The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
1983
Board of Governors of the Federal Reserve System
Letter of Transmittal
BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
Washington, D.C., April 12, 1984
THE SPEAKER OF
THE HOUSE OF REPRESENTATIVES
Pursuant to the requirements of section 10 of the Federal Reserve Act, I am
pleased to submit the Seventieth Annual Report of the Board of Governors of
the Federal Reserve System.
This report covers operations of the Board during calendar year 1983.
Sincerely,
Paul A. Volcker, Chairman
Contents
Part 1 Monetary Policy and the
U.S. Economy in 1983
3
INTRODUCTION
5 THE ECONOMY IN 1983
5 Household sector
7 Business sector
8 Foreign sector
8 Government sector
9 Labor markets
10 Prices
12
13
15
18
MONETARY POLICY AND FINANCIAL MARKETS
Financial markets
Monetary aggregates
Aggregate credit flows
22
23
26
INTERNATIONAL DEVELOPMENTS
U.S. international transactions
Foreign currency operations
28
28
45
MONETARY POLICY REPORTS TO CONGRESS
Report on February 16, 1983
Report on July 20, 1983
Part 2 Records, Operations,
and Organization
65 RECORD OF POLICY ACTIONS OF THE BOARD OF GOVERNORS
65 Regulation D (Reserve Requirements of Depository Institutions)
67 Regulation G (Securities Credit by Persons Other than Banks, Brokers, or
Dealers) and Regulation U (Credit by Banks for the Purpose of Purchasing or
Carrying Margin Stocks)
68 Regulation K (International Banking Operations)
69 Regulation L (Management Official Interlocks)
69 Regulation O (Loans to Executive Officers, Directors, and Principal
Shareholders of Member Banks)
70 Regulation Q (Interest on Deposits)
71 Regulation T (Credit by Brokers and Dealers)
72 Regulation X (Borrowers of Securities Credit)
72 Regulation Y (Bank Holding Companies and Change in Bank Control)
73 Regulation Z (Truth in Lending)
74 Policy statements and other actions
76 1983 discount rates
79 RECORD OF POLICY ACTIONS OF THE FEDERAL OPEN
79
81
82
84
85
94
104
112
122
128
135
142
MARKET COMMITTEE
Authorization for domestic open market operations
Domestic policy directive
Authorization for foreign currency operations
Foreign currency directive
Meeting held on February 8-9, 1983
Meeting held on March 28-29, 1983
Meeting held on May 24, 1983
Meeting held on July 12-13, 1983
Meeting held on August 23, 1983
Meeting held on October 4, 1983
Meeting held on November 14-15, 1983
Meeting held on December 19-20, 1983
150
150
151
152
152
154
155
159
161
162
163
164
CONSUMER AND COMMUNITY AFFAIRS
Simplification of Regulation Z
Simplification of the Consumer Leasing Act
Review of Regulation B
Regulatory actions
Enforcement of consumer protection laws
Responsibilities under the Federal Trade Commission Act
Compliance with consumer regulations
The economic impact of Regulation E
Community Reinvestment Act
Consumer Advisory Council
Legislative recommendations
166
166
167
167
168
168
LEGISLATIVE RECOMMENDATIONS
Bank holding company legislation
Increasing the number of Class C directors
Amendments to the Consumer Leasing Act
Federal Reserve Bank branches
Amendments to the International Banking Act
170 LITIGATION
170 Bank holding companies—Antitrust action
—Review of Board actions
172 Other litigation involving challenges to Board procedures and regulations
176 LEGISLATION ENACTED
176 Bretton Woods agreement
177 International lending supervision
178
178
185
190
194
BANKING SUPERVISION AND REGULATION
Supervision for safety and soundness
Regulation of the U.S. banking structure
Enforcement of other laws and regulations
Federal Reserve membership
195 REGULATORY SIMPLIFICATION
195 Monetary policy and payments system
195 Securities credit and securities activities
196 Banking structure and supervision
197 Consumer and community affairs
199 FEDERAL RESERVE BANKS
199 Developments in the payments mechanism and in the pricing of Federal
Reserve services
203 Examination
203 Income and expenses
204 Federal Reserve Bank premises
205 Holdings of securities and loans
205 Volume of operations
206 BOARD OF GOVERNORS
206 Financial statements
213 STATISTICAL TABLES
214
1. Detailed statement of condition of all Federal Reserve Banks combined,
December 31, 1983
216
2. Statement of condition of each Federal Reserve Bank, December 31,
1983 and 1982
220
3. Federal Reserve open market transactions, 1983
222 4. Federal Reserve Bank holdings of U.S. government and federal agency
securities, December 31, 1981-83
222
5. Number and salaries of officers and employees of Federal Reserve Banks,
December 31, 1983
223 6. Bank premises of Federal Reserve Banks and Branches, December 31,
1983
224 7. Income and expenses of Federal Reserve Banks, 1983
228
8. Income and expenses of Federal Reserve Banks, 1914-83
232 9. Revenue and expense of priced services at Federal Reserve Banks, 1983
and 1982
234 10. Volume of operations in principal departments of Federal Reserve Banks,
1980-83
235 11. Federal Reserve Bank interest rates, December 31, 1983
236 12. Reserve requirements of depository institutions
239 13. Maximum interest rates payable on time and savings deposits at federally
insured institutions
240 14. Margin requirements
241 15. Principal assets and liabilities, and number of insured commercial banks,
by class of bank, June 30, 1983 and 1982
242 16. Reserves of depository institutions, Federal Reserve Bank credit, and
related items—Year-end 1918-83, and month-end 1983
246 17. Mergers, consolidations, acquisitions of assets or assumptions of liabilities
approved by the Board of Governors, 1983
259 MAP OF FEDERAL RESERVE SYSTEM—DISTRICTS
261
262
264
265
266
267
268
FEDERAL RESERVE DIRECTORIES AND MEETINGS
Board of Governors of the Federal Reserve System
Federal Open Market Committee
Federal Advisory Council
Consumer Advisory Council
Thrift Institutions Advisory Council
Federal Reserve Banks, Branches, and Offices
289
INDEX
Part 1
Monetary Policy and
the U.S. Economy in 1983
Introduction
Conditions in the national economy
took a decided turn for the better in
1983. Real gross national product
rose 6 percent over the four quarters
of the year, close to the experience
during the first years of past cyclical
recoveries but well above earlier projections. Rising production spurred
gains in employment large enough to
reduce the unemployment rate by 2Vi
percentage points over the course of
the year. At the same time, most broad
measures of prices and wages showed
further progress toward lower inflation. In short, the performance of the
economy in 1983 suggested attainment of the immediate objective of
the Federal Reserve: permitting sufficient growth in monetary and credit
aggregates to foster a solid economic
recovery without encouraging developments that would rekindle inflationary pressures.
Each of the monetary and credit
aggregates finished the year within or
close to the ranges set by the Federal
Open Market Committee. Achievement of these growth rates and the
broader goals of the Federal Reserve
was brought about by relatively small
changes in the reserve position of the
banking system and was accompanied
by generally stable conditions in financial markets. Interest rates fluctuated far less than in the previous few
years. Moreover, although most interest rates rose moderately during
NOTE. This discussion of economic and financial developments in 1983 is adapted from
the Monetary Policy Report to the Congress
pursuant to the Full Employment and Balanced
Growth Act of 1978 (Board of Governors, February 1984).
the year as the economic recovery
progressed, interest rates on average
were substantially lower in 1983 than
in 1982. For example, rates on levelpayment home mortgages averaged
nearly 3 percentage points below their
1982 levels; business borrowing costs
also declined significantly.
But success cannot be measured by
performance during any one year,
and in some respects the first year of
recovery, which began in the context
of excess capacity and high unemployment, provided the most favorable
environment for combining economic
growth with progress toward price
stability. The more stringent and
meaningful test will come as we seek
to maintain the momentum of expansion and the progress toward stability
while the margin of unemployed resources diminishes further.
Several areas of concern remained
at the close of 1983. Despite the
marked improvement in labor market
conditions, unemployment continued
to be unacceptably high. In addition,
the federal deficit showed a sharp and
worrisome increase in 1983. The borrowing necessary to finance the deficit, combined with continuing huge
prospective credit demands by the
federal government, exerted pressures
on market interest rates. These pressures offset the effects of lower inflation and other factors, and thereby
tended to temper the expansion of
interest-sensitive private sectors of the
economy.
The large federal deficit and associated high domestic interest rates
helped induce sizable inflows of foreign capital into the United States
4
Introduction
throughout the year and contributed
to a further rise in the exchange value
of the dollar. The strong dollar, in
turn, put pressures on industries facing competition from imports and, in
an environment of sluggish economic
growth in other countries, made it
difficult for U.S. industries to sell
their products abroad. Consequently,
imports increased dramatically relative to exports; this shift significantly
moderated the growth in domestic
output.
The international debt situation remained a major concern in 1983.
Some countries with serious debt
problems made considerable progress
in formulating and implementing internal adjustment policies, and they
continued to receive a moderate flow
of new financing. Nonetheless, historically high interest rates in the
United States placed heavy burdens
on the many developing countries
with outstanding debt concentrated in
dollars.
The Economy in 1983
Output and employment registered
sharp gains in 1983, lifting the economy out of the most severe recession
since World War II. These gains
brought a considerable reduction in
the unemployment rate, which fell to
8.2 percent by year-end. The first year
of recovery was marked by broadly
based increases in spending by consumers and businesses; these advances
were stronger than generally anticipated, considering the low confidence
and historically high credit costs that
prevailed as the year began.
