERAL PRE-  13  EMPTION  14  "(c) Nothing in this chapter shall preclude any financial  15 institution, or any officer, employee, or agent of a financial  .e,  16 institution, from notifying a Goverment authority that such  17 institution, or officer, employee, or agent has information II-  18 which it believes may be relevant to a possible violation of  of  19 any statute or regulation, and thereafter disclosing such in-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  20 formation to that Government authority, regardless of wheth21 er a subpoena, summons, search warrant, or formal written 22 request has been issued under the provisions of this chapter.  23 The provisions of this subsection and any regulations promul24 gated thereunder shall preempt any provision of any constitu25 tion, law, or regulation of any State or political subdivision 26 thereof, as well as any administrative or judicial interpretaIR 1367 SC  10 1 tion of such provision, that is not identical to the provisions of 2 this subsection and regulations thereunder, and that is more 3 restrictive of disclosure to a Government authority concern4 ing a possible violation of any statute or regulation than the 5 provisions of this subsection and regulations promulgated 6 thereunder.". 7 • , t. v..  (b) Subsection (c) of section 1117 of the Right to Finan-  8 cial Privacy Act of 1978 (12 U.S.C. 3417(c)) is amended to 9 read as follows: 10 11  "GOOD-FAITH DEFENSE  "(c) Any financial institution, or officer, employee, or  12 agent thereof, making a disclosure of the financial records of 13 a customer, or information contained in such records, pursu14 ant to this chapter in good-faith reliance upon a certificate by 15 any Goverment authority, or in good-faith belief that such 16 records or information may be relevant to a possible violation g5** :  17 of any statute or regulation, shall not be liable to the custom18 er for such disclosure or for any failure to notify the customer 19 of such disclosure.". frAti   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  0  B 1367 SC   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  99TH CONGRESS 1ST SESSION  H.R.1474  To amend title 18 of the United States Code to prohibit certain methods of concealing the proceeds of crime, and for other purposes.  IN THE HOUSE OF REPRESENTATIVES MARCH 7, 1985 Mr. HUGHES introduced the following bill; which was referred jointly to the Committees on the Judiciary and Banking, Finance and Urban Affairs  A BILL To amend title 18 of the United States Code to prohibit certain methods of concealing the proceeds of crime, and for other purposes. 1  Be it enacted by the Senate and House of Representa-  2 lives of the United States of America in Congress assembled, 3 SECTION 1. SHORT TITLE. 4  This Act may be cited as the "Money Laundering Con-  5 trol Act of 1985". 6 SEC. 2. MONEY LAUNDERING OFFENSE.  7  (a) IN  GENERAL.—Chapter  95 (relating to racketeer-  8 ing) of title 18, United States Code, is amended by adding at 9 the end thereof the following new section:  2 1 "§ 1956. Money laundering  2  "(a)  OFFENSE.—Whoever  knowingly engages or at-  3 tempts to engage in a financial transaction in criminally de4 rived property shall be punished as provided in subsection (b). "(b) PUNISHMENT.—(1) Except as provided in para-  5  6 graph (2), the punishment for an offense under this section 7 is8  "(A) a fine not more than $1,000,000 or impris-  9  onment for not more than 5 years, or both, if the of-  10 .4111i!   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  fender is an individual; and "(B) a fine of not more than $5,000,000, if the  11 12  offender is a person other than an individual.  13  "(2) The court may impose an alternate fine to that im-  14 posable under paragraph (1) of not more than twice the  15 amount of the funds or monetary instrument in such financial 16 transaction. 17  "(c)  EXTRATERRITORIAL  JURISDICTION.—There  is  18 extraterritorial jurisdiction over an offense under this section. 19  "(d) DEFINITIONS.—As used in this section-  20  "(1) the term 'financial transaction' means the de-  21  posit, withdrawal, transfer, or exchange, of funds or a  22  monetary instrument (as defined for the purposes of  23  subchapter II of chapter 53 of title 31) by, through, or  24  to  25  5312(a)(2) of title 31); and  a financial institution (as  •HR 1474 111  defined in section   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  3 1  "(2) the term 'criminally derived property' means  2  any property constituting, or derived from, proceeds  3  obtained, directly or indirectly, from a criminal offense  4  that is listed in section 1961(1) of this title.".  5  (b) CLERICAL AMENDMENT.—The table of sections at  6 the beginning of chapter 95 (relating to racketeering) of title 7 18, United States Code, is amended by adding at the end the 8 following new item: 141956. Money laundering.". 9 SEC. 3. INDIVIDUAL APPROVAL OF APPLICATION OF EXEMPTIONS.  10 11  (a) IN GENERAL.—SeCtiOn 5318 of title 31, United  12 States Code, is amended by adding at the end of paragraph 13 (3) thereof the following new sentence: "A person shall not 14 qualify for an exemption prescribed under this paragraph  15 until the Secretary, upon application by such person, deter16 mines such person is qualified for such exemption.". 17  (b) EFFECTIVE DATE.—The amendment made by sub-  18 section (a) shall apply to all exemptions under section 5318 of 19 title 31, United States Code, after the 90th day after the date 20 of the enactment of this Act. 21 SEC. 4. APPLICATION OF CERTAIN REPORTING RULES TO WIRE AND OTHER ELECTRONIC TRANSFERS.  22 23  Section 5316(a)(1) of title 31, United States Code is  24 amended by inserting "transfers funds by wire or other elec25 tronic means, or" after "(1)". WE 1474 HI   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1 SEC. 5. COMPLIANCE ADMINISTRATION.  2  Section 5318 of title 31, United States Code, is amend-  3 ed4 5 6  (1) by inserting "(a)" before "The Secretary of the Treasury"; and (2) by adding at the end of such section the fol-  7  lowing new subsection:  8  "()) It shall be the duty of each such supervising agency  9 to exercise the authority delegated under subsection (a)(1) of 10 this section in the course of each examination such agency 11 may make of a regulated entity for purposes of carrying out 12 provisions of law other than this subchapter.". 13 14  SEC. 6. FOREIGN TRANSACTIONS AMENDMENT.  Section 5316(a)(1) of title 31, United States Code, is  15 amended16 17 18 19  (1) by striking out "or attempts to transport or have transported,"; and (2) by inserting ", is about to transport," after "transports". 0  &HI 1474 111  ........  1 :4:..... •  ..  99TH CONGRESS 1ST SESSION  H.R.1945  2=2:212111111:222 .....................  ...."••  1222.t  1.77=11122222:2222=:::::.  ............  To strengthen certain currency reporting requirements.  1.71211M111122212211.241111%=:  1:%%%%%111111112it172::.  .................  12  11:110.  IN THE HOUSE OF REPRESENTATIVES  ===.1111.121:212:12121:11111:  1111141111:2118142lt::::  APRIL 3, 1985 Mr. HUBBARD introduced the following bill; which was referred jointly to the Committees on Banking, Finance and Urban Affairs and the Judiciary  .....  =MU  31:2222::li...1111=111/212.  "2224:•:=:111:14/11/1111  A BILL  . r= 1U  ••••••••••••  ,  To strengthen certain currency reporting requirements.  •••  111....1.11.•••  1  Be it enacted by the Senate and House of Representa-  Stit.  U.L1  ..... .......  2 lives of the United States of America in Congress assembled,  US2  22://f/111111.11.11111.  II  3  SECTION 1. SHORT TITLE. 1.2.2..W.W16204r.111.1%%mAAMI,  4  This Act may be cited as the "Drug Money Seizure  5 Act". 6 7  TITLE I-CURRENCY REPORTING AMENDMENTS  1  .,11111.1A,,....1.1WWW.11414.1111,  .....  1112  1.1100001.1,111,11.  111  1111•41%•.•  8 SEC. 101. SHORT TITLE.  9  This title may be cited as the "Currency Reporting  10 Amendments of 1985".   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ••••••••• ..•  'V.  "V.  •  2 ERS.  SEC. 102. ADDITIONAL ENFORCEMENT POW  1 9  Section 5318 of title 31, United States Code, is amend-  3 ed(1) in paragraph (1), by inserting before the semiexcept as on at the end thereof the following:  4 5  col  6  provided in subsection (c)"; (2) in paragraph (2), by striking out "and" at the  7 8  end thereof; (3) by redesignating paragraph (3) as paragraph  9 10 11 12  (4); (4) by inserting after paragraph (2) the following: "(3)(A) examine any books, papers, records, or  14  to other data of domestic financial institutions pursuant under the record_keeping and reporting requirements  15  this subchapter;  13   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  di ,  23  "(B) summon an officer or employee of a domestic sion, financial institution, or any person having posses uired custooiy, or care of the reports or records req ary of under the subchapter, to appear before the Secret place the Treasury or his delegate at a time and books, named in the summons and to produce such h testipapers, records, or other data, and to give suc such monv, under oath, as may be relevant material to  24  inquiry; and  16 17 18 19 20 21 29  25 26  ee, "(C) take such testimony of the officer, employ nt reports or or person having possession of the releva •111 19451E  11111::::::tttt................  F••  3 records, under oath, as may be relevant or material to 2 3 4  11/1111/14  • rt  .........................  such inquiry; and"; (5) by inserting "(a)" before "The Secretary of the Treacurv"•, and  5  (6) by adding at the end thereof the following:  6  "(b) The purposes for which the Secretary of the Treas-  F.:111MM  ft:  ........ ........  .........  7 urv may take any action described in subsection (a)(3) include 8 the purpose of investigating any offense connected with the  ....... 1111  9 administration or enforcement of this subchapter, section 21  ...  