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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 September-October 3; Paul A. Volcker Papers, Box 13; Public Policy Papers, Department of Rare Books and Special Collections, Princeton University Library Find it online: httfinclingaids.princeton.edu/collections/MC279/c424 and https://fraser.stlouisfed.org/archival/5297 The digitization ofthis collection was made possible by the Federal Reserve Bank of St. Louis. From the collections of the Seeley G. Mudd Nlanuscript JLibrary, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United all users agree that their use falls within fair use as States copyright law. By accessing this I1IIUIIIII file,F ii defined by the copyright law of the United States. They further agree to request permission of the Princeton University Library (and pay any fees, if applicable) if they plan to publish, broadcast, or otherwise disseminate this material. This includes all forms of electronic distribution. Copyright The copyright law of the United States (Tide 17, United States Code) governs the making of photocopies or other reproductions of copyrighted material. Under certain conditions specified in the law, libraries and archives are authorized to furnish a photocopy or other reproduction. One of these specd conditions is that the photocopy or other reproduction is not to be "used for any purpose other than private study, scholarship or research." If a user makes a request for, or later uses, a photocopy or other reproduction for purposes not permitted as fair use under the copyright law of the United States, that user may be liable for copyright infringement. Policy on Digitized Collections Digitized collections are made accessible for research purposes. Princeton University has indicated what it knows about the copyrights and rights of privacy, publicity or trademark in its finding aids. alrchiv collections, it is not always possible to identify this However, due to the nature of a inforrnation. 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  I.  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, El. C. 20551  PAUL A. VOLCKER CHAIRMAN  October 3, 1986  The Honorable W. Henson Moore U.S. House of Representatives 20515 Washington, D.C. Dear Mr. Moore: Thank you for your letters of April 15 and May 19, 1986, expressing concern over the proposed procurement by the Federal Reserve Banks of production high speed currency processing equipment. Our response to your letters was delayed while we investigated the issues raised by your letters. Your April 15 letter expressed concern about the expenditure of funds for the development of high speed currency processing technology by foreign companies and your May 19 letter reiterated your concern on this point and further expressed concern that United States companies developing currency processing equipment were being unfairly disadvantaged because Japan and Germany, which both have companies that the development of prototype currency in participated processing equipment for the Federal Reserve Banks, did not allow United States companies to compete in their markets to sell high speed currency processing equipment. While I appreciate your concerns for fair competition between United States and foreign companies, in this instance I believe that these concerns are largely misplaced. The Federal Reserve has found that in procuring high technology equipment, such as high speed currency processing systems, as well as other goods and services, competition among suppliers results not only in controlling costs but also in benefits in terms of the characteristics of the equipment Thus, the Federal Reserve generally seeks to purchased. promote competition among prospective reliable sources of equipment. It was these considerations that led to the initial decision to develop several prototype second generation high speed currency processing systems and to select production For example, the development systems on a competitive basis. of second generation high speed currency processing equipment is expected to yield benefits in terms of increased throughput,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  The Honorable W. Henson Moore Page 2  reduced labor costs, greater accountability and accuracy, and Comparison of factors such increased security to name a few. as these, together with price and other factors, will determine the future sources of this equipment. In undertaking the effort to develop second generation high speed currency processing equipment, the Federal Reserve has been mindful of the desirability of maintaining domestic Accordingly, the Federal Reserve sources for this equipment. Banks have adhered to the spirit of the Buy American Act, including giving a six percent cost preference to domestic vendors, in selecting prototype vendors and will do so in the Further, the Federal Reserve selection of production vendors. Banks considered the availability of domestic vendors in determining the number of prototype contracts to award. Moreover, because of our concern about trade opportunities in this area, we specifically asked the Bank of Japan and the Deutsche Bundesbank about their procurement Both the Bank of practices with respect to foreign vendors. Japan and the Deutsche Bundesbank affirm that they are open to procurement of this type of equipment from United States vendors. They also indicate that they are substantial users of data processing equipment provided by United States companies. Given these assurances that competition in the provision of this type of equipment will be open to foreign suppliers, it would seem to me to be inappropriate to depart If there are special from established procurement procedures. problems relating to foreign procurement of this type of equipment, as you are aware, there are a number of trade \statutes that provide remedies for foreign trade practices that These statutes form an unfairly disadvantage U.S. exporters. integral part of U.S. trade policy and have been elaborated over some period of time with carefully designed procedures to domestic protect the interests of U.S. exporters and customers. Accordingly, while I want to assure you that we will continue to review this situation, we plan to proceed with the solicitation of proposals from both domestic and foreign vendors for production high speed currency processing equipment.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  S . cerely,  eteeQatei,  ; BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. E. 20551  October 3, 1986  PAUL A. VOLCKER CHAIRMAN  The Honorable William V. Roth Chairman Committee on Governmental Affairs United States Senate Washington, D.C. 20510 Dear Chairman Roth, p  As required by law (31 U.S.C. 720), the Board of Governors offers the following comments on the recent report prepared by the General Accounting Office entitled "U.S. Banking Supervision and International Supervisory Principles" (GAO/NSIAD-86-93). The Board was pleased to cooperate with the GAO in its evaluation of international bank supervision, and welcomed the opportunity to review this report. Except in one respect, the report and its recommendations are largely unchanged from the draft version on which the Board commented earlier in the year. (The Board's earlier The comments are reproduced in the report beginning at page 40.) nal main change has been to eliminate all references to internatio supervisory agreements in relation to the work of the Basle Supervisors Committee. This is an important change since the earlier version made it appear, mistakenly, that the Basle were Committee reached agreements about supervisory matters that binding on the participating countries. Under the recommendations of the report, the federal banking agencies should: 1.  2.  3.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I  ensure that the adequacy of foreign bank supervision is evaluated and economic conditions in the home country are considered when foreign banks apply to establish U.S. banking offices, and encourage state banking agencies to do so as well; encourage state banking agencies to notify the approve priate foreign supervisory agencies when they recei foreign bank applications to establish U.S. banking offices; arrange periodic briefings of state banking officials about the work of the Basle Supervisors Committee.  \  2  In addition, the report recommends that the Federal Reserve rvision establish a repository of information on foreign bank supe which would be available for use by other banking agencies. The first of these recommendations grew out of comparie sons between certain principles enunciated by the Basle Committe and their implementation by U.S. supervisory authorities as es revealed by agency files. One of the principles reviewed stat of that supervisors should satisfy themselves about the adequacy supervision in the home country when a foreign banking organiza tion seeks to enter the country. The report criticizes the agencies because application files do not regularly contain specific evaluations of the supervisory system in the foreign country involved. (A similar criticism is made with regard to consideration of economic conditions in the foreign country involved.) The Federal Reserve System has made a serious effort to extend and improve its knowledge and understanding of foreign the supervisory systems through its participation in the work of Basle Supervisors Committee and otherwise. A considerable body rt, of knowledge has been accumulated as a result of that effoing on work exists in filed materials and is familiar to analysts s and in the evaluation of foreign banks. In these circumstance it has not the interest of efficient utilization of resources, foreign bcen thought necessary that a written evaluation of application supervisory systems be made in connection with every is usually involving a foreign bank. The knowledge accumulated adequacy of sufficient to allow a general judgment about the rd cannot be foreign supervision. The absence of a written reco tion. The ques taken to indicate a lack of consideration of the attention of staff has a continuing obligation to bring to the as they bear on the Board aspects of foreign supervisory systems e supervision applications before the Board. In those cases wher ided. prov is of concern, an explicit evaluation would be agencies, On the second recommendation to the federal the International the Federal Reserve has since the passage of agencies to consult Banking Act of 1978 encouraged state banking has stood ready to about applications involving foreign banks and supervisory authoriuse its lines of communications with foreign s have standing ties. In particular, the district Reserve Bank state banking instructions to maintain close relations with provide such agencies about foreign banking matters and to exchanged information encouragement and assistance. The Board has Currency and with the with the Office of the Comptroller of the on these matters and Banking Department of the State of New York e banking supercontinues to welcome inquiries from other stat visors. about the So far as briefing state banking agencies the Federal Reserve work of the Basle Committee is concerned, recent Annual Report of sent early this year a copy of the most   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  3 the Basle Committee to the Conference of State Bank Supervisors. This report summarizes the work of the Committee and provides brief descriptions of the major supervisory developments in its member countries during the year. In forwarding this report, an offer was made to make copies available to individual state agencies, and also to discuss the work of the Basle Committee. The Federal Reserve will continue its efforts to disseminate information about international cooperative efforts in the field of bank supervision. The recommendation that the Federal Reserve Board establish a central repository of information about foreign supervisory systems is unnecessary as the cost and burden of creating and maintaining such a formal repository would in most cases far outweigh any advantages that may be gained. As noted earlier, a considerable body of information and knowledge about foreign supervisory systems already exists within the Federal Reserve System, and efforts are continuing to expand them. The Federal Reserve has traditionally been ready to share its information resources with other federal and state banking agencies. In our contacts with state banking supervisors, the availability of this material and this knowledge will continue to be emphasized. erely,  SiY  Identical letter to: The Honorable Jack Brooks Chairman Government Operations Committee U.S. House of Representatives Washington, D.C. 20515  bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Fred Dahl Mrs. Mallardi (2) Elizabeth Roberts  a gitig  . •fGovt•.•c;o  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  October 3, 1986  PAUL A. VOLCKER CHAIRMAN  &4L R'  The Honorable Fernand J. St Germain Chairman Committee on Banking, Finance and Urban Affairs House of Representatives 20515 Washington, D.C. Dear Chairman St Germain: August 4, As a further follow-up to your letter of look into improved proposing that a task force be formed to application process, I consumer information about the mortgage Staff from the Board can report that the project is underway. with a number of the and the Federal Home Loan Bank Board met de associations are trade groups to discuss the idea. The tra mortgage processing willing to work on a pamphlet explaining production and procedures, and will assume the cost of its consider underto distribution. Several groups also agreed set of internal guidetaking development, on their own, of a ted in your letter. lines on mortgage processing as sugges will be seeking We think we're off to a good start and titutions, both ge of ins input on the brochure from the wide ran r letter. public and private, identified in you Sincerely,  ISLEauf  86-3485) GG:pte (see V-165, 86-3482 through bcc:  Chairman Gray, FHLBB Richard Tucker, FHLBB Mr. Garwood Mrs. Mallardi (2)v  IDENTICAL LETTERS SENT TO:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Cong. Wylie, Chrmn. Gonzalez, and Cong. McKinney  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  September 30, 1986  Mr. William Peter Sherkey P.O. Box 623 Exmore, Virginia 23350 Dear Mr. Sherkey: Senator Trible asked that the Federal Reserve respond to your recent questions concerning the national debt. First, the amount of the national debt outstanding as of August 31, 1986, was about $2.094 trillion.  Second, the  average maturity of this debt is five years and three months. I hope that this information is useful. know if I can be of further assistance.  Sincerely, SI Donald IL Wiwi Donald J. Winn Assistant to the Board cc:  The Honorable Paul Trible  RW:JK:CO:vcd/pte (V-190, 86-4086) bcc: Rita Walls Mrs. Mallardi   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Please let me  Action assigned Mr. Kichline  2AUL TRIBLE VIRGINIA  _  Unitd  tats eStnate  WASHINGTON, DC 20510  September 18, 1986  Honorable Paul Volcker Chairman Board of Governors of the Federal Reserve System Twentieth Street and Constitution Avenue N.W. Washington, D.C. 20551 Dear Chairman Volcker: My constituent, Mr. William Peter Sherkey, has requested me to ask you the following questions: What is the amount of the National Debt outstanding, and what is the average maturity of that debt? I would appreciate it if your would reply directly to Mr. Sherkey by letter. His address is: P.O. Box 623, Exmore, Virginia, 23350. Thank you for your response. rely,  Paul Trible PT:wly   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • • •  BOARD OF GOVERNORS  • • •  • •• •  rn • O.- • ••4.▪• • • • .  Or THE  FEDERAL RESERVE SYSTEM WASHINGTON, G. E.. ROSSI  ....  September 26, 1986  PAUL A. VOLCKER C0.1111 OMAN  The Honorable John D. Dingell Chairman Committee on Energy and Commerce House of Representatives Washington, D.C. 20515 Dear Chairman Dingell: Enclosed is a study produced by the Board's staff on the competitive effect of mortgage-related securities on corporate borrowing, especially in long-term markets. This study was requested by your Committee in its report on the Secondary Mortgage Market Enhancement Act of 1984. As agreed at a joint meeting of the Committee and agency staffs, and affirmed in your letter of January 30, 1985, this report was undertaken exclusively by the Board staff members to avoid unnecessary duplication of effort by the staff of the SEC. Sincerely,  Enclosure  LETTERS ALSO SENT TO:  bcc:  RANKING MINORITY MEMBER LENT CHAIRMAN WIRTH  Mike Prell Jim Kichline Mrs. Mallardi (2)  .  •  .  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, EL C. 20551  September 26, 1986  PAUL A. VDLCKER CHAIRMAN  The Honorable Norman F. Lent Ranking Minority Member Committee on Energy and Commerce House of Representatives 20515 Washington, D.C. Dear Mr. Lent: Enclosed is a study produced by the Board's staff on the competitive effect of mortgage-related securities on corporate borrowing, especially in long-term markets. This study was requested by the Committee on Energy and Commerce in its report on the Secondary Mortgage Market Enhancement Act of 1984. As agreed at a joint meeting of the Committee and agency staffs, this report was undertaken exclusively by Board staff members to avoid unnecessary duplication of effort by the staff of the SEC. Sincerely,  Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  _  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  September 26, 1986  PAUL A. VOLCKER CHAIRMAN  The Honorable Timothy E. Wirth Chairman Subcommittee on Telecommunications, Consumer Protection, and Finance Committee on Energy and Commerce House of Representatives Washington, D.C. 20515 Dear Chairman Wirth: Enclosed is a study produced by the Board's staff on competitive effect of mortgage-related securities on corthe borrowing, porate especially in long-term markets. This study requested was by the Committee on Energy and Commerce in its report on the Secondary Mortgage Market Enhancement Act of 1984. As agreed at a joint meeting of the Committee and agency staffs, and affirmed in your letter of January 30, 1985, this report was undertaken exclusively by the Board staff members to avoid unnecessary duplication of effort by the staff of the SEC. Sincerely,  Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • * *of Govt •. *0 • 'i.. .-Kt ;,- ' -4 Vi: •C •co , ..  BOARD OF GOVERNORS OF THE •  FEDERAL RESERVE SYSTEM  ‘n•  WASHINGTON, D. C. 20551  September 25, 1986  RALRE5. • •..• •  The Honorable Bill Archer House of Representatives Washington, D.C. 20515 Ls_Dear  Mr. Archer:  I am writing to acknowledge receipt of your letter of September 16 requesting comment on correspondence you received from Mr. Steve Pun rl el Bank of concerning First City Natinal o Houston's decisio n to no longer verify its customers' checks for businesses. Primary supervisory authority for First City National Bank of Houston rests with the Comptroller of the Currency. I have, therefore, taken the liberty of referring your request to that agency for reply. Please let me know if I can be of further assistance. Sincerely,  Donald J. Winn Assistant to the Board  cc:  Cong. Liaison Office OCC  CO:vcd (V-191, 86-4133) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi  BILL ARCHER  WASHINGTON OFFICE  Referrin9 to OCC  7TH DISTRICT TEXAS  1135 LONGWORTH HOUSE OFFICE BUILDING (202) 225-2571  M E AftBE  WAYS AND MEANS ,COMMITTEE  Congretz of tbe tiniteb :4attz  JOINT COMMITTEE ON TAXATION  3Doute of Repretentatibet r Yd.  DISTRICT OFFICE FEDERAL OFFICE BUILDING HOUSTON, TX 77002 (713) 229-2763  atbingion, riC 20515 A( 61 f  September 16, 1986  ;  N N.)  Chairman Paul A. Volcker Federal Reserve System Washington, D.C. 20551  ( 0 . :fl  Dear Chairman Volcker: Enclosed tor your review is a copy of a letter I received from my constituent, Mr. Steve Purnell. I've sent you this correspondence because I wanted to share with you his concerns regarding First City National Bank of Houston's decision to no lonyer verify its own customers' checks for businesses. I would appreciate your looking into this matter and apprising me of any actions which may be taking place by the Federal Reserve Board to address this problem. Thank you very much for your attention to this matter. Si  e  ,  1 A cher Member of Congress BA/cc   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ALPIinrNERICHMOND INST ANT PRIM ING AVE HOUSTON, lEC4S 77061 moo  (711) 712 -  Congressman Bill Archer 515 Rusk Ste. 7501 Houston, Texas 77002  First City National Bank of Houston, 1001 Main, Houston, Texas, has announced that as of August 1st it will no longer verify (say whether or not a check is good) when a businessman or anybody else calls up the bank. With bad check passers already writing millions of dollars worth of bad checks, this arrogant disregard of the public interest by First City National Bank is the best news the criminal element has had in years. Thanks to First City Bank, now anyone can write bad checks, safe in the knowledge that the person these bad checks are being given to cannot even call up the bank to find out if the check is good. But this doesn't trouble First City National Bank, whose only interest in the matter is reducing its expenses by not verifying checks and reaping a fortune on the $ 15.00 it charges its customers for each bad check that 's written. As soon as the other banks find out that they can get away with no longer providing basic banking services that have been provided for decades, they will no doubt follow suit. When we tried to verify a customer's check today and First City National Bank refused to say if it was good or not, we asked what we were supposed to do. Their arrogant answer - "You'll have to take your chances." Why is it that the government, who allegedly regulates these institutions, is doing nothing to prevent this wholesale abandonment of the public trust? Obviously, a specific regulation is required that will force banks to adequately perform their basic civic responsibilities. And iF that doesn't mean saying whether or not a check_is good. know what does. 0 v"  Steve Purnell President ceb/SP   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  /inn' 1-  NMI  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  PAUL A. VOLCKER  September 25, 1986  CHAIRMAN  The Honorable Jake Garn Chairman Committee on Banking, Housing, and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Garn: Thank you for your letter of September 16 requesting comments on a proposed amendment to permit national banks to buy and sell precious metals. National banks are currently authorized to buy and sell gold and silver coin and bullion, which historically have served as financial instruments, and the Board has approved this activity for bank holding companies. However, the term "precious metals" in the proposed amendment is potentially much broader than gold and silver coin and bullion and is obviously intended to include other metals that are not primarily financial instruments and that may be related to manufacturing uses. I would be concerned that the proposed authorization could lead to acquisition of speculative positions in assets and to involvement in commercial activities that are inconsistent with the basic Congressional policy underlying the Bank Holding Company Act and other banking statutes. If I can be of any further assistance in the matter, please let me know. Sincerely, S Ea ul A. Wolcket  KB:CO:vcd (V-189, 86-4067) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ms. Bondehagen Mr. Mattingly G.C. Log 193 Legal Records (2) Mrs. Mallardi (2)V  Action assigned Mr. Bradfield  JAKE GARN, UTAH. CHAIRMAN  IP  JOHN HEINZ. PENNSYLVANIA WILLIAM L ARMSTRONG. COLORADO ALFONSE M D'AMATO, 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   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  United gitatts e$tnate COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS  -n  L-.71  —  WASHINGTON, DC 20510  b.  u  September 16, 1986  hi ,  Honorable Paul A. Volcker Chairman Federal Reserve Board Washington, D. C. 20551 Dear Paul: I have been apprised that Senator Glenn and others may offer an amendment to any banking legisla tion debated on the floor which would permit national banks to buy and sell precious metals. 1 am enclosing a copy of the amendment for your review, and would appreciate any comments you might have on this proposal.  JG:lzb  cc, MEIN.  089920.537 . AMENDMENT NO.  S.L.C.  Calerdar Nc.  41•=1,••••••m.  : Purpose: To permit national banks to buy and sell precious 'metals. IN THE SENATE OF THE UNITED STATES-99th Cong., 2d Sess. S.  MIND MM.IMMIWIMM.  Referred to the Committee cn ordered tc be printed  and  Ordered tc lie on the table and to be printed Amendment intended to be proposed by Mr. Glenn Viz: 1  At the appropriate -place in the bill insert the  2 'following: 3  AUTHORITY OF NATIONAL BANKS TO BUY AND SELL PRECIOUS METALS  4  Sec.  . Paragraph "Seventh" of section 513 6 of the  5  Revised Statutes (12 U.S.C. 24) is ame nded by striking cut  6  '*bullion" and inserting in lieu thereof "precious  7  metals".   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20E51  RAUL A. VOLCKER  September 22, 1986  CHAIRMAN  The Honorable John D. Dingell Chairman Committee on Energy and Commerce House of Representatives Washington, D.C. 20515 Dear Chairman Dingell: In view of your interest, I am pleased to enclose a copy of the Board's announcement of an informal hearing on the I roposed acquisition by The Sumitomo Bank, Ltd., of a limited I. rtnership interest in Goldman, Sachs & Company.  The hearing  will commence at 930 a.m. on October 10, 1986, here at the Board in Washington.  Sincerely,  -2.11.  Enclosure  Vui•  (9/19/86 P.R.)  IDENTICAL LTR. TO CHAIRMAN ST GERMAIN  CO:vcd (see 86-3681) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi Mr. Bradfield Mr. Alvarez  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, a E. 20551  PAUL A. VOLCKER  September 22, 1986  CHAIRMAN  The Honorable John D. Dingell Chairman Committee on Energy and Commerce House of Representatives Washington, D.C. 20515 Dear Chairman Dingell: In view of your interest, I am pleased to enclose a copy of the Board's announcement of an informal hearing on the proposed acquisition by The Sumitomo Bank, Ltd., of a limited partnership interest in Goldman, Sachs & Company.  The hearing  will commence at 9:30 a.m. on October 10, 1986, here at the Board in Washington.  Sincerely,  A.  Enclosure  (9/19/86 P.R.)  