The impressive progress in reducing
inflation in 1982 extended into 1983.
In the smallest increase in more than
a decade, the consumer price index
rose 3VA percent. Continued reduction
in inflation was aided by favorable
price developments in energy markets,
by the damping effect of abundant
supplies of livestock products on food
prices, and by further appreciation of
the dollar. Moreover, the broader
forces affecting prices and wages also
improved in 1983. Business and labor
involved in key contract settlements
seemed to be adapting constructively
to the less inflationary environment.
Overall, wage and compensation increases were considerably smaller
than during the previous year; nevertheless, because inflation declined
even more sharply, real incomes rose.
At the same time, the underlying trend
in productivity growth appeared to be
tilting up, thereby helping to limit
increases in labor costs.
Better productivity performance,
more realistic wage bargaining, and a
more competitive environment for
price decisions have improved the
Digitizedprospects for sustained progress
for FRASER
against inflation. The relation between supply and demand in the oil
market suggests that another inflationary shock from that source is unlikely, and indicators of inflation expectations have remained at reduced
levels thus far in the recovery. These
factors all provide favorable portents
for the future, but they will be tested
as economic expansion continues. The
firmer labor and product markets that
normally appear in the second year of
an economic recovery could cause
some cyclically sensitive prices to rise;
an increase in social security taxes for
employers will boost labor costs; and
food prices will probably be higher
than they otherwise might have been
because of the effects of last
summer's drought on meat prices.
If associated with other factors,
these latter forces could tend to increase inflation expectations and generate broader pressures on prices and
wages. One of the possibilities is that
the competitive forces associated with
the appreciation of the dollar and
the ample availability of goods from
abroad, which have been exerting
downward pressures on the rate of inflation, could recede. More fundament
tally, as margins of excess capacity
diminish—to the vanishing point in a
few industries—and as experienced
labor is reabsorbed, there is a risk of
a return to the patterns of pricing and
wage bargaining characteristic of
earlier years of rapid inflation.
Household Sector
Most households experienced financial and economic gains in 1983. With
6
The Economy in 1983
Indicators of Economic Performance
Percent change, Q4 to Q4
RealGNP
Percent change from end of previous period
40
Real business fixed investment
Producers' durable equipment
n
lit
i
Percent change, Q4 to Q4
i
20
Billions of 1972 dollars
Change in real business inventories
10
Consumption
expenditures
:m
oe
Disposable rj~-i
sposahie
income
Ifl
it
20
Structures
II I
1
1
+
0
10
I 1 I I • I I I
0
Index. 1967 = 100
Annual rate, millions of units
Total private housing starts
2.0
Percent
Percent change, Dec. to Dec.
12
i
Consumer prices
8
1
I "
Pr
oducer prices
4
sb_ 0
1979
1981
1983
All data are seasonally adjusted, and those that involve dollar amounts are in 1972 dollars. The description and sources of the data are as follows: GNP,
income (disposable personal income), consumption
(personal consumption expenditures), investment,
1979
1981
1983
change in business inventories, and housing starts
(annual rates) are from the U.S. Department of Commerce; industrial production is from the Federal
Reserve; the unemployment rate and prices are from
the U.S. Department of Labor.
The Economy in 1983
unemployment down and gains in employment sizable, growth in personal
income rebounded. Further easing of
inflation, lower interest rates, and the
cumulative 25 percent reduction in
federal tax rates on personal income
during the past three years all helped
raise the purchasing power of household income. In addition, household
net worth rose substantially in 1983,
reflecting primarily the surge in stock
market prices that began in 1982 and
extended into 1983.
These gains no doubt helped boost
consumer confidence, which surveys
indicated rose sharply last year to its
highest level in a decade. In this improved mood, households felt freer to
finance major purchases by borrowing and to devote a larger proportion
of current income to consumption
rather than saving. As a result, the
personal saving rate fell from 5.8 percent of disposable income in 1982 to
4.9 percent in 1983.
The improved economic and financial status of households fostered a
substantial upswing in consumer
spending. Much of the strength came
in the automobile sector, as sales
recovered from several years of sluggish performance. Sales of domestic
models quickened in the first half of
the year, spurred by financing incentives from dealers and reduced rates
on bank loans. Lower gasoline prices
and the introduction of new and better American products apparently
also helped. Despite the withdrawal
of financing incentives, the recovery
in domestic automobile sales continued through the second half of the
year. Sales of imported models, still
constrained by export restrictions on
Japanese models, edged up in 1983,
regaining the level they enjoyed in
1980 before the imposition of quotas.
Consumer spending for other goods
7
and services also strengthened, paced
by large gains in housing-related items
such as furniture and appliances as
well as by brisk advances in general
merchandise and apparel sales.
Demand for housing surged in 1983,
as early in the year long-term mortgage interest rates fell below 13 percent for the first time since the summer of 1980. The sharpness of the upturn reflected the considerable volume of demand postponed from the
preceding few years of high credit
costs and uncertain economic conditions. New housing construction rose
considerably in response to rising
sales during the first three quarters of
the year. The rate of housing starts
remained at a relatively high level in
the final quarter, despite the renewed
rise in mortgage interest rates during
the second half of the year, as the
lower initial cost of adjustable-rate
mortgage financing became increasingly attractive to homebuyers. For
the year as a whole, total private
housing starts rose 60 percent, the
sharpest annual increase in almost 40
years. The construction activity generated by the increase in starts was an
important factor in GNP growth, a
pattern typical of the first year of an
economic recovery.
Business Sector
Economic activity in the business sector also rebounded in 1983. Sales and
production rose sharply, bringing
greater capacity utilization and productivity in their wake. These gains
helped spur before-tax profits, which
had been depressed in the early 1980s,
to an increase unusually rapid for the
first year of an economic expansion.
Because effective tax rates were lower,
businesses were able to retain a larger
8
The Economy in 1983
proportion of their profits than in
previous recoveries.
A marked shift in inventory investment from liquidation to accumulation took place in 1983, further boosting GNP. Firms had undertaken massive reductions in stocks during 1982
and early 1983. With final demands
strengthening, inventory reduction
slowed markedly in the second quarter of the year; and, after midyear,
firms began to rebuild their inventories. But sales and shipments were
strong enough during the second half
of the year that the actual stocks of
inventories remained quite lean, and
inventory-sales ratios fell to historically low levels.
Business spending on plant and
equipment did not reach its cyclical
trough until the first quarter of 1983,
but such expenditures grew rapidly
throughout the rest of the year. Overall, business fixed investment increased 13 percent in real terms between the fourth quarter of 1982 and
the fourth quarter of 1983. At yearend, a rising volume of new orders,
and surveys showing that businesses
planned higher investment spending,
suggested that the recovery in investment had developed momentum that
would extend into 1984.
Early in 1983, the strength in investment spending was concentrated in
the equipment sector, especially in
motor vehicles, high-technology office equipment, and computing machinery. The recovery in equipment
spending became more broadly based
as the year progressed, spreading to
traditional heavy equipment. Expenditures for new structures also turned
up in the second half of the year, led
by investment in stores and warehouses. In contrast, construction of
new office buildings declined sharply
during the first half of 1983 and main
tained that reduced pace during the
second half of the year, in response to
continuing high vacancy rates.
Foreign Sector
The U.S. trade deficit worsened significantly in 1983. The deterioration
reflected both a pace of recovery that
was much more vigorous for the
United States than for most of its major trading partners and the impact of
the further appreciation of the dollar
from a level at the end of 1982 that
was already high. Thus developments
in the foreign sector damped the rate
of growth of domestic output in 1983.
Real exports of goods and services
rose 5 percent during the year, but the
increase in foreign demand for U.S.
goods and services was outweighed by
a strong rise in U.S. expenditures for
foreign goods and services. As a result, net exports of goods and services
(in volume terms) declined $17 billion
between the fourth quarter of 1982
and the fourth quarter of 1983, as part
of the strong advance in U.S. spending was satisfied by foreign output.
Government Sector
Government purchases of goods and
services were lower in real terms over
1983. However, this decline stemmed
largely from a reduction in crop inventories held by the Commodity
Credit Corporation (CCC), associated in part with the payment-in-kind
(PIK) program. Excluding CCC, real
federal purchases in 1983 were up 4Vi
percent, led by a 5 VA percent increase
in defense spending. Purchases by
state and local governments picked
up slightly after two years of weakness induced by the recession and cutbacks in federal support.
An especially important development in the government sector in 1983
The Economy in 1983
Government Surpluses and Deficits
Billions of dollars
Federal government
LJ
L
9
At the state and local level, by contrast, operating budgets (excluding
social insurance funds) moved dramatically from deficit into surplus.
This shift resulted largely from the
combination of tax increases and costcutting efforts adopted during the
recession as well as from an unanticipated increase in the tax base associated with the surprisingly rapid expansion in the economy.
State and local government
Labor Markets
The recovery of production in 1983
was translated into an impressive improvement in labor markets. Three
million workers were added to nonagricultural payrolls in 1983. The
197<>
1981
1983
most rapid gains were registered in
The data on tne tederal government deficit are for
durable goods manufacturing and in
fiscal years and are on a unified budget basis; they are
construction, the sectors hardest hit
from the U.S. Department of the Treasury.
The data on state and local governments are for during the recession; service jobs also
operating budgets. They are on a national income accontributed importantly to overall
counts basis, and they come from the U . S . Departemployment growth during the year.
ment of Commerce.
Nevertheless, at year-end several key
was the shifting fiscal positions of manufacturing industries were opergovernments. In the fiscal year end- ating well below peak capacity, and
ing in September 1983, the federal jobs at contract construction sites
deficit (not including off-budget pro- were still 400,000 below their 1979
grams) ballooned to $195 billion, peak.