itTT.tit  .1:.........  10 of the Federal Deposit Insurance Act, section 411 of the Na-  ll tional Housing Act, or chapter 2 of Public Law 91-508. 12  st mt. *tit  t....  Nt::::::::.................t...  "(c)(1) The Secretary of the Treasury may delegate the  13 powers conferred by subsection (a)(3) to an appropriate su-  ihm....••••••  411.11M••••••••••••••  41••••••••  1 I  VMS.  14 pervising agency.  15  ••  "(2) A summons may be issued under subsection  tItt  16 (a)(3)(B) only by, or with the approval of, the Secretary of the  VC%  .  LESS  17 Treasury or a supervisory level delegate of an appropriate 18 Treasury bureau.".  1 ItteettAtettAIMMUMItomnAttel.....lts  . 19 SEC. 103. INCREASED CIVIL PENALTIES.  20  ill:II........  Section 5321(a) of title 31, United States Code, is  21 amended22 23  (1) by striking out the first sentence of paragraph (1) and inserting in lieu the following:  24 "A domestic financial institution, and a partner, director, offily 25 cer, or employee of a domestic financial institution, willful   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  &IR 1945 FB  11111T1.11‘  w• •  4  ulation prescribed under this 1 violating this subchapter or a reg  1  title or a regulation s thi of 15 53 n tio sec t ep xc (e er pt ha 2 subc causing such a violation is or ) 15 n 53 tio sec r de un ed ib cr es pr 3  2  nt for a civil penalty of 4 liable to the United States Governme  4  5 not more than-  5  e the "(A) the amount of the transaction wher uirelation involves a transaction reporting req  6  6  7  vio  7  8  ment; or  8  9 (2)  10 11 12   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  3  13 14  15  and "(B) $10,000 for any other violation."; g: by adding at the end thereof the followin  ionr of section vis pro e th ing lat vio lly lfu wil on rs pe A "(4) ibed under section scr pre n tio ula reg a of or le tit s thi of 5314 Government for a civil es at St ed it Un e th to ble lia is 14 53 of the foreign transacpenalty of not more than the amount violation.". tion or foreign account involved in the  16 17  SEC. 104. DEFINITIONS.  ed States Code, is Section 5312(a)(5) of title 31, Unit  18 amended to -`read as follows: States of the "(5) 'United States' means the , and, when the ia mb lu Co of ct tri Dis e th , es at St ed  19 20 21 22 23 24 25  Unit  Commonwealth e th , on ti la gu re by es ib cr es pr y ar et Secr s, Guam, the Northnd la Is in rg Vi e th , co Ri to er Pu of the Trust Territory, a, mo Sa an ic er Am , as an ri Ma em of the United States, any other territory or possession ishment.". or a military or diplomatic establ  •ffR 1945 IR  9 10 11  19 13 14 15  16 17 18 19 20  91 22 23 $ 24 t 25  5 TITLE II  1  MONEY LAUNDERING :•  9  3  SEC. 201. SHORT TITLE. This title may be cited as the "Money Laundering  .........................  4 Crimes Act". 5 SEC. 202. TITLE 18 AMENDMENT. :US=  6  (a) IN  GENERAL.—Chapter  95 of title 18, United t ttitt  7 States Code, is amended by adding at the end thereof the 8 following new section:  p .  t  1:•-•••••  9 "§1956. Laundering of monetary instruments 10  "(a) OFFENSE. Whoever conducts or causes to be con-  11 ducted a transaction or series of transactions involving one or 19 more monetary instruments in, through, or by a financial in13 stitution which is engaged in, or the activities of which affect, :=m- :flu  14 interstate commerce, or attempts so to do—  :5  "(1) with inter_t to promote, rr_dr.age, estLblish,  16  carry on, or facilitate the promotion, management, es-  17  tablishment, or carrying on, of any unlawful activity;  18  or "(2) with knowledge or reason to know that such  19  .....  • TOMS  20  monetary instruments represent income derived, direct-  21  lv or indirectly, from any unlawful activity, or the pro-  22  ceeds of such income,  23 shall be fined not more than $250,000 or twice the value of 24 the monetary instruments, whichever is greater, or impris-  95 oned not more than ten years, or both, for the first such   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •111 1945 KB  PIM*  .  ssa   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  6 more than $1,000,000 or five t no d ne fi be l al sh d an e, ns 1 offe ments, whichever is ru st in ry ta ne mo e th of e lu va 9 times the than twenty years, or both, re mo t no ed on is pr im or r, 3 greate eafter. 4 for each such offense ther this section"(b) DEFINITIONS. As used in 5 nonducts' includes initiating, co 'c rm te e th 1) "( 6 , initiating, or ng ti uc nd co in g in at ip ic rt pa eluding, or 7 concluding a transaction; 8 sit, 'transaction' includes a depo rm te e th 2) "( 9 , exchange of ts un co ac n ee tw be er sf an tr , al withdraw 10 rchase or sale of pu , it ed cr of n io ns te ex , an lo , currency 11 posit, or other monede of e at ic if rt ce , nd bo k, oc st any 19 transfer, or det, en ym pa r he ot y an or , nt tary instrume 13 institution, by l ia nc na fi a to or h, ug ro th livery by, 14 whatever means effected; 15 ruments' means moilst in y ar et on 'm rm te e th 3) "( 16 section 5312(a)(3) of in d ne fi de as s nt me ru st in y etar 17 18  title 31;  19 20  ion' means financial ut it st in al ci an in 'f rm te e th "(4) 5312(a)(2) of title 31; n io ct se in d ne fi de as n io institut  21  and  22 23  ans any act or me ' ty vi ti ac l fu aw nl 'u rm "(5) the te  1 9  3 4 5 6 7 8 9 10 11 12 13 14  15 1€ 17 18 19 20 21 22 23  acts constituting-  24 25  •I1R 19451B  , 1  "(A) a pattern of racketeering activity or col-  2  lection of unlawful debt, as those terms are de-  3  fined for the purposes of chapter 96 of this title;  4  "(B) a continuing criminal enterprise, as that  5  term is defined in section 408 of the Controlled  6  Substances Act (21 U.S.C. 848); I.•  7  "(C) an offense under any of sections 201  8  (relating to bribery), 224 (relating to bribery in  9  sporting contests), 471-473 (relating to counter-  10  feiting), 659 (relating to theft from interstate ship-  :,::::::::::: ...................„:„ „i„„„::„„,,,,::.. ,,,.........w.,... i• , it :tit: UI  ment) if the offense is felonious, 664 (relating to  11  .......111.ittltitttlAtttt  111:3:::::1:::.........sas::::,  12  embezzlement from pension and welfare funds),  13  891-894 (relating to extortionate credit transac-  14  tions), 1084 (relating to the transmission of gam-  _____.........._...  it  15  bng information), 1341 (relating to mail fraud),  16  1343 (relating to wire fraud), 1461-1465 (relating  17  to obscene matter), 1503 (relating to obstruction  18  of justice), 1510 (relating to obstruction of crimi-  19  nal investigations), 1511 (relating to obstruction  20  of State or local law enforcement), 1951 (relating  21  to interference with commerce by threats or vio-  99  lence), 1952 (relating to racketeering enterprises),  23  1953 (relating to interstate transportation of wa-  24  gering paraphernalia), 1954 (relating to unfair  25  welfare fund payments), 1955 (relating to prohibi-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •112 1945 113  ..........   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  8 or 2315 tion of illegal gambling businesses), 2314 of stolen (relating to interstate transportation  1 9  4  cking in property), 2341-2346 (relating to traffi lating to contraband cigarettes), or 2421-2424 (re  5  white slave traffic) of this title;  3  6 7 8  lating "(D) an offense under section 302 (re labor orto restrictions on payments and loans to Relations ganizations) of the Labor-Management  10  1(c) (reAct, 1947 (29 U.S.C. 186), or section 50 s) of the lating to embezzlement from union fund  11  losme Act Labor-Management Repaiting and Dise  12  of 1959 (29 U.S.C. 501(c)); or  9  16  manu"(E) an offense involving the felonious concealment, facture, importation, receiving, narcotic or buying, selling, or otherwise dealing in r any law other dangerous drugs, punishable unde  17  of the United States.  13 14  15  18 19 20 21 22  g in this section in th No W. LA R HE OT ON CT FE EF "(c) State, or other law l, ra de Fe of ion vis pro y an e ed rs pe su shall civil remedies in ading ord aff or ies alt pen al min cri ng si po im tion. dition to those provided for in this sec lations of this Vio Y. IT OR TH AU E IV AT IG ST VE "(d) IN  l Bureau of Invesra de Fe e th by ted iga est inv be ll sha 23 section ation, and the Instr ini Adm t en em rc fo En ug Dr the 24 tigation, ropriate. 25 ternal Revenue Service, as app  &IR 1945W  =  •  ! .............  9 1 9  "(e) EXTRATERRITORIAL JURISDICTION.—There  is  extraterritorial jurisdiction over the conduct prohibited by  3 this section.". V.Ittttlti:::::  (b) CLERICAL AMENDMENT.—The table of sections  4  5 at the beginning of chapter 95 of title 18, United States 6 Code, is amended by adding at the end the following new   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  . I.%  tIttittSI::  ititttttttt •  item: "1956. Laundering of monetary instruments". I  Si  •  0  III  •  :11:iitt:::::tfttt1ttItttttlittt  Istuttussza  a,::,:  •  •  in::  •It•  8 • Ittttt .1....1.%••••••••••••••  ,  •HR 19451E   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  99TH CONGRESS 1ST SESSION  H.R.2785 To combat money laundering.  IN THE HOUSE OF REPRESENTATIVES JUNE 18, 1985 Mr. ST GERMAIN (for himself and Mr. WYLIE)(by request) introduced the following bill; which was referred jointly to the Committees on Banking, Finance and Urban Affairs and the Judiciary  A BILL To combat money laundering. 1  Be it enacted by the Senate and House of Representa-  2 lives of the United States of America in Congress assembled, 3 That this act may be cited as the "Money Laundering and 4 Related Crimes Act of 1985."  5  SEC. 2. (a) Chapter 95 of title 18, United States Code,  6 is amended by adding at the end thereof the following new 7 section: 8 "§ 1956. Laundering of monetary instruments 9  "(a) Whoever conducts, causes to be conducted, or at-  10 tempts to conduct a transaction involving the movement of 11 funds by wire or other electronic means or involving one or   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1111Em _4 1111.""  