IDENTICAL LTR. TO CHAIRMAN ST GERMAIN  CO:vcd (see 86-3681) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi Mr. Bradfield Mr. Alvarez  BOARD OF GOVERNORS  I  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  September 19, 1986  The Honorable Cardiss Collins House of Representatives Washington, D.C. 20515 Dear Ms. Collins: I am responding on behalf of Chairman Volcker to your letter to him dated September 11 requesting that you be furnished with "copies of any and all materials submitted to, or generated by" the Board "which relate to Security Pacific's proposed system of trading options on U.S. government securities." I am enclosing the documents that you have requested. In response to our requests for information concerning Security Pacific's proposal, Security Pacific has provided the Board with certain information subject to a grant of confidential treatment under the Freedom of Information Act in view of the fact that the information consists of commercial information provided in confidence. We agreed to this treatment. Security Pacific has agreed to a limited waiver of its request for confidential treatment so that we may provide the documents to you. We have not included internal memoranda between staff members concerning Security Pacific's original proposal, which has been substantially restructured. These memoranda were not sent to the Board and do not necessarily reflect its views. Please do not hesitate to call Ms. Sara Kelsey (452-3236) of the Board's Legal Division if we can be of furtheiassistance to you in this matter. Sincerely, Donald J. Donald J. Winn Assistant to the Board Enclosures MB:VM:SK:vcd (V-186, 86-4029) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Bradfield Mr. Mattingly Ms. Kelsey Legal Records (?.) Mrs. MallardiL,/  ENERGY AND COMMERCE COMMITTEE suscommimEs  Acticn assiqned Mr. Bradfield  Congresz of tbe Ziniteb *tatto  HEA.TH AND THE ENVIRONMENT TELECOMMUNICATION, C1NSUMER PriOTECTION AND FINANCE  jtioufSe of RepreentatibesS  GOVERNMENT OPERATIONS COMMITTEE SURCOMMITTEE CHAIRWOMAN GOVERNMENT ACTIVITIES AND TRANSPORTATION  SELECT COMMITTEE ON NARCOTICS ABUSE AND CONTROL  CARDISS COLLINS 7TH DISTRICT, ILLINOIS  September 11, 1986  A0D,D\  Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System 20th and Constitution Avenue, N.W. Washington, D.C. 20551  c_C)  r-1 •••-•••  Honorable Robert L. Clarke Comptroller of the Currency Office of the Comptroller of the Currency 490 L'Enfant Plaza East Washington, D.C. 20219  •—•■• ••••  Honorable L. William Seidman Chairman, Federal Deposit Insurance Corporation 550 17th Street, N.W. Washington, D.C. 20249 Gentlemen: As a member of the House Committee on Energy and Commerce, I have observed for more than a year the process whereby Security Pacific National Bank, the nation's sixth largest national bank, seeks to introduce a system for trading options on U.S. government securities. Throughout that process, it'has been unclear to me whether sufficient regulatory review has been performed by the federal banking authorities with respect to this proposal. Indeed, despite the grave legal and policy issues raised by the proposed system--issues which go to the very heart of the soundness of the banking system--Security Pacific's planned enterprise has not generated public acknowledgement by our federal bank regulators. Meanwhile reports indicate that the start-up of the system is imminent. I hereby request from each of you copies of any and all materials submitted to, or generated by, your respective agencies which relate to Security Pacific's proposed system of trading options on U.S. government securities. Please have these materials delivered to my office by no later than Friday, September 19, 1986. Should you require additional information, please do not hesitate to contact Ms. Denise Wilson in my office at 225-5006. Thank you for your cooperation in this matter. Yours truly, At, 1-ele RDISS COLtINS Member of Congress CC/dw 0 2264 RAYBURN OFFICE BUILDING WASHINGTON, DC 20515 (202) 225-5006   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  PLEASE SEND REPLY TO: SUITE 3880 0 230 SOUTH DEARBORN STREET CHICAGO, IL 80804 (312) 353-5754  0 3851 Win ROOSEVELT ROAD CmicAcio, IL 80624 (312) 522-2442  0  328 LAKE STREET OAS PARK, IL 60302-2604 (312) 383-1400  BOARD  EDVERNORE E-i  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 PAUL A. VOLCKER  September 17, 1986  CHAIRMAN  The Honorable George C. Wortley House of Representatives Washington, D.C. 20515 Dear Mr. Wortley: Thank you for your letter requesting clarification of manmy August 4 letter to Congressman Lehman as it related to daily dating use by depository institutions of the average stated in balance method in computing interest on deposits. As is approthat letter, we do not believe that such a requirement paid under priate. In many cases the differences in interest while condifferent interest computation methods will be small computation version costs to a mandated average daily balance that the method could be significant. Consequently, we believe fits to conversion costs would not be outweighed by the bene consumers that such a requirement would provide. nding In part, this position is based on our understa minority of that the average daily balance method is used by a if the day depository institutions in the United States. Only interest is of deposit/day of withdrawal method of computing method would viewed as included within the average daily balance of instithe average daily balance method be used by a majority calculatutions. However, the two methods involve different cases and, tions and do not produce identical results in all therefore, should not be considered identical. prepared I have enclosed with this letter a memorandum detail. I by the Board's staff discussing this issue in greater me know if I hope this information is useful to you. Please let can be of further assistance. Sincerely,  siSv4P Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  OII:DR:LSF:vcd (V-173, 86-3582) bcc:  Mr. Ireland Mr. Rhoads Legal Files (2) Mrs. Mallardi (2)  .  1  Interest Computation  computing  of  methods  use  institutions  depository  interest  that  believes  it  that  stated  of  minority  a  on  Staff has  od. deposits other than the average daily balance meth previously  which  about the extent to  raised  has been  A question  institutions use the average daily balance method. several  by  interest  compute  institutions  Depository  al or end of methods including day of deposit to day of withdraw month or interest period, average daily balance for the period, and low balance for the month return on  under  account  an  any of  variables  other  affected  by  interest  crediting  methods can  also  The be  frequency,  compounding  practices,  payment  and  interest period.  or  these as  such  interest  deposit  crediting  rest computation practices and differences in the length of inte periods. The choice of methods of computing vary  to  appears  balance  accounts  than  However, in method. (1985  the  when  method  this  use  neither  banks appear  computing  method  on  category do a  A recent report from  Retail  Deposit  account  of  type  For example, more  institution. daily  with  Services  interest on deposits  the  and  to use an  interest  non -transaction majority of American  Report)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I'  banks  use  an  average  average  accounts.  banks  use  this  Bankers Association  indicates  balance  of  transaction  on  and passbook savings accounts, between 6 percent commercial  size  method  that,  for  29 percent of to  compute  -2-  For statement  interest, depending on the asset size of the bank.  of banks use savings deposits, between 15 percent and 32 percent an  depending  method,  balance  average  bank  on  For  size.  percent of banks transaction accounts, such as NOW accounts, the ranges with using an average balance method of computing interest size from 31 percent to 48 percent. that a significant number  The same ABA report indicated  deposit to day of commercial banks compute interest on a day of of  savings  passbook  For  basis.  withdrawal  between  accounts,  depending on 45 percent and 69 percent of banks use this method, asset size.  The ABA data indicates that the smaller  For statement savings  the more likely it is to use this method.  69 percent, with  using  the  day  method  ranges  from  over 60 percent of banks  of  using  billion  $1  and  $50 million  this  of  use  deposits,  deposit  to  day  The  it.  33 with  to  percent assets  between banks  percentage of method  withdrawal  of  bank,  the  for  as NOW accounts, computing interest on transaction accounts, such g on asset size. ranges from 17 percent to 46 percent, dependin With regard based  on  believes  conversations the  that  institutions  do  vast  not  computing interest. 80  to other  percent of  the  use  with  types of depository industry  majority an  of  average  representatives,  credit  unions  daily  balance  and  approximately  17,300  credit Although  staff thrift  method  For example, we have been advised  United States do not use this method.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  institutions,  unions  of  that over in  the  there is a lack  -3  of  savings  on  data  and  associations,  loan  industry  rience, most representatives have stated that, based on their expe withdrawal of these institutions use a day of deposit to day of method. It has been  average daily  that the  suggested  balance  method method and the day of deposit to day of withdrawal essentially the same and method  daily balance  methods  computation  burden  are  different  we  and  depository  on  While these methods produce similar  institutions.  the average  therefore that specifying  will not impose any  are  results, the many  that  believe  incur conversion costs in changing  depository institutions would  to the average daily balance method. The average daily balance method of computing the  involves  application  of  the  average daily balance maintained  to  rate  interest  daily  interest the  in the account over an interest  of withdrawal computation period while the day of deposit to day method  applies the daily interest  rate  to the  balance  in  the  If there are no debit or credit  account at the end of the day.  utation period, transactions in the account over an interest comp the  amount  identical  interest  of under  to day  deposit assuming  that  during  earned  period  the average daily balance method of  identical  withdrawal  method  for  interest compounding  and  computing features.  will  be  a day of interest,  Where  there  amount of interest are transactions in an account, however, the earned   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  under  the average daily  balance  method  generally  will  -4-  from  differ  that earned  withdrawal method.  frequency, size,  to  the day of deposit  of  day  Whether one method of computing interest will  type  depositors  to  return  greater  a  provide  under  of  timing  and  on  depend  will  transactions,  and  the other  variables such as compounding frequency. The  differences  in  365-day computation  percent,  a  365-day  under  the  two  by the following example which assumes  methods can be illustrated a  interest  computing  period, a and  year,  fixed  daily  rate of  interest of  1/ compounding.-  At  5  the  $20,000. beginning of the computation period, the account has  On  with the remainder the 31st day there is a withdrawal of $10,000 of the Under  balance  staying on  deposit  for  the  rest of  the day of deposit to day of withdrawal  the formula for compound  the  year.  method, applying  in interest, the account earns $82.355  next 335 days, resulting the first 30 days and $473.430 over the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  in  total  interest earned  of $555.78.  Under  the  average daily  steps are different. balance method, however, the mathematical  interest is A = P The basic formula for computing simple the amount on which (1 + RT) where A is the final amount, P is simple interest, interest is computed, P is the annual rate of fraction where the and T is the time period, expressed as a utation period and numerator is the number of days in the comp the computation year. the denominator is the number of days in r than continuously is The formula for compounding interest othe amount, P is the amount A = P (1 + R/M)N where A is the final annual rate of simple on which interest is compounded, R is the periods in a year, and interest, M is the number of compounding which interest is N is the actual number of periods for or in a With daily compounding, M = 360 or 365, compounded. leap year 366.  1/  -5  The  in  balances  compounding  account  the  formula  is  days)  [($20,000) (30  must  daily  applied.  (Average  ($10,000)  (335 days)] /  the  balance days  365  interest rate and  Applying the daily  $10,821.918.)  before  averaged  be  compounding  ts in formula to the average daily balance of $10,821.918 resul interest earned of $554.81.  The depositor  would earn $.97 more  method in interest under the day of deposit to day of withdrawal than under the average daily balance method. As  the  foregoing  example  illustrates,  a  change  from  ce a current methods of computing interest, even those that produ require similar result to the average daily balance method, would operational operational,  These  changes. including  changes  could  changes  software,  involve  at  the  costly  majority  of  ge daily balance depository institutions that do not use the avera method at this time. mandate is limited.  The extent of consumer benefit from such a While the mandated  use of an average daily  the payment balance method would eliminate some variables between of interest on  deposit accounts  that are  not reflected  in  an  variables such annual percentage yield, it would not affect other as variations in crediting practices. In  view of the limited  requirement and  the costs such  consumer a  benefits from  requirement  would  a  such  impose  on  of requiring depository institutions, we believe that the costs computing interest the use of an average daily balance method of do not outweigh change.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  the  potential  benefits to consumers of such  a  27TH DISTRICT, NEW YORK  229 CANNON HOUSE OFFICE BUILDING WASHINGTON, DC 20515 (202) 225-3701  COMMITTEES:  DISTRICT OFFICES:  GEORGE C. WORTLEY  BANK!NG, FINANCE AND URBAN AFFAIRS SUBCOMMITTEES: FINANCIAL INSTITUTIONS SUPERVISION, REGULATION AND INSURANCE ECONOMIC STABILIZATION HOUSING AND COMMUNITY DEVELOPMENT OVERSIGHT AND RENEGOTIATION  Congress of the linked $t tates . tont of Represtntattes Washington, Be 20515  SELECT COMMITTEE ON AGING TASK FORCE ON WOMEN AND SOCIAL SECURITY  1269 FEDERAL BUILDING SYRACUSE, NY 13280 (315) 423-5657 248 GENESEE STREET CHITTENANGO, NY 13037 (315)687-5027  I3  STANDARDS OF OFFICIAL CONDUCT  August 14, 1986 ammift  1-71  1  CQ  The Honorable Paul Volker, Chairman Board of Governors of the Federal Reserve System Twentieth Street and Constitution Avenue, N.W. Washington, DC 20551  --0 —_. .........  1...•  •••— • •  r-r rn ......4: 7.,-...,  ----1 Cal Cri  Dear Mr. Chairman: Representative Lehman shared a letter you wrote to him on August 4th with the members of the House Banking Committee. In the attached staff comments to that letter, the statement was made that "...this method [average daily balance] is used by a minority of institutions." Also in the letter, you stressed your opposition to mandating the average daily balance under the Truth in Savings Act being considered by the Committee. During the August 14th markup of this Act, the Financial Institutions Subcommittee narrowly approved an amendment I offered removing the average daily balance requirment from the Act. However, during the debate, Mr. Lehman claimed that a majority of institutions use the average daily balance method of computing interest. Since you and Mr. Lehman seem to be in disagreement, I would appreciate a more complete response from you on this issue to further clarify the matter. In addition, a further explanation of your opposition to requiring this method would be helpful. Since  George Wort ey Membe of Congress GCW:esc   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  r•-i :1,-2.; •••-•...e. .  .:-.-.:  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  September 16, 1986  PAUL A. VOLCKER CHAIRMAN  The Honorable Jake Garn Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Cam: Thank you for your letter of September 11, recommending Dr. Ramon Johnson for a position on our Consumer Advisory Council. I can assure you that Dr. Johnson 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, SiPaul  CO:pte (V-187, 86-4038) bcc: Mrs. Bray (w/copy of incoming) Mrs. Mallardi (2)  CLO drafting response for Chairman JAKE GARN. UTAH, CHAIRMAN  •  JOHN HEINZ, PENNSYLVANIA WINLIAM L ARMSTRONG, COLORADO ALFONSE N 0 AMATO, NEW YORK SLADE GORTON, WASHINGTON MACK MATTINGLY. GEORGIA  WILLIAM PROXMIRE, WISCONSIN ALAN CRANSTON, CALIFORNIA DONALD W RIEGLE, JR.. MICHIGAN PAUL S SARBANES, MARYLAND CHRISTOPHER J. DODD. CONNECTICUT  CHIC HECHT, NEVADA  ALAN J DIXON, ILLINOIS JIM SASSER, TENNESSEE  PHILGRAMWTEXAS  M. DANNY WALL. STAFF DIRECTOR KENNETH A. MCLEAN, MINORITY STAFF DIRECTOR  7.4-1  C.  United e tats Ernatt . CiliiINICAuntr COMMITTEE ON BANKINH URBAN AFFAIRS  2:  t  WASHINGTON, DC 2011510,LIVEii  September 11, 1986  Honorable Paul A. Volcker Chairman Federal Reserve Board Washington, D. C. 20551 Dear Paul: I am writing to recommend Dr. Ramon Johnson to serve on the Federal Reserve Board's Consumer Advisory Council, which will soon be replacing seven of its current members when their three-year terms expire. I believe that Dr. Johnson's educational qualifications, teaching experience, and work with a variety of financial institutions in the Salt Lake City area make him an ideal candidate for membership on the Consumer Advisory Council. Dr. Johnson's educational background includes a graduate business degree and doctorate in finance. He has been a teacher, a researcher responsible for consistently producing and presenting numerous papers on finance and business management issues, and an administrator, including a six-year term as the Chairman of the Department of Finance at the University of Utah. His experience extends beyond academics, for Dr. Johnson has been President of the University of Utah Credit Union, and consulted with savings and loan associations, commercial banks, and other corporate organizations in Salt Lake City. These cumulative activities have enabled him to gain a perspective on the opportunities, costs and problems associated with securing deposits and making consumer loans. Dr. Johnson has also been involved with the federal regulatory level as a member of one of the Federal Home Loan Bank Board's task forces, and has devoted his time toseveral community projects in Salt Lake City. believe that Dr. Johnson would bring valuable knowledge of financial institutions and consumer credit issues to the Advisory Council. He would bring special knowledge to the Council as a researcher comfortable with writing and presenting reports on the technical elements of accounting and financial principles. As President of a credit union and consultant to other financial institutions, he has been involved with the practical realities of operating in today's financial service industries and meeting consumer's needs. I strongly recommend Dr. Johnson's nomination to one of the upcoming vacancies on the Consumer Advisory Council. Sincerely,  LZ:eb  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  0  •' ...••0•PV GOVl'.Rit, . ..  •izo , , P •o "'I • -n  BOARD OF GOVERNORS  •-•(--'\  (----  • ,-,•  CI F T H E  R E S E R V EFIRAL  SYSTEM  WASHINGTON, D. C. 20551  .r i. &HHH 4. ,,k• •  ••'"eo RE• • •• eiRAL • • •..  September 15, 1986  The Honorable Clarence E. Miller House of Representatives Washington, D.C. 20515 Dear Mr. Miller: Chairman St Germain has asked that the Board respond to the concern expressed by one of your constituents, Mr. Paul Oberhauser, about the practice of some banks requiring cosigners for guaranteed student loans. Mr. Oberhauser believes that banks are acting unscrupulously by having some students obtain co-signers and believes the law should be changed to prevent such actions. The Guaranteed Student Loan Program ("GSLP"), administered by the Department of Education ("Department"), provides for the Federal Gpvernment to guarantee all or part of education loans to eligible students. Such guarantees may occur either directly by the Department of Education or by state agencies or private non-profit agencies that have entered into agreements with the Department. Officials of the Department have informed us that approximately 99 percent of the loans made under the GSLP are made through state agencies and private nonprofit agencies. Although the guarantee agency programs must meet certain federal requirements, there may be considerable variation among programs including requirements for co-signers for student loans. Since guarantee agencies are obligated to do a "best efforts" collection on defaulted student loans, some guarantee agencies require, as part of their program, that student loans be co-signed. This practice is not prohibited by federal law. A prohibition against requiring co-signers for guarantee agency GSLP loans may have an adverse effect on efforts to collect defaulted student loans since a co-signer on the loan provides a second person against whom the Federal Government or a guarantee agency may direct collection efforts. As you may know, a Conference Committee of the House of Representatives and the Senate has been meeting to resolve differences in the Higher Education Act, S. 1965, passed by the Senate on June 3, 1986. An amended version of S. 1965 was passed by the House on June 17, 1986. Among other things, this  The Honorable Clarence E. Miller Page Two bill seeks to enhance collection efforts for defaulted student loans. A prohibition on obtaining co-signers for student loans would appear to be contrary to the spirit of this bill. I hope this information is useful to you. me know if I can be of further assistance. Sincerely, SI Donald a. Winn Donald J. Winn Assistant to the Board cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Chairman Fernand J. St Germain  DLR:OI:CO:LSF:vcd (V-182, 86-3813) bcc:  Mr. Rhoads Mr. Ireland G.C. Log 182 Legal Records (2) Mrs. Mallardi,/  Please let   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  September 12, 1986  The Honorable Jake Garn Georgetown University Hospital Washington, D. C. 20007 Dear Jake: I Just want to join everyone else in welcoming and to wish We all admire your family courage. I'd promise to keereverything on the -financial front quiet pending your return but the stock market hasn't cooperateu very well. With that exception, I'll try! With warm regards,  PAV:ccm  .  .  .  .Of GOve .• •' *r) __!?4,•. .• •r• , 1.; (1- s, o • •cr) ‘:.•:.; :., ,r'. \  ..„ R., • .4 ...< %OH  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  AL RESt • • • •..• • •  WASHINGTON, D. C. 20551  PAUL A. VOLCKER  September 12, 1986  CHAIRMAN  The Honorable Slade Gorton United States Senate Washington, D.C. 20510 Dear Senator Gorton: Thank you for your letter of August 11 regarding the application of Rainier Bancorporation to acquire Mt. Hood Security Bank, Gresham, Oregon. The Board is currently reviewing South East Seattle Community Organization's (SESCO) allegations and Rainier's responses. The Board will examine the relevant facts and seek to resolve the case fairly and expeditiously, in accordance with its regulations. Both Rainier and SESCO are being given ample opportunity to present evidence and arguments. We appreciate your interest in this matter, and will let you know of the Board's action on the application. Sincerely,  Eteml  DEK:RSC:CO:vcd (V-171, 86-3580) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Harry Green, VP, FRBk. of San Francisco Messrs. Kline, Mattingly, Carnell; Ms. Cross BS&R Clearing Unit Mrs. Mallardi (2) I  JAKE GARN. UTAH, CHAIRMAN JOHN HEINZ. f'ENNSYLVANIA WILLIAM L. ABMSTRONG, COLORADO ALFONSE M D'AMATO. NEW YORK SLADE GORTON, WASHINGTON MACK WITINGLY, GEORGIA CHIC HtCHT, 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  United 5tates g5cnate .0-011A-e/17 COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS WASHINGTON, DC 20510  t=0  August 11, 1986 • r•-•, •  C".•  •  '7 I  r•ri  (.71 4••=-  ., rrl (-1-1  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System 20th and Constitution Avenue N.W. Washington, D.C. 20551 Dear Mr. Chairman: In recent weeks I have been made aware of a dispute between the South East Seattle Community Organization (SE9:0) and Rainier National Bank, over whether the bank has adequately met the community lending requirements of the Community Reinvestment Act. I do not know the facts of the situation, and so have no way of judging the accuracy of the allegations. I do believe, however, that it is important that those protesting the bank acquisition have an opportunity to present their case. I hope that the Federal Reserve will review SESCO's alleTations carefully and, if the allegations appear accurate, will proceed promptly with such meetings or other intermediation as the situation warrants. I also urge that this action be taken as expeditiously as possible, for the sake of all parties concerned. Thank you for your attention. Sincerely,  SLADE GORTON United States Senator  SG:jws   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  C-  ..   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  *co  FEDERAL RESERVE SYSTEM  .o •-r1 ..t. .•' •:40  • "•4'RALRE-5 ...• • •• •  WASHINGTON, O. E. 213551  PAUL A. VOLCKER  September 12, 1986  CHAIRMAN  The Honorable Fernand J. St Germain Chairman Committee on Banking, Finance and Urban Affairs House of Representatives 20515 Washington, D.C. Dear Chairman St Germain: This is the additional information that I indicated would be provided for the record in response to questions about certain Reserve Bank expenditures that were raised by Committee members during my testimony on July 29, 1986. Federal Reserve policy on expenditures states that "the System as a whole is responsible for carrying out its responsibilities in the most effective and economical manner feasible, taking cognizance of the government's residual interest in the earnings of the System." Reserve Bank directors and management are charged with primary responsibility for ensuring that internal "discretionary" expenditure policies continue to be maintained and enforced in a manner consistent with the System's public nature while allowing sufficient flexibility to meet the needs of each District and to recognize community practices, when warranted and appropriate. The Board's examiners are instructed to review Reserve Banks' internal policies and expenditures for consistency with System policy, for the adequacy of controls, and for appropriate documentation of the business purpose. Generally, we have found Reserve Bank expenditures are fully consistent with System policy and the public responsibilities of the organization. We do, however, keep the matter under review, and in the course of Reserve Bank examinations take care to review the record for any borderline or questionable items. The questions arising at the hearing were, in fact, derived from information contained in a memorandum from the Board's examiners to Board members serving on the Reserve Bank Activities Committee, describing certain Reserve Bank expenditures that were questioned during annual examinations of all Districts over an eighteen month period. The specific expenditures referred to  #  .. The Honorable Fernand J. St Germain Page Two  were flagged by our examiners precisely because there was a question in the examiners mind as to whether they were fully in the spirit of one or another of the review criteria mentioned. Following is a description and evaluation of the expenditures cited by Committee members: Meetings of the Board of Directors of the Twelfth Federal Reserve District. The Twelfth District regularly schedules off-site meetings of its boards of directors in states that constitute its territory. This provides the opportunity for the directors and Bank officials to meet with community leaders to exchange views on local and national economic conditions. The most common vehicles for this exchange are community luncheons and dinners attended by Reserve Bank officers and directors and by community leaders. District management believes that these luncheons provide effective forums for beneficial exchanges of information and done without lavishness and at suitable intervals appear to be a reasonable use of Bank resources. Expenses listed here differ in some cases from those reported previously by the examiners generally because they include the full amount of expense on each meeting, including travelers from all Twelfth District offices. In some cases the figures gathered by the examiners reflected only the cost for travel to the meeting from the office under examination.