Despite the rapid expansion in job
nearly twice as large as the previous
year's record deficit and about 6 per- opportunities, the rise in the labor
cent of gross national product; in the force was relatively moderate, damped
previous three decades, the highest by the long-term slowing in the growth
ratio of the deficit to GNP had been 4 of the young adult population and by
percent in 1976. In part, the increase stability in labor force participation
in the deficit in fiscal year 1983 re- rates. As a result, the first year of the
flected the lagged effects of the reces- recovery was marked by an unusual
sion on receipts and transfer pay- concentration of hiring from the pool
ments, but other factors were impor- of experienced workers, many of
tant also. Revenue growth was limit- whom had been out of work for exed by the cumulative effects of three tended periods.
years of sizable tax reductions, while
Nominal wages continued to decelspending was buoyed by increases in erate in 1983. Hourly compensation
outlays for defense, social insurance in the nonfarm business sector rose at
expenditures, and interest payments a rate of less than 5 percent over the
on the national debt.
four quarters of 1983, the slowest
10
The Economy in 1983
Employment, Compensation,
and Productivity
Millions of persons
Payroll employment
i
i
i
i
Percent change, Q4 to Q4
Compensation per hour
12
1
1
Output per hour
11
—
Nonetheless, wage gains in 1983 exceeded price increases on average, so
that workers as a group experienced
improved purchasing power. Rising
real wages mirrored underlying improvements in labor productivity.
Although a good deal of the gain in
output per hour worked was attributable to the pickup that is normal
during the early stages of an economic recovery, qualitative reports suggest that longer-run improvements
also were in train. Revisions in work
rules at many establishments during
the recession likely contributed to efficiency, and in 1983 business and
labor appeared to be cooperating in
efforts to trim costs and improve
quality. Reflecting wage and productivity developments, unit labor costs
rose only 1 VA percent in 1983, the best
performance since the mid-1960s.
Prices
Despite the strong recovery in economic activity, the wage-price spiral
in evidence throughout the 1970s continued to unwind in 1983. Household
surveys revealed that, even though ex1979
1981
1983
pectations about inflation increased
Data on employment cover the total nonfarm secsomewhat in the second half of the
tor; the other data cover the nonfarm business sector.
All data are from the U.S. Department of Labor.
year, throughout 1983 they remained
lower than they had been in some
pace since 1965. The easing of wage time. Ample productive capacity and
increases reflected slack in labor mar- a strong dollar also contributed to
kets in general as well as adjustments further progress in reducing the rate
in several major collective bargaining of inflation.
agreements. Nearly 40 percent of
That progress was apparent in most
workers who negotiated major union key price measures. Increases in the
settlements during 1983 accepted consumer price index remained in a
wage freezes or outright pay cuts for much lower range in 1983. In part,
the first year of their new contracts. the brighter inflation picture reflected
As a result, the "new settlements" developments in the energy and food
component of union wage increases markets. Slack demand and large
was cut to less than 1 percent. At the worldwide inventories caused a sharp
same time, cost-of-living adjustments decline in petroleum prices early in
were smaller because of continued 1983, and prices of food at the conmoderation in consumer prices.
sumer level rose only moderately.
u
The Economy in 1983
However, the outlook for agricultural
prices turned less favorable in the
wake of the summer drought. The resulting depletion of grain stocks,
along with the federal government's
PIK program to reduce agricultural
production, put upward pressures on
the prices of many agricultural commodities in the latter part of the year
that will probably affect consumer
food prices in 1984. In addition,
severe December weather is likely to
curtail the supply of fresh fruits and
vegetables in early 1984.
But the easing of price increases in
1983 was not limited to food and en-
11
ergy. The consumer price index excluding those sectors rose less than 5
percent, about half the pace of just
two years earlier. Moreover, producer prices in general were little
changed in 1983. For finished goods,
price increases of capital equipment
as well as of consumer goods slowed
markedly. And, despite the cyclical
rebound in prices of sensitive industrial materials, the producer price index for intermediate materials (excluding food and energy), which comprises a broad range of inputs into
production, rose less than 3 percent
in 1983.
12
Monetary Policy and Financial Markets
In its reports to the Congress in February and July 1983, the Federal Reserve indicated that monetary policy
during that year would be conducted
with the aim of fostering a recovery in
economic activity and encouraging
further progress toward price stability. Establishing specific objectives for
growth in the monetary aggregates
was fraught with difficulties, however. Beginning in 1982, the behavior
of Ml in relation to economic activity
had diverged sharply from historical
trends, raising doubts about the usefulness of that aggregate as a policy
target, at least over the near term.
The effects of newly introduced
"super" negotiable order of withdrawal accounts (Super NOWs) and
money market deposit accounts
(MMDAs) on the behavior of Ml also
were subject to considerable uncertainty. In addition, early in 1983 M2
was clearly being swelled by massive
shifts of funds from outside that aggregate into MMDAs, but it was impossible to predict the precise timing
and volume of such shifts.
In light of these special factors and
uncertainties, the Federal Open Market Committee departed in early 1983
from past practices for establishing
monetary objectives. The Committee
agreed that the uncertainties regarding Ml continued to warrant the practice, begun in October 1982, of placing principal weight on the broader
monetary aggregates—M2 and M3—
in the implementation of monetary
policy. Although the demands of the
public for those aggregates might be
affected by shifts in asset preferences
that were rooted in regulatory changes
or other causes, such effects seemed
likely to be smaller and more predictable for the broader aggregates than
for Ml.
In the case of M2, the FOMC established an annual target range of 7 to
10 percent. It believed that the performance of this aggregate would be
measured most appropriately over a
period when it would be less influenced by the initial, highly aggressive
marketing of MMDAs. Thus the
Committee chose the average level of
February and March 1983 as the base
for measuring growth, rather than the
fourth quarter of 1982, the period
that would have been consistent with
past practice. The range for M2,
which was 1 percentage point higher
than the range for 1982, was expected
to allow for some residual shifting of
funds to MMDA accounts over the
remainder of the year.
The range for M3, to be measured
as usual from the fourth quarter to
the fourth quarter, was established at
6Vi to 9Vi percent. Although this
range was the same as that established
in the previous year, it encompassed
growth below the actual outcome in
1982. In adopting this range, the
Committee assumed that any net shift
of funds during the year into the new
types of deposit accounts from market instruments would be largely offset by reductions in managed liabilities (such as large certificates of
deposit) that are included in M3.
Because of difficulties in gauging
the relation between transaction balances and economic activity, the range
for Ml was set in February at 4 to 8
percent, a band that was 1 percentage
point wider than usual. As noted
above, the Committee agreed that, in
Monetary Policy and Financial Markets
Monetary Aggregates, Nonfinancial
Sector Debt, and Reserves
Billions of dollars
Range and actual M2
2200
Range and actual M1
520
Range and actual total domestic
nonfinancial sector debt
'82
1983
The FOMC adopted the range for M2 for the period
from February-March 1983 to 1983:4; for M3, for the
period from 1982:4 to 1983:4; and for total debt of the
domestic nonfinancial sector, for the period from
December 1982 to December 1983. For Ml, the range
was initially adopted for the period 1982:4 to 1983:4,
but at midyear the period was revised to 1983:2 to
1983:4.
The reserve aggregates have been adjusted to
remove discontinuities associated with changes in
reserve requirements. Nonborrowed reserves include
extended credit.
13
implementing monetary policy, less
than customary weight would be assigned to Ml, at least until that aggregate had exhibited more regular and
predictable behavior. Moreover, the
Committee emphasized that the significance it attached to movements in
the various monetary measures necessarily would depend on evidence
about the strength of economic recovery, the outlook for prices and inflation expectations, and emerging conditions in domestic and international
financial markets.
The Committee also set forth for
the first time its expectations for
growth of the total debt of domestic
nonfinancial sectors, indicating that a
range of %Vi to IIVi percent, measured from December 1982 to December 1983, would be appropriate. This
range was thought to be in line with
expected growth in nominal GNP,
reflecting the historically similar
growth trends of the two. The Committee recognized that, early in other
postwar recoveries, growth in GNP
had appreciably exceeded growth in
debt. But in the current circumstances
—including the financial condition of
the private sector as the recession
ended and the prospective huge
volume of federal borrowing—expansion in the debt aggregate might run
in the upper half of the stated range
during 1983.
Financial Markets
Partly because of the ready availability of funds from abroad, financial
markets absorbed without undue
stress the increase in demand for
credit associated with the financing of
the record federal deficit and with the
upturn in the economy in 1983. In
fact, interest rates were both less variable and lower on average in 1983
14
Monetary Policy and Financial Markets
Interest Rates
Percent per annum
Short-term
Long-term
A-rated utility bonds
Recently offered
State and local government bonds
U.S. government bonds
1979
1981
1983
All the data are monthly averages. Their descriptions and sources are as follows: Federal funds, from
the Federal Reserve; three-month Treasury bills,
market rate on three-month issues, on a discounted
basis, from the U.S. Department of the Treasury; conventional mortgages, weighted averages of 30-year,
fixed-rate, level-payment mortgages at savings and
loan associations from the Federal Home Loan Mortgage Corporation; A-rated utility bonds, weighted
averages of recently offered, 30-year investment-grade
bonds adjusted to an A-rated basis by the Federal
Reserve; U.S. government bonds, market yields adjusted to 30-year constant maturity by the U.S.