2 1 more monetary instruments, which in any way or degree af2 fects interstate or foreign commerce, or conducts causes to 3 be conducted, or attempts to conduct such a transaction 4 through or by a financial institution which is engaged in, or 5 the activities of which affect, interstate or foreign commerce 6 in any way or degree7  "(1) with the intent to promote, manage, estab-  8  lish, carry on, or facilitate the promotion, management,  9  establishment, or carrying on, of any unlawful activity;  10  or  11  "(2) knowing or with reckless disregard of the  12  fact that such monetary instruments or funds represent  13  the proceeds of, or are derived directly or indirectly  14  from the proceeds of, any unlawful activity  15 shall be sentenced to a fine of not more than $250,000 or 16 twice the value of the monetary instruments or wire trans17 ferred funds, whichever is greater, or imprisonment for not 18 more than 20 years, or both. 19  "(b) Whoever conducts, causes to be conducted, or at-  20 tempts to conduct a transaction described in subsection (a) is 21 liable to the United States for a civil penalty of not more than 22 the greater of23 94 25  (1) the value of the funds or monetary instrument or instruments involved in the transaction, or (2) $10,000.  3 "(c) As used in this seclion-  1   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2  "(1) the term 'conducts' includes but is not limited  3  to initiating, concluding, or participating in initiating,  4  or concluding a transaction;  5  "(2) the term 'transaction' includes but is not urn-  6  ited to a purchase, sale, loan, pledge, gift, transfer, de-  7  livery, or other disposition, and with respect to a finan-  8  cial institution includes but is not limited to a deposit,  9  withdrawal, transfer between accounts, exchange of  10  currency, loan, extension of credit, purchase or sale of  11  any stock, bond, certificate of deposit, or other mone-  12  tary instrument, or any other payment, transfer, or de-  13  livery by, through, or to a financial institution, by  14  whatever means effected;  15  "(3) the term 'monetary instruments' means coin  16  or currency of the United States or of any other coun-  17  try, travelers' checks, personal checks, bank checks,  18  money orders, investment securities in bearer form or  19  otherwise in such form that title thereto passes upon  20  delivery, and negotiable instruments in bearer form or  21  otherwise in such form that title thereto passes upon  22  delivery;  23  "(4) the term 'financial institution' has the defini-  24  tion given that term in 31 U.S.C. 5312(a)(2) and the  25  regulations promulgated thereunder;  elat Z7S5  •  4  "(5) the term 'unlawful actitity' means any act or 2  activity occurring in whole or in part in, or directed at,  3  the United States and constituting an offense punish-  4  able by death or imprisonment for a term exceeding  5  one year under the laws of the United States or any  6  State of the United States in which the act or activity  7  took place; and  8  "(6) the term 'reckless disregard' as used in para-  9  graph (2) of subsection (a) means that the person is  10  aware of a substantial risk that the monetary instru-  11  ments or funds involved in the transaction represent  12  the proceeds of, or are derived directly or indirectly  13  from the proceeds of, any unlawful activity, but disre-  14  gards the risk. A substantial risk means a risk (based  15  on all the circumstances of the transaction including  16  but not limited to the amount and type of funds or  17  monetary instruments and the nature of the transac-  18  tion) that is of such a nature and degree that to disre-  19  gard it constitutes a gross deviation from the standard  20  of care that a reasonable person would exercise in such  21  a situation.  22  "(d) Nothing in this section shall supersede any provi-  4.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  23 sion of Federal, State, or other law imposing criminal penal24 ties or affording civil remedies in addition to those provided 25 for in this section.  On MS 11  S  5  Or  1  "(e) Violations of this section may be investigated by  it,  h-  2 such components of the Department of Justice as the Attor3 ney General may direct, and by such components of the De4 partment of the Treasury as the Secretary of the Treasury  tv  5 may direct, as appropriate. 6  ais unt ly •eed ng or cerd  Ll-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  "(f) There is extraterritorial jurisdiction over the con-  7 duct prohibited by this section if: 8  "(1) the transaction was conducted or attempted  9  with the intent to promote, manage, establish, carry  10  on, or facilitate the promotion, management, establish-  11  ment, or carrying on of any unlawful activity, involving  12  a violation of this title, a violation of title 26, a viola-  13  tion of the Controlled Substances Act (21 U.S.C. 801  14  et seq.), a violation of the Controlled Substances  15  Import and Export Act (21 U.S.C. 951 et seq.), a  16  lation of section 1 of the Act of September 15, 1980  17  (21 U.S.C. 955a), a violation of section 601 of the Na-  18  tional Security Act of 1947 (50 U.S.C. 421), a viola-  19  tion of section 4 of Title I of the Internal Security Act  20  of 1950 (50 U.S.C. 783), a violation of section 2 of the  21  Act of August 1, 1956 (P.L. 84-893, 50 U.S.C. 851),  22  or a violation of sections 224-227 of the Atomic  23  Energy Act of 1954 (42 U.S.C. 2274-2277); or with  24  knowledge of the fact that the monetary instruments or  25  funds involved in the offense represent the proceeds of,  0111 /785 1E   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  6 1  or are derived directly or indirectly from the proceeds  2  of, any such unlawful activity;  3  "(2) the conduct is by a United States person or,  4  in the case of a non-United States person, the conduct  5  occurs in part in the United States and;  6  "(3) the transaction or series of related transac-  7  tions involves funds or monetary instruments of a value  8  exceeding $10,000.".  9  (b) The table of sections at the beginning of chapter 95  10 of title 18 is amended by adding at the end the following new 11 item: "1956. Laundering of monetary instruments". 12  SEC. 3. (a) Section 1113 of The Right to Financial Pri-  13 vacy Act of 1978 (Title XI of Public Law 95-630, 12 14 U.S.C. 3413) is amended by adding at the end thereof the 15 following: 16  "(1) Nothing in this title shall apply when a financial  17 institution or supervisory agency, or any officer, employee, or 18 agent of a financial institution or a supervisory agency, pro19 vides to an agency of the United States financial records 20 which such financial institution or supervisory agency has 21 reason to believe may be relevant: 22  (1) to a possible violation of any law relating to  23  crimes by or against financial institutions or superviso-  24  ry agencies,  0111 M5 II  7 eds  1  (2) to a possible violation of the Controlled Sub- _  2  stances Act (21 U.S.C. 801 et seq.), the Controlled  Or,  3  Substances Import and Expirt Act (21 U.S.C. 951 et  uct  4  seq.), or sections 1 or 3 of the Act of September 15,  5  1980 (21 U.S.C. 955a and c), or  ac-  6  (3) to a possible violation of a provision contained  lue  7  in subchapter II of chapter 53 of title 31, United  8  States Code, or of section 1956 of title 18, United  95  9  States Code.".  tew  10  (b) Subsection 1112(a) of the Right to Financial Privacy  11 Act of 1978, (Title XI of Public Law 95-630, 12 U.S.C. ri-  12 3412(a)) is amended to read as follows:  12  13  the  14 records obtained by an agency or Department of the United  "(a) Nothing in this title shall apply when financial  15 States are transferred to another agency or department if 16 there is reason to believe that the records may be relevant to Or TO-  17 a matter within the jurisdiction of the receiving agency or 18 department".  rds  19  las  20 Act of 1978 (12 U.S.C. 3403(c)) is amended by adding at the  (c) Subsection 1103(c) of the Right to Financial Privacy  21 end thereof the following: "Such information may include the to  29 name or names of and other identifying information concern-  ;o-  23 ing the individuals and accounts involved in and the nature of   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  24 the suspected illegal activity.".  on 27S5  •  8  1  : (d) Subsection 1117(c) of tfie Right to Financial Privacy  2 Act of 1978 (12 U.S.C. 3417(c)) is amended to read as fol3 lows: 4financial institution, or officer, employee or 5 agent thereof, making a disclosure of the financial records of 6 a customer, or information contained in such records, pursu7 ant to this chapter in good-faith reliance upon a certificate by 8 anv Government authoritv, or in good-faith belief that such 9 records or information may be relevant to a possible violation 10 of law in accordance with subsection 3413(1) or section 1.161%. 3  ..•  11 3403(c) of this title, shall not be liable to the customer for 12 such disclosure or for anv failure to notify the customer of 13 such disclosure.". 14  (e) Subsections (b) and (c) of section 1112 of the Right  15 to Financial Priv•acy Act of 1978 (12 U.S.C. 3412) are re16 pealed and subsections (d) and (e) of that section are re1esigt. #4'  -  17 Jutted subsections (b) and (c), respectively. 18  Pl! 111111*.kire"..kc:e.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (f) Section 1120 of the Right to Financial Privacy Act  19 of 1978 (12 U.S.C. 3420) is amended by striking out para20 graph (1) and redesignating paragraphs (2) through (4) and 21 any reference thereto in such paragraphs as paragTaphs (1) 22 through (3), respectively. 