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Joint Meeting of the San Francisco and Seattle Boards of Directors in Anchorage, Alaska, on August 8-9, 1985. Total cost of the meeting was $29,719.52--$5,096 for lodging, $17,577.51 for travel, and $7,046.01 for meals, meetings rooms, and other expenses associated with the meeting activities. The meal expense included $4,587.06 for the cost of a community dinner which was attended by 125 local community and business leaders and the Federal Reserve group and $590.79 for the cost of a directors' dinner which was attended by 9 directors and officers and 4 community guests. Meeting of the San Francisco Board of Directors in Honolulu, Hawaii, on December 11-12, 1985. Total cost of the meeting was $36,181.43--$18,672.14 for travel, $8,612.75 for lodging, and $8,896.54 for meals, meeting rooms and other expenses. The meal expense included $3,859.75 for the cost of a community luncheon which  .fp The Honorable Fernand J. St Germain Page Three  was attended by 214 local community and business leaders and the Federal Reserve group and $2,163.20 for the cost of a directors' dinner attended by 37 people. Meeting of the Board of Directors of the Los Angeles Branch at Las Vegas, Nevada, on October 21-22, 1985. The meeting was held at a non-gambling hotel at a total cost of $4,918.24--$1,735.74 for travel, $1,118.15 for lodging, and $2,064.35 for meals, meeting rooms, and other expenses. The meal expense included $1,352.40 for the cost of a community dinner which was attended by 18 local community and business leaders and the Federal Reserve group. Meeting of the Board of Directors of the Los Angeles Branch at Laguna Niguel, California, on November 25-26 1985. Total cost of the meeting was $9,176.73--$510.2 for travel, $1,782 for lodging, and $6,884.49 for meals, meeting rooms and other expenses. The meal expense included $4,508.60 for the cost of a community luncheon which was attended by 228 local community and business leaders and the Federal Reserve group and $1,712.12 for the cost of a dinner for directors and community guests. Expenditures associated with the retirement of the Bank president in the Twelfth Federal Reserve District. The District spent $45,131 for two official receptions and a District-wide employee luncheon to honor the retiring president. One reception was held off-site and was attended by 164 directors, officials and spouses at a cost of $16,073. The second reception honoring the retiring and the new presidents was held at the San Francisco Bank, attended by District officials and 13 spouses from branch offices, and cost $6,772. The employee luncheon provided meals for 2,139 District employees at a cost of $22,286. The extent of this recognition for the retiring official is questionable in relation to System expenditures policies and will not be repeated. An additional $375 expense was incurred for a boat rental in connection with a Los Angeles officers off-site planning meeting at Newport Beach. This small expenditure was inconsistent with System policy.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Fernand J. St Germain Page Four  Joint Meeting of the Boards of Directors of the Cleveland, Cincinnati, and Pittsburgh offices of the Fourth Federal Reserve District on September 12, 1984. In connection with the board meeting, $6,609 was expended for a dinner at the Cleveland Bank and for associated activities to acquaint attendees with progress made by the City of Cleveland since its financial crisis of several years ago. The dinner and activities were planned for 61 directors, District officials, System officials, and spouses, with a per capita expense of $100 for the cost of food and the services and supplies associated with the displays and presentations on Cleveland. The expense of the dinner was $3,303 and the expense of the Cleveland presentations and supplies was $3,306. Joint Meeting of the Boards of Directors of the Dallas, El Paso, Houston, and San Antonio offices of the Eleventh Federal Reserve District at New York City on October 17-18, 1984. The meeting was held in New York for the expressed purpose of promoting the directors' knowledge of Federal Reserve operations, specifically, System Open Market Account operations which are conducted at the New York Bank on behalf of all Federal Reserve Districts. Expenses associated with the meeting totaled $16,311, which included $5,686 for travel, $4,369 for hotel, and $6,256 for functions and meals associated with the trip. The $6,256 included $3,293 for the costs of a dinner meeting for 40 people where the directors heard a presentation by the President of the Federal Reserve Bank of New York on economic conditions and the related operations of the System Open Market Account. The balance of the $6,256 included: $563 for a breakfast meeting of the Dallas District attendees, $504 for other miscellaneous meals, and $1,896 for other miscellaneous expenditures including registration fees for several Dallas officials to attend an American Bankers Association meeting in connection with their trip to New York. Meeting of the Pricing Committee of the Chicago and Detroit offices of the Seventh Federal Reserve District at Pine Mountain, Georgia, on April 17-19, 1985. The meeting was held at this location, approximately 40 miles from Atlanta, in order to meet with Atlanta Reserve Bank management to discuss operational enhancements for the Chicago Reserve Bank because of the Atlanta Bank's outstanding record of operations performance. A site close to Atlanta was selected so that the. Atlanta management could conveniently attend the meeting. Chicago representatives advise that the cost of this site compared favorably with   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Fernand J. St Germain Page Five  that of downtown Atlanta hotels. Total expenses for this meeting were $6,618--$3,469 for travel, $1,840 for lodging and $1,309 for meals and meeting rooms. I should point out once again that each of these expenditures were identified by the Board's own examining staff as part of our continuing efforts to assure that Federal Reserve Bank expenditures comply with guidelines laid down by the Board. The fact that, among 12 Reserve Banks and 24 branches, only 8 incidents, some involving small amounts, were deemed worthy of review, and these were for understandable and legitimate purposes, suggests problems are not common. Steps have already been taken to prevent a repetition of those few expenditures that appear, because of their extent, questionable in relation to System policy. I must again emphasize that it is the position of the Federal Reserve Board that Reserve Banks should conduct their business in a manner that is above reproach. Sincerely,  JSP:SMR:JRC:PAV:pte bcc: John Parrish Clyde Farnsworth Mrs. Mallardi (2)/   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • 'of GOvt • .•  R ••  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  •  •s•AL  a •  September 10, 1986  PAUL A. VOLCKER CHAIRMAN  The Honorable Philip M. Crane House of Representatives Washington, D. C. 20515   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Dear Mr. Crane: I am writing to thank you for your letter concerning the application of Continental Illinois Corporation to acquire The First National Bank of three suburban Chicago banks: Deerfield, First Suburban Bank of Olympia Fields, and The First National Bank of Western Springs. While I cannot comment on applications pending before the Board, please be assured that the Board will carefully consider the applications and the arguments advanced by parties The Board has already provided protesting the applications. those submitting written comments on the application an opportunity to make an oral presentation on the applications before the Chicago Federal Reserve Bank on September 19, 1986. Sincerely,  oi.tMLt  (lb  CRANE •  OgFICES:  1035 LCRILIwoRTH ButLO:NG WASHINGTON, DC 20515 202/225-3711 StATE  CONGRESS of fitiCT OF ILLINOIS  AYS AND MEANS COMMITTEE SUBCOMMTTEES  TRADE SOCIAL SECURITY  .  REPUBLICAN STUDY COMMITTEE  Congress of the United g5tats toust of REprtscntattcs  EXECUTIVE COMMITTEE  SUrTE 101 1450 SOUTH NEW WILE ROAD ARLINGTON HoGnYS. IL 50005 312/394-0790  Washington, BC 20515  56 NORTH WILLIAMS STREET CRYSTAL LAKE, IL 60014 815/459-3399 312/223-3030 ROBERT C. COLEMAN ADMINISTRATIVE ASSISTANT  /PI August 15, 1986 c.e.1 r•-•  Chairman Paul A. Volker 20th Street and Constitution Avenue, N.W. Washington, D.C. 20551  cc?  Dear Chairman Volker: I want to state my very strong objections to the application of Continental Illinois Corporation to expan d its banking network in Illinois at the expense of othe r bank competitors. It is patently unfair to permit Continental to acquire additional banks at a time when the Fede ral Deposit Insurance Corporation has suspended rebat es of insurance premiums because of Continental's previ ous poor management of loans and the subsequent heavy losses. Since the FDIC in effect owns 80 percent of Continental, acproval of their application would be a move completely against our free 'enterprise system. I am also concerned about the risk to FDIC funds . Continental is asking you to approve acquisitio ns with money supplied by competing banks through the premiums they pay for deposit insurance. These added costs will eventually have to be passed on to bank consumers. I think these matters are serious enough to warrent publi c hearings in the House Banking Committee. The Feder al Reserve Board also should consider such hearings so these ethical and financial questions can be thoroughly discussed by all sides. rely,  Philip M. Crane, M.C.   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  September 10, 1986  CMAIRMAN  The Honorable Henry J. Hyde House of Representatives Washington, D. C. 20515 Dear Mr. Hyde: erning I am writing to thank you for your letter conc ion to acquire the application of Continental Illinois Corporat The First National Bank of three suburban Chicago banks: ds, and The First Deerfield, First Suburban Bank of Olympia Fiel National Bank of Western Springs. ing before While I cannot comment on applications pend will carefully the Board, please be assured that the Board advanced by partieL consider the applications and the arguments The Board has already provided protesting the applications. application an those submitting written comments on the the applications opportunity to make an oral presentation on September 19, 1986. before the Chicago Federal Reserve Bank on Sincerely,  JAS:bas IDENTICAL LETTERS SENT TO:  Congressmen Crane and Porter  (V-175, 86-3600; V-178, 86-3618; V-181, 86-3805) bcc: Jim Scott Mrs. Mallardi (2)L/   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .(1FGOVA-..  BOARD OF GOVERNORS OF THE  •*co •  FEDERAL RESERVE SYSTEM  .o -A  WASHINGTON, D. C. 20551  v<s* [1110e ! tl i, i RAL RE-S • • •..• • •  SE P  'c)  36  iJ  PAUL A. VOLCKER CHAIRMAN  The Honorable Walter E. Fauntroy Chairman Subcommittee on Domestic Monetary Policy Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Chairman Fauntroy: As requested in your letter of June 17, enclosed please rind responses to questions raised by the Subcommittee on Domestic Monetary Policy in connection with my testimony on the budgets and expenditures of the Federal Reserve Banks and the Board of Governors. The response to the question on construction work involving the Security Courtyard of the Federal Reserve Bank of Chicago is being sent under separate cover, as you requested. I appreciate having had the opportunity to appear before the Subcommittee to discuss Federal Reserve budgets and expenditures. I believe such hearings are important to Congressional understanding of Federal Reserve System spending and welcome any additional questions the Subcommittee may have. Sincerely,  a;.;1 A Vc1_-, Enclosure  DR:pte (V-134, 86-2658) bcc: Dave Robinson Clyde Farnsworth Ted Allison Mrs. Mallardi (2)/   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Question 1: Chairman Volcker stated before the Subcommittee in January that the Federal Reserve intends to abide by Gramm Rudman in spite of the decision made by CBO and OMB that sequestration will not apply to the central bank. Please elaborate on what expenditures the Federal Reserve Syste m will reduce to attain this goal. how will the Reserve hanks be treated in this process? How will their participation be ensured? how will the Federal Reserve Board monitor this program of budget reductions by the individuai reserve banks? Do you feel reasonably certain that one year from now, you will be able to state before this Subcommittee where each of the Reserve Banks made the necessary reductions? Response: The Board did decide to follow the spirit of GrammRudman in 1986, as mentioned in earlier testimony.  In Feb-  ruary, the Board took action to reduce by $18 million the System's approved 1986 budget.  Information on the areas  targeted for reduction was provided on Tables 6 and 7 attached to Chairman Volcker's June 5 testimony.  In summa-  ry, the Banks and the Board are making reductions primarily in the support and overhead areas by changing hiring plans, delaying automation purchases, and taking fewer trips. The Reserve Banks and the hoard were treated similarly in the process of reducing 1986 budgets.  The $16  million System target was prora.ted among the Board and the twelve Reserve Banks based on the relative size of the budget to the System's total budget and based cn the relat ive size of expense growth over the last three Years to the System's growth.  This resulted in required.reductions of  $16.6 million by Reserve Banks and $1.4 million by the Board.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ••••  2  =In  Participation by the Reserve Banks has been assured by assigning a specific portion of the total $18 million reduction to each Bank and having them provide an adjusted 1986 budget.  Furthermore, each Reserve bank has submitted a  plan to achieve its budget target, which has been reviewed and approved by the Board. The Reserve Banks' adjusted 1986 budgets are being monitored as part of our regular control process.  In addi-  tion, we have instituted a new reporting requirement that will demonstrate each District's compliance with the budget reduction target.  A report based on this information will  be submitted to the Board in January 1987.  The information  received from the Banks during the fall budget process, along with the new year end report, will enable us to determine where each Bank has made the necessary reductions. Question 2: Should the secuester be required for Budget year 1987, will the Federal Reserve again voluntarily agree to abide by Gramm-Rudman?  Response: The Reserve Bank budget planning strategy for 1987 is to anticipate the degree of spending restraint necessary to comply with the spirit of Gramm-Rudman-Hollings in 1987, and include this restraint in the overall budget target.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  3  This strategy will be followed regardless of developments that materialize in the federal government's fiscal year 1987 budget.  Accordingly, if sequestration is required for  the Federal government, we do not plan to further reduce 1987 Federal Reserve budgets because reductions in planned budgets, in the spirit of Gramm-Rudman-Hollings, will already be reflected in those budgets. Question 3: Priced services will be exempted from the reach of Gramm-Rudman. Under one formula provided to the Subcommittee by the Congressional Budget Office, the inclusion of priced services for purposes of Gramm-Rudman would have increased the amount of the reduction by about $21.3 million. Why has the Federal Reserve System exempted priced services from the base? What would have been the impact on System operations if the amount attributed to priced services was sequestered from other functions?  Response: Our priced services functions are required by statute to recover costs through the charging of fees. Expense reductions in these functions may lead to reduced service levels resulting in lower revenues and return to Treasury.  Given that there may not be an effect on the  government's deficit by a reduction in priced service expenses and, given that there were other agencies' business-like enterprises designed tc fully recover costs that were exempted from Gramm-Rudman, priced service areas were treated as exempt in some of the alternative scenarios considered by the Board.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4  It is difficult to say what would have been the impact on System operations if the reduction in the 1986 budget was double the amount.  It is safe to say that we  probably would not have been able to absorb a reduction of this magnitude in a manner similar to the adopted reductions, largely through reducing discretionary Bank and Board expenses.  The System would have had to look to program  reductions and possibly employee reduction programs. Question 4: Other "self-financed" budget accounts, including thu Comptroller of the Currency and the FDIC, are not exempt from Gramm-Rudman. What distinguishes the priced services from these self-financed accounts justifying their exemption from Gramm-Rudman? Are there other governmental entities which are excluded on similar grounds? Response: Our expenses in the supervision and regulation of financial institutions are analogous to the expenses of our sister regulatory agencies.  As in the case of the OCC and  FDIC, we did not exclude our supervision and regulation expenses in the development of alternative scenarios.  Also,  we understand that all but the administrative expenses of the Post Office and the Tennessee Valley Authority (TVA) were exempt from Gramm-Rudman since they are self-financing. The Post Office and TVA perform somewhat similar services as our priced services in that these services are business-like   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  5  in nature, i.e., their level is chosen by the public in a free market environment.  To cut these services would be  contrary to the free market concept.  This is different from  the OCC and the FDIC's functions where the level and frequency of examination is chosen by the regulatory agency.  Question 5  You stated that you have been informed that the current reimbursement scheme between the Federal Reserve System and the Treasury will likely undergo modification due to Gramm-Rudman. Please clarify exactly what it is that you are currently discussing with Treasury and state what the Federal Reserve will do should this take place. Response  The Federal Reserve believes that direct reimbursement for fiscal services performed on the behalf of government agencies is consistent with appropriate budgetary policies and good budget practice.  We understand, however, that  the Treasury has had difficulty securing the necessary appropriations.  In light of reducea reimbursements, we are  discussing with the Treasury a combination of two approaches to address the impact of Gramm-Rudman. First, we are discussing potential 1987 Federal Reserve cost savings for existing fiscal services which could be achieved without a deterioration in the level or quality of the service provided to the Treasury or the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  6 public.  Specifically, we are workin g with the Treasury to investigate the feasibility of modifying workflows prescribed by current Treasury procedures and eliminating scheduled enhancements to ex isting systems. Second, we are considering, in conjunction with the Treasury, the feasibility of charging depo sitory institutions a fee for banking services of a fiscal nature from which they receiv e clear benefits. We believe, however, that there will stil l be a need for direct reimbu rsements to cover the cost of fiscal services of a purely governmental nature that directly benefit the Treasury . In the absence of direct reim bursement, depository fees, or cost reductions in existing programs, the Federa l Reserve would still consider providing new fiscal services which would result in governme nt-wide cost savings even if this may increase our costs in the short-run; we would expect that such new services, however, would be subject to the constraints of our existing budget resources and objectives. We believe this approach fulf ills the spirit of the Gramm-Rudman legislation withou t upsetting our fiscal relationship with the Treasury. Our discussions with the Treasury on this approach, howeve r, are still in the initial stages. We hope to have the approach finalized with the Treasury in the near future.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Question 6 Is there any centralized purchasing pro cess for the entire System which would enable the Federal Reserve to achieve greater economies of scale in purchasing items such as computer diskettes, furniture, and other regularly purchased items? What consideration is given to small and minority businesses? Response There is a centralized purchasing process for the entire System where purchases of sim ilar supplies and software are identified by the Board and the Reserve Banks. Requests are combined and submitted to the winning vendor as materials are required.  The Board uses this centralized  system only when the items are less exp ensive than similar items on the GSA schedule or on the ope n market through competition.  Because the Reserve Banks are not eligible to  use the GSA schedule, the Banks utiliz e the System Purchasing Service whenever centralized purcha sing results in lower costs than purchasing on the open market . The Board has approved a policy of aid ing small and disadvantaged businesses through Federa l Reserve System acquisitions; and to this end, the Boa rd and Reserve Banks have adopted procedures for acquiring yoods and services from such businesses.  These procedures are consistent with  the policies of the Small Business Act and regulations.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  8  Question 7 What outside space does the Board presently rent? At what rates and for what purposes is such space used? Response  The Board currently leases two outside facilities. The Board rents 8,050 square feet of office space at Colum bia Plaza, 2400 Virginia Avenue, N.W.  The cost for the  period Nay 1, 1986 through April 30, 1987 is $85,000 or $10.55 per square foot.  This space is used for the Board's  Bank Examiner Training School. The Board also rents 12,176 square feet of warehouse space at 618-C and 620 Pickett Street, Alexandria, Virginia.  The cost for the period October 1, 1985 through  September 30, 1986 is $37,877 or $3.11 per square foot. This space is used primarily for storage of publications and supplies, and for short-term storage of furniture and equip ment.  Question 8 What requ rements are imposed on individuals who are reimbursed for educational expenses? Are they required to be enrolled in a degree program; must they achieve a certain minimal grade or grade point averaye; are all or only certain courses reimbursed; and what institutions are eligible for reimbursement?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  a  9  Response Generally, the Banks and the Board will pay the costs of educational programs that are either directly related to the employee's current job responsibilities or development of the individual for future advancement within the organization. Such decisions are normally made by the individual's supervisor and the training and development section of the personnel department.  Employees are not required to  enroll in a degree program, but must obtain a satisfactory or better grade in order to be reimbursed. Courses taken at accredited colleges and universities or offered by recognized institutions providing continuing education courses, such as the American Management Association, American Institute of Banking, etc., are eligible for reimbursement.  Question 9 What guidance or counseling does the Board and/or the System provide for persons whose wages are garnished or attached? With respect to persons who are determined to have severe financial difficulties, are there any security assessments made with respect to them and their access to sensitive data?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  10 -  Response Upon receipt of a court order to garnish wages, a Personnel Officer meets with the affected employee.  The  Personnel Officer counsels the employee concerning his/her obligation and provides guidance to the employee on how best to resolve the matter.  If the case is severe, an assessment  is made by the Personnel Officer of possible System impac ts which may include those related to physical and data secur ity.  Appropriate individuals are notified and steps taken to  guard against unauthorizea disclosure or access. Question 10 What actions has the Federal Reserve undertaken to lower the cost of printing the currency? Has consideration been given to the use of offset printing for some portions of the $1.00 bill? What impact on costs might the new proposals for counterfeit protection impose? With respect to lower denomination notes, what consideration has been given to changing the paper composition to increase the useful life? Response  The cost of printing new currency is established by the Bureau of Engraving & Printing (BEP).  However, the  Federal Reserve Board endeavors to control its costs associated with the printing of new currency to the extent possible by:  o  Consulting with the BEP on its major printing operations to assure ourselves that they are cost effective.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  o  Monitoring Reserve Bank currency processing operations to guard against premature destruction of currency.  o  Scrutinizing annual Reserve Bank printing order requests in order to minimize the amount of new currency ordered while still meeting Federal Reserve System guidelines on currency quality.  o  Supporting legislation relating to the use of offset printing for the backs of $1 denomination notes.  Both now and in the past, the Federal Reserve Board has supported the Department of the Treasury's proposal to print the backs of one dollar notes by the offset printing method.  The Board's support for this proposal is grounded  on the very favorable impact it would have both on the BEP's capacity to produce new currency and on its cost of printing one dollar notes. With respect to the cost impact of counterfeit protection proposals, the BEP has given the Pcard preliminary indication that there will be no increase in the cost of printing new currency in fiscal year 1987.  According to  the BEP, this is due to the fact that the changes to the currency will be relatively small and will be phased in during the year; consequently, the costs associated with these changes will be absorbed by the BEP.  Thus, the cost  will remain $26.00 per thousand notes for fiscal year 1987. However, for fiscal year 1988 the cost is expected to increase $1.00 per thousand notes, which translates into an   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  12 -  increase of approximately $7 million based on an expected FY'88 printing order of approximately 7 billion notes.  This  increase in cost will be due in part to the changes in the currency.  If more significant changes to the design of  currency are adopted, there will likely be a further increase in printing costs. Finally, the Bureau of Engraving and Printing has the responsibility for research and development efforts with respect to currency paper.  It is our understanding that the  BEP conducts ongoing research on the composition of currency paper and on extending the useful life of the paper used to print U.S. currency of all denominations. Question 11: What consideration was given to using the Culpeper Contingency Center in serving as a backup facility for the Federal Reserve Bank of New York or other nationally sensitive systems on a real-time basis?  