Treasury; state and local government bonds, index
based on 25 issues of 30-year revenue bonds of mixed
quality, from the Bond Buyer (data are not available
before September 1979).
than during the preceding few years,
although most rates were somewhat
higher at the end of the year than at
its outset.
Other indicators attested to a greater degree of stability and confidence
in financial markets and in the economy. Broad measures of stock prices
increased about 20 percent. The balance of bond downgradings and upDigitizedgradings by the principal rating agenfor FRASER
http://fraser.stlouisfed.org/
cies became much more favorable.
Spreads between interest rates on private and federal government debt
obligations narrowed dramatically, as
did spreads between yields on lowerand higher-rated private securities.
Short-term yields were relatively
stable early in 1983, after a marked
decline during the second half of 1982.
In late spring, economic activity accelerated sharply, and the monetary
aggregates, as a whole, were continuing to grow at a relatively rapid pace.
Federal Reserve Bank of St. Louis
Monetary Policy and Financial Markets
In those circumstances, the Federal
Reserve began to restrain somewhat
its provision of reserves to depository
institutions, and short-term interest
rates rose moderately during the summer. For the remainder of the year,
most short-term rates fluctuated in a
generally narrow range, ending 1983
about 1 percentage point higher than
they had been a year earlier.
The decline in long-term interest
rates that had commenced in mid1982 continued through early 1983.
These rates also began moving up in
the spring, and climbed fairly steadily
through August. Thereafter, they
fluctuated in a range somewhat above
that of the first half of the year; and
at the end of 1983, they were generally 1 to Wi percentage points above
their levels of a year earlier. Exceptions to this pattern were mortgage
rates and yields on municipal bonds,
which were down on balance from
their levels at year-end 1982. Longterm interest rates remained quite
high relative to the current rate of inflation throughout 1983; continuing
uncertainties regarding the speed of
the economic expansion and its possible implications for future inflation,
as well as concerns about the outlook
for federal deficits, were factors.
Monetary Aggregates
The behavior of Ml in early 1983
continued to diverge from precedent.1
As apparently was the case during the
second half of 1982, precautionary
motives stemming from highly uncertain employment and income prospects evidently continued to swell
1. The analysis here, as elsewhere in this section, is based on revised data for the monetary
aggregates that became available early in 1984,
but the data that were available during 1983
support the same finding.
15
demands for liquid balances relative
to the rate of spending on goods and
services; the lagged effects of earlier
declines in interest rates also contributed to increased demands for money.
Ml expanded rapidly through late
spring; growth was dominated by the
component consisting of highly liquid, interest-earning other checkable
deposits (OCDs). Growth in OCDs
during the first half of the year accounted for more than half of the expansion in Ml, a contribution well out
of proportion to the importance of
this component. In turn, inflows into
Super NOW accounts, which had been
authorized in early January, exceeded
growth in OCDs during the year as a
whole. Even so, the introduction of
the new deposit accounts appears in
retrospect to have had little effect on
the overall growth rate of Ml, as inflows from outside Ml into Super
NOWs probably were roughly offset
by outflows from Ml into MMDAs.
In light of the rapid expansion in
Ml through midyear and referring
back to its recognition that appropriate growth rates for the aggregates
would depend on judgment about unfolding economic and financial developments, the FOMC in July established a new monitoring range for Ml
for the second half of 1983. This
range of 5 to 9 percent was based on
the average for the second quarter,
rather than that for the fourth quarter of 1982. The decision to adopt a
new base for monitoring Ml growth
reflected a judgment that the recent
rapid growth of Ml would appropriately be treated as a one-time phenomenon that was expected to be
neither reversed nor extended. It appeared, in retrospect, that the surge in
Ml might largely have reflected an
adjustment by the public of its cash
balances in response to the pro-
16
Monetary Policy and Financial Markets
Reserves, Money Stock, and Debt Aggregates
Annual rate of change based on seasonally adjusted data unless otherwise noted, percent '
1982
Item
Depository institution reserves2
Total
Nonborrowed
Required
Monetary base3
Concepts of money4
Ml
Currency and travelers checks .
Demand deposits
Other checkable deposits
M2
Non-Mi component
MMDAs (n.s.a.), savings,
and small-denomination
time deposits6
General-purpose and broker/dealer
money market mutual
fund assets (n.s.a.) 7
Overnight RPs and
Eurodollars (n.s.a.)
1981
1982
1983
Q4
1983
Ql
Q2
Q3
Q4
3.2
6.4
3.6
4.8
5.9
6.9
5.6
7.6
6.1
5.4
5.8
9.2
14.0
16.0
12.9
8.2
5.5
4.9
5.1
9.3
11.8
5.2
12.0
10.2
6.0
2.9
5.9
8.1
0.5
8.0
-0.1
7.8
5.13
6.0
-12.6
179.5
8.7
8.2
1.0
33.9
10.0
10.4
2.4
27.7
15.4
7.3
10.4
39.9
12.8
10.4
1.7
42.3
11.6
11.1
4.2
28.5
9.5
8.6
4.0
21.2
4.8
9.9
-0.5
9.6
9.3
10.7
9.5
9.8
12.1
12.8
10.6
9.0
20.5
23.0
10.6
10.2
6.9
6.1
8.5
9.6
3.9
6.6
18.1
6.9
34.0
15.0
9.7
9.7
131.9
31.1
-26.3
18.5
-56.3
-44.4
-13.4
-0.9
20.1
31.7
24.9
24.6
30.3
48.0
-8.1
23.4
12.3
26.5
10.5
14.6
9.7
0.5
10.0
7.7
10.8
-27.1
9.3
3.8
7.4
9.8
10.0
17.1
M3
Non-M2 component
Large-denomination
time deposits
Institution-only money
market mutual fund
assets (n.s.a.)
Large term RPs (n.s.a.)
Term Eurodollars (n.s.a.) •
21.1
10.4
-3.6
1.6
-39.2
-0.3
11.9
15.5
111.3
7.4
41.7
46.1
9.1
21.3
-18.1
32.7
11.5
40.4
34.2
-3.8
-32.6
12.2
15.5
-41.7
40.4
28.9
-17.8
15.2
-1.7
16.6
50.9
2.2
Domestic nonfinancial sector debt
Federal
Nonfederal
9.6
11.8
9.1
9.2
19.4
6.7
10.8
18.8
8.7
9.3
24.0
5.5
8.8
19.4
5.9
12.1
25.9
8.2
10.1
15.2
8.7
10.6
10.1
10.8
1. Changes are calculated from the average amounts
outstanding in each quarter, except for debt figures,
which are based on data for the last month of each
quarter.
2. Data on reserves and the monetary base incorporate adjustments for discontinuities associated with
the implementation of the Monetary Control Act and
other regulatory changes to reserve requirements.
3. The monetary base consists of total reserves plus
required clearing balances and adjustments to compensate for float at Federal Reserve Banks plus the
currency component of the money stock less the
amount of vault cash holdings of thrift institutions
that is included in the currency component of the
money stock plus, for institutions not having required
reserve balances, the excess of current vault cash over
the amount applied to satisfy current reserve requirements.
4. Ml consists of currency in circulation; travelers
checks of nonbank issuers; demand deposits at all
commercial banks other than those due to domestic
banks, the U.S. government, and foreign banks and
official institutions, less cash items in the process of
collection and Federal Reserve float; and other checkable deposits (OCDs). OCDs consist of negotiable
orders of withdrawal and automatic transfer service
accounts at depository institutions, credit union share
draft accounts, and demand deposits at thrift institutions. M2 is Ml plus overnight (and continuingcontract) repurchase agreements (RPs) issued by commercial banks; overnight Eurodollars issued to U.S.
residents by foreign branches of U.S. banks worldwide; taxable and tax-exempt general-purpose and
broker/dealer money market mutual funds; money
market deposit accounts; and savings and small time
deposits (including retail RPs) at all depository institutions. M3 is M2 plus large-denomination time deposits
at all depository institutions; large term RPs issued by
commercial banks and thrift institutions; term Eurodollars held by U.S. residents in Canada and the
United Kingdom and at foreign branches of U.S.
banks elsewhere; and assets of institution-only money
market mutual funds.
5. After adjustment for the effects of shifts from
non-Mi sources into newly authorized NOW accounts, the rate of growth of Ml in 1981 is estimated
to have been 2.5 percent.
6. Balances in individual retirement accounts (IRAs)
and Keogh accounts at commercial banks and thrift
institutions are subtracted from small time deposits.
7. Excludes balances in IRA and Keogh accounts.
8. Held by U.S. residents in Canada and the United
Kingdom and at foreign branches of U.S. banks
elsewhere.
Monetary Policy and Financial Markets
nounced drop in the opportunity cost
of holding low-yielding demand deposits and regular NOW accounts.
The FOMC emphasized that it still regarded the behavior of Ml as subject
to substantial uncertainties, and it reaffirmed its decision to place principal weight on the broader aggregates
in the implementation of monetary
policy.
After midyear, precautionary demands for liquid balances apparently
began to abate, with the improvement
in confidence arising from the recovery. A moderate rise in interest rates,
which had begun in late spring, also
curbed demands for money. Demand
deposits peaked in July and edged
down, on balance, during the second
half of the year, while the growth of
OCDs fell to a fraction of its rapid
first-half pace. Thus Ml entered its
newly established monitoring range in
late summer and finished the year in
the middle of that range.