23  (g) The Right to Financial Privacy Act of 1978 (12 3401 et seq., is amended by adding at the end thereof  25 the following new section 1123(12 U.S.C. 3423):  0H1 7785 EH   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  9 1 "§ 3423. Preemption of State law  2  The provisions of this title and any regulations promul-  3 gated thereunder shall preempt any provision of spy constitu4 tion, law, or regulation of any State or political subdivision 5 thereof, as well as any administrative or judicial interpreta6 tion of such provision, that is not identical to the provisions of 7 this title and regulations thereunder, and that is more restric8 tive of disclosure to a Government authority concerning a 9 possible violation of any statute or regulation than the provi10 sions of this title and regulations promulgated thereunder.". 11  SEC. 4. Rule 17(c) of the Federal Rules of Criminal  12 Procedure is amended by adding at the end thereof the fol13 lowing: 14  "An attorney for the government may apply to the  15 court for an order commanding the person to whom the sub16 poena is directed, for such period as the court deems appro17 priate, not to notify any other person of the existence of the 18 subpoena. The court shall enter such an order if it determines 19 that—(1) there is reason to believe that the books, records, 20 documents, or other objects designated in the subpoena are 21 relevant to a legitimate law enforcement proceeding; and (2) 22 there is reason to believe that notification of the existence of 23 the subpoena will result in: (A) endangering the life or physi24 cal safety of any individual; (B) flight from prosecution; (C) 25 destruction of or tampering with evidence;(D) intimidation of  HR 2785 IH  2   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  ,111•MM de.  10 1 potential witnesses; or (E) otherwise seriously jeopardizing t  •  2 an investigation or unduly delaying a trial.  3  SEC. 5. (a) Section 5318 of title 31, United States  4 Code, is amended to read as follows: 5 "§ 5318. Compliance, exemptions, and summons authority  6  "(a) The Secretary of the Treasury may (except  7  under section 5315 of this title and regulations pre-  8  scribed under section 5315)  9  "(1) delegate duties and powers under this sub-  10  chapter to an appropriate supervising agency, except  11  as provided in subsection (c);  12  "(2) require a class of domestic financial institu-  13  tions to maintain appropriate procedures to ensure  14  compliance with this subchapter and regulations pre-  15  scribed under this subchapter;  16  "(3) examine any books, papers, records, or other  17  data of domestic financial institutions relevant to the  18  recordkeeping or reporting requirements of this sub-  19  chapter;  20  "(4) summon a financial institution or an officer or  21  employee of a financial institution, or a former officer  22  or employee, or any person having possession, custody,  23  or care of the reports and records required under this  24  subchapter, to appear before the Secretary of the  25  Treasury or his delegate at a time and place named in  •Il 2715 111  •  11 1  the summons and to produce such books, papers,  2  records, or other data, and to give testimony, under  3  oath, as may be relevant or material to an investiga-  4  tion described in subsection (c).  5  "(5) prescribe an appropriate exemption from a  6  requirement under this subchapter and regulations pre-  7  scribed under this subchapter. The Secretary may  8  revoke an exemption by actually or constructively noti-  9  fying the parties affected. A revocation is effective  10  during judicial review.  11  "(b) The purposes for which the Secretary of the Treas-  12 ury may take any action described in paragraph (3) of subsec13 tion (a) include the purpose of civil and criminal enforcement 14 of the provisions of this subchapter, section 21 of the Federal  15 Deposit Insurance Act (12 U.S.C. 1829b), section 411 of the 16 National Housing Act (12 U.S.C. 1730d), or chapter 2 of 17 Public Law 91-508. 18  "(c) The purpose for which the Secretary of the Treas-  19 ury may take any action described in paragraph (4) of subsec-  ••   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I  20 tion (a) is limited to investigating violations of this subchap21 ter, violations of section 21 of the Federal Insurance Act (12 22 U.S.C. 1829b), violations of section 411 of the National 23 Housing Act (12 U.S.C. 1730d), or violations of chapter 2 of 24 Public Law 91-508 for the purpose solely of civil enforce25 ment of these provisions or any regulation issued thereunder.  0111 2715 II   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  mho.•••III.  12 1 A summons may be issued under paragraph (4) of subsection 2 (a) only by, or with the approval of, the Secretary of the 3 Treasury or a supervisory level delegate of the Secretary..of 4 the Treasury. 5  "(d) A summons pursuant to this section may require  6 that books, papers, records, or other data stored or main7 tained at any place be produced at any designated location in 8 any State or in any territory or other place subject to the 9 jurisdiction of the United States not more than 500 miles 10 distant from any place where the financial institution oper11 ates or conducts business in the United States. Persons sum12 moned under this section shall be paid the same fees and 13 mileage for travel in the United States that are paid wit14 nesses in the courts of the United States. The United States 15 shall not be liable for any other expenses incurred in connec16 tion with the production of books, papers, records, or other 17 data pursuant to the provisions of this section. 18  "(e) Service of a summons issued under this section may  19 be by registered mail or in such other manner calculated to 20 give actual notice as the Secretary may provide by regula21 tion. 22  "(f) In the case of contumacy by or refusal to obey a  23 summons issued to any person under this section, the Secre24 tary shall refer the matter to the Attorney General. The At25 torney General may invoke the aid of any court of the United   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •••••••••••••...  .1•••••••=1111M.  13 1 States within the jurisdiction of which the investigation 2 which gave rise to the summons is being or has been carried 3 011 or of which the person summoned is an inhabitant, or in 4 which he carries on business or may be found, to compel  5 compliance with the summons. The court may issue an order 6 requiring the person summoned to appear before the Secre7 tary or his delegate to produce books, papers, records and 8 other data, to give testimony as may be necessary to explain 9 how such material was compiled and maintained, and to pay 10 the costs of the proceeding. Any failure to obey the order of 11 the court may be punished by the court as a contempt there12 of. All process in any such case may be served in any judicial 13 district in which such person may be found.". 14  (b) Section 5319 of title 31, United States Code, is  15 amended to read as follows: 16  "The Secretary is authorized to make information in a  17 report filed under this subchapter available to a federal, state, 18 or local agency on the agency's request. Such disclosure shall 19 be on the terms and conditions set forth by the Secretary 20 consistent with the purposes of this chapter. The Secretary is 21 also authorized to make information in a report filed under 22 this subchapter available to a federal agency when the Secre23 tary has reason to believe such information may be relevant 24 to a matter within the jurisdiction of the receiving agency. 25 The Secretary is also authorized to make disclosure of infor-  14  1 !nation in a report filed under this subchapter for national 2 security purposes. A report made available pursuant to this 3 section and records of such reports are exempt from disclo4 sure under section 552 of title 5.".  5  (c)(1) The first paragraph of subsection 5321(a) of title  6 31 United States Code, is amended to read as follows: 7  "(a)(1) A domestic financial institution, and a partner,  8 director, officer, or employee of a domestic financial institu9 tion, willfully violating this subchapter or a regulation pre10 scribed under this subchapter (except section 5315 of this 11 title or a regulation prescribed under section 5315), or any -  12 person causing such a violation, is liable to the United States  •  -  13 Government for a civil penalty of not more than-  •  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  14  "(A) where the violation involves a failure to file  15  a report or a material omission or mistatement in a re-  16  quired report, the amount of the transaction, but not  17  more than $1,000,000, or $25,000, whichever is  18  greater, or  19  "(B) for any other violation, $10,000.  20 For a violation of section 5318(a)(2) of this title, or a regula21 tion prescribed under section 5318(a)(2), a separate violation 22 occurs for each day the violation continues and at such office, 23 branch, or place of business at which a violation occurs or 24 continues.".  ellt 2715 II  15 1  (2) The second paragraph of subsection 5321(a) of title  2 31, United States code, is amended to read as follows: 3  "(2) A civil penalty under paragraph (1) is reduced by  4 an amount forfeited under subsection 5317(b).".  5  (3) New paragraphs (4), (5), and (6) are added at the end  6 of subsection 5321(a) of title 31, United States Code, as fol, 7 lows: 8  "(4) A person willfully violating the provisions of section  9 5314 of this title or of a regulation prescribed under section 10 5314 is liable to the United States government for a civil 11 penalty of not more than12  "(A) where the violation involves a transaction,  13  the amount of the transaction or $25,000 whichever is  14  greater, or  15  "(B) where the violation involves the failure to  16  report the existence of an account or any required  17  identifying data pertaining to the account, the entire  18  amount deposited into the account during the reporting  19  year or $250,000, whichever is greater.  