Response: The Second Federal Reserve District has done extensive evaluation of a number of options in order to provide adequate, timely contingency backup facilities in the event of an extended outage of computing capability at the Head Office location.  Of the alternatives examined, the most  viable were: 1) the establishment of a dedicated contingency site in close proximity to New York City; and, 2) the use of   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  13 -  the Contingency Processing Center (CPC) in Culpeper, Virginia. The Bank processes over 70 percent of the System's book-entry securities transactions and over 28 perce nt of the System's funds transfer transactions.  The combined  daily average value of these exceeds $500 billion.  While  some very limited alternatives exist for electronic funds transfer volumes, there is no effective alternativ e for supporting book-entry securities transfers.  New York main-  tains exclusive ownership records for those securities, the value of which exceeds $1 trillion. Given the sheer volume of transactions and the staggering monetary values involved, an outage of even a single day could pose a serious problem to the nation's financial markets. New York has estimated that recovery of its critical systems at the Culpeper facility (including travel time , reconcilement of transactions, completion of the day's processing, and end -of-day processing) could require in excess of 34 hours which is obviously unacceptable from the standpoint of risk. Recovery at the interim Blue Hill Plaza office center site in Pearl River, New York, is estimated to be possible within 18 hours from the time of occurrence of the outage, making it clearly the better choice.  IMMM1116.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  14 -  In addition to the time involved in relocation, reconfiguration, and recovery that would be required at Culpeper, the communications facilities available at the CPC from the local telephcne utility are inadequate to completely backup those needed by the Second District, whereas those provided at the District site are fully capable of supporting the requirements. A number of secondary benefits accrue from the use of the Blue Hills location, including personnel familiarity with the systems, minimal disruption to the other eleven Districts' processing over the network, and the ability to do verification of backup plans and procedures on a continuous basis.  Question 12 The Federal Reserve includes in the body of the PACS reports a section in which it rates the various Reserv Banks. How are those Banks operating at less than average cfficiency encouraged or compelled to improve their efficiency? What tools does the Board use to employ the findings of the PACS reports and improve efficiency? Response  The sense of competition among the Reserve Banks is very keen with regards to operating efficiency.  Naturally,  all Reserve Banks would like to be above average.  This  sense of competition spurs continued efforts for increased efficiency not only at the Banks ranked below average but   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  15 -  also at the highly ranked Banks that would like to maintain (in the case of the Bank with the highest operational efficiency) or Improve their ranking (at all other Banks). It is important to recognize in this connection that a below-average performance in a particular operation may be perfectly satisfactory in an absolute sense  where, for  example, all Reserve Banks are meeting or exceeding a targeted level of performance. Measures of operational efficiency are used by the Reserve Banks in setting their performance objectives and by Board staff in preparing performance evaluations of the Reserve banks, the results of which are communicated to the board of Directors of each Reserve Bank. Question 13 What process is used to determine whether a major computer system should be purchased or leased? Response  An operating expense analysis is performed, taking into account such items as straight-line depreciation, maintenance, power and cooling consumption, building modification, additional personnel, and software.  As a result of  the Monetary Control Act (MCA) of 19E0, the Private Sector Adjustment Factor (PSAF), reflecting the imputed costs for taxes and return on capital that would be incurred if cer-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  16 -  tam n services were to be provided by a private business firm, is also included as an operating expense.  Operating  expense streams, on average monthly and annual bases, for both lease and purchase alternatives are compared to determine the most advantageous method of acquisition. In addition, a cost/benefit analysis is performed, comparing the expense streams expected with a purch ase against those projected over the life of a comparable lease. Both are discounted to net present value using the current average yield rate in the secondary market for Government securities having a maturity corresponding to the expec ted useful life of the equipment.  TC  a break-even or payback  period does not occur within the expected useful life, then leasing is indicated as the more appropriate option. Exceptions to the above may occur in those instances where equipment is to be acquired late in its product life cycle or when announcements of more advanced technology are imminent.  In those cases, equipment may be leased to  provide the Bank or Board with incieased flexibility. Question 14 How often are consultants used by the cistrict banks? What is the policy with respect to employment of consultants? For what purposes are consultants gener ally employed? What was the total value of contracts with consultants last year for all Banks?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  17 -  Response  Reserve Banks may periodically employ consultants but most utilize them on an infrequent basis.  Consultant  services have been obtained to provide architectural and engineering services, outside legal assistance, employee benefits, and other services where special expertise is required and not available from current staff or not justified on a permanent basis. Where applicable, the policy and procedures adopted by the Federal Reserve System to acquire goods and services from small and disadvantaged businesses are considered in selecting a consultant.  Also, most of the Reserve Banks  require that a senior official committee approve any proposal to engage a consultant. During 1985, the 12 Reserve Banks spent a combined total of app/oximately $4 million (of a total $1,023 million in net Reserve Bank expenses) for consultant services. Question 15 A number of Banks have purchased, at varying prices, several popular PC software systems. Some Banks purchase copies of the same software. Recognizing that copyrights need to be respected, what efforts have been made to enter into site agreements with firms like LOTUS that would apply, if not to the whole system, at least to each Bank. Failing to enter into such agreements, what considerations have been given to using competing softwares? Does the System have an overall software management policy for personal computer use? When personnel develop software routines or formulas, what process is used to check their validity and to assure that errors are not carried into   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  18 -  other systems or into System policies? What is the understanding about ownership of work products developed by individuals using System-owned equipment or software? What if such work product is developed at home? Response  Site licensing agreements for personal computer software are a relatively new concept.  The Reserve Banks  and the Board investigated the possibility of site licen se agreements with several vendors.  Initially, when contacted  by the System, major software vendors were reluctant to offer such site licensing arrangements.  The Reserve Banks  and the Board have addressed this situation by negotiating Volume Purchase Agreements (VPAs).  The Board also utilizes  the General Services Administration (GSA) price lists for software applications. The Federal Reserve System has established a System Purchasing Service (SPS), based at the Federal Reserve Bank of Minneapolis, that investigates and represents the Federal Reserve System in System-wide purchasing contracts.  The SPS  has negotiated a number of VPAs that cover software applications as well as personal computer peripheral devices.  In  addition to the VPAs negotiated by the SPS, the Board has taken advantage of GSA prices offered by vendors.  As part  of the System's continuing program to reduce costs, the benefits afforded by the GSA 'computer store' were investigated.  The study revealed that the price structure offered   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  19 -  by the GSA 'computer store' was, in many cases, substantially higher than the prices available from individu al vendors. Theretore, all Board purchasing under the GSA pric e schedule is coordinated directly with the vendors.  The study also  indicated that the cost reductions afforded by VPAs and the GSA price schedule often were equivalent to those that would be gained under a site licensing agreemen t. The Federal Reserve System is constantly evaluati ng many suppliers of software in  a  continuing effort to estab-  lish the lowest cost alternatives possible.  To contain  costs System-wide, Volume Purchase Agreements are utilized whenever available. When personnel develop personal computer software , that software is subject to rigorous test and acce ptance standards used for maintrame software to ensure its validiLy.  All work products developed using System-owned equi p-  ment or software are the property of the System rega rdless of whether it is developed on System premises or in an employee's home. Question 16  Since District Banks may not use GSA stores, are local firms which sell such supplies required, at least, to Lieet either the best government or corporate pric e? Are some materials purchased on a System-wide basi s? What consideration might small and minority businesses rece ive in these contracts and purchases? Should District Bank s have access to GSA stores?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  20 -  Response  Reserve Banks competitively bid office supply acquisitions.  Although local firms are not required to meet  the best government or corporate price, the competitive bidding process generally results in acquisitions at the best possible price.  The Reserve Banks also subscribe to a  System Purchasing Service (SPS) administered by the Federal Reserve Bank of Minneapolis to take advantage of volume purchase agreements.  Currently the SPS has 49 national  buying agreements, covering such items as coin bags, poly bags, computer paper, magnetic media, high tech supplies, software, and microcomputers and peripherals.  It is esti-  mated that the System realizes savings of 20 percent on goods for which it has been able to negotiate SPS agreements. Each Bank's acquisition guidelines include procedures designed to assist small and disadvantaged businesses in providing goods and services to the Bank.  These guide-  lines provide for acquisitions with an anticipated value of $10,000 or less to be set aside for small and disadvantaged businesses.  Procedures and criteria as noted in the  response to Question 17 have been established to give preference to such businesses in the case of larger acquisitions.  In addition, where a contract for goods or services   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  21 -  has subcontracting possibilities, vendors are advised that a factor in evaluating bids or proposals will be the inclusion of a subcontracting plan. If the Reserve Banks were allowed access to GSA stores, the GSA price would be viewed as simply another bid on the acquisition.  We do not believe any significant cost  savings to the Reserve Banks would be realized as a result of such access.  Question 17 What specific efforts are being undertaken by each Reserve Bank to provide opportunities for small and minority businesses? Are there certain lines of purchases where these firms are given special consideration? Response  As previously noted in the response to question 6, in August 1985, the board adopted uniform System procurement procedures that give due consideration to Small and Disadvantaged Businesses.  (S&DB PROGRAM)  These procedures require:  o Establishment of a "Small Business Specialist" position at the Board and each Reserve Bank to oversee compliance with the Program. o Identification of Small and Disadvantaged businesses and placement on each Bank and the Board's bidder lists. o A $10,000 procurement set-aside for small and minority businesses with authority to set aside laryer contracts for exclusive participation.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  22 -  o That responsive bids go to S&DB firms if bid price is within 3 percent of low bid on contracts up to $500,000 and within 1 percent of low bid on contracts greater than $500,000. o That equal bids between small businesses and a minority firm be awarded to the minority business. Efforts to aid small and disadvantaged businesses have been taken by the Federal Reserve System, in varyi ng degrees, for some time.  For example, the Boston Reserve  Bank has had a program since 1975.  The formal S&DB Program  was initiated in 1985.  SPECIFIC PRODUCTS OR SERVICE CATEGORIES THE SYSTEM HAS FOUND MOST ACCESSIBLE TO S&DB PARTICIPANTS Audio-Visual Equipment Automobile Sales & Service Business forms Cable Carpet Installation (Hardware & Software) Corrugated Containers Disposal Services Employment Agencies Electric & Electronic Supplies/ Services Florists Food Service Fuel Oil/Gasoline  Hardware Stores Interior Design Local Trucking Maintenance/Janitorial Supplies/Service Paper Products Photographic Supplies Plumbing Supplies & Repairs Printing & Engraving Reuphoistery & Furniture Sales/Repairs Stock Forms Travel Arrangements Window Cleaners  Question 18 What efforts are being undertaken to control and limit telecommunication costs? Is there a telecommunications task force? Do they have a report? To the extent that the System may have excess capacity, what consideration has been given to selling that capacity?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  23 -  Response  The Federal Reserve System is continually researching ways to curb telecommunications costs.  The System has  undertaken strong initiatives including the use of new technolcgy to reduce costs, as illustrated in several examples: o  The System has directed the Districts to conform to a common communication architecture for networks within each District that reduces the amount of equipment required and, consequently, the costs.  o  An efficient switching technology is used in the communications system that interconnects the 12 Federal Reserve Districts, the Board, the Culpeper Contingency Center, and the Treasury. This system is known as FRCS-80 and it allows many users to communicate over common equipment. The system also routes traffic to achieve efficient use of existing capacity. This communications system has proven cost effective for the Treasury and the Federal Reserve System. The Treasury Department is realizing substantial savings by using FRCS-80 and software applications developed by the Federal Reserve System.  o  New cabling systems are being implemented in new . buildings and in the renovation of existing buildings. These systems reduce costs by eliminating redundant cabling in the elder systems.  o  Some Reserve Banks are replacing obsolete voice systems with Private Automated Branch Exchanges PABX's) that can act as switching mechanisms for voice and data, eliminating redundant equipment costs. The New York Bank estimates that its new PABX, when completed, will save the Bank about $2 million annually.  The Board has been particularly vigilant with respect to monitoring telecommunications utilization and   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  24 -  achieving savings in equipment where possible .  The follow-  ing are examples of the Board's efforts to cont rol its telecommunications costs.  o  The Board purchased much of its telephon e equipment including a Private Branch Exchange (PBX). Savings of $360,000 are anticipated over the three-year life cycle of this equipmen t.  o  The Board analyzes traffic and uses less expensive tie lines where warranted.  o  A computerized telephone traffic monitoring system was installed in 1964. The Board has since realized savings by monitoring phone bills, and has been able to curtail improper use of government long distance lines. Other government agencies are following our example and now adopting similar controls.  o  Certain frequently called local numbers have been blocked through our PBX and cannot be called from Board phones.  Communications officers from the 12 District s and the Board meet on a regular basis to identify telecommunication issues.  A report is then distributed to keep the  System abreast of these issues. Additionally, the System Communications Cent er Capacity Planning Group performs capacity anal ysis to identify present and future needs and how best to utilize existing capacity to meet those needs. detailing these activities.  A report is generated  Presently, the System network  is operating near the 70 percent utilization level, a point where response times begin to degrade.  It is, however,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  25 -  technically feasible to increase the capacity of the network when necessary.  Question 19 What requirements are imposed on individuals who are reimbursed for educational expenses? Are they required to be enrolled in a degree program, must they achi eve a certain grade or grade point average, are all or only certain courses reimbursed, and what institutions are eligible for reimbursement? Is an identical or similar poli cy followed at all Banks and the Board? Response  As noted in the response to Question 8, the Banks and the Board will pay the costs of educational programs that are either directly related to the employee 's current job responsibilities or development of the individu al for future advancement within the organization. Such decisions are normally made by the individual's supervisor and the training and development section of the personnel department.  Employees are not required to  enroll in a degree program, but must obtain a satisfac tory or better grade in order to be reimbursed. Courses taken at accredited colleges and universities or offered by recognized institutions providin cont g inuing education courses, such as the American Manageme nt Association, American Institute of Banking, etc., are eligible for reimbursement.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  26 -  Question 20 Do the District Banks intend to continue their policy of providing employee loans to their lower paid employees? What is the policy governing these loans? What efforts have been undertaken to assure that large dollar loans are not made to senior officers of a Bank? Is it a proper policy for the Federal Reserve to make loans to its employees at rates approximating the Discount Window Pate for any purpose? Response  These loans to bank employees are for emergency purposes and are made only after the employee has exhausted all other legitimate loan sources. "tor any purpose."  These loans are not made  The Board believes such emergency loans  are appropriate and believes it is desirable to continue the loan program. The crigin of such loans dates back to 1921, before consumer loans and credit were available to the working public.  The original purpose of such loans remains the  guiding principle today:  to assist needy employees in emer-  gency financial situations where alternative sources of funds are not available. System policy permits emergency loans to Bank employees under closely circumscribed conditions:  the pur-  pose of the loan must be of a truly emergency nature; the employee has exhausted all alternative legitimate loan sources; such loans should be limited to employees in the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  27 -  lower salary grades, should be written for a maximum duration not to exceed one year, and should be made at a rate of interest at least equal to the District's basic discount rate at the time the ican is made. At many Reserve Banks, loans to officers are prohibited.  At the others, the general guidelines and a dollar  limit on the aggregate _Loans outstanding preclude large loans to senior officers. Considering the relatively small number of emergency loans made, the purpose for which these loans are made, the socioeconomic characteristics of the majority of borrowers and that the rate of interest charged is 1) no less than the banks charge for discount loans to financial institutions and 2) frequently higher than other employers in the Reserve Districts charge their employees for similar loans, we believe the practice and the rate charged are proper. Question 21  Are Bank vehicles purchased or leased? For whom are cars available? Are cars of foreign manufacture ever purchased? Response  The current practice among all Reserve Banks is to purchase rather than lease automobiles due to the cost advantages of purchasing.  In current practice, no cars of  foreign manufacture are purchased.  Generally, cars are made   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  28  available during the business day to the President, First Vice President, senior officials, account executives and others whose duties require visits to other financial institutions in connection with Bank business.  At some Reserve  Banks, bank e::aminers use bank cars, in lieu of other transportation, while conducting examinations of financial institutions. Question 22  What long range space and Reserve Banks undergo? What plans ing the useful life of branch bank Are there any plans for opening or  facilities planning do dc the Eanks have regardfacilities and RCPCs? closing other facilities?  Response  Each of the Federal Reserve Banks prepares an annual projection of staff and space needs for 5, 15, and 25 years into the future.  The results of this exercise .1/.e  forwarded to the Board of Governo/s and subsequently compiled into a systemwide floor space utilization and needs projection report.  Based on individual Bank Management  perceptions of facilities needs, additional studies are occasionally conducted.  Such studies are routinely imple-  mented in accordance with the Planning Guidelines for Federal Reserve Bank Facilities.  Studies of this nature are  routinely conducted to facilitate the evaluation of major construction/renovation decisions.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  29 -  For planning purposes, all Bank-owned facilities including branches are assigned useful lives of thirt y to fifty years.  The functionality of such buildings is assured  as a result of comprehensive maintenance and renovation as required.  In addition, the planning procedures outlined  above are employed to evaluate replacement facility needs. All RCPC facilities are leased, not owned by the Federal Reserve. Other than the planned computer contingency site and remote operations center in New York, the Reserve Banks have no current plans for opening or closing ocher facilities.  These facilities are described more fully in the  response to question 29. Question 23  How does the System control expenditures when they are billed to a relative of an official of the Federal Reserve System? Would a statement of expense be required in every case? Response  The System is very sensitive to the potential conflict of interest resulting from services performed by a relative of an official of the System.  The System has a  number of controls in place to ensure that an actual conflict of interest situation does not: arise in the rare instances in which relatives of officials perform services   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  for the System.  30 -  Specifically, there is a strict separation  of duties in the purchasing and pay ment processes, an official is not permitted to be involved in the approval of payment to that official's relative, standard competitive biddina procedures must be follow ed, a complete statement of expense must be presented, and sen ior management and audit staff review are generally req uired. Question 24  How often do the directors of Res erve Banks meet in cities located in other Districts ? What would be the purpose of such meetings? Which cit ies are the most prominent cities for such meetings? How oft en do Boards meet in the Head Office city of other Reserve Bank districts? Response  The directors of Reserve Banks mee t in cities loci.ted in othur Districts, includ ing the Head Office city of other Districts, very infrequen tly.  Most out-of-District  meetings are held with the direct ors of other Reserve Banks to provide directors with a wider ran ge cf views on current and prospective developments in the national economy, to gain additional insight regarding conditions in different economic regions, and tc benefit fro m discussions with directors in other Districts experi encing similar banking conditions.  The cities most frequently visite d include New  York, to provide directors with an opportunity to observe open market and foreign exchange ope rations, and Washington,  4111.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  31 -  -  D.C., to meet with members of the Board and Senior Board staff. Question 25  The Federal Reserve Bank of Boston purchased .38 caliber revolvers from a local distributor. Were the prices comparable to those which the United States government might have paid under a GSA schedule? Are items like revolvers replaced according to a fixed schedule at this or other Banks? Is there a uniform policy on such expenditures for all Banks? ref: voucher 16677 Response  As you know, Federal Reserve Banks are not authorized to use GSA schedules.  In the case cited, written com-  petitive bids were sought from local purchase of the revolvers.  vendors for the  Award was made to the bidder  offering the lowest price, in accordance with System Purchasing Guidelines.  The quoted prices were, therefore, no -c_  comparable with GSA schedules. Items such as revolvers are replaced on an "as needed" basis when they become unserviceable.  Such replace-  ment is typically infrequent. System purchasing guidelines exist that detail procedures that must be followed in acquisitions. Question 26  Has any thought been given to changing the boundaries of the Federal Reserve BanK of Boston in light of its small size? Might this Bank become the site for additional System responsibilities?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  32  Response  There are no plans to change the boundaries of the First District.  While the Boston District is small geo-  graphically -- essentially comprising the six New England states -- its volumes in many key operations are sizable; for example, it has the eighth largest check processing volume and the sixth largest funds transfer volume among the twelve Districts.  In addition to providing services to  depository institutions within its boundaries, the Boston Federal Reserve also provides services to some institutions that lie within the boundaries of the Second District. There are no current plans to make the Boston Bank the site for additional responsibilities. ly has significant System responsibilities.  The Bank currentIt is the man-  agemelit site for the Check Collection service and the Interdistrict Transportation System.  