During the first quarter of 1983,
the velocity of Ml continued to
decline at nearly the extraordinary
rate of 1982. These declines exceeded
those implied by models of past behavior, even taking into account the
effects of the large reduction in the
opportunity cost of holding money
balances brought about by sharp
drops in market rates and the introduction of ceiling-free Super NOW
accounts. As the year progressed, the
velocity of Ml began to increase,
slowly at first but more rapidly by the
fourth quarter. Even with this acceleration, growth in Ml velocity in the
full year after the business cycle
trough in the fourth quarter of 1982
was well below the experience typical
in a recovery.
As was evident when the target
ranges were first established early in
1983, the dramatic response to the au
17
thorization of MMDAs substantially
boosted M2. Competition for these
funds was intense: promotional activity was heavy, and in some regions
introductory interest rates were far
above yields on market investments.
Inflows into MMDAs in January alone
totaled $147 billion, and by March
outstanding balances had reached
$321 billion. However, most of the
inflow into MMDAs appears to have
come from other instruments included in M2. Analysis by the Board's
staff suggests that as much as fourfifths of that inflow may have been
transferred from savings deposits,
small time deposits, and money market mutual funds (over the course of
the year, assets of money market
mutual funds dropped 25 percent).
Still, a sizable volume of funds came
from outside M2 and had an obvious
impact on growth in that aggregate.
In the face of the heavy deposit inflows and relative sluggishness of
business loan demand at commercial
banks, institutions dropped their aggressive promotion of MMDAs. The
aggregate level of MMDAs barely increased after June because interest
rates offered on those accounts
dropped sharply. At the same time,
the less liquid small time deposits included in M2 increased quite rapidly
over the second half of the year, in response to the steepening yield curve
and more attractive rates on such deposits. However, the removal on October 1 of all remaining restrictions
on small time deposits with original
maturities or notice periods longer
than 31 days had little noticeable impact on deposit flows.
Reflecting MMDA inflows, M2
grew 12 percent from the fourth quarter of 1982 through the fourth quarter
of 1983. However, from the FebruaryMarch period used by the FOMC as
18
Monetary Policy and Financial Markets
Trends in Velocity
Percent change, Q4 to Q4
MJ
1963
1968
1973
1978
1983
The velocities of Ml and M2 are calculated by
dividing GNP by Ml and M2 respectively.
the base for its target growth range,
expansion through the fourth quarter
was at an 8!4 percent annual rate,
well within its range.
After having declined at a record
rate in the first quarter, M2 velocity
rose somewhat during the rest of the
year; over the year as a whole, it fell
slightly. As was the case for Ml, the
velocity of M2 failed by a wide margin to keep pace with the average increase during the first year of a business recovery. However, correction
for the volume of funds thought to
have been attracted to MMDAs from
outside M2 suggests that velocity
movements corresponded reasonably
well with experience.
Growth in M3 picked up a bit in the
first quarter from its late 1982 pace
because of the explosion in M2. But
until the closing months of the year,
expansion in this aggregate was restrained by sharp runoffs in managed
liabilities, especially large CDs, in response to the rapid buildup early in
the year of MMDA balances and to
the limited loan demand at commercial banks. Yet thrift institutions continued to issue large CDs at a rapid
pace in response to robust mortgage
demands and a cost incentive to pay
down advances from the Federal
Home Loan Banks. On balance, M3
moved on a track near the upper end
of its target range during 1983;
growth from fourth quarter to fourth
quarter was 93A percent, just outside
the target range.2
Aggregate Credit Flows
The debt of the domestic nonfinancial
sector increased 103/4 percent from December 1982 to December 1983, a pace
that was a bit faster than that over the
previous year and slightly above the
midpoint of the range adopted by the
FOMC. The outstanding debt of the
federal government grew almost 20
percent, about matching its growth in
1982; this expansion accounted for
close to 40 percent of the increase in
all domestic nonfinancial debt in 1983.
Financing activity of state and local
governments in long-term markets
surged to a new record; some of the
borrowing reflected efforts by the
issuers to market debt before the imposition of anticipated constraints,
including requirements for bond registration and proposed limits on issuance of revenue bonds. A stepped-up
pace of investment in housing and
consumer durables led to a near doubling of borrowing by the household
sector. But issuance of nonfinancial
business debt remained relatively low,
as internal cash flows of corporations
exceeded capital expenditures for
much of the year and relatively high
stock prices encouraged offerings of
new equity.
2. M3 has been redefined to include term
Eurodollars held by U.S. residents, previously
included only in the aggregate L. For the data
before the early 1984 revisions to take account
of new benchmarks, seasonal factors, and definitions, M3—as well as Ml and M2—was well
within its range at the end of 1983.
Monetary Policy and Financial Markets
19
Net Funds Raised and Supplied in Credit Markets
Billions of dollars
1983'
Sector
HI
H2P
Net funds raised
490
480
617
590
645
87
10
27
161
36
16
187
36
19
231
50
19
142
22
20
Private domestic nonfinancial
Business
Household
281
160
121
198
112
86
287
123
164
216
87
128
359
159
199
Domestic financial
Private intermediaries
Sponsored credit agencies.
Mortgage pool securities . .
85
38
32
15
69
4
15
50
89
20
2
67
74
6
-2
70
103
34
Total, all sectors.
U.S. government
State and local government.
Foreign
6
63
Net funds supplied
490
480
617
590
645
U.S. government
State and local government.
Foreign
24
8
16
17
27
18
10
43
25
8
46
40
11
39
10
Private domestic nonfinancial
Business
Household
79
5
74
72
15
57
91
22
69
67
18
49
116
26
89
363
305
104
27
79
95
346
272
109
31
94
38
448
368
135
129
102
3
429
348
128
130
107
-18
468
389
33
15
9
16
50
10
2
67
11
-1
70
12
6
63
10
Total, all sectors.
Domestic financial
Private intermediaries
Commercial banks
Thrift institutions
Insurance and pension funds
Other2
Sponsored credit agencies .
Mortgage pool securities..
Federal Reserve System . . .
143
127
97
23
1. Seasonally adjusted annual rates.
2. Includes finance companies, money market
funds, real estate investment trusts, mutual funds, and
security brokers and dealers,
p Includes preliminary data for the fourth quarter.
The share of credit intermediated
by depository institutions grew substantially, rising from less than 30
percent in 1982 to more than 40 percent in 1983. This increase reflected
both the MMDA inflows and the surge
in mortgage and consumer demands.
Funds advanced by thrift institutions,
in particular, rose sharply from a depressed 1982 pace. Commercial bank
credit also expanded more rapidly in
1983; purchases of government securities accounted for more than onethird of net credit extended by banks.
Attracted by relatively high U.S. interest rates, funds advanced by the
foreign sector also increased substantially during 1983.
The financing needs of the U.S.
government were the dominant factor
in credit markets again in 1983, a development unusual for the first year
of a recovery. Net borrowing by the
Treasury in credit markets totaled approximately $187 billion to finance
the record combined deficits of the
federal government and off-budget
agencies. Commercial banks, thrift
20
Monetary Policy and Financial Markets
institutions, and state and local governments acquired much of the increase in the issuance of Treasury
debt. Acquisitions by foreign investors also rose. In contrast, households
reduced their purchases of government and other market securities,
channeling funds to new, deregulated
deposit accounts instead. And money
market mutual funds, faced with large
withdrawals after the introduction of
the MMDA, allowed their holdings of
Treasury bills to shrink.
Activity in municipal long-term
markets rose to record levels last year,
buoyed by favorable market conditions and by concern about pending
legislative changes that would affect
the tax-exempt status of some privatepurpose issues. As long-term interest
rates fell early in the year, the markets received a sizable volume of advance-refunding issues, proceeds from
which were invested temporarily in
Treasury securities. Housing revenue
bonds were issued in heavy volume as
the year progressed and as the Congress failed to act on legislation that
would have extended the tax-exempt
authority for single-family issues beyond 1983. Issuers of industrial revenue and student loan bonds also
rushed to market debt before yearend in anticipation of new legislated
restrictions. The volume of generalobligation issues by state and local
governments, in contrast, changed little from 1982.
The household sector increased its
borrowing sharply in 1983 compared
with the relatively depressed levels in
the previous year. With greatly improved financial positions and prospects for strong income growth, consumers demonstrated unusual willingness to finance increased outlays with
borrowed funds. Credit financing of
automobile sales surged early in the
year, stimulated by attractive financing terms from dealers and lenders,
and it continued to expand rapidly in
later months. Other types of consumer credit also expanded briskly in
association with the fast pace of retail sales—especially sales of durable
goods and housing-related items.
The strength in consumer credit accompanied an extremely rapid rise in
residential mortgage borrowing. As
private housing starts recorded their
largest increase in four decades,
growth in home mortgage debt exceeded $106 billion, almost double its
1982 volume. The expansion in mortgage activity in 1983 was supported
by increased lending by depository institutions and by continued growth of
secondary mortgage markets.
The gains also reflected the popularity of financing techniques that
provided homebuyers with initial interest rates lower than those quoted
for fixed-rate, conventional loans.
The record volume of tax-exempt revenue bonds issued by states and localities last year to finance single-family
mortgages provided many homebuyers with reduced-cost mortgage financing. Further, as market rates
rose during the year, homebuyers increasingly switched to adjustable-rate
mortgages. Many such instruments
offered an initial rate advantage of 2
percentage points or more. By yearend, 55 percent of all conventional
mortgage loans closed had a variablerate feature of some kind. When
mortgage rates were at their recent low point in the spring of 1983,
only 30 percent of conventional loans
closed were adjustable. In addition,
such interest-reducing mechanisms as
builders' buydowns and seller financing remained important features of
housing finance during the year.