20  "(5) Any person or financial institution negligently vio-  21 lating any provision of this subchapter or a regulation pre•   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  22 scribed under this subchapter is liable to the United States 23 for a civil penalty of not more than $10,000.  on 2715  16 1  "(6) A civil penalty assessed pursuant to this section is  2 in addition to any criminal penalty under section 5322 of this 3 title based on the same transaction.". 4  (d) Subsection 5321(b) of title 31 is amended to read as  5 follows: 6  "(b) The Secretary may bring a civil action to recover  7 an unpaid penalty under subsection (a) within six years from I; ••4. •+4. •  -8 the date of the transaction on which the penalty is based.". 9  .(e) Subsection 5321(c) of title 31 is amended to read as  10 follows: 11  "(c) The Secretary of the Treasury may remit any part  12 of a forfeiture under subsection 5317(b) of this title or may 13 mitigate any civil penalty under subsection (a) of this sec-  w.  14 tion.". 15  .• 14.7   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (f) Subparagraph (3)(B) of subsection 5312(a) of title 31,  16 United States Code, is amended by striking the period at the 17 end thereof and inserting in lieu thereof: "whether or not in 18 bearer form.". 19  (g) Subsection 5322(b) of title 31, United States Code,  20 is amended by striking out the words "pattern of illegal ac21 tivity involving transactions of more than $100,000" and in22 serting in lieu thereof "pattern of any illegal activity involv23 ing more than $100,000", and by striking out the figure "5" 24 and by replacing in lieu thereof the figure "10".  17 1  (h) Paragraph (5) of subsection 5312(a) of title 31,  2 United States Code, is amended to read as follows: 'United States' means the States of the United 4 States, the District of Columbia, and, when the Secretary 5 prescribes by regulation, the Commonwealth of Puerto Rico, 6 the Virgin Islands, Guam, the Northern Mariana Islands, 7 American Samoa, the Trust Territory of the Pacific Islands, 8 any other territory or possession of the United States, or a 9 military or diplomatic establishment.". 10  SEC. 6. (a) Subsection (b) of section 1952 of title 18,  11 Uniied States Code, is amended by deleting the word "or" 12 before the figure  and by deleting the period at the end  13 thereof and replacing it with the following:  or (3) any act  14 which is indictable under subchapter II of chapter 53 of title 15 31, United States Code, or under section 1956 of this title.". 16  (b) Subsection 1961(1) of title 18, United States Code, is  17 amended by inserting the phrase "section 1956 (relating to 18 the laundering of monetary instniments)," after the phrase 19 "section 1955 (relating to  easbo of illegal gambling  20 businesses),". 21  (c) Subsection 2516(1) of title 18, United States Code, is  22 amended in paragraph (c) by athling the phrase "section 1956 23 (laundering of monetary instruments)," after the phrase 24 tion 1955 (prohibition of business enterprises of gambling),".  WM 17115 II  1   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  18 1  SEc. 7. Section 2 of title 18, United States Code, is  2 amended by adding the following subsection: 3  "(c) Whoever knowingly facilitates the commission by  4 another person of an offense against the United States by 5 providing assistance that in fact is substantial is punishable as 6 a principal.". 7  SEC. 8.(a) Chapter 113 of title 18, United States Code,  8 is amended by adding at the end thereof the following new 9 section: 10 "§ 2322. Receiving the proceeds of a crime 11  "Whoever receives, possesses, conceals, or disposes of,  12 or attempts to receive, possess, conceal or dispose of, any 13 money or other property which has been obtained in connec14 tion with a violation of any law of the United States for 15 which the punishment may extend to imprisonment for more 16 than one year; or brings or transfers into the United States  ' dr  ihr0  1;i; any money or other property which has been obtained in con18 nection with a violation of any law of a foreign country con19 cerning the manufacture, distribution, or other form of traf7:4•70.-  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  20 licking in any substance listed in the current schedules of 21 controlled substances established pursuant to section 202 of 22 the Controlled Substances Act (21 U.S.C. 812)for which the 23 punishment under the law of the foreign country may extend 24 to imprisonment for a period of more than one year, knowing 25 or believing the same to be money or property which has  ell 2725•  .1 ..11111111126  19 1 been obtained in violation of law, shall be imprisoned for not is 2 more than ten years, or fined not more than $250,000 or 3 both.". 4  (b) The table of sections at the beginning of chapter 113  5 of title 18 is amended by adding at the end thereof the fol6 lowing new item: "2322. Receiving the proceeds of a crime".  7  SEC. 9. (a) Title 18 of the United States Code is amend-  8 ed by adding a new Chapter 120 as follows: 9  "CHAPTER 120—Forfeiture "Sec. "2600. Civil Forfeiture. "2601. Criminal Forfeiture.  10 "§ 2600. Civil forfeiture dIND  11  "(a) Any funds or monetary instruments involved in a  12 violation of section 1956, and any money or other property 13 involved in a violation of section 2322 in connection with a 3   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  14 violation of any law of the United States or of a foreign coun15 try concerning controlled substances, and any property, real 16 or personal, which represents the proceeds of or which is 17 traceable to such funds, monetary instruments or other prop18 erty shall be subject to forfeiture to the United States. 19  "(b) Any property subject to forfeiture to the United  20 States under this section may be seized by the Attorney Gen21 eral, and with respect to funds or monetary instruments in22 volved in a violation of section 1956 by the Secretary of the 23 Treasury, upon process issued pursuant to the Supplemental  20 1 Rules for certain Admiralty and Maritime Claims by any dis2 trict court of the United States having jurisdiction over the 3 property, except that seizure without such process may be 4 made when"(1) the seizure is pursuant to a lawful arrest or  5 6  search; or "(2) the Attorney General or the Secretary of the  8  Treasury, as the case may be, has probable cause to  9  believe that the property is subject to forfeiture under  10  this section, in which event proceedings under subsec-  11  tion (d) of this section shall be instituted promptly.  12  "(c) Property taken or detained under this section shall  13 not be repleviable, but shall be deemed to be in the custody of 14 the Attorney General or the Secretary of the Treasury, as  15 the case may be, subject only to the orders and decrees of the 16 court or the official having jurisdiction thereof. Whenever 17 property is seized under this subsection, the Attorney Gener•   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  18 al or the Secretary of the Treasury, as the case may be, 19 may20  "(1) place the property under seal;  21  "(2) remove the property to a place designated by  22  him; or  23  "(3) require that the General Services Adminis. tration take custody of the property and remove it, if  24  011 r7115  21 1  practicable, to an appropriate location for disposition in  2  accordance with law.  3  "(d) For the purposes of this section the provisions of  4 the customs laws relating to the seizure, summary and judiS  5 cial forfeiture, condemnation of property for violation of the 6 customs laws, the disposition of such property or the pro7 ceeds from the sale thereof, the remission or mitigation of 8 such forfeitures, and the compromise of claims (19 U.S.C. 9 1602 et seq.), insofar as they are applicable and not incon10 sistent with the provisions hereof, shall apply to seizures and 11 forfeitures incurred, or alleged to have been incurred, under 1  12 this section, except that such duties as are imposed upon the 13 customs officer or any other person with respect to the sei-  3   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  14 zure and forfeiture of property under the customs laws shall  15 be performed with respect to seizures and forfeitures of prop16 erty under this section by such officers, agents, or other per17 sons as may be authorized or designated for that purpose by 18 the Attorney General or the Secretary of the Treasury, as 19 the case may be. 20  "(e) Notwithstanding any other provision of the law, the  21 Attorney General or the Secretary of the Treasury, as the 22 case may be, is authorized to retain property forfeited pursu23 ant to this section, or to transfer such property on such terms 24 and conditions as he may determine to25  "(1) any other Federal Agency; or  22 1  "(2) any State or local law enforcement agency  2  which participated directly in any of the acts which led  3  to the seizure or forfeiture of the property.  4  The Attorney General or the Secretary of the Treasury,  5 as the case may be, shall ensure the equitable transfer pursu6 ant to paragraph (2) of any forfeited property to the appropri7 ate State or local law enforcement agency so as to reflect 8 generally the contribution of any such agency participating 9 directly in any of the acts which led to the seizure or forfeit10 ure of such property. A decision by the Attorney General or 11 the Secretary pursuant to paragraph (2) shall not be subject 12 to review. The United States shall not be liable in any action :I.::  • • .