On behalf of the Sys-  tem, the First District is overseeing the testing of new technoloyies for the processiny of paper checks. Question 27  The Federal Reserve Bank of New York expended $1440.74 for private guard service at the Cranford Office. Why did this Bank not use its own guard force? Ref: voucher D167512.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  33 -  Response  Outside private guard service is used at all leased premises in the second District, either because of lease requirements or because such arrangements are less expensive.  At the Cranford RCPC, the Bank elected to use a  private guard service because such a service could be acquired for a flat fee with no overtime or fringe benef it expenses to the Dank.  The use of this service also allows  for greater flexibility in guard services and guaranteed coverage for the facility in the event of Illness. Question 28  The Fuderai Reserve Bank of New York shows payments for several kinds of copiers. What is the policy for rental of such equipment? 1.that kinds of economies might there be from renting several kinds of copiers from several firms? What preference does this or other Banks extend to minority firms in these types of rentals? Ref: vouchers D167509 (Ricoh), D167515 (Panasonic), and D167541 Wcyal) Response The lederal Peserve Dank of New York prefers tu rent rather than to purchase copier equipment.  This deci-  sion is based primarily on the limited useful life of such equipment (two years or less) and concerns about the rapidly changing technological environment and number of vendors in the field.  In addition, the Bank prefers to deal with sev-  eral vendors in order to provide more competition and to   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  secure adequate service.  34 -  The System is currently following  its small and disadvantaged business policy in seeking such firms for copier equipment rentals.  This policy is  described in the response to question 17. Question 29 The Annual Budget Review notes that the establishment of a contingency computer site for the Federal Reserve Bank of New York is expected to produce some long-run savings. What might these savings be Response Because of the financial risk of a computer outage at the Federal Reserve Bank of New York, the District has begun preliminary planning work on the establishment of a Remote Operations Center outside Manhattan.  It is estimated  that the center will have a staff of more than 500 people supporting check and cash processing operations, and will provide cssential computer backup capabilities for the Second District.  This center is projected to provide the Bank  with longer term opportunities to contain costs and will also present opportunities for improvement in operating efficiencies in priced services. Although this Remote Operations Center will provide the Bank with needed backup capability, it is not planned to be completed until 1991.  To protect against the  financial risk of a computei cutage in the interim, the Bank   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  35 -  is in the process of implementing a contingency computing center in Pearl River, New York.  This interim center is not  expected to provite the District with any lung-run savings but is being implemented in order to provide the Bank with a necessary backup capability.  Long-run savings are not pro-  jected to occur until the Remote Operations Center is established and the cash and check operations are relocated. Question 30 What actions will the Federal Reserve Bank of New York undertake to improve its supervision of non-Fea high dollar fund transfer systems like CHIPS: Will this be accomplished separately or within the expected resource strengthening of the Banks supervisory initiatives? Response As a part of its bank examinations program, the Federal Reserve Bank of New York will increase its focus oi the examincd banks' electronic payments activities, both in book-entr  government securities and in funds transfers  (Fedwire as well as private payments networks)  This will  be done as an expanded part of the regular examination as well as in speciai, targeted examinations.  In addition, the  Bank plans, in conjunction with the New York Clearing House Association, to (a) develop standards for determining the eligibility of institutions to become settlement participants in CHIPS, and (b) review the issue of finality in CHIPS payments.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  36 -  Question 31  The Federal Reserve Bank of Philadelphia has incurred certain costs attributable to the developm ent and operation of the systems on behalf of the Treasury. Are these costs reimbursable? Are all expendit ures made by the Federal Reserve for fiscal agency services reimbursed? Are they directly reimbursed by Treasury or must they be recovered from other parties? Response  The agreement with the Treasury under whic h the Treasury Direct initiative was undertaken prov ides for direct reimbursement of the full cost of design, development, and implementation.  This commitment was honored by  the Treasury until its funds were exhausted in January of 1986. Not all expenditures made by the Reserve Bank s fiscal agency services are reimbursed.  or  In 1966, we antici-  pate fiscal expenses of approximately $170 million, of which about $30 million is likely to be covered by reimbursement. At this time, all reimbursement received for Treasury services is paid directly by the Treasury .  None is  paid by other parties—e.g., users of the serv ices.  The  Reserve banks do provide $22 million worth of fiscal services to other agencies, .he full cost of whic h is reimbursed by the respective agencies.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  37 -  Question 32  How much money did the Federal Reserve Bank of Cleveland expend on its Annual Report over the past two years? What do other Banks spend? Response  The Bank incurred $58,233 in 1984 and $49,416 in 1985 for related expenses related to its Annual Report. This is higher than but generally comparable with amounts spent by other Banks.  Question 33  What services cud US Cargo and Courier provide to the Federal Reserve hank of Cleveland for $22,573.45? The voucher is unclear. Ref: voucher 182845 Respcnse  The service represents shipments of checks to and from FRB Cleveland.  US Cargo transports items in conjunc-  tion with the Interdistrict Transpertation Service (ITS) from the Cleveland-Hopkins airport. Question 34  Following the Ohio savings and loan difficulties, what has the Federal Reserve Bank ot Cleveland done to assure that is has better information on all depository institutions whether or not members of the Federal Reserve? Vas there been an increase in demands for various Fed services as a result of these problems? What is the increase in the size of the bank supervision staff? To what extent is supervision and examination automated?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  38 -  Response: Following the savings and loan difficulties, the Federal Reserve Bank of Cleveland upgraded access to information on all depository institutions.  Channels of regular  communication have been established with other federal and state regulators for the express purpose oi assessing critical information on an ongoin9 as well as emergency basis. Reports of condition, ratio analysis, and performance reports are now maintained at the Reserve hank for all insured thrifts and credit unions located in the District. information on banks continues to be maintained at the Reserve hank. While the number of Cleveland's savings and loan customers increased frcm 217 in December 1984 to 241 in December 1985, the increase has not been attributed to savings and loan problems occurring in 1985. The supervision department is in the process of increasing examination staff by 24 employees in 1986 from 88 budgeted employees at year end 1985 as a result of the Board's prudential supervision policy. Question 35  The Annual Report of the Federal Reserve Bank of Cleveland details extensive assistance given by the Federal Peserve Bank of Cleveland during the crisis. Did the Federal Reserve bill the FHLBB for the services rendered?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  39 -  Response  The Federal Reserve examiners were extensively involved in two types of activities during the Ohio S&L crisis in 1985.  First, the examiners spent several days  early in the crisis preparing the privately insured S&Ls to borrow at the Federal Reserve discount window.  This  involved obtaining signed loan documentation, securing collateral either through a field warehousc or actual possession at the Federal Reserve hank, and preparing a very quick financial review of each institution to determine their financial condition prior to the time we made a loan. This could all be considered costs that the Federal Reserve should bear as lender of last resort.  The second type of  activi ,7 Federal Reserve examiners engaged in was assisting the FHLB exariners and in some cases the FDIC arid State examiners with deposit Insurance qualifying Examinations. This activit17 was undertaken in the spirit of cooperation among regulatory agencies, and we did not believe it was appropriate to L_11 the FHLE, FDIC or State for Federal Reserve services. Question 36  The Annual Budget Review notes that the Federal Reserve Bank of Richmond expects to proceed with construction of a new Branch at Charlotte. Are there sufficient funds to accomplish this? Are there activities at Charlotte which might be transferred to either the Richmond Head Office or Culpeper? What studies have been undertaken to justify this undertaking as it is planned?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  40 -  Response: The Federal Reserve Bank of Richmond expects to proceed with the construction of a new building in Charlotte to replace the 43-year-old existing facility.  There are  sufficient "building proper" funds to accomplish this.  The  project was one of the proposed new buildings mentioned in the justification to Congress in connection with the Board's request to increase the "building proper" limitation that was subsequently enacted in 1974. The activities at the Charlotte Branch cannot be transferred to either the Richmond Head Office or to Culpeper.  The Charlctte Branch serves both North and South  Carolina with coin, currency and check services. of the large original Branches in the Systula.  It is one  Since 1979,  its territory has experienced large rates of increase in the volume of pieces paid out for both currency and coin.  The  growth rates at the Charlotte Branch exceed those at both the Richmond and Baltimore branches (Fifth District also) and in the System as a whole.  Further, the Federal Reserve  Bank of Richmond and Culpeper would not have sufficient space to accommodate the Charlotte branch operations and could not economically provide good financial services to North and South Carolina due to long distances. A number of studies have been undertaken to certify the need for a new building at the Charlotte Branch in   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  S  -  41 -  accordance with the Planning Guidelines for the Federal Reserve Bank Facilities. The Charlotte Branch has been experiencing, over the years, serious operation problems and inefficiencies due to lack of sufficient space in its present facility.  The  Branch facilities have the following deficiencies: o  Inadequate vault space for coin and currency (less than 1,600 square feet of combined vault space)  o  Inadequate work space and storage for processing valuables (coin stored in small rooms and restroons)  o  Inadequate space to alleviate crowded conditions (old existing building and remote storage facility)  o  Inadequate and vulnerable executive space. (Executive located in the main lobby-problem of security and privacy)  Question 37 The Federal Reserve Bank of Richmond makes eNpenditures for a local gasoline service station. Doesn't the hank have its own gasoline service and storage facility? If not, why not? Do the prices the Bank pays reflect a negotiated price that is better than otherwise? Additionally, what controls are there to assure that the gasoline chargeC, is actually dispensed into bank equipment? Response: All Richmond Bank automobiles purchased in recent years have diesel engines.  Late last year, the Bank pur-  chased its first gasoline-powered vehicles in some time. also has an older van an  panel truck that are gasoline-  It   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  powered.  42 -  The gasoline referred to was purchased for these  vehicles and for lawn maintenance equipment. Gas storage facilities are not presently maintained due to the limited use of gasoline, but the Bank does have its own storage facility for diesel fuel.  The prices paid  for fuel are negotiated in accordance with the System's Uniform Acquisition Guidelines.  As the Bank replaces its  diesel-powered vehicles with gasoline-powered vehicles, it will convert its present storage facility from diesel fue,. to gasoline. Question 38 The Federal Reserve Bank of Richmond paid another Reserve Bank registration fees for attendance at a conference held at that Bank. It is customary fcr the Bank s to impose registration costs upon one another': Response: This particular invoice represents attendance ty two members of the Richmond computer staff at a Data Security Conference held at the Minneapolis Reserve Eank.  That  conference was being cOnduCtCL mainly for the depo sitory financial institutions in the Ninth District.  The main  purpose of the Richmond staff's attendance was to gain ideas for a future Data Security Conference in the Rich mond District. Reserve offices typically charge other offices for their attendance at classes, System meetings, and ccnferenc-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -  43 -  es, when fees are charged to outside registrants.  This  practice has the effect of reflecting expenses on the books of the appropriate Reserve Banks with no distortion in the level of System expenses. Question 39 For what purpose is the Burroughs B4925 Computer System purchased by the Federal Reserve Bank of Richmond being used? Is this system compatible with other systems within this Bank and within the System generally? What is the expected useful life of this system? Response: The Richmond Bank is using the Burroughs B4925 computers primarily for check processing.  Five B4925s are  installed in the Richmond Office, Baltimore, Charlotte and the Columbia and Charleston Regional Check Processing Centers (RCPCs).  The District has been using Burroughs proces-  sors since 1962.  These systems were installed during 1985  in order to meet memory capacity requirements resulting from increased check processing volumes. In addition to providing check processing services, the B4925s provide intiadistrict data communications services for Automated Clearing House (ACE) functions.  The  Baltimore and Charlotte Branches also use them for general internal data processing functions.  Burroughs equipment is  widely used throughout the System, and they operate communications functions that coexist with other types oi processors in the System.  Consequentiv, the Burroughs computers   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  44 -  successfully exchange data using compatible telecommunications systems. The useful life is expected to be four years and, based on their installation dates, these computers should be in use for three more years. Question 40 What is the value cf expenditures made by the Federal Reserve Bank of Atlanta for additions and renovations of the head Office? What is the average number of square feet allocated to employees before and after these renovations? How does this compare with other Federal Reserve facilities and with other government facilities? Response: The Atlanta Bank is planning to spend about $7.' million for the proposed addition to the Head Office which is scheduled to start in November, 1906.  The Bank expended  $4.7 million in the renovation program between 1974 and 1984. The average square feet per employee was 122 before the addition and will be 136 after the addition. pares with an average of 159 for the System.  This com-  The other  government agencies compute net square rect per employee on a different basis, therefore comparable numbers are not readily available. Question 41 What is the policy of the Federal Reserve Bank of Atlanta with respect to flowers tor death of close relatives? Does this apply to all employees? Are these Bank funds or employee funds?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  45 -  Response: Flowers may be sent upon the death of any employee or retiree, his or her spouse, child, mother, father, grandchild, or any other relative whose relationship to the employee or retiree is so close that failure to send flowers would create in the mind of the employee or retiree a sense of neglect by the Bank.  Expenditures should not exceed $35.  This applies to all employees.  Bank funds are used for this  purpose. Question 42 Why is the Federal Reserve Bank of Chicago facing declines in priced service volumes? Has an effort been undertaken to reverse this trend? If so, please detail what has been done. If not, why not? Response: The declines in check volume faced by Chicago are primarily due to implementation of clearing exchanges within the District by the large correspondent banks.  The clearing  exchanges have had a greater impact on volume in the Seventh District since they were not prevalent prior to implementation of the Monetary Control Act.  In order to provide effi-  cient and effective check clearing services during  period  of declining volumes, the Chicago Lank responded by implementing: o  Stringent cost control measures.  o  Improved service levels.  o  Enhanced education efforts.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  o  46 -  Selected price changes. These efforts have stabilized check volume in the  District.  Through April 1986, processed volume is 1.6 per-  cent above the same period last year. Question 43 Why did the Pricing Committee of the Federal Reserve Bank of Chicago meet at Calloway Gardens, Pine Mountain, Georgia? Response  The Chicago Pricing Committee deciaea to meet with Atlanta Reserve Bank management to discuss operational enhancements for the Federal Reserve Bank of Chicago because of the Federal Reserve Bank of Atlanta's outstanding record of operation performance.  Atlanta management was scheduled  to be involved for only part of the two and one-halt day meeting.  A site close to Atlanta was selected so that the  Atlanta management could conveniently attena their part of the meeting.  The Federal Reserve Eank of Chicago requested  information from many locations in the Atlanta area and found the Calloway Gardens site to be most economical.  Question 44 What renovations are being planned for the Federal Reserve Bank of Chicago? What are these renovations expectea to cost? What improvements will be made during the renovation to increasing security in the Security Courtyard and the FRCS-80 control center? (Answers relating to security matters should be provided in a separate document.)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  47 -  Response: The Chicago Bank is currently implementing a comprehensive renovation and addition project which has been named the Facilities Improvement Program (FIP).  Under this  program, all office space and many operational areas are being updated and, in many instances, relocated.  This will  allow the Bank to more fully realize the operating benefits possible with current Federal Reserve System technology. The total target budget for the FIP is $89.4 million.  Of this, $23.5 million is for an addition to the  building and $65.9 million is expected to be spent on renovations to the existing building. (As requested, we arE submitting the response relating to security matters under separate cover.) Question 45 The Federal Reserve bank of St. Louis has planned one of the smallest merit pay increases. What has been the trend for pay increases over the past and how does it compare with other Reserve Banks? What is the potential impact on morale and the continued employment ot quality personnel? Response: For the past three years, the merit increase program has been judged sufficient and appropriate.  The  increases have been distributed on a pay-for-performance basis, resulting in the highest performers receiving increases above the average merit increase, with offsetting lower increases for other personnel.  This distribution   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  method  48 -  has significantly contributed to the ret ention of  key employees without disruption to the total population as evidenced by a modest separation /ate (13 .3 percent Districtwide for 1985). Question 46 How many examiners does the Federal Reserve Bank of Kansas City currently have and how man y will they have after they allocate additional resources to this area? Response: At year-end 1985, the Federal Reserv e Bank of Kansas City had 169 examiners, up from 83 at year-end 1984. Since then, the Bank has added nine examiners to its staff, bringing the current total to 118.  Another seven examiners  Ere expected to be added by the end of 1986. Question 47 What is the total cost of the Federal Reserve Bank of Kansas City's renovation? How does this renovation cost compare with other planned or previous renovations and how would it have compared with construction of a new facility? Response: The total cost of the renovation is $13 .2 million from 1971 to 1985.  It is difficult to compare this renova -  tion with others because the degree of renovation varies from project to project.  However, the renovation cost of  this project appears to compare favorably with other planned and previous projects.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  49 -  A new facility would have cost approximately $58.3 million to construct.  Question 48  The Federal Reserve Bank of Dallas expended $2,350 in February to Ted's Auto Park as d management fee. What services does this firm provide the Dallas Bank? Response: Ted's Auto Park provides administrative management of the Bank's parking lot, including providing parki ng attendants to operate the lot.  The expense for managing the  lot is fully recovered through parking fees charged to the employees. Question 49 Why did the Directors of the Federal Reserve Bank of Dallas meet in New York City? Response: The New York meeting of the Directors of the Federal Reserve Bank of Dallas was held to promote the Direc tors' knowledge of the unique Federal Reserve operations conducted in New York -- particularly open ii;drket and foreign operations and surveillance of the securities markets.  The New  York meeting included a presentation by Mr. Solomon, then President of the Federal Reserve Bank of New York, and other sessions concerning open market operations.'   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  50 -  Question 50 In light of the alleged difficulties that some Eleventh District banks may be experiencing, what actions have the Federal Reserve Bank of Dallas undertaken to assure timely information on the condition of these institutions and to assure that any developing institutional problem does not affect the integrity of the payments system? Response: The Federal Reserve Bank of Dallas has taken the following actions to assure timely information on the condition of financial institutions in the Eleventh District: (1)  Increased the authorized staff in its Supervision and  Regulation Department by 33 persons during 1985 and 1986, or 33 percent.  This will support:  u 470 scheduled field activities in 1986 (primarily bank examinations and bank holding company inspections), an increase of 31 percent over the total done in 1985. o A significantly increased surveillance workload aue to an increasing number of state member banks (currently 84) and bank holding companies (currently 758), a major increase in the number of bank holding company reports reviewed (e.g., about 1,700 FR Y-9 reports in 1926 compared with just 275 as recently as 1984, and an increasing volume of special reports of problem organizations. (2)  Staff has also been added to support the Federal  Reserve System's Payments System Risk Program, and considerable time has been required of our accounting, data processing, and supervision and regulation staffs relative to this program.  Currently, six officers devote substantial por-  tions of their time to this program, supported by monitoring   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  51 -  and counselling staff and bank examination personnel.  In  support of this program:  (3)  o  450 sender net debit caps have been received from District financial institutions to date and,  o  Several software programs, including one to facilitate the rejection or interception of Fedwire transfers causing overdrafts, have been implemented or are in process.  Telephone contacts and face-to-face meetings betwe en  Federal Reserve staff and regional offices of OCC, FDIC , FHLB, and state banking supervisors have been increased to reflect the growing numbers of problem institutions in this District.  Dallas staff are in telephone discussions several  times each day with regional OCC and FDIC personnel, and information so obtained is promptly conveyed to Board of Governors' staff in Washington. (4)  The Reserve Bank is closely monitoring conditions at a  number of banking organizations in the District that seem to be experiencing the greatest degree of strain.  Also, vari-  ous actions have been taken to assure that the discount window will be available to such organizations should they need funding assistance. Question 51 The Federal Reserve bank of Dallas intends to lease commercial office space. What is the value of this lease and how was it negotiated? Will the space be needed for a short or a long period?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  52 -  Response: The District has not formulated a plan to lease additional commercial office space.  However, it is present-  ly leasing office space at certain location s.  The terms of  each lease are given below and, since the Bank's workforce is projected to grow commensurately with incr easing work volumes,it is likely that the Bank will ente r into new leases at the expiration of these leases. St. Paul Place - 13,379 square feet at $14.25 per square foot, housing approximately 30 employees. A Bank task force, assisted by real estate brokers, eval uated sites in the central business district on the basis of location and price. Date of lease: August 28, 1985. Leas e term: five years, with five one-year extension options. Employers Insurance Building - 45,000 sauare feet at $14.50 per square foot, housing approximately 150 employee s. The Bank had been leasing space at another location when space became available at the Employers Building at a lower price. It is located adjacent to the Bank. The pric e of the previous space was $15.36 per square foot. Negotiat ion was directly with the management of the Employers Building, and other sites were explored at the same time. Question 52 The Federal Reserve Bank of San Francisco appe ars to use a corporate credit card. Is this correct? Do other Banks use a corporate card? Has any assessment been made of the efficiency and cost savings associated with such use? Do cash advances continue to be necessary when such a card is in use? Response: The Federal Reserve Bank of San Francisco and most other Reserve Banks issue corporate credit card s to a limit-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  53 -  ed number of management and staff.  