Nonfinancial businesses continued
Monetary Policy and Financial Markets
to rely to only a moderate extent on
credit markets in 1983; instead, they
took advantage of much improved
cash flows and rising equity prices to
strengthen financial positions and rebuild capital. During the first half of
the year, firms strengthened their balance sheets by shifting borrowing toward debt with longer maturities and
paying down bank loans and open
market paper. However, historically
high interest rates limited this adjustment, and rising credit costs later in
the year sharply reduced the volume
of long-term debt financing. Stock
offerings proceeded at a record pace,
nonetheless, as the strong stock
market not only enabled many large
firms to strengthen their capital positions but also allowed many young
companies to make initial public offerings of their shares.
Commercial banks adapted to important changes in their environment
in 1983. The new deposit accounts
were successful in attracting funds to
both banks and thrift institutions. At
the same time, banks experienced relatively soft demand for business loans,
especially in the first half of the year,
and hence invested heavily in government securities, other market instruments, and loans to consumers. However, credit problems intensified in
21
energy-related businesses, and the financial condition of a number of foreign borrowers remained troubling. A
widespread increase, relative to historical experience, occurred in loanloss provisions. A sizable number of
banks—mostly small ones—experienced credit-quality problems so severe that they were closed or merged
into other institutions. Nonetheless,
the earnings of commercial banks in
general appear to have been well
maintained in 1983.
The condition of the thrift industry
began to improve last year as lower
average interest rates significantly reduced operating losses. As a result of
the MMDA, these institutions enjoyed a substantial increase in core
deposits, and their improved profit
position enabled them to expand large
time deposits at reasonable cost. In
contrast to commercial banks, thrift
institutions faced heavy demands for
loans last year. In 1983, for the first
time, a large proportion of the mortgages they made carried adjustablerate features, thus repairing some of
the severe mismatch in the duration
of assets and liabilities. Nevertheless,
profit positions remain marginal and
highly sensitive to changes in interest
rates.
22
International Developments
The economic recovery that began
in 1982 in industrial countries was
sustained through 1983, though the
pace of the advance varied considerably among countries. Activity in the
United States rose at a rapid rate generally in line with earlier cyclical upturns, but aggregate activity in other
industrial countries progressed much
more slowly. Indeed, among other industrial countries, only Japan and
Canada registered substantial gains;
in Europe the rate of growth of real
GNP over the year was only about
1 Vi percent, not sufficient to generate
significant reductions in unemployment rates. Slow growth was also the
experience of many of the larger developing countries, reflecting their efforts to reduce their external financing
requirements as well as the depressing
effect of relatively slow growth in
many of their foreign markets.
As a consequence of the weakness
of the recovery in foreign industrial
countries and the persistence of a
high degree of idle capacity, inflation
slowed further abroad, though not so
rapidly on average as in the United
States. The reduction in the rate of inflation reflected in part the absence of
a strong exogenous shock, but in the
main it was the result of a general effort among foreign industrial countries to reduce fiscal deficits and
maintain firm monetary conditions.
A prominent feature of the year was
the contrast between the decline in
fiscal deficits abroad as a fraction of
GNP and the expansion of the U.S.
budget deficit.
Another major feature of the year
was the further appreciation of the
U.S. dollar in foreign exchange mar-
kets. From the fourth quarter of 1982
to the fourth quarter of 1983, the
trade-weighted average value of the
U.S. dollar appreciated 6Vi percent;
from the fourth quarter of 1980 the
rise was nearly 50 percent. There are
various explanations for this extraordinary performance, but the sustained, relatively high level of real interest rates in the United States was
certainly an important ingredient.
Other industrial countries probably
would have maintained relatively firm
monetary policies in any case, but
they were also influenced to do so by
the pressure on their exchange rates
exerted by the attractive interest rates
GNP and Prices
1970 = 100
Gross national product
United States
Percent change from previous year
Consumer price index
15
1977
1979
1981
1983
Foreign data are multilaterally weighted averages
for the Group of Ten (G-10) countries plus Switzerland, using 1972-76 total trade weights.
Data for the United States are from the U.S.
Departments of Commerce and Labor.
International Developments
prevailing in the United States. Those
rates, in turn, reflected the uniquely
expansionary stance of U.S. fiscal
policy.
A third feature of the economic
scene in 1983 was the stabilization, at
least for a time, of the international
debt situation. In November the Congress approved the increase in the
U.S. quota in the International Monetary Fund (IMF) and the revised and
expanded General Arrangements to
Borrow, in the total amount of SDR
7.56 billion (about $8 billion at yearend exchange rates). In that legislation the Congress also adopted several provisions intended to improve
the supervision of foreign lending by
U.S. banks. These provisions were
generally in line with recommendations made by the regulatory agencies in April. During the year several
major debtors operated under economic stabilization programs agreed
with the IMF and commercial bank
creditors. Three large debtors (Argentina, Brazil, and Mexico) reduced
their combined current account deficit
from more than $20 billion in 1982 to
an estimated $3 billion in 1983, mainly
through a drastic decline in imports.
Lending by banks to developing
countries outside the Organization of
Petroleum Exporting Countries also
declined rapidly from a net amount of
$31 billion in 1982 to less than $15 billion in 1983. While the groundwork
has been laid for the maintenance of
bank lending at a moderate rate to developing countries, adherence to stabilization programs agreed with the
IMF will be difficult as long as economic growth worldwide is below potential.
U.S. International Transactions
Unprecedented deficits were recorded
in the U.S. trade and current accounts
23
Weighted Average Exchange Value and
Interest Rate Differential
Percent per annum
March 1973 = 100
Interest rate differential
Weighted average exchange
value of the dollar
*-
1980
1981
1982
1983
Exchange value of U.S. dollar is the index of
weighted average exchange value of the U.S. dollar
against currencies of the other G-10 countries plus
Switzerland, using 1972-76 total trade weights.
Interest rate differential is the interest rate on threemonth U.S. certificates of deposit minus the weighted
average three-month interest rate for other G-10 countries plus Switzerland using 1972-76 total trade
weights.
in 1983, as both deficits rose sharply
from their 1982 rates. At the same
time recorded private capital flows
were sharply reversed, from a net outflow of $23 billion in 1982 to an estimated net inflow of $40 billion in
1983. Any evaluation of this reversal
is hampered by the behavior of the
statistical discrepancy in the overall
accounts, which dropped from net receipts of more than $40 billion in 1982
apparently to a negligible amount in
1983. If the residual were attributed
to private capital flows, the combined
amount would be a net inflow of
about $20 billion in 1982 and the 1983
amount would be nearly $40 billion.
The rise in the U.S. trade deficit
from $36 billion in 1982 to $61 billion
in 1983 resulted from a small yearover-year decline in the value of exports combined with a large rise in
imports. Exports reached a low point
late in 1982 and recovered only slight-
24
International Developments
U.S. International Trade
Billions of dollars
U.S. balances on trade and
currrent account
Current account
40
Ratio scale, billions of 1972 dollars
U.S. merchandise trade
80
Total imports
I
1977
!
1979
I
1981
1983
Data are seasonally adjusted at annual rates and are
from the U.S. Department of Commerce.
ly thereafter, held back by the slowness of the economic recovery in most
major trading partners and by the
persistently high level of the exchange
value of the dollar. In the course of
the year exports to Canada and Japan
increased somewhat, but the value of
shipments to Western Europe and to
developing countries declined.
The increase in imports for the year
was widespread across commodities
other than petroleum, and largely reflected the strength of the pickup in
U.S. economic activity. By area, the
increase in non-oil imports came both
from the developing countries (particularly those in Asia) and the industrial countries (particularly Japan and
Canada). Oil imports declined in 1983,
largely because of lower prices as weak
world demand and ample supplies put
downward pressure on prices in world
oil markets. Another factor in the
trade picture was the continuation of
marketing agreements or quotas that
tended to restrict imports of a number of important products. Pressure
for additional limitations on imports
intensified during the year. Such impediments to trade (apart from those
clearly targeted on unfair trade practices by competitors) will ultimately
shrink U.S. and world trade, and they
are especially harmful to developing
countries that need to expand exports
to maintain economic and political
stability.
An enormous swing in bank-reported
capital flows was the main factor in
the shift in recorded private capital
transactions from a large net outflow
in 1982 to a record net inflow in 1983.
Banking offices located in the United
States increased their claims on nonOPEC developing countries by a much
smaller amount than in 1982. Most of
the shift in the net foreign position of
U.S. banking offices, however, reflected rising U.S. credit demands, including greater offerings of U.S. government issues, and the more favorable terms on which banks could raise
funds in the Euromarkets. Net foreign purchases of U.S. securities were
up moderately, including record purchases of U.S. corporate equities in
the period when U.S. equity prices
were rising strongly. Flows reported
for U.S. direct foreign investments
registered a moderate outflow, reversing the unusual net inflow that occurred in 1982. According to the available data and estimates for some
items, the very large positive residual
that appeared in 1982 was eliminated
in 1983. This change suggests a reduction in capital inflows through channels that escape reporting, possibly
indicating a reduction in inflows of
flight capital.
Capital flows related to official re-
International Developments
serve transactions were moderate in
1983. Foreign official reserve holdings in the United States increased
somewhat; reductions in OPEC holdings, and in holdings of some European countries that were intervening
to support their currencies, were offset by increased holdings by other
countries. U.S. official international
reserves increased by a relatively small
amount in 1983, partly because $1.3
billion equivalent of reserves was
25
used to retire the remaining part of
the German mark and Swiss franc
bonds (Carter bonds) issued between
December 1978 and January 1980.