•  Eift;-  13 arising out of the use of any property the custody of which 14 was transferred pursuant to this section to any non-Federal  15 agency. The Attorney General or the Secretary of the Treas16 ury may order the discontinuance of any forfeiture proceed.;2-•   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  17 ings under this section in favor of the institution of forfeiture 18 proceedings by State or local authorities under an appropri19 ate State or local statute. After the filing of a complaint for 20 forfeiture under this section, the Attorney General may seek 21 dismissal of the complaint in favor of forfeiture proceedings 22 under State or local law. Whenever forfeiture proceedings 23 are discontinued by the United States in favor of State or 24 local proceedings, the United States may transfer custody 25 and possession of the seized property to the appropriate State  en 2715 III  23 1 or local official immediately upon the initiation of the proper !cl   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2 actions by such officials. Whenever forfeiture proceedings are 3 discontinued by the United States in favor of State or local 4 proceedings, notice shall be sent to all known interested par-  5 ties advising them of the discontinuance or dismissal. The 6 United States shall not be liable in any action arising out of 7 the seizure, detention, and transfer of seized property to 8 State or local officials. 9  "(f) All right, title, and interest in property described in  10 subsection (a) of this section shall vest in the United States 11 upon commission of the act giving rise to forfeiture under this 12 section. 13  "(g) The filing of an indictment or information alleging a  14 violation of law which is also related to a forfeiture proceed-  15 ing under this section shall, upon motion of the United States 16 and for good cause shown, stay the forfeiture proceeding. 17  "(h) In addition to the venue provided for in section  18 1395 of title 28 or any other provision of law, in the case of 19 property of a defendant charged with a violation that is the 20 basis for forfeiture of the property under this section, a pro21 ceeding for forfeiture under this section may be brought in 22 the judicial district in which the defendant owning such prop23 erty is found or in the judicial district in which the criminal 24 prosecution is brought.  ell 2715 111  •  24 1 "§ 2601. Criminal forfeiture 2  "(a) A person who is convicted of an offense under sec-  3 tion 1956 or section 2322 of this title shall forfeit to the 4 United States any money or other property involved in such 5 an offense and any money or other property, real or personal, 6 which represents the proceeds of or which is traceable to 7 such money or property. 8  "()) In any case in which money or property subject to  9 forfeiture under subsection (a), as a result of any act or omis:••it:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  10 sion of the defendant11 12  "(1) cannot be located upon the exercise of due diligence; "(2) has been transferred or sold to, or deposited  13 14  with a third party;  15 16  "(3) has been placed beyond the jurisdiction of the court;  17  "(4) has been substantially diminished in value; or  18  "(5) has been commingled with other property  19  which cannot be divided without difficulty;  20 the person shall forfeit to the United States any other proper21 ty up to the value of any property described in this section. 22  "(c) The court, in imposing sentence on a person for a  23 conviction of an offense listed in subsection (a), shall order 24 that the person forfeit to the United States all property de25 scribed in subsection (a) or (b).  ell 273S El3  25 1  "(d) The provisions of subsections 413(c) and (e) through  2 (o) of the Comprehensive Drug Abuse Prevention and Con3  3 trol Act of 1970 (21 U.S.C. 853(c) and (e)—(o)) shall apply 4 to property subject to forfeiture under this section, to any 5 seizure or disposition thereof, and to any administrative or 6 judicial proceeding in relation thereto, if not inconsistent with 7 this section.". 8  (b) The chapter analysis of part I of title 18, United  9 States Code, is amended by adding at the end thereof the 01.  10 following: 2600".  "120. Forfeiture  0  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  VIIIimmwaszo.,..04,  99TH CONGRESS 1ST SESSION  110  -7.. - --mmewalmisw-----ww  H.R. 3892  To amend title 31, United States Code, to strengthen certain currency reporting requirements, and for other purposes.  LN THE HOUSE OF REPRESENTATIVES DECEMBER 10, 1985 Mr. WORTLEY introduced the following bill; which was referred to the Committee on Banking, Finance and Urban Affairs  A BILL To amend title 31, United States Code, to strengthen certain currency reporting requirements, and for other purposes. 1   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1  Be it enacted by the Senate and House of Representa-  2 lives of the United States of America in Congress assembled, 3,sEcT1oN  1. FINANCIAL INSTITUTIONS AND MONETARY IN-  4 5  STRUMENTS.  Section 5312(a) of title 31, United States Code, is  6 amended— ? 8  (1) in paragraph (2) (defining financial institutions)—   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2 I t  1  (A) by redesignating subparagraphs (T) and  2  as subparagraphs (U) and (V), respectively; and  3  (B) by inserting after subparagraph (S) the  4  following new subparagraph:  5  "(T) any foreign subsidiary or affiliate of any  6. 7  entity described in this paragraph;"; and  8  (2) in paragraph (3) (defining monetary instru-  9  ments)(A) by striking out "and" at the end of sub-  10  paragraph (A);  11 12  (B) by striking out the period at the end of  13  subparagraph (B) and inserting in lieu thereof ";  14  and"; and (C) by adding at the end thereof the follow-  15  ing new subparagraph:  16  "(C) as the Secretary may prescribe by regu-  17  lation, any transfer of funds.".  18 19 20  SEC. 2. RESTRICTIONS ON EXEMPTIONS.  Section 5318(3) of title 31, United States Code, is  21 amended by inserting after "prescribed under this subchap22 ter" the following: ", except that the Secretary shall review 23 each exemption not less than once during each calendar year 24 and in any case in which there is a change in management or 25 control of a financial institution, the Secretary shall review  0B 3/02  1  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  3 ..). -• 1 any exemption involved not later than 30 days after the date 2 on which such change in management or control occurs". 3  SEC. 3. CHANGE IN BANK CONTROL ACT AND CHANGE IN SAVINGS AND LOAN CONTROL ACT AMENDMENTS.  4 5  (a) The second sentence of section 7(j)(1) of the Federal  6 Deposit Insurance Act (12 U.S.C. 1817(j)(1)) is amended(1) by striking out "or that" and inserting in lieu  7 8  thereof ", that"; and  9  (2) by adding before the period at the end thereof  10  the following: ", or that additional time is needed to  11  assure that all persons involved will comply with sub-  12  chapter 11 of title 31, United States Code (relating to  13  records and reports on monetary instruments transac-  14  tions)".  15  (b) The second sentence of section 407(q)(1) of the Na-  16 tional Housing Act(12 U.S.C. 1730(q)(1)) is amended(1) by striking out "or that" and inserting in lieu  17 18  thereof ", that"; and  19  (2) by adding before the period at the end thereof  20  the following: ", or that additional time is needed to  21  assure that all persons involved will comply with sub-  22  chapter II of title 31, United States Code (relating to  23  records and reports on monetary instruments transac-  24  tions)".  3992  16.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I  4 1 SEC. 4. PROCEEDS OF ILLEGAL ACTS AVAILABLE TO COMBAT  2 3  MONEY LAUNDERING.  Amounts in the general fund of the Treasury which are  4 attributable to the proceeds of5 6  (1) monetary instruments (as delmed by section 5312(a)(3) of title 31, United States Code), and  7  (2) deposits or accounts in any depository institu-  8  tion (as defined by subparagraph (A) of section 19(b)(1)  9  of the Federal Reserve Act (12 U.S.C. 461(b)(1)(A))),  10 which were declared forfeited to the United States under any 11 law of the United States authorizing the forfeiture and sei12 zure of the proceeds from any unlawful act shall be available, 13 as provided by appropriation Acts, to the Secretary of the 14 Treasury (and such other head of a law enforcement agency 15 of the United States as the Congress may provide) for the 16 purpose of enforcing the provisions of subchapter II of title 17 31, United States Code (relating to records and reports on 18 monetary instruments transactions). 0   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  99TH CONGRESS 2D SESSION  ur D  .4280  14• IX  To amend title 31, United States Code, to establish new recordkeeping and reporting requirements in order to combat money laundering, and for other purposes.  IN THE HOUSE OF REPRESENTATIVES FEBRUA.RY 28, 1986 Mr. TORRES (for himself and Mr. ST GERMAIN) introduced the following bill; which was referred to the Committee on Banking, Finance and Urban Affairs  A BILL To amend title 31, United States Code, to establish new recordkeeping and reporting requirements in order to combat money laundering, and for other purposes. 1  Be it enacted by the Senate and House of Representa-  2 lives of the United States of America in Congress assembled, 3 4 SECTION 1. SHORT TITLE.  5  This Act may be cited as the "Money Laundering Pre-  6 vention Act of 1986".  2 1 SEC. 2. MONETARY TRANSACTION RECORDKEEPING AND REd••  2 3  PORTING AMENDMENTS.  (a) REPORT REQUIRED FOR DOMESTIC COIN AND  4 CURRENCY TRANSACTIONS OF $10,000 OR MORE.—Sub5 section (a) of section 5313 of title 31, United States Code 6 (relating to reports on domestic coins and currency transac7 tions) is amended by striking out "in an amount or denomina8 tion, or amount and denomination, or under circumstances 9 the Secretary prescribes by regulation" and inserting in lieu 10 thereof "in amounts or denominations of $10,000 or more (or 11 under such other circumstances as the Secretary may pre12 scribe in regulations)". 