This is for convenience  and efficiency and no explicit study has been made to determine the cost savings.  All expenditures, whether paid by  credit card, cash advances, or reimbursement, must be justified and approved.  Cash advances may still be necessary,  depending upon the level of non-credit card expenditures incurred by the individual involved, although most Reserve Banks have realized a reduction in such advances. Question 53 What services did the Zivic Group provide to the Federal Reserve Bank of San Francisco? Response: The Zivic Group is a personnel search firm.  The  Twelfth District utilized the services of the Zivic Group to recruit personnel for vacant positions. Question 54 The substantial increase in the Federal Reserve Bank of San Francisco has in part been attributed to certain nonrecurring costs associated with the move of the Los Angeles Branch to a new building. Are these costs being capitalized into the Los Angeles building? Does such a capitalization affect the cap on Branch building construction? Response: The one-time costs incurred in moving into the new Los Angeles branch buildinc will be treaued as operating expenses, thus their large impact on the 1986 Reserve Bank budget.  Only expenditures of a capital nature that are   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  z  -  54 -  associated with the actual construction of the building are capitalized, with depreciation systematically allocating those costs to current expenses over future periods.  Only  these capital expenditures are subject to the "building proper" limitation on the cost of Reserve Bank branch buildings. Question 55 What was the policy of the Federal Reserve Bank of San Francisco with respect to functions and activities intended to honor the retiring Reserve Bank President? Who approved the expenditures and what controls were followed? Were these expenditures comparable to those expended by other banks in recent years? How did these expenditures compare to the Federal Reserve Banks of Atlanta, Minneapolis, New York and St. Louis?  Response: The System has a discretionary expenditures policy. However, the Federal Reserve Bank of San Francisco had no stated policy for honoring the retiring Reserve Bank President.  When the President of the San Francisco Reserve  Bank retired in 1986, after 13 years, the Bank determined that community practice should be a guiding factor in planning retirement functions.  Bank management determined  what arrangements were considered consistent with community practice in the San Francisco area, and the First Vice • President was required to approve all significant expenditures.  The amount spent by the Federal Reserve Banks  , •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  55 -  of Atlanta, Minneapolis, New York, and St. Louis in recent years was less than the amount spent by the Federal Reserve Bank of San Francisco.  BOARD OF GOVERNORS OF THE  • 47 •0 • •ri  FEDERAL RESERVE SYSTEM Ft • cn •  •  WASHINGTON, D. C. 20551  og" • RAL Ri•S • •.• • • •  EP  36  PAUL A. VOLCKER CHAIRMAN  The Honorable Walter E. Fauntroy Chairman Subcommittee on Domestic Monetary Policy Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Chairman Fauntroy: As requested in your letter of June 17, enclosed please find responses to questions raised by the Subcommittee on Domestic Monetary Policy in connection with my testimony on the budgets and expenditures of the Federal Reserve Banks and the Board of Governors. The response to the question on construction work involving the Security Courtyard of the Federal Reserve Bank of Chicago is being sent under separate cover, as you requested. I appreciate having had the opportunity to appear before the Subcommittee to discuss Federal Reserve budgets and expenditures. I believe such hearings are important to Congressional understanding of Federal Reserve System spending and welcome any additional questions the Subcommittee may have. Sincerely,  Enclosure  DR:pte (V-134, 86-2658) bcc: Dave Robinson Clyde Farnsworth Ted Allison Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Question 1: Chairman Volcker stated before the Subcommittee in January that the Federal Reserve intends to abide by GrammRudman in spite of the decision made by CEO and OMB that sequestration will not apply to the central bank. Please elaborate on what expenditures the Federal Reserve System will reduce to attain this goal. how will the Reserve Banks be treated in this process? How will their participation be ensured? How will the Federal Reserve Board monitor this program of budget reductions by the individual reserve banks? Do you feel reasonably certain that one year from now, you will be able to stdte before this Subcommittee where each of the Reserve Banks made the necessary reductions? Response: The Board did decide to follow the spirit of GrammRudman in 1986, as mentioned in earlier testimony.  In Feb-  ruary, the Board took action to reduce by $18 million the System's approved 1986 budget.  Information on the areas  targeted for reduction was provided on Tables 6 and 7 attached to Chairman Volcker's June 5 testimony.  In summa-  ry, the Banks and the Board are making reductions primarily in the support and overhead areas by changing hiring plans, delaying automation purchases, and taking fewer trips. The Reserve Banks and the board were treated similarly in the process of reducing 1986 budgets.  The $16  million System target was prorated among the Board and the twelve Reserve Banks based on the relative size of the budget to the System's total budget and based cn the relative size of expense growth over the last three years to the System's growth.  This resulted in required reductions of  $16.6 million by Reserve Banks and $1.4 million by the Board.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  d=11.  2  .1••=.  Participation by the Reserve Banks has been assured by assigning a specific portion of the total $18 million reduction to each Bank and having them provide an adju sted 1986 budget.  Furthermore, each Reserve bank has submitted a  plan to achieve its budget target, which has been revi ewed and approved by the Board. The Reserve Banks' adjusted 1986 budgets are bein g monitored as part of our regular control process.  In addi-  tion, we have instituted a new reporting requirement that will demonstrate each District's compliance with the budget reduction target.  A report based on this information will  be submitted to the Board in January 1987.  The information  received from the Banks during the fall budget proc ess, along with the new year end report, will enable us to determine where each Bank has made the necessary reductio ns. Question 2: Should the sequester be required for Budget year 1987, will the Federal Reserve again voluntarily agree to abide by Gramm-Rudman?  Response: The Reserve Bank budget planning strategy for 1987 is to anticipate the degree of spending restraint nece ssary to comply with the spirit of Gramm-Rudman-Hollings in 1987 , and include this restraint in the overall budget target.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  3  This strategy will be followed regardless of developm ents that materialize in the federal government's fisc al year 1987 budget.  Accordingly, if sequestration is required for  the Federal government, we do not plan to further reduce 1987 Federal Reserve budgets because reductions in planned budgets, in the spirit of Gramm-Rudman-Hollin gs, will already be reflected in those budgets. Question 3: Priced services will be exempted from the reach of Gramm-Rudman. Under one formula provided to the Subcommittee by the Congressional Budget Office, the incl usion of priced services for purposes of Gramm-Rudman woul d have increased the amount of the reduction by about $21.3 million. Why has the Federal Reserve System exem pted priced services from the base? What would hav6 been the impa ct on System operations if the amount attributed to priced serv ices was sequestered from other functions? Response: Our priced services functions are required by statute to recover costs through the charging of fees. Expense reductions in these functions may lead to reduced service levels resulting in lower revenues and retu rn to Treasury.  Given that there may not be an effect on the  government's deficit by a reduction in priced service expenses and, given that there were other agencies ' business-like enterprises designed to fully recover cost s that were exempted from Gramm-Rudman, priced service areas were treated as exempt in some of the alternative scenarios considered by the Board.  Ii   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  111•11,  4  It is difficult to say what would have been the the 1986 impact on System operations if the reduction in budget was double the amount.  It is safe to say that we  ction of probably would not have been able to absorb a redu reducthis magnitude in a manner similar to the adopted and Board tions, largely through reducing discretionary Bank expenses.  The System would have had to look to program  . reductions and possibly employee reduction programs  Question 4: Other "self-financed" budget accounts, including not exempt the Comptroller of the Currency and the FDIC, are services from Gramm-Rudman. What distinguishes the priced r exemption from these self-financed accounts justifying thei entities from Gramm-Rudman? Are there other governmental which are excluded on similar grouncis?  Response: of Our expenses in the supervision and regulation nses of cur financial institutions are analogous to the expe sister /egulatory agencies.  As in the case of the OCC and  lation FDIC, we did not exclude our supervision and regu arios. expenses in the development of alternative scen  Also,  expenses of we understand that z,11 but the administrative y (TVA) the Post Office and the Tennessee Valley Authorit -financing. were exempt from Gramm-Rudman since they are self services as The Post Office and TVA perform somewhat similar business-like our priced services in that these services are   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  5 in nature, i.e., their level is chosen by the publ ic in a free market environment.  To cut these services would be  contrary to the free market concept.  This is different from  the OCC and the FDIC's functions where the level and frequency of examination is chosen by the regulatory agency.  Question 5  You stated that you have been informed that the current reimbursement scheme between the Federal Reserve System and the Treasury will likely undergo modification due to Gramm-Rudman. Please clarify exactly what it is that you are currently discussing with Treasury and state what the Federal Reserve will dc should this take place. Response  The Federal Reserve believes that direct reimbursement for fiscal services performed on the behalf of government agencies is consistent with appropriate budgetar poli y cies and good budget practice.  We understand, however, that  the Treasury has had difficulty securing the necessary appropriations.  In light of reduced reimbursements, we are  discussing with the Treasury a combination of two appr oaches to address the impact of Gramm-Rudman. First, we are discussing potential 1987 Federal Reserve cost savings for existing fiscal services which could be achieved without a deterioration in the level or quality of the service provided to the Treasury or the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  6 public.  Specifically, we are working with the Treasury to  investigate the feasibility of modifying workflow s prescribed by current Treasury procedures and elim inating scheduled enhancements to existing systems.  Second, we are  considering, in conjunction with the Treasury, the feasibility of charging depository institutions a fee for banking services of a fiscal nature from whic h they receive clear benefits.  We believe, however, that there will still  be a need for direct reimbursements to cover the cost of fiscal services of a purely governmental nature that directly benefit the Treasury. In the absence of direct reimbursement, deposito ry fees, or cost reductions in existing programs, the Federal Reserve would still consider providing new fisc al services which would result in government-wide cost savi ngs even if this may increase our costs in the short-run; we would expect that such new services, however, would be subject to the constraints of our existing budget resources and objectives. We believe this approach fulfills the spirit of the Gramm-Rudman legislation without upsetting our fiscal relationship with the Treasury.  Our discussions with the Trea-  sury on this approach, however, are still in the initial stages.  We hope to have the approach finalized with the  Treasury in the near future.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  7 Question 6 Is there any centralized purchasing process for the entire System which woula enable the Federal Rese rve to achieve greater economies of scale in purchasi ng items such as computer diskettes, furniture, and othe r regularly purchased items? What consideration is given to small and minority businesses?  Response There is a centralized purchasing process for the entire System where purchases of similar supplies and software are identified by the Board and the Reserve Banks. Requests are combined and submitted to the winn ing vendor as materials are required.  The Board uses this centralized  system only when the items are less expensive than similar items on the GSA schedule or on the open market through competition.  Because the Reserve Banks are not eligible to  use the GSA schedule, the Banks utilize the System Purchasing Service whenever centralized purchasing results in lower costs than purchasing on the open market. The Board has approved a policy of aiding small and disadvantaged businesses through Federal Reserve Syst em acquisitions; and to this end, the Board and Rese rve Banks have adopted procedures for acquiring goods and services from such businesses.  These procedures are consistent with  the policies of the Small Business Act and regulations.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ME.  8  Question 7 What outside space does the Boa rd presently rent? At what rates and for what purposes is such space used? Response  The Board currently leases two outside facilities. The Board rents 8,050 square feet of office space at Colu mbia Plaza, 2400 Virginia Av enue, N.W. The cost for the perioa May 1, 1986 through April 30, 1987 is $85,000 or $10.55 per square foot. Th is space is used for the Bo ard's Bank Examiner Training School . The Board also rents 12,176 square feet of warehouse space at 618-C and 620 Pickett Street, Alexandria, Virginia. The cost for the period October 1, 1985 throug h September 30, 1986 is $37,877 or $3.11 per square foot. This space is used primarily for storage of publications and supplies, and for short-term storage of furniture and equi pment.  Question 8 What requirements are impose d on individuals who are reimbursed for educationa l expenses? Are they requir ed to be enrolled in a degree pro gram; must they achieve a certain minimal grade or grade point average; are all or only certain courses reimburs ed; and what institutions are eligible for reimbursement?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  9  Response Generally, the Banks and the Board will pay the costs of educational programs that are either directly related to the employee's current job responsibilities or development of the individual for future advancement within the organization. Such decisions are normally made by the. individual's supervisor and the training and development section of the personnel department.  Employees are not required to  enroll in a degree program, but must obtain a satisfactory or better grade in order to be reimbursed. Courses taken at accredited colleges and universities or offered by recognized institutions providing continuing education courses, such as the American Management Association, American Institute of Banking, etc., are eligible for reimbursement.  Question 9 What guidance or counseling does the Board and/or the System provide for persons whose wages are garnished or attached? With respect to persons who are determined to have severe financial difficulties, are there any security assessments made with respect to them and their access to sensitive data?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  10 -  Response Upon receipt of a court order to garnish wages, a Personnel Officer meets with the affected employee.  The  Personnel Officer counsels the employee concerning his/her obligation and provides guidance to the employee on how best to resolve the matter.  If the case is severe, an assessment  is made by the Personnel Officer of possible System impacts which may include those related to physical and data security.  Appropriate individuals are notified and steps taken to  guard against unauthorized disclosure or access. Question 10 What actions has the Federal Reserve undertaken to lower the cost of printing the currency? Has consideration been given to the use of offset printing for some portions of the $1.00 bill? What impact on costs might the new proposals for counterfeit protection impose? With respect to lower denomination notes, what consideration has been given to changing the paper composition to increase the useful life? Response  The cost of printing new currency is established by the Bureau of Engraving & Printing (BEP).  However, the  Federal Reserve Board endeavors to control its costs associated with the printing of new currency to the extent possible by:  o  Consulting with the BEP on its major printing operations to assure ourselves that they are cost effective.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  a  o  Monitoring Reserve Bank currency processing operations to guard against premature destruction of currency.  o  Scrutinizing annual Reserve Bank printing order requests in order to minimize the amount of new currency ordered while still meeting Federal Reserve System guidelines on currency quality.  o  Supporting legislation relating to the use of offset printing for the backs of $1 denomination notes.  Both now and in the past, the Federal Reserve Board has supported the Department of the Treasury's proposal to print the backs of one dollar notes by the offset printing method.  The Board's support for this proposal is grounded  on the very favorable impact it would have both on the BEP's capacity to produce new currency and on its cost of printing one dollar notes. With respect to the cost impact of counterfeit protection proposals, the BEP has given the Pcard preliminary indication that there will be no increase in the cost of printing new currency in fiscal year 1987.  According to  the BEP, this is due to the fact that the changes to the currency will be relatively small and will be phased in during the year; consequently, the costs associated with these changes will be absorbed by the BEP.  Thus, the cost  will remain $26.00 per thousand notes for fiscal year 1987. However, for fiscal year 1988 the cost is expected to increase $1.00 per thousand notes, which translates into an   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  12 -  increase of approximately $7 million based on an expec ted FY'88 printing order of approximately 7 billion notes.  This  increase in cost will be due in part to the changes in the currency.  If more significant changes to the design of  currency are adopted, there will likely be a further increase in printing costs. Finally, the Bureau of Engraving and Printing has the responsibility for research and development efforts with respect to currency paper.  It is our understanding that the  BEP conducts ongoing research on the composition of currency paper and on extending the useful life of the paper used to print U.S. currency of all denominations. Question 11: What consideration was given to using the Culpeper Contingency Center in serving as a backup facility for the Federal Reserve Bank of New York or other nationally sensitive systems on a real-time basis? Response: The Second Federal Reserve District has done extensive evaluation of  a  number of options in order to provide  adequate, timely contingency backup facilities in the event of an extended outage of computing capability at the Head Office location.  Of the alternatives examined, the most  viable were: 1) the establishment of a dedicated contingenc y site in close proximity to New York City; and, 2) the use of   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  a  -  13 -  the Contingency Processing Center (CPC) in Culpeper, Virginia. The Bank processes over 70 percent of the System's  ri am  book-entry securities transactions and over 28 percent of the System's funds transfer transactions.  •leg  The combined  daily average value of these exceeds $500 billion.  D  t  While  some very limited alternatives exist for electronic funds transfer volumes, there is nu effective alternative for supporting book-entry securities transfers.  New York main-  tains exclusive ownership records for those securities, the value of which exceeds $1 trillion. Given the sheer volume of transactions and the staggering monetary values involved, an outage of even a  t  single day could pose a serious problem to the nation's financial markets.  ,ur  New York has estimated that recovery of its critical systems at the Culpepei facility (including tfavel time, reconcilement of transactions, completion of the day's processing, and end -of-day processing) could require in excess of 34 hours which is obviously unacceptable from the standpoint of risk. Recovery at the interim Blue Hill Pliia office center site in Pearl River, New York, is estimated to be possible within 18 hours from the time of occurrence of the outage, making it clearly the better choice.  _La   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  14 -  In addition to the time involved in relocati on, reconfiguration, and recovery that would be required at Culpeper, the communications facilities avai lable at the CPC from the local telephone utility are inadequa te to completely backup those needed by the Second District , whereas those provided at the District site are fully capable of supporting the requirements. A number of secondary benefits accrue from the use of the Blue Hills location, including pers onnel familiarity with the systems, minimal disruption to the other eleven Districts' processing over the network, and the ability to do verification of backup plans and procedur es on a continuous basis.  Question 12 The Federal Reserve includes in the body of the PACS reports a section in which it rates the vari ous Reserve Banks. How are those Banks operating at less than average efficiency encouraged or compelled to improve their efficiency? What tools does the Board use to empl oy the findings of the PACS reports and improve efficien cy? Response  The sense of competition among the Reserve Banks is very keen with regards to operating efficien cy.  Naturally,  all Reserve Banks would like to be above aver age.  This  sense of competition spurs continued efforts for increased efficiency not only at the Banks ranked belo w average but   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  15 -  also at the highly ranked Banks that would like to maintain (in the case of the Bank with the highest operational efficiency) or improve their ranking (at all other Banks). It is important to recognize in this connection that a below-average performance in a particular operation may be perfectly satisfactory in an absolute sense  where, for  example, all Reserve Banks are meeting or exceeding a targeted level of performance. Measures of operational efficiency are used by the Reserve Banks in setting their performance objectives and by Board staff in preparing performance evaluations of the Reserve Banks, the results of which are communicated to the F,oard of Directors of each Reserve Bank. Question 13 What process is used to determine whether a major computer system should be purchased or leased? Response  An operating expense analysis is performed, taking into account such items as straight-line depreciation, maintenance, power and cooling consumption, building modification, additional personnel, and software.  As a result of  the Monetary Control Act (MCA) of 19E0, the Private Sector Adjustment Factor (PSAF), reflecting the imputed costs for taxes and return on capital that would be incurred if cer-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  16 -  tam n services were to be provided by a private business firm, is also included as an operating expense.  Operating  expense streams, on average monthly and annual bases, for both lease and purchase alternatives are compared to determine the most advantageous method of acquisition. In addition, a cost/benefit analysis is performed, comparing the expense streams expected with a purch ase against those projected over the life of a comparable lease Both are discounted to net present value using the curr ent average yield rate in the secondary market for Governme nt securities having a maturity corresponding to the expected useful life of the equipment.  If  a break-even or payback  period does not occur within the expected useful life, then leasing is indicated as the more appropriate option. Exceptions to the above may occur in those instances where equipment is to be acquired late in its product life cycle or when announcements of more advanced technolo gy are imminent.  In those cases, equipment may be leased to  provide the Bank or Board with inc/eased flexibility. Question 14 How often are consultants used by the cistrict banks? What is the policy with respect to employment of consultants? For what purposes are consultants generall y employed? What was the total value of contracts with consultants last year for all Banks?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -  17 -  Response  Reserve Banks may periodically employ consultants but most utilize them on an infrequent basis.  Consultant  services have been obtained to provide architectural and engineering services, outside legal assistance, employee benefits, and other services where special expertise is required and not available from current staff or not justified on a permanent basis. Where applicable, the policy and procedures adopted by the Federal Reserve System to acquire goods and services from small and disadvantaged businesses are considered in selecting a consultant.  Also, most of the Reserve Banks  require that a senior official committee approve any proposal to engage a consultant. During 1985, the 12 Reserve Banks spent a combined total of app/oximately $4 million (of a total $1,023 million in net Reserve Bank expenses) for consultant services. Question 15 A number of Banks have purchased, at varying prices, several popular PC software systems. Some Banks purchase copies of the same software. Recognizing that copyrights need to be respected, what efforts have been made to enter into site agreements with firms like LOTUS that would apply, if not to the whole system, at least to each Bank. Failing to enter into such agreements, what considerations have been given to using competing softwares? Does the System have an overall software management policy for personal computer use? When personnel develop software routines or formulas, what process is used to check their validity and to assure that errors are not carried into  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  18 -  other systems or into System policies? What is the understanding about ownership of work products developed by individuals using System-owned equipment or software? What if such work product is developed at home? Response  Site licensing agreements for personal computer software are a relatively new concept.  