The U.S. reserve position in the IMF
increased when that institution used
dollars to provide financing for member countries, and also when the Treasury paid the reserve-asset part of the
U.S. subscription to the quota increase, using existing holdings of reserve assets.
U.S. International Transactions1
Billions of dollars
Quarter
Year
Transaction
1982
19832
1982
1983
Q4
Current account3
Merchandise trade balance .
Exports
Imports
Investment income (net)4
Other services
Unilateral transfers, private
and government
Private capital flows
Bank-reported capital, net
(outflows, - )
U.S. net purchases ( - ) of foreign
securities
Foreign net purchases ( + ) of
U.S. Treasury securities
Foreign net purchases of other
U.S. securities
U.S. direct investment a b r o a d 4 . . . .
Foreign direct investment in
United States4
Other corporate capital flows, net .
Foreign official assets in
United States (increase, + ) . . .
U.S. government foreign assets,
net (increase, - )
Reserve position in IMF
Convertible currencies and other
reserve assets
U.S. government foreign credits
and other claims, net
Seasonal adjustment discrepancy .
Statistical discrepancy
- 1 1 . 2 -38.0
- 3 6 . 4 -60.6
211.2
200.0
-247.6 -260.6
24.7
27.3
5.6
5.9
-7.8
-8.0
39.6
-22.7
32.6
-45.1
-6.7
-8.0
8.6
7.0
6.1
8.6
3.0
-7.9
Q2
Q3
-3.6
-8.9
49.4
-58.2
5.1
-9.7
-14.7
48.8
-63.5
5.7
1.1
-12.0
-18.2
50.4
-68.7
6.9
1.3
-12.7
-18.8
51.5
-70.3
7.0
1.5
-1.8
-2.1
-2.4
9.5
16.0
17.5
6.1
15.8
16.0
-3.2
-1.1
-.6
1.5
1.7
-2.4
-6.8
-14.7
-3.5
2.3
-1.6
-3.4
-5.3
-1.8
2.9
3.0
0.2
3.1
1.1
2.0
2.0
2.6
-1.0
1.9
-4.1
2.1
-4.5
2.2
-.3
2.4
2.5
2.0
-3.2
7.0
-1.8
-1.1
-0.7
-2.1
-.2
-.1
-2.5
-2.0
1.4
.2
.6
10.4
3.9
9.2
-4.8
2.8
2.4
3.2
5.8
1.7
-10.7
6.1
4.4
-2.9
-.7
-2.6
-2.4
-5.7
41.4
1. Details may not add to totals because of rounding.
2. Data for the fourth quarter are partial and preliminary, and include Federal Reserve staff estimates.
3. The current account is seasonally adjusted; other
accounts are not seasonally adjusted.
Ql
-6.6
-11.4
48.3
-59.7
6.0
1.2
3.2
-1.2
-4.9
-
.9
-1.2
1.0
13.6
-1.1
-1.2
.8
-1.4
-1.2
-1.4
1.3
1.0
-1.5
.8
-10.1
4. Includes reinvested earnings.
* Less than $50 million.
SOURCE. U.S. Department of Commerce, Bureau of
Economic Analysis.
26
International Developments
Foreign Currency Operations
The weighted-average exchange value
of the dollar continued to rise in 1983
but at a slower rate than in 1982. The
further rise in the dollar occurred
while U.S. real interest rates remained
firm relative to foreign rates. Safehaven considerations and the fall in
the U.S. inflation rate probably continued to play significant roles in the
dollar's appreciation. The downward
pressure on the dollar exerted by the
large and growing U.S. current account deficit was evidently overwhelmed by these other factors.
On a bilateral basis the dollar appreciated during 1983 against every
major currency except the yen. The
yen appreciated strongly against the
dollar in late 1982, and since then has
appreciated considerably against other
currencies as Japan's current account
position has strengthened. The German mark displayed particular weakness, depreciating 15 percent against
the dollar during 1983, and the pound
also depreciated significantly against
the dollar. However, both currencies
depreciated less against an average of
foreign currencies.
Major foreign central banks sold
nearly $9 billion in 1983, far less than
the $40 billion they had sold in 1982
to support their currencies against the
dollar. U.S. monetary authorities intervened on seven days during the
year, selling $233 million to purchase
marks and $100 million to purchase
yen. A large part of the sales came in
August, when upward pressure on the
dollar was strong and other countries
intervened heavily. The U.S. purchases of marks and yen were evenly
split between the accounts of the Federal Reserve and the Treasury.
The Federal Reserve held $3,688
million equivalent of foreign currencies at year-end, about three-quarters
of which was in marks. The foreign
exchange translation loss for 1983
was $456 million, resulting mainly
from the depreciation of the mark.
Mexico had $483 million outstanding
on its regular swap line with the System at the beginning of 1983; this
amount was repaid during the year in
two installments, one of $110 million
in January and the other of $373 million in February. An additional $257
million was outstanding on Mexico's
special System swap line at the start
of the year; this amount was repaid
by the end of August. At the beginning of 1983 the Federal Reserve,
under warehousing agreement, held
Indexes of Selected Exchange Rates
December 1979 = 100
Weighted average exchange
Dollar/mark
Weighted average exchange^
value of Japanese ;
100
Weignieu average exchange
rvalue of U.K. pound
120
100
Dollar/pound
1980
1981
1982
1983
The weighted average value for each currency is its
exchange value against the currencies of the other
G-10 countries plus Switzerland using 1972-76 total
trade weights.
International Developments
about $1,300 million equivalent of
foreign currencies for the Treasury.
These funds were used to retire the
last of the Carter notes, which con-
27
sisted of about $900 million of U.S.
Treasury debt denominated in marks
and $400 million of U.S. Treasury
debt denominated in Swiss francs.
28
Monetary Policy Reports to Congress
Given below are reports submitted to
the Congress by the Federal Reserve
on February 16,1983, and on July 20,
1983, pursuant to the Full Employment and Balanced Growth Act of
1978.
Report on February 16, 1983
The Performance
of the Economy in 1982
The recession that began in mid-1981
continued through 1982, bringing the
cumulative decline in real gross national product over that period to 2Vi
percent. Unemployment reached a
postwar high, while industrial capacity utilization fell to a postwar low. At
the same time, however, inflationary
pressures were greatly reduced; and
while some potential obstacles to
growth clearly need attention, an
economic environment conducive to
sustainable recovery and expansion
seemed to be emerging by year-end.
To a considerable extent, the recession and its attendant economic and
financial stresses have reflected the
difficulties inherent in reversing an
inflationary trend that had been gaining momentum for more than a decade. By the late 1970s, the underlying
inflation rate had accelerated to near
the double-digit level, and expectations of rising wages and prices had
become deeply embedded in the behavior of consumers, businesses, and
investors. Growing financial dislocations and economic imbalances made
it plain that inflation was having a
debilitating effect on our economic
performance. Although policies to
curb the inflation were strengthened
considerably in late 1979, the inflation rate remained quite high through
1980 and slowed only a little in 1981.
In this past year, however, the
progress against inflation has been
more dramatic. The rate of increase
in most price measures in 1982 was
only a third to a half the peak inflation rates of 1979 and 1980, a much
faster deceleration than had generally
been thought possible when the year
began. The slowdown was attributable to temporary influences to some
extent, but there also has been more
fundamental progress. In particular,
expectations of inflation are being
scaled down, productivity is improving, and indications of business and
labor adapting their price and wage
practices to the competitive realities
of a new, less inflationary environment are widespread.
Reflecting both the sharp deceleration of price inflation and the cutbacks in economic activity, nominal
gross national product grew only 3 VA
percent over the four quarters of
1982, little more than a third the rate
of growth in 1981. Nevertheless, the
demands for money remained quite
strong, as exceptional economic and
financial uncertainties bolstered investors' desires to hold liquid
balances, and as the attractiveness of
depository accounts was enhanced by
the progressive liberalization of
deposit rate regulations.
The growth in aggregate debt outstanding also was quite strong, with a
particularly steep increase in the
credit needs of the federal government. Federal borrowing was extraordinarily large in the second half of
Monetary Policy Reports
1982, when the federal sector absorbed
nearly half of the funds raised by all
domestic nonfinancial borrowers.
State and local governments, too,
issued substantial amounts of new
debt in 1982, especially late in the
year. Private credit demands, however, were curtailed sharply as
economic activity weakened.
Interest rates fell appreciably in
1982, primarily in the second half. By
the end of the year, short-term rates
were about half the peak levels of
1981, and long-term rates also had
declined considerably. In turn, the
declines in rates helped trigger an improvement in activity toward yearend in the credit-sensitive sectors of
the economy. In particular, automobile sales have perked up in recent
months, and an upturn in the housing
sector gained momentum as the year
progressed. Following an exceptionally rapid liquidation of business
inventories in the fourth quarter, the
pressures to reduce stocks appeared
to be easing early in 1983 as both production and employment increased in
January. All told, these and other recent data provide strong indications
that recessionary forces are dissipating and that the economy may be
entering the initial phases of a new
expansion.
Interest Rates
A year ago, as 1982 began, interest
rates were moving higher in association with stronger demands for
money and credit, reversing a portion
of the decline that occurred as the
economy slipped into recession in the
second half of 1981. However, the
rise in rates was soon halted. Shortterm interest rates showed little net
change from late January through
June, and then fell sharply in the
third quarter, as sluggish money
29
growth through the early part of the
summer reduced the demand for
bank reserves, easing pressures in
money markets. With market rates
falling and the economy still quite
sluggish, the Federal Reserve reduced
its discount rate 2>Vi percentage
points over the second half of the
year in seven separate steps, thereby
accommodating the downward movement in money market rates. During
this period, the broader monetary aggregates were running at or just above
the annual target ranges, but this did
not seem inappropriate in light of
prevailing economic and financial
conditions. By December short-term
rates had fallen around 5 percentage
points from their average levels in
June.