13  (b) RECORDKEEPING REQUIRED FOR DOMESTIC COIN  14 AND CURRENCY TRANSACTIONS OF $3,000 OR MORE.15 Subchapter II of chapter 53 of title 31, United States Code 16 (relating to records and reports on monetary instruments 17 transactions) is amended by adding at the end thereof the 18 following new section: •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  19 "§ 5323. Records on certain domestic coin and currency transactions  20 21  "(a) RECORDS REQUIRED.  22  "(1) IN GENERAL.—When a domestic financial in-  23  stitution is involved in a transaction for the payment,  24  receipt, or transfer of United States coins or currency  25  (or such other monetary instruments as the Secretary  26  of the Treasury may by regulations prescribe) in 08  M  •••• ••• -•11•1••••...  41MINIP.Ir  3 1  amounts or denominations of $3,000 or more, such in-  2  stitution (and such other person participating in such  3  transaction as such Secretary may prescribe) shall  4  obtain the information described in paragraph (2) with  5  respect to such transaction and shall maintain a record  6  of such information.  7  "(2) INFORMATION REQUIRED TO BE OBTAINED  8  FOR RECORD.—The information referred to in para-  9  graph (1) with respect to any transaction described in  10  such paragraph is the information described in the fol-  11  lowing subparagraphs (to the extent applicable):  12 13  "(A) The identity and address of each person participating in such transaction.  14  "(B) The legal capacity in which any such  15  person is acting with respect to such transaction.  16  "(C) The identity of any real party in inter-  17  est who is not directly participating in such trans-  18  action.  3 3  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  19 20  "(D) A description of the transaction. "(b) RETENTION OF RECORDS FOR 5 YEARS.—Any  21 domestic financial institution (or other person) which is re22 quired, pursuant to subsection (a)(1), to maintain a record of a 23 transaction described in such subsection, shall retain such 24 record for the 5-year period beginning on the date such trans25 action is completed.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4 1  "(C) CONFIDENTIALITY OF RECORDS; AVAILABILITY  2 FOR LAW ENFORCEMENT, ETC., PURPOSES.— 3  "(1) RIGHT TO FINANCIAL PRIVACY ACT AP-  4  PLIES.—Any record of a transaction which is required  5  to be maintained pursuant to subsection (a)(1) shall be  6  treated as a financial record of each person identified in  7  such report for purposes of the Right to Financial Pri-  8  vacy Act of 1978.  9  "(2) NOTICE TO PARTICIPANT IN TRANSACTION  10  NOT REQUIRED UNDER CERTAIN CIRCUMSTANCES.—  11  If any exception described in section 1113 of the Right  12  to Financial Privacy Act of 1978 applies with respect  13  to any disclosure of any record described in paragraph  14  (1), no provision of such Act which would otherwise  15  require that notice of such disclosure be provided to  16  any person identified in such record shall apply with  17  respect to such disclosure.".  18  (C) IDENTIFICATION OF PARTIES TO CERTAIN TRANS-  19 ACTIONS REQUIRED.—Subchapter II of chapter 53 of title 20 31, United States Code (as amended by subsection (b)) is 21 amended by adding at the end thereof the following new sec22 tion:  011 4280 M   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  5 1 "§ 5324. Identification of parties to certain domestic coin 2  3  and currency transactions  "(a) IN GENERAL.—Each person participating in a  4 transaction with respect to which a report is required to be  5 filed pursuant to section 5313 or a record is required to be 6 maintained pursuant to section 5323 shall provide the domes7 tic financial institution or other person required to file such 8 report or maintain such record with complete and accurate 9 information with regard to10  "(1) the identity and address of such person;  11  "(2) the interest of such person in such transac-  12  tion; and  13  "(3) the identity of any other person for whom  14  such person is acting in connection with such transac-  15  tion, if applicable.  16  "(b) RESPONSIBILITY OF FINANCIAL INSTITUTION.-  17 Any domestic financial institution (or other person) which is  18 required to file a report pursuant to section 5313 or maintain 19 a record pursuant to section 5323 shall take such actions as 20 the Secretary of the Treasury shall prescribe by regulations 21 to ascertain the identity of each party to the transaction with 22 respect to which such report or record is required.". 23  (d) CLERICAL AMENDMENTS.—The table of sections for  24 chapter 53 of title 31, United States Code, is amended by 25 inserting after the item relating to section 5322 the following 26 new items:  6 "5323. Records on certain domestic coin and currency transactions. "5324. Identification of parties to certain domestic coin and currency transactions.". 1  (e) EFFECTIVE DATE.—The amendments made by this  2 section shall apply with respect to transactions for the pay3 ment, receipt, or transfer of United States coins or currency 4 completed after the end of the 3-month period beginning on 5 the date of the enactment of this Act. 0  ••••.,•,,-• •  •  eint 4230 III •••".,  r-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  __4111   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  99TH CONGRESS 2D SESSION  H .R.4573  Entitled: the "Money Laundering Prevention Act of 1986".  IN THE HOUSE OF REPRESENTATIVES APRIL 15, 1986 Mr. PICKLE (for himself and Mr. ScHuLzE) introduced the following bill; which was referred jointly to the Committees on Banking, Finance and Urban Affairs and Ways and Means  A BILL Entitled: the "Money Laundering Prevention Act of 1986". 1  Be it enacted by the Senate and House of Representa-  2 tives of the United States of America in Congress assembled, 3 That the Bank Secrecy Act (31 U.S.C. 5311 et seq.) is 4 amended as follows: 5  SECTION 1. Section 5313 of title 31 of the United  6 States Code is amended by adding to the end of subsection (a) 7 a sentence which reads as follows: "No person shall cause or 8 attempt to cause a domestic financial institution to fail to file 9 a report required by this subsection, shall cause or attempt to 10 cause a domestic financial institution to file a report required 11 by this subsection that contains a material omission or mis-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2 1 statement of fact, or shall structure or assist in structuring a 2 transaction for the purpose of evading the reporting require3 ments of this subsection.". 4  SEC. 2. Section 5317 of title 31 of the United States  5 Code is amended by 6  (1) revising the first sentence of section 5317(c) of title  7 31 of the United States Code to read as follows: 8  "(c) A monetary instrument being transported, or which  9 has been transported, or any interest in any property, includ10 ing any deposit in a financial institution, traceable to such 11 instrument, may be seized and forfeited to the United States 12 Goverment when a report on the instrument under section 13 5316 of this title has not been filed or contains a material 14 omission or misstatement.". 15  (2) adding a new subsection (d) which reads as follows:  16  "(d) United States coin or currency (or other such mone-  17 tary instrument as the Secretary may prescribe) or any inter18 est in other property, including any deposit in a financial in19 stitution, traceable to such coin or currency involved in a 20 transaction or attempted transaction in violation of section 21 5313(a) of this chapter may be seized and forfeited to the 22 United States Goverment under the procedures of subchap23 ter C of chapter 75 of title 26 of the United States Code 24 whenever a person (excluding a domestic financial institution 25 examined by a Federal bank supervisory agency or a finan-  It 4573 DI   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  3 1 cial institution regulated by the Securities and Exchange 2 Commission liable under subsection 5312(a) of this chapter) 3 violates section 5313(a) of this chapter. No property or inter4 est in property shall be forfeited under this subsection if it can 5 be established that the owner is a bona fide purchaser for 6 value who took without notice of the violation or if the 7 violation or attempted violation of section 5313(a) was not 8 willful.". 9  SEC. 3. Section 5321 of title 31 of the United States  10 Code is amended by 11  (1) adding to subsection (a) a new paragraph (4)  12  to read as follows:  13  "(a)(4) The Secretary may impose a civil penalty on a  14 person or persons (excluding a domestic financial institution 15 examined by a Federal bank supervisory agency or a finan16 cial institution regulated by the Securities and Exchange 17 Commission) willfully violating section 5313(a) of this chap18 ter. A civil penalty under this paragraph may not be more 19 than the amount of the United States coins and currency (or 20 other monetary instruments the Secretary may prescribe) for 21 which a report was required under section 5313(a) of this 22 chapter. A civil penalty under this paragraph is reduced by 23 an amount forfeited under section 5317(d) of this title.". (2) deleting "or (2)" from subsection (b) and  24 25  adding in lieu thereof ",(2) or (4)".  B 4173 1  -   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  4 1  (3) deleting "5317())" in subsection (c) and  2  adding in lieu thereof "5317(c) or (d)" and by deleting  3  "subsection (a)(2) of".  4  SEC. 4. Section 7302 of title 26 of the United States  5 Code is amended by deleting "such property" in the second 6 sentence and inserting in lieu thereof "property under this 7 section and under the forfeiture provisions of title 31 of the  8 United States Code enforced or administered by the Internal 9 Revenue Service" and by adding "or under the provisions of 10 title 31 of the United States Code enforced or administered 11 by the Internal Revenue Service" after "section" in the 12 fourth sentence. 