The Reserve Banks  and the Board investigated the possibility of site license agreements with several vendors.  Initially, when contacted  by the System, major software vendors were reluctant to offer such site licensing arrangements.  The Reserve Banks  and the Board have addressed this situation by negotiating Volume Purchase Agreements (VPAs).  The Board also utilizes  the General Services Administration (GSA) price lists for software applications. The Federal Reserve System has established a System Purchasing Service (SPS), based at the Federal Reserve Bank of Minneapolis, that investigates and represents the Federal Reserve System in System-wide purchasing contracts.  The SPS  has negotiated a number of VPAs that cover software applications as well as personal computer peripheral devices.  In  addition to the VPAs negotiated by the SPS, the Board has taken advantage of GSA prices offered by vendors.  As part  of the System's continuing program to reduce costs, the benefits afforded by the GSA 'computer store' were investigated.  The study revealed that the price structure offered   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  19 -  by the GSA 'computer store' was, in many cas es, substantially higher than the prices available from indi vidual vendors. Therefore, all Board purchasing under the GSA price schedule is coordinated directly with the venaors.  The study also  indicated that the cost reductions afforded by VPAs and the GSA price schedule often were equivale nt to those that would be gained under a site licensing agre ement. The Federal Reserve System is constantly evaluating many suppliers of software in  a  continuing effort to estab-  lish the lowest cost alternatives possible .  To contain  costs System-wide, Volume Purchase Agreemen ts are utilized whenever available. When personnel develop personal computer soft ware, that software is subject to rigorous test and acceptance standards used for mainframe software to ensure its validiy•  All work products developed using System-ow ned equip-  ment or software are the property of the Syst em regardless cf whether it is developed on System prem ises or in an employee's home. Question 16  Since District Banks may not use GSA stores, are local firms which sell such supplies required , at least, to meet either the best government or corporate price? Are some materials purchased on a System-wide basi s? What consideration might small and minority businesses receive in these contracts and purchases? Should District Banks have access to GSA stores?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  20 -  Response  Reserve Banks competitively bid office supply acquisitions.  Although local firms are not required to meet  the best government or corporate price, the competitive bidding process generally results in acquisitions at the best possible price.  The Reserve Banks also subscribe to a  System Purchasing Service (SPS) administered by the Federal Reserve Bank of Minneapolis to take advantage of volume purchase agreements.  Currently the SPS has 49 national  buying agreements, covering such items as coin bags, poly bags, computer paper, magnetic media, high tech supplies, software, and microcomputers and peripherals.  It is esti-  mated that the System realizes savings of 20 percent on goods for which it has been able to negotiate SPS agreements. Each Bank's acquisition guidelines include procedures designed to assist small and disadvantaged businesses in providing goods and services to the Bank.  These guide-  lines provide for acquisitions with an anticipated value of $10,000 or less to be set aside for small and disadvantaged businesses.  Procedures and criteria as noted in the  response to Question 17 have been established to give preference to such businesses in the case of larger acquisitions.  In addition, where a contract for goods or services   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  21 -  has subcontracting possibilities, vendors are advised that a factor in evaluating bids or proposals will be the inclusion of a subcontracting plan. If the Reserve Banks were allowed access to GSA stores, the GSA price would be viewed as simply another bid on the acquisition.  We do not believe any significant cost  savings to the Reserve Banks would be realized as a result of such access.  Question 17 What specific efforts are being undertaken by each Reserve Bank to provide opportunities for small and minority businesses? Are there certain lines of purchases where these firms are given special consideration? Response  As previously noted in the response to question 6, in August 1985, the Board adopted uniform System procurement procedures that give due consideration to Small and Disadvantaged Businesses.  (S&DB PROGRAM)  These procedures require:  o Establishment of a "Small Business Specialist" position at the Board and each Reserve Bank to oversee compliance with the Program. o Identification of Small and Disadvantaged businesses and placement on each Bank and the Board's bidder lists. o A $10,000 procurement set-aside for small and minority businesses with authority to set aside laryer contracts for exclusive participation.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  22 -  o That responsive bids go to S&DB firms if bid price is within 3 percent of low bid on contracts up to $500,000 and within 1 percent of low bid on contracts greater than $500,000. o That equal bids between small businesses and a minority firm be awarded to the minority business. Efforts to aid small and disadvantaged businesses have been taken by the Federal Reserve System, in varying degrees, for some time.  For example, the Boston Peserve  Bank has had a program since 1975.  The formal S&DB Program  was initiated in 1985.  SPECIFIC PRODUCTS OR SERVICE CATEGORIES THE SYSTEM HAS FOUND MOST ACCESSIBLE TO S&DB PARTICIPANTS Audio-Visual Equipment Automobile Sales & Service Business forms Cable Carpet Installation (Hardware & Software) Corrugated Containers Disposal Services Employment Agencies Electric & Electronic Supplies/ Services Florists Food Service Fuel Oil/Gasoline  Hardware Stores Interior Design Local Trucking Maintenance/Janitorial Supplies/Service Paper Products Photographic Supplies Plumbing Supplies & Repairs Printing & Engraving Reuphoistery & Furniture Sales/Repairs Stock Forms Travel Arrangements Window Cleaners  Question 18 What efforts are being undertaken to control and limit telecommunication costs? Is there a telecommunications task force? Do they have a report? To the extent that the System may have excess capacity, what consideration has been given to selling that capacity?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  23 -  Response  The Federal Reserve System is continually researching ways to curb telecommunications costs.  The System has  undertaken strong initiatives including the use of new technology to reduce costs, as illustrated in several examples:  o  The System has directed the Districts to conform to a common communication architecture for networks within each District that reduces the amount of equipment required and, consequently, the costs.  o  An efficient switching technology is used in the communications system that interconnects the 12 Federal Reserve Districts, the Board, the Culpeper Contingency Center, and the Treasury. This system is known as FRCS-80 and it allows many users to communicate over common equipment. The system also routes traffic to achieve efficient use of existing capacity. This communications system has proven cost effective tor the Treasury and the Federal Reserve System. The Treasury Department is realizing substantial savings by using FRCS-80 and software applications developed by the Federal Reserve System.  o  New cabling systems are being implemented in new buildings and in the renovation of existing buildings. These systems reduce costs by eliminating redundant cabling in the older systems.  o  Some Reserve Banks are replacing obsolete voice systems with Private Automated Branch Exchanges PABX's) that can act as switching mechanisms for voice and data, eliminating redundant equipment costs. The New York Bank estimates that its new PABX, when completed, will save the Bank about $2 million annually.  The Board has been particularly vigilant with respect to monitoring telecommunications utilization and   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  24 -  achieving savings in equipment where possible.  The follow-  ing are examples of the Board's efforts to control its tele communications costs.  o  The Board purchased much of its telephone equipment including a Private Branch Exchange (PBX). Savings of $360,000 are anticipated over the three-year life cycle of this equipment.  o  The Board analyzes traffic and uses less expensive tie lines where warranted.  o  A computerized telephone traffic monitoring system was installed in 1984. The Board has since realized savings by monitoring phone bills, and has been able to curtail improper use of government long distance lines. Other government agencies are following our example and now adopting similar controls.  o  Certain frequently called local numbers have been blocked through our PBX and cannot be called from Board phones.  Communications officers from the 12 Districts and the Board meet on a regular basis to identify telecommunication issues.  A report is then distributed to keep the  System abreast of these issues. Additionally, the System Communications Center Capacity Planning Group performs capacity analysis to iden tify present and future needs and how best to utilize exis ting capacity to meet those needs. detailing these activities.  A report is generated  Presently, the System network  is operating near the 70 percent utilization level, a point where response times begin to degrade.  It is, however,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  25 -  technically feasible to increase the capacity of the network when necessary.  Question 19 What requirements are imposed on individuals who are reimbursed for educational expenses? Are they required to be enrolled in a degree program, must they achieve a certain grade or grade point average, are all or only certain courses reimbursed, and what institutions are eligible for reimbursement? Is an identical or similar policy followed at all Banks and the Board? Response  As noted in the response to Question 8, the Banks and the Board will pay the costs of educational programs that are either directly related to the employee's current job responsibilities or development of the individual for future advancement within the organization. Such decisions are normally made by the individual's supervisor and the training and deveiopment section of the personnel department.  Employees are not required to  enroll in a degree program, but must obtain a satisfactory or better grade in order to be reimbursed. Courses taken at accredited colleges and universities or offered by recognized institutions providing continuing education courses, such as the American Management Association, American Institute of Banking, etc., are eligi ble for reimbursement.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -  26 -  Question 20 Do the District Banks intend to continue their policy of providing employee loans to their lower paid employees? What is the policy governing these loans? What efforts have been undertaken to assure that large dollar loans are not made to senior officers of a Bank? Is it a proper policy for the Federal Reserve to make loans to its employees at rates approximating the Discount Window Pate for any purpose? Response  These loans to bank employees are for emergency purposes and are made only after the employee has exhausted all other legitimate loan sources. "tor any purpose."  These loans are net made  The Board believes such emergency loans  are appropriate and believes it is desirable to continue the loan program. The origin of such loans dates back to 1921, before consumer loans and credit were available to the working public.  The original purpose of such loans remains the  guiding principle today:  to assist needy employees in emer-  gency financial situations where alternative sources uf funds are not available. System policy permits emergency loans to Bank employees under closely circumscribed conditions:  the pur-  pose of the loan must be of a truly emergency nature; the employee has exhausted all alternative legitimate loan sources; such loans should be limited to employees in the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  27 -  lower salary grades, should be written for a naximum duration not to exceed one year, and should be made at a rate of interest at least equal to the District's basic discount rate at the time the loan is made. At many Reserve Banks, loans to officers are prohibited.  At the others, the general guidelines and a dollar  limit on the aggregate Joans outstanding preclude large loans to senior officers. Considering the relatively small number of emergency loans made, the purpose for which these loans are made, the socioeconomic characteristics of the majority of borrowers and that the rate of interest charged is 1) no less than the banks charge for discount loans to financial inE-Aitutions and 2) frequently higher than other employers in the Reserve Districts charge their employees for similar loans, we believe the practice and the rate charged are proper. Question 21  Are Bank vehicles purchased or leased? For whom are cars available? Are cars of foreign manufacture ever purchased? Response  The current practice among all Reserve Banks is to purchase rather than lease automobiles due to the cost advantages of purchasing.  In current practice, no cars of  foreign manufacture are purchased.  Generally, cars are made   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  28  available during the business day to the President, First Vice President, senior officials, account executives and cithers whose duties require visits to other financial institutions in connection with Bank business.  At some Reserve  Banks, bank el:aminers use bank cars, in lieu of other transpertation, while conducting examinations of financial institutions. Question 22  What long range space and Reserve Banks undergo? What plans ing the useful life of branch bank Are there any plans for opening or  facilities planning do do the Lanks have regardfacilities and RCPCs? closing other facilities?  Response  Each of  eadera  Reserve Banks prepares an annu-  al pro-lection of staff and space needs for years into the future.  and 25  The results of this exercise are  forwSrded to the Board of Governors and subsequently compiled into a systemwide floor space utilization and needs projection report.  Based on individual Bank Management  perceptions of facies needs, additional studies are occasionally conducted.  Such studies are routinely imple-  mented in accurdance with the Planning Guidelines for Federal Reserve Bank Faces.  Studies of this nature are  routinely conducted to facate the evaluation of major construction/renovation decisions.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  29 -  For planning purposes, all Bank -owned facilities including branches are assigned useful live.s of thirty to fifty years.  The functionality of such buildings is assured  as a result of comprehensive maintenance and renovation as required.  In addition, the planning procedures outlined  above are employed to evaluate replacement facility needs. All RCPC facilities are leased, not owned by the Federal Reserve. Other than the planned computer contingency site and remote operations center in New York, the Reserve Banks have no current plans for opening or closing other facilities.  These facilities are described more fully in the  response to question 29. Question 23  How does the System control expenditures when they are billed to a relative of an official of the Federal Reserve System? Would a statement of expense be required in every case? Response  The System is very sensitive to the potential conflict of interest resulting from services performed by a relative of an official of the System.  The System has a  number of controls in place to ensure that an actual conflict of interest situation does not arise in the rare instances in which relatives of officials perform services   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  for the System.  30 -  Specifically, there is a strict separation  of duties in the purchasing and payment processes, an official is not permitted to be involved in the approval of payment to that official's relative, standard competitive biddinc procedures must be followed, a complete statement of expense must be presented, and senior management and audit staff review are generally required. Question 24  How often do the directors of Reserve Banks meet in cities located in other Districts? What would be the purpose of such meetings? Which cities are the most prominent cities for such meetings? How often do Boards meet in the Head Office city of other Reserve Bank districts? Response  The directors of Reserve Banks meet in cities located in other Districts, including the Head Office city of other Districts, very infrequently.  Most cut-of-District  meetings are held with the directors of other Reserve Banks to provide directors with a wider range of views on current and prospective developments in the national economy, to gain additional insight regarding conditions in different economic regions, and to benefit from discussions with directors in other Districts experiencing similar banking conditions.  The cities most frequently visited include New  York, to provide directors with an opportunity to observe open market and foreign exchange operations, and Washington,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -  31 -  D.C., to meet with members of the Board and Senior Board staff. Question 25  The Federal Reserve Bank of Boston purchased .38 caliber revolvers from a local distributor. Were the prices comparable to those which the United States government might have paid under a GSA schedule? Are items like revolvers replaced according to a fixed schedule at this or other Banks? Is there a uniform policy on such expenditures for all Banks? ref: voucher 16677 Response  As you know, Federal Reserve Banks are nct authorized to use GSA schedules.  In the case cited, written com-  petitive bids were sought from local purchase of the revolvers.  vendors for the  Award was made to the bidder  offe/ing the lowest price, in accordance with System Purchasing Guidelines.  The quoted prices were, therefore, not  comparable with GSA schedules. Items such as revolvers are replaced on an "as needed" basis when they become unserviceable.  Such replace-  ment is typically infrequent. System purchasing guidelines eist that detz..11 procedures that must be followed in acquisitions. Question 26  Has any thought been given to changing the boundaries of the Federal Reserve Bank of Boston in light of its small size? Might this Bank become the site for additional System responsibilities?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  32 Response  There are no plans to change the boundaries of the First District.  While the Boston District is small geo-  graphically -- essentially comprising the six New England states -- its volumes in many key operations are sizable; for example, it has the eighth largest check proc essing volume and the sixth largest funds transfer volu me among the twelve Districts.  In addition to providing services to  depository institutions within its boundaries, the Boston Federal Reserve also provides services to some institutions that iie within the boundaries of the Second District . There are no current plans to make the Boston Bank the site for additionai responsibilities.  The Bank current-  ly has significant System responsibilities.  It is the man-  agement site for the Check Collection service and the Interdistrict Transportation System.  On behalf of the Sys-  tem, the First District is overseeing the testing of new technolocjies for the processiri j of paper checks. Question 27  The Federal Reserve Bank of New York expended S1440.74 for private guarc service at the Cran foru Office. Why did this Bank not use its own guard force? Ref: voucher D167512.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  33 -  Response  Outside private guard service is used at all leased premises in the second District, either because of ledse requirements or because such arrangements are less expensive.  At the Cranford RCPC, the Bank elected to use a  private guard service because such a service could be acquired for a flat fee with no overtime or fringe benefit expenses to the Dank.  The use of this service also allows  for greater flexibility in guard services and guaranteed coverage for the facility in the event of illness. Question 28  The Federal Reserve Bank of New York shows payments for several kinds of copiers. WhLt is the policy for rental of such equipment? What kinds of economies might there be from renting several kinds of copiers from several firms? What preference does this or other Banks extend to minority firms in these types of rentals? Ref: vouchers D167509 (Ricoh), D167515 (Panasonic), and D167541 Wcyal) Response The federal reserve Bank of New York prefers tu rent rather than to purchase copier equipment.  This deci-  sion is based primarily on the limited useful life cf such equipment (two years or less) and concerns about the rapidly changing technological environment and number of vendors in the field.  In addition, the Bank prefers to deal with sev-  eral vendors in order to provide more competition and to   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  secure adequate service.  34 -  The System is currently following  its small and disadvantaged business policy in seeking such firms for copier equipment rentals.  This policy is  described in the response to question 17.  Question 29 The Annual Budget Review notes that the establishment of a contingency computer site for the Federal Reserve Bank of New York is expected to produce some long-run savings. What might these savings be?  Response Because cf the financial risk of a computer outage at the Federal Reserve Bank of New York, the District has begun preliminary planning work on the establishment of a Remote Operations Center outside Manhattzan.  It is estimated  that the center will have a staff of more than 500 people supporting check and cash processing operations, and will provide cssential computer backup capabilities for the Second District.  This center is projected to provide the Bank  with longer term opportunities to contain costs and will also present opportunities for improvement in operating efficiencies in priced services. Although this Remote Operations Center will provide the Bank with needed backup capability, it is not planned to be completed until 1991.  To protect against the  financial risk of a compute/ outage in the interim, the Bank   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  35 -  is in the process of implementing a contingency computing center in Pearl River, New York.  This interim center is not  expected to provide the District with any long-run savings but is being implemented in order to provide the Bank with a necessary backup capability.  Long-run savings are not pro-  jected to occur until the Remote Operations Center is established and the cash and check operations are relocated. Question 30 What actions will the Federal Reserve Bank of New York undertake to improve its supervision of non-Fea high dollar fund transfer systems like CHIPS? Will this be accomplished separately or within the expected resource strengthening of the Banks supervisory initiatives?  Pesponse As a part of its bank examinations program, the Federal Reserve Bank of New York will increase its focus oi the examined banks' electronic paynents activities, both in book-eutrl, government securities and in funds transfers (Fedwire ab well as private payments networks)  This will  be done as an expanded part of the regular examination as well as in speciai, targeted examinations.  In addition, the  Bank plans, in conjunction with the New York Clearing House Association, to (a) develop standards for determining the eligibility of institutions to become settlement participants in CHIPS, and (b) review the issue of finality in CHIPS payments.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  36 -  Question 31  The Federal Reserve Bank of Philadelphia has incurred certain costs attributable to the deve lopment and operation of the systems on behalf of the Trea sury. Are these costs reimbursable? Are all expendit ures made by the Federal Reserve for fiscal agency services reimbursed? Are they directly reimbursed by Treasury or must they be recovered from other parties? Response  The agreement with the Treasury under whic h the Treasury Direct initiative was undertaken prov ides for direct reimbursement of the full cost of design, development, and implementation.  This commitment was honored by  the Treasury until its funds were exhausted in January of 1986. Nct all expenditures made by the Reserve Banks tor fiscal agency services are reimbursed.  In 1986, we antici-  pate fiscal expenses of approximately $170 mill ion, of which about $30 million is likely to be covered by reimbursement. At this time, all reimbursement received for Treasury services is paid directly by the Treasury .  None is  paid by other parties--e.g., users of the serv ices.  The  Reserve banks do provide $22 million worth of fiscal services to other agencies, .he full cost of which is reimbursed by the respective agencies.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  37 -  Question 32  How much money did the Federal Reserve Bank of Cleveland expend on its Annual Report over the past two years? What do other Banks spend? Response  The Bank incurred $58,233 in 1984 and $49,416 in 1985 for related expenses related to its Annual Report. This is higher than but generally comparable with amounts spent by other Banks.  Question 33  What services cud US Cargo and Courier provide to the Federal Reserve bank of Cleveland for $22,573.45? The voucher is unclear. Ref: voucher 182845  Response  The service represents shipments of checks to and from FRB Cleveland.  US Cargo transports items in conjunc-  tion with the Interdistrict Transpertation Service (ITS) from the Cleveland-Hopkins airport. Question 34  Following the Ohio savings and loan difficulties, what has the Federal Reserve Bank ct Cleveland done to assure that is has better information on all depository institutions whether or not members of the Federal Reserve? }as there been an increase in demands for various Fed services as a result of these problems? What is the increase in the size of the bank supervision staff? To what extent is supervision and examination automated?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  38 -  Response: Following the savings and loan difficulties, the Federal Reserve Bank of Cleveland upgraded access to information on all depository institutions.  Channels of regular  communication have been established with other federal and state regulators for the express purpose oi assessing critical information on an ongoing as well as emergency basis. Reports of condition, ratio analysis, and performance reports are now maintained at the Reserve Bank for all insured thrifts and credit unions located in the District. information on banks continues to be maintained at the Reserve hank. While the number of Cleveland's savings and loan customers increased from 217 in December 1984 to 241 in December 1985, the increase has not been attributed to savings and loan problems occurring in 1965. The supervision department is in the process of increasing examination staff Ly 24 employees in 1986 from 88 budgeted employees at year end 1985 as a result of the Board's prudential supervision policy. Question 35  The Annual Report of the Federal Reserve Bank of Cleveland details extensive assistance given by the Federal Peserve Bank of Cleveland during the crisis. Did the Federal Reserve bill the FHLBB for the services rendered?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  39 -  Response  The Federal Reserve examiners were extensively involved in two types of activities during the Ohio S&L crisis in 1985.  First, the examiners spent several days  early in the crisis preparing the privately insured S&Ls to borrow at the Federal Reserve discount window.  This  involved obtaining signed loan documentation, securing collateral either through a field warehouse or actual possession at the Federal Reserve hank, and preparing a very quick financial review of each institution to determine their financial condition prior to the time we made a loan. This could all be considered costs that the Federal Reserve should bear as lender of last resort.  The second type of  activity Federal Reserve examiners engaged in was assisting the FHLB exariners and in some cases the FDIC and State examiners with deposit Insurance qualifying examinations. This activity was undertaken in the spirit of cooperation among regulatory agencies, and we did not believe it was appropriate to bill the FHLE, FDIC or State for Federal Reserve services. Question 36  The Annual Budget Review notes that the Federal Reserve Bank of Richmond expects to proceed with construction of a new Branch at Charlotte. Are there sufficient funds to accomplish this? Are there activities at Charlotte which might be transferred to either the Richmond Head Office or Culpeper? What studies have been undertaken to justify this undertaking as it is planned?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  40 -  Response: The Federal Reserve Bank of Richmond expects to proceed with the construction of a new building in Charlotte to replace the 43-year-old existing facility.  There are  sufficient "building proper" funds to accomplish this.  The  project was one of the proposed new buildings mentioned in the justification to Congress in connection with the Board's request to increase the "building proper" limitation that Was  subsequently enacted in 1974. The activities at the Charlotte Branch cannot be  transferred to either the Richmond Head Office or to Culpeper.  The Charlotte Branch serves both North and South  Carolina with coin, currency and check services. of the large original Branches in the SysteLL.  It is one  Since 1979,  its territory has experienced large rates of increase in the volume of pieces paid out for both currency anci coin.  The  growth rates at the Charlotte Branch exceed those at both the Richmond and Baltimore branches (Fifth District also) and ir the System as a whole.  Further, the Federal Reserve  Bank of Richmond and Culpeper would not have sufficient space to accommodate the Charlotte branch operations and could not economically provide good financial services to North and South Carolina due to long distances. A number of studies have been undertaken to certify the need for a new building at the Charlotte Branch in   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  41 -  accordance with the Planning Guidelines for the Federal Reserve Bank Facilities. The Charlotte Branch has been experiencing, over the years, serious operation problems and inef ficiencies due to lack of sufficient space in its present faci lity.  The  Branch facilities have the following deficien cies: o  Inadequate vault space for coin and currency (less than 1,600 square feet of combined vault space)  o  Inadequate work space and storage for processing valuables (coin stored in small rooms and restroors)  o  Inadequate space to alleviate crowded conditions (old existing building and remote storage facility)  o  Inadequate and vulnerable executive space. (Executive located in the main lobby-problem of security and privacy)  Question 37 The Federal Reserve Bank of Richmond makes e:Te nditures for a local gasoline service station. Doesn't the bank have its own gasoline service and storage facility? If not, why not? Do the prices the Bank pays reflect a negotiated price that is better than otherwise? Additionally, what controls are there to assure that the gasoline charged is actually dispensed into Bank equipment? Response: All Richmond Bank automobiles purchased in rece nt years have diesel engines.  Late last year, the Bank pur-  chased its first gasoline-powered vehicles in some time.  It  also has an older van and panel truck that are gaso line-  A   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  powered.  42 -  The gasoline referred to was purchased for these  vehicles and for lawn maintenance equipment. Gas storage facilities are not presently maintained due to the limited use of gasoline, but the Bank does have its own storage facility for diesel fuel.  The prices paid  for fuel are negotiated in accordance with the System's Uniform Acquisition Guidelines.  As the Bank replaces its  diesel-powered vehicles with gasoline-powered vehicles , it will convert its present storage facility from dies el fuel to gasoline. Question 38 The Federal Reserve Bank of Richmond paid another Reserve Bank registration fees for attendance at a conference held at that Bank. It is customary for the Banks to impose registration costs upon one another? Response: This particular invoice represents attendance by two members of the Richmond computer staff at a Data Secu rity Conference held at the Minneapolis Reserve Bank.  That  conference was being conducteu mainly for the depository financial institutions in the Ninth District.  The main  purpose of the Richmond staff's attendance was to gain idea s for a future Data Security Conference in the Richmond District. Reserve offices typically charge other offices for their attendance at classes, System meetings, and ccnferen c-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  43 -  es, when fees are charged to outside registrants.  This  practice has the etfect of reflecting expenses on the books of the appropriate Reserve Banks with no distortion in the level of System expenses. Question 39 For what purpose is the Burroughs B4925 Computer System purchased by the Federal Reserve Bank of Richm ond being used? Is this system compatible with other systems within this Bank and within the System generally? What is the expected useful life of this system? Response: The Richmond Bank is using the Burroughs B4925 computers primarily for check processing.  Five B4925s are  installed in the Richmond Office, Baltimore, Charlotte and the Columbia and Charleston Regional Check Processing Centers (RCPCs).  The District has been using Burroughs proces-  sors since 1962.  These systems were installed during 1985  in order to meet memory capacity requirements resulting from increased check processing volumes. In addition to providing check processing services, the B4925s provide intradistrict data communications servi ces for Automated Clearing house (ACE) functions.  The  Baltimore and Charlotte Branches also use them for general internal data processing functions.  Burroughs equipment is  widely used throughout the System, and they operate communications functions that coexist with other types oil processors in the System.  Consequently, the Burroughs computers   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  44 -  successfully exchange data using compatible telecommunications systems. The useful life is expected to be four years and, based on their installation dates, these computers should be in use for three more years. Question 40 What is the value of expenditures made by the Federal Reserve Bank of Atlanta for additions and renovation s of the head Office? What is the average number of squar e feet allocated to employees before and after these renovations? How does this compare with other Federal Reser ve facilities and with other government facilities? Response: The Atlanta Bank is planning to spend about $7.1 million for the proposed addition to the Head Office which is  scheduled to start in November, 1906.  The Bank expended  $4.7 million in the renovation program between 1974 and 1984. The average square feet per employee was 122 before the addition and will be 136 after the addition. pares with an average of 159 for the System.  This com-  The other  government agencies compute net square IL:et per employee on a different basis, therefore comparable numbers are not readily available. Question 41 What is the policy of the Federal Reserve Bank of Atlanta with respect to flowers tor death of close relatives? Does this apply to all employees? Are these Bank funds or employee funds?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -  45 -  Response: Flowers may be sent upon the death of any employee or retiree, his or her spouse, child, mother, father, grandchild, or any other relative whose relationship to the employee or retiree is so close that failure to send flowers would create in the mind of the employee or retiree a sense of neglect by the Bank.  Expenditures should not exceed $35.  This applies to all employees.  Bank funds are used for this  purpose. Question 42 Why is the Federal Reserve Bank of Chicago facing declines in priced service volumes? Has an effort been undertaken to reverse this trend? If sc., please detail what has been done. If not, why not? Response: The declines in check volume faced by Chicago are primarily due to implementation of clearing exchanges within the District by the large correspondent banks.  The clearing  exchanges have had a greater impact on volume in the Seventh District since they were not prevalent prior to implementation of the Monetary Control Act.  In order to provide effi-  cient and effective check ciearing services during a period of declining volumes, the Chicago Dank respunded by implementing: o  Stringent cost control measures.  o  Improved service levels.  o  Enhanced education efforts.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  o  46 -  Selected price changes. These efforts have stabilized check volume in the  District.  Through April 1986, processed volume is 1.6 per-  cent above the same period last year. Question 43 Why did the Pricing Committee of the Federal Reserve Bank of Chicago meet at Calloway Gardens, Pine Mountain, Georgia? Response  The Chicayo Pricing Committee decided to meet with Atlanta Reserve Bank management to discuss operational enhancements for the Federal Reserve Bank of Chicago because of the Federal Reserve Bank of Atlanta's outstanding record of operation performance.  Atlanta manayement was scheduled  to be involved for only part of the two and one-halt day meeting.  A site close to Atlanta was selected so that the  Atlanta management could conveniently attend their part of the meeting.  The Federal Reserve Eank of Chicago requested  information from many locations in the Atlanta area and found the Calloway Gardens site to be most economical.  Question 44 What renovations are being planned for the Federal Reserve Bank of Chicago? What are these renovations expected to cost? What improvements will be made during the renovation to increasing security in the Security Courtyard and the FRCS-80 control center? (Answers relating to security matters should be provided in a separate document.)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  47 -  Response: The Chicago Bank is currently implementing a comprehensive renovation and addition project which has been named the Facilities Improvement Program (FIP).  Under this  program, all office space and many operational areas are being updated and, in many instances, relocated.  This will  allow the Bank to more fully realize the operating benefits possible with current Federal Reserve System technology. The total target budget for the FP is $89.4 million.  Of this, $23.5 million is for an addition to the  building and $65.9 million is expected to be spent on renovations to the existing building. (As requested, we are submitting the response relating to security matters under separate cover.) Question 45 The Federal Reserve Bank of St. Louis has planned one of the smallest merit pay increases. What has been the trend for pay increases over the past and how does it compare with other Reserve Banks? What is the potential impact on morale and the continued employment ot quality personnel? Response: For the past three years, the merit increase program has been judged sufficient and appropriate.  The  increases have been distributed on a pay-for-performance basis, resulting in the highest performers receiving increases above the average merit increase, with offsetting lower increases for other personnel.  This distribution   https://fraser.stlouisfed.org • Federal Reserve Bank of St. Louis  -  method  48 -  has significantly contributed to the retention of  key employees without disruption to the total population as evidenced by a modest separation rate (13.3 percent Districtwide for 1985). Question 46 How many examiners does the Federal Reserve Bank of Kansas City currently have and how many will they have after they allocate additional resources to this area? Response: At year-end 1985, the Federal Reserve Bank of Kansas City had 169 examiners, up from 83 at year-end 1984. Since then, the Bank has added nine examiners to its staff, bringing the current total to 118.  Another seven examiners  ere expected to be added by the end of 1986. Question 47 What is the total cost of the Federal Reserve Bank of Kansas City's renovation? How does this renovation cost compare with other planned or previous renovations and how would it have compared with construction of a new facility? Response: The total cost of the renovation is $13.2 million from 1971 to 1985.  It is difficult to compare this renova-  tion with others because the degree of renovation varies from project to project.  However, the renovation cost of  this project appears to compare favorably with other planned and previous projects.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  49 -  A new facility would have cost approximately $58.3 million to construct.  Question 48  The Federal Reserve Bank of Dallas expended $2,350 in February to Ted's Auto Park as a management fee. What services does this firm provide the Dallas Bank? Response: Ted's Auto Park provides administrative management of the Bank's parking ict, including providing parking attendants to operate the lot.  The expense for managing the  lot is fully recovered through parking fees charged to the employees. Question 49 Why did the Directors of the Federal Reserve Bank of Dallas meet in New York City? Response: The New York meeting of the Directors of the Federal Reserve Bank of Dallas was held to promote the Directors' knowledge of the unique Federal Reserve operations conducted in New York -- particularly open luarket and foreign operations and surveillance of the securities markets.  The New  York meeting included a presentation by Mr. Solomon, then President of the Federal Reserve Bank of New York, and other sessions concerning open market operations.,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  50 -  Question 50 In light of the alleged difficulties that some Eleventh District banks may be experiencing, what actions have the Federal Reserve Bank of Dallas undertaken to assure timely information on the condition of these institutions and to assure that any developing institutional problem does not affect the integrity of the payments system? Response: The Federal Reserve Bank of Dallas has taken the following actions to assure timely information on the condition of financial institutions in the Eleventh District : (1)  Increased the authorized staft in its Supervision and  Regulation Department by 33 persons during 1985 and 1986, or 33 percent.  This will support:  o 470 scheduled tieid activities in 1986 (primarily bank examinations and bank hoiding company inspections), an increase of 31 percent over the total done in 1985. o A significantly increased surveillance workload aue to an increasing number of state member banks (currently 84) and bank holding companies (currently 758), a major increase in the number of bank holding company reports reviewed (e.g., about 1,700 FR Y-9 reports in 1986 compared with just 275 as recently as 1984, and an increasing volume of special reports of problem organizations. (2)  Staff has also been added to support the Federal  Reserve System's Payments System Risk Program, and cons iderable time has been required of our accounting, data proc essing, and supervision and regulation staffs relative to this program.  Currently, six officers devote substantial por-  tions of their time to this program, supported by monitori ng   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -  51 -  and counselling staff and bank examination personnel.  In  support of this program:  (3)  o  450 sender net debit caps have been received from District financial institutions to date and,  o  Several software programs, including one to facilitate the rejection or interception of Fedwire transfers causing overdrafts, have been implemented or are in process.  Telephone contacts and face-to-face meetings betwe en  Federal Reserve staff and regional offices of OCC, FDIC, FHLB, and state banking supervisors have been increased to reflect the growing numbers of problem institutions in this District.  Dallas staff are in telephone discussions several  times each day with regional OCC and FDIC personnel, and information so obtained is promptly conveyed to Board of Governors' staff in Washington. (4)  The Reserve Bank is closely monitoring conditions at a  number of banking organizations in the District that seem to be experiencing the greatest degree of strain.  Also, vari-  ous actions have been taken to assure that the discount window will be available to such organizations should they need funding assistance. Question 51 The Federal Reserve Bank of Dallas intends to lease commercial office space. What is the value of this lease and how was it negotiated? Will the space be needed for a short or a long period?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  52 -  Response: The District has not formulated a plan to lease additional commercial office space.  However, it is present-  ly leasing office space at certain locations.  The terms of  each lease are given below and, since the Bank's workforce is projected to grow commensurately with increasing work volumes,it is likely that the hank will enter into new leases at the expiration of these leases. St. Paul Place - 13,379 square feet at $14.25 per square foot, housing approximately 30 employees. A Bank task force, assisted by real estate brokers, evaluated sites in the central business district on the basis of location and price. Date of lease: August 28, 1985. Lease term: five years, with five one-year extension options. Employers Insurance Building - 45,000 sauare feet at $14.50 per square foot, housing approximately 150 employees. The Bank had been leasing space at another location when space became available at the Employers Building at a lower price. It is located adjacent to the Bank. The price of the previous space was $15.36 per square foot. Negotiation was directly with the management of the Employers Building, and other sites were explored at the same time. Question 52 The Federal Reserve Bank of San Francisco appears to use a corporate credit card. Is this correct? Do other Banks use a corporate card? Has any assessment been made of the efficiency and cost savings associated with such use? Do cash advances continue to be necessary when such a card is in use? Response: The Federal Reserve Bank of San Francisco and most other Reserve Banks issue corporate credit cards to a limit-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  53 -  ed number of management and staff.  This is for convenience  and efficiency and no explicit study has been made to determine the cost savings.  All expenditures, whether paid by  credit card, cash advances, or reimbursement, must be justified and approved.  Cash advances may still be necessary,  depending upon the level of non-credit card expenditures incurred by the individual involved, although most Reser ve Banks have realized a reduction in such advances. Question 53 What services did the Zivic Group provide to the Federal Reserve Bank of San Francisco? Response: The Zivic Group is a personnel search firm.  The  Twelfth District utilized the services of the Zivic Group to recruit personnel for vacant positions. Question 54 The substantial increase in the Federal Reserve Bank of San Francisco has in part been attributed to certain nonrecurring costs associated with the move of the Los Angeles Branch to a new building. Are these costs being capitalized into the Los Angeles building? Does such a capitalization affect the cap on Branch building construction? Response: The one-time costs incurred in moving into the new Los Angeles branch buildinc. will be treated as operating expenses, thus their large impact on the 1986 Reserve Bank budget.  Only expenditures of a capital nature that are  -  54 -  associated with the actual construction of the building are capitalized, with depreciation systematically allocating those costs to current expenses over future periods.  Only  these capital expenditures are subject to the "building proper" limitation on the cost of Reserve Bank branch buildings. Question 55 What was the policy of the Federal Reserve Bank of San Francisco with respect to functions and activities intended to honor the retiring Reserve Bank President? Who approved the expenditures and what controls were followed? Were these expenditures comparable to those expended by other banks in recent years? How did these expenditures compare to the Federal Reserve Banks of Atlanta, Minneapolis, New York and St. Louis?  Response: The System has a discretionary expenditures policy. However, the Federal Reserve Bank of San Francisco had no stated policy for honoring the retiring Reserve Bank President.  When the President of the San Francisco Reserve  Bank retired in 1986, after 13 years, the Bank determined that community practice should be a guiding factor in planning retirement functions.  Bank management determined  what arrangements were considered consistent with community practice in the San Francisco area, and the First Vice President was required to approve all significant expenditures.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  6-  The amount spent by the Federal Reserve Banks  •  -  55 -  of Atlanta, Minneapolis, New York, and St. Louis in recent years was less than the amount spent by the Federal Reserve Bank of San Francisco.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, 0. E. 20551  SEP 9 1986  PAUL A. VOLCKER CHAIRMAN  The Honorable Walter E. Fauntroy Chairman Subcommittee on Domestic Monetary Policy Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Chairman Fauntroy: Enclosed, as you requested in your letter of June 17 please find our response to the question on construction work involving the Security Courtyard of the Federal Reserve Bank of Chicago. It was requested that this response be provided in a separate document from the responses to the remaining questions. Accordingly, I am forwarding today our other responses under separate cover. Sincerely, ' -"  Enclosure  DR:pte (V-134, 86-2658) bcc: Dave Robinson Clyde Farnsworth Ted Allison Mrs. Mallardi (2) v/   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Question 44 What improvements will be e during the renovation to increasing security in the security Courtyard and the FRCS-80 control center? Response  The response with regard to security enhancements to the Chicago building, requested to be provided under separate cover, is as follows: The Security Courtyard, which consists of the concourse area and the vestibule between the concourse and the Bank, will be renovated.  The concourse will be modernized,  new, faster doors will be installed, the guard quarters will be relocated to increase visibility, and additional stalls will be provided.  The vestibule will continue to utilize a  "man trap," a guard and television cameras for security. The FRCS-80 control center will be provided the same security as the Bank's general computer facilities--namely: card-key systems, man-trap systems, complete fire security, and halon systems for tape vaults.  In addition, the System  Communication Center can now be operated from Detroit, should circumstances require it.  BOARD OF GOVERNORS • co •0 • -n • -4 „  OF THE  FEDERAL RESERVE SYSTEM i- • ‘.1 • ( .3 44 . ,•  WASHINGTON, D. C. 20551  September 9, 1986  PAUL A. VOLCKER CHAIRMAN  The Honorable Sam M. Gibbons Chairman Subcommittee on Trade Committee on Ways and Means House of Representatives Washington, D.C. 20515 Dear Chairman Gibbons: Thank you for your letter inviting me to participate in your Subcommittee's hearing on a number of international economic issues and their relationship to the U.S. trade deficit.  I look forward to appearing at the hearing on  Wednesday, September 24, at 9:30 a.m. and to joining you for breakfast at 8:00 a.m. Sincerely,  BlEaul  CO:DJW:pte (V-177, 86-3616) bcc: Ted Truman Mrs. Mallardi (2) y   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .• . 0 GOVi •• ;  /1‘.`  BOARD OF GOVERNORS  °•  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551  September 8, 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: In your letter of August 6, you raised again your interest in encouraging the Federal Reserve to cooperate with other central banks and bank supervisors in efforts to curtail money laundering. In particular, you suggested a role for the Basle Supervisors Committee. The problem of money laundering was raised with members of the Basle Supervisors Committee when that committee met in Washington in June. The discussion that took place revealed a good deal of sympathetic awareness about a problem that infects most of the societies represented on the committee. The problem was characterized as going beyond organized crime and the drug business to encompass all types of illegal activities that can benefit from the use of international banking transactions. On the other hand, doubts were expressed about the ability of supervisors, collectively or bilaterally, to deal effectively with the problem. In a number of countries, the supervisors possess limited powers vis-a-vis the affairs of bank customers. In general, supervisors do have responsibilities to inform their law enforcement agencies when they encounter transactions of uncertain legitimacy. Many are bound by secrecy laws from transmitting any such information to any other authorities. For this reason, these supervisors believe that international cooperation must take place largely between national law enforcement authorities. Any contribution by bank supervisors was thought likely to be marginal at best. At the end of the discussion, there was a consensus that because of the community of interest involved, more thought should be given to the role that bank supervisors might usefully play to supplement the efforts of law enforcement authorities. To this end, we intend to send to each member of the Basle Supervisors Committee a copy of your Committee's report on the Comprehensive Money Laundering Prevention Act. In addition, the Federal Reserve intends to continue to explore this important   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  V The Honorable Fernand J. St Germain Page Two  topic with other central banks and bank supervisors, both within and outside the Basle Supervisors Committee. I hope this information is useful. if I can be of further assistance. Sincerely,  FD:CO:pte (V-166, 86-3486) bcc: Fred Dahl Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Please let me know
Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102