13  SEC. 5. Section 7321 of title 26 of the United States  14 Code is amended by adding "or under any provision of title 15 31 of the United States Code enforced or administered by the 16 Internal Revenue Service" immediately following "title". 17  SEC. 6. Section 7327 of title 26 of the United States  18 Code is amended by inserting immediately following "inter-  19 nal revenue laws", the following: "or under provisions en20 forced or administered by the Internal Revenue Service  21 under title 31 of the United States Code, to the extent not 22 inconsistent with the provisions of title 31.". 23  SEC. 7. Section 7608()) of title 26 of the United States  24 Code is amended by adding "or any provision of title 31 of 25 the United States Code enforced or administered by the In-  II 4I73 II   —.Alin https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  5 1 temal Revenue Service" immediately following "responsi2 ble" in paragraph (1) and immediately following "the internal 3 revenue laws" in paragraph (2X0).  o  II 4573 1  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM 1-- • e). •  • -A  , c ir-1( •• • RAL RE -•": •• '• •..• •  WASHINGTON, D. C. 20551  PAUL A. VOLCKER  May 1, 1986  CI-IAIRMAN  The Honorable Strom Thurmond United States Senate Washington, D.C. 20510 Dear Senator Thurmond: Thank you for your letter concerning Dr. William Gibson's interest in becoming Vice Chairman of the Federal Reserve Board. I appreciate also the copy of the letter Ms. Nancy Steorts wrote to you concerning her support for Dr. Gibson. As you know, Dr. Gibson has been mentioned in the press as a potential candidate. The decision on the appointment to the open position on the Board, and to the Vice Chairmanship, will be made by the President. I am, nevertheless, grateful for your continuing interest in the Federal Reserve and for the information contained in your letter. Sincerely,  B1Paul  SMR:LF:vcd (V-104, 86-2110) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Roberts Mrs. Mallardi (2),  STROM THURMOND SOUTH CAROLINA  --4-fteh'\ ( -  rbe Vresibent Pro Tempore UNITED STATES SENATE April 25, 1986 Honorable Paul Volcker Chairman, Federal Reserve System 20th Street and Constitution Avenue, N.W. Washington, DC 20551  GJ  --  Dear Mr. Volcker: The purpose of this letter is to call to your attention Dr. William Gibson, who hopes to be Vice-Chairman of the Feder al Reserve Board. I do not know this gentleman personally, but he comes highly-recommended to me by Ms. Nancy Steorts, former Chairman of the Consumer Product Safety Commission, and for whose judgment I have the highest respect. This request that you give Dr. Gibson your most careful consideration is based upon the recommendation of this fine, public-spirited woman. For your convenience, I have enclosed a copy of Dr. Gibson's resume and Ms. Steorts' letter of recommendation. I am sure you will give them your careful attention. With kindest regards and best wishes, Sincerely,  Strom Thurmond ST/r   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NANCY HARVEY STEORTS April 23, 1986  Senator Strom Thurmond United States Senate Washington, D. C. 20510 Dear Senator Thurmond: It was indeed an honor to have you with us in Dallas a few weeks ago and I was particularly pleased to hear that the Strom Thurmond Institute is going so well. I look forward to your returning when you will be able to meet personally with more of our business colleagues. The purpose of this letter is to make you aware of my support for Dr. William E. Gibson, who is under consideration for the Vice Chairman and/or member of the Federal Reserve Board. Dr. Gibson is extremely well qualified to hold the position of Vice Chairman of the Federal Reserve Board. His background in finance is outstanding. A nationally prominent economist and financial analyst, he presently serves as Senior Vice President of Economics and Marketing for RepublicBank Corporation based in Dallas, Texas. He has also served as Senior Vice President for Economics and Financial Policy for McGraw-Hill, Inc. as well as serving as Vice PresiI- nd Director of Monetary Affairs for The Chase Manhattan Bank. Prior to this distinguished career in the private sector, he served as a Senior Staff Economist to the Council of Economic Advisers. He has particular expertise in international monetary affairs and finance, which as you know is much needed at the Federal Reserve Board. His background in savings and loan organizations is also extensive and he presently serves as Chairman of the Board of the First Federal Savings and Loan in Rochester, New York. It is with great confidence that I recommend Dr. Gibson to you. He would be an asset to the Federal Reserve Board, particularly in the role as Vice Chairman. , Sincerel7„ ./. • I NAN& HARVEY S EORTS NHS/lrh Enclosure  2444  ODITE MAIN PLAGE • DALLAS, TEXAS 75250 •(214) 698-1070  WILLIAM E. GIBSON  Present Position:  Senior Vice President RepublicBank Corporation P.O. Box 222105 75222 Dallas, Texas 214/922-6622 Responsibilities: Director of Strategic Planning and Strategic Development. Additionally, management of corporation's Economic Research, Public Affairs, and Governmental Affairs activities as well as Marketing, Advertising and Investor Relations.  Additional Present Affiliations:  Chairman of the Board First Federal Savings and Loan Association Rochester, New York Director First Federal Savings Bank San Juan, Puerto Rico Director V'Soske Carpets, Inc. Vega Baja, Puerto Rico Trustee Howe Military Academy Howe, Indiana  Education:  A.B., University of Chicago (Economics), 1964 M.A., University of Chicago (Economics), 1965 Ph.D., University of Chicago (Economics), 1967 Chartered Financial Analyst  Member:  Bond Club of New York New York Society of Securities Analysts American Economic Association International Economists Club Dallas Economists Club (Secretary)  Clubs:  University Club of New York Cosmos Club, Washington, D.C. Woodstock Country Club, Woodstock, New York Tower Club, Dallas, Texas Royal Oaks Country Club, Dallas, Texas  Community:  Vice Chairman, American Diabetes Association, Texas Affiliate  Personal:  Married, two children   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Positions: RepublicBank Corporation Dallas, Texas Senior Vice President, 1981 - presen t Executive responsibility for six cor porate staff areas for largest banking organization in the South and Southwest and 18th largest in U.S. (1) Eco nomics, including investments and funding analyses, as well as guiding the planning environment for the corpor ation. (2) Strategic planning and development. Includes strategic planning and expansion, as well as merger and acq uisition analysis and planning and overall goal-setting process for growth. Serve as Corporation's Principal contact with investment bankers. (3) Investor reporting and associated activities for NYSE-listed company; (4) Countr y risk and credit limit setting for international len ding and 'deposit activities. (5) Public affairs, including media relations, government affairs and public relations and (6) Marketing and advertising, inc luding financial through creative planning for such activi ties. Committees:  Finance, Management Informati on, Treasury, Credit, Country Limits  McGraw-Hill Inc. New York City Senior Vice President - Economics and Financial Policy 1979-81. Responsibilities included three principal areas: (1) Economic analysis and outlook on a corporationwide basis. McGraw-Hill is the largest private employer of economists in the U.S. and inc orporates economic analysis throughout its publicati ons and consulting services. Position included res ponsibility for all economic activities of corporati on and all subsidiaries. (2) Financial policy, incorpora ting non-day-to-day activities in finance. Set bal ance sheet guidelines for corporation and capital-raising plans. For acquisitions, set financial hurdles and guidel ines and conducted strategic analyses for board. Principal contact point with investment bankers. Dep artment executed the corporation's largest acquisition ever. (3) Managed pension and profit sharing assets and pension plans. Managed outside portfolio manage rs and managed in-house equity portfolio just under $200 million. Served on the corporation financ e committee, management policy committee and retirement committee.  v  Smith Barney, Harris, Upham, Inc. New York City First Vice President and Director of Fixed-Income Research, 1976-79.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Established and managed fixed-income research capability which incompassed securities of U.S. Treasury, agencies, corporations, municipal general obligations, municipal revenue bonds and mortgage securities. Served as the firms's chief economist and on the capital-allocating fixed-income committee. Was vice chairman of the investment policy committee.  Chase Manhattan Bank New York City Vice President and Director of Monetary Affairs, 1974-76 Headed the bank's monetary and financial analysis activities, including the worldwide funding activities. Directed international research for country limit setting. Served as bank's principal liason with foreign central banks and finance ministries. Council of Economic Advisers, Washington, D.C. Senior Staff Economist, 1971-74 Executive Office of the President Principal White House staff person in monetary and financial affairs. Served as primary liason with Wall Street and primary staff liason with Federal Reserve and other financial regulatory agencies. Led interagency group which developed financial regulatory reform legislation for Administration. University of California, Los Angeles Assistant Professor of Economics, 1967-71 Taught and directed Ph.D. students in macroeconomics, monetary theory and policy, international trade and finance and business fluctuations and change.
Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102