Long-term interest rates also registered substantial declines in the second
half of the year, responding not only
to the easing in money markets, but
also to the sustained moderation of
inflation and to the weakness in
economic activity. On balance, yields
on bonds and conventional mortgages
fell 3 to 4 percentage points between
June and December. The decline in
long-term yields and the promise of a
sustained pickup in economic activity
helped to maintain a sharp rise in
stock prices beginning in the summer,
with several broad market indexes
reaching historic peaks late in the
year and rising to still higher levels in
early 1983.
In addition to the general cyclical
factors affecting interest rates, the
structure of rates across different
markets this past year reflected, to an
unusual degree, investor concerns
about the financial health of borrowers. Severe stress was evident in a high
level of bankruptcies, as well as in
other difficulties experienced by
many businesses and financial institu-
30
Monetary Policy Reports
tions in the United States and abroad.
In these circumstances, lenders began
to assess credit risks more carefully,
demanding larger returns for extending credit to potentially troubled borrowers. Later in the year, however,
these risk premiums dropped to more
normal levels as an easing of overall
credit conditions and anticipations of
a pickup in economic activity relieved
some of the anxieties in financial
markets.
Even with the sharp declines of
1982, interest rates remain at high
levels relative both to their historical
levels and to current inflation rates. A
major factor propping up long-term
rates especially is the prospective size
of federal government deficits, which
threaten to remain massive even as
the economy recovers, thereby competing with the rising demands of private borrowers for available savings.
Moreover, although inflation moderated substantially in 1982, many
potential investors, scarred by the
experience of the 1970s, remained
cautious about the longer-range outlook—and about the government's
commitment to maintain forceful
anti-inflationary policies.
Residential Construction
So far, the housing sector has been
the main beneficiary of falling interest rates. A gradual upturn in
housing activity that began in late
1981 gained momentum in the second
half of 1982 as mortgage rates moved
sharply lower. By last month the interest rate on commitments for conventional fixed-rate mortgages had
dropped to 13 percent from a high of
I8V2 percent in the fall of 1981, and
rates on many types of variable-rate
loans had declined even more.
Homebuyers responded favorably
to the rate reductions, and in the
fourth quarter, sales of both new and
existing homes rose to their highest
levels since the recession began in
mid-1981. Because the inventory of
unsold new homes had been drawn
down to a low level, the improvement
in sales in the second half provided a
direct impetus for new construction
activity. Starts of new single-family
dwellings in the fourth quarter were
up almost 50 percent from depressed
year-earlier levels, with most of that
gain coming in the second half of the
year. Starts of new multifamily units
rose through most of the year, supported in part by federal subsidies.
Consumer Spending
Consumers continued to exhibit cautious spending patterns through most
of 1982. Despite sharp reductions in
personal tax liabilities at midyear,
real after-tax income rose only 0.6
percent during the year, as reductions
in employment cut deeply into wage
and salary payments. At the same
time, consumers were reluctant to
finance purchases by taking on new
debt. Domestic auto sales remained
depressed through most of the year,
with the pace for 1982 as a whole the
worst in more than two decades.
Foreign car sales also fell, but much
less than sales of domestic makes.
Nevertheless, the economic situation in the consumer sector appeared
to be improving as the year ended.
With liquidity up and debt burdens
down, consumers' financial positions, in the aggregate, have improved
considerably from the overextended
positions of the late 1970s. Consumer
confidence began to perk up in the
second half of 1982 as inflation remained moderate and as interest rates
on consumer loans began gradually to
decline. Spending, most notably on
durable goods, started to grow more
Monetary Policy Reports
rapidly toward year-end. Sales of
domestic autos rose significantly in
November and have been maintained
at a higher level into early 1983, apparently reflecting financing concessions as well as changes in manufacturers' design and pricing policies.
Retail sales excluding autos also rose
a little in late 1982, and in the fourth
quarter, total consumer spending registered its strongest gain, in real
terms, since late 1980.
Business Sector
The persistent weakness of economic
activity in 1982 led to considerable
stress in the private business sector.
Among nonfarm businesses, low
operating rates depressed corporate
profits, and the financial condition of
many firms weakened under the
burden of reduced availability of internal funds, heavy short-term indebtedness, and high interest charges.
Credit ratings deteriorated for many
businesses, the incidence of dividend
reductions or suspensions increased,
and business bankruptcies rose to a
postwar high.
Signs of growing financial distress
also were evident in the farm sector of
the economy. Because of weak demand and exceptionally large crop
harvests in 1982, farm prices slumped
and income was low for the third year
in a row. Land prices in the farm sector have fallen substantially in some
areas since mid-1981, farm proprietors' equity has declined, and debt-toasset ratios have risen noticeably in
the past two years. Difficulties in servicing debt have increased, especially
among those farmers who came to rely
more heavily on credit financing in
earlier years, and farm bankruptcies
and foreclosures have become more
numerous.
Confronted with weak demand and
31
financial strains, many business firms
moved aggressively in 1982 to trim inventories and curtail capital spending. In real terms, total fixed investment expenditures in the business sector fell more than 8 percent over the
four quarters of 1982. Cutbacks in
spending for equipment accounted
for nearly all of the decline; purchases fell especially rapidly for
heavy industrial machinery such as
engines, construction equipment,
farm machinery, and transportation
equipment.
Business investment spending on
nonresidential structures slowed in
the first half of 1982 and then turned
down in the second half. Much of the
decline was concentrated in outlays
for oil and gas drilling, which fell
sharply over the year as drilling incentives weakened in response to worldwide reductions in energy demand
and declines in petroleum prices. In
contrast, business spending for new
buildings was well maintained
through 1982, although part of this
strength probably reflected the continuation of projects started some
time ago. Forward-looking indicators, such as the constant-dollar
value of new construction contracts,
fell substantially during the year
while vacancy rates for office buildings climbed sharply. These and other
indicators suggest that capital spending by businesses, especially for construction, could continue to weaken
for some months.
Depressed aggregate demand also
caused businesses to liquidate inventories at a rapid pace in 1982. The
weakening of final sales in the second
half of 1981 had led to an unintended
buildup of inventories, and in early
1982 businesses began liquidating
those excess stocks at a rapid pace.
However, the runoff of inventories
32
Monetary Policy Reports
halted around midyear, possibly because businesses generally anticipated
a midyear upturn in sales. When no
such upturn occurred, a second round
of inventory liquidation began, and
stocks were reduced at a particularly
rapid pace in the fourth quarter. By
year-end many industries had reduced
inventories to below prerecession
levels, but stocks in some sectors still
appeared large relative to the prevailing sales pace.
Reflecting the reductions in inventories and capital spending, businesses
reduced their credit usage appreciably
in 1982. The strong rally in the stock
market that began during the summer
also helped reduce borrowing, as
firms started relying more heavily on
equity financing and relatively less on
new debt issuance. Falling long-term
interest rates enabled businesses to
accomplish some lengthening of their
debt maturities toward the end of
1982, but even so, business balance
sheets at year-end were heavily laden
with short-term debt.
Government Sector
Total government purchases of goods
and services rose 2Vi percent in real
terms during 1982, about the same as
in the previous year. At the federal
level, real outlays for national defense expanded rapidly for the second
year in a row. Spending also rose considerably for agricultural programs,
as the federal government accumulated farm inventories under programs designed to keep farm prices
and farm incomes from falling further. Federal purchases of other
goods and services, on balance, were
cut back sharply.
The credit demands of the federal
government rose steeply in 1982, and
accounted for almost 40 percent of
total credit flows to the domestic non
financial sectors of the economy.
Federal borrowing from the public
rose from $87 billion in 1981 to $161
billion in 1982, as the federal deficit
widened in response to weak growth
in taxable incomes, reductions in tax
rates, the further rise in government
purchases, and a recession-induced
increase in unemployment compensation and other transfer payments.
Real purchases of goods and services by state and local governments
were little changed over the four quarters of 1982. Faced with a recessioninduced shrinkage in tax revenues and
cutbacks in federal support, many
state legislatures enacted increases in
sales, income, or corporate taxes to
help maintain service levels. In addition, state and local borrowing increased substantially, not only to
finance traditional functions but also,
in a number of cases, to support mortgage lending in local communities. A
surge in new bond issues in the fourth
quarter was in part an attempt by
state and local governments to raise
funds before a requirement to register
all new issues of tax-exempt securities
after year-end (later postponed to
mid-1983) was scheduled to take
effect.
International Payments and Trade
Following a steep advance in 1981,
the weighted-average value of the
dollar appreciated another 20 percent
from the beginning of 1982 through
early November. The strengthening
apparently was in large part a
response to the progress made in reducing inflation and the sense of a
continuing commitment of U.S. authorities to ensure greater economic
stability. Moreover, during a period
of major strains in the international
financial system and considerable
economic uncertainty, there evidently
Monetary Policy Reports
was a view that dollar assets, especially U.S. assets, would provide a "safe
haven." Since early November the
foreign exchange value of the dollar
has fallen a little, on net, as market
participants have reacted to the prospect of very large deficits in 1983 in
the U.S. merchandise trade and current accounts.
A movement toward deficit in the
U.S. current account was already evident in 1982. Reflecting the effects of
the strong dollar, as well as sluggish
economic growth abroad, real exports
of goods and services decreased 13
percent over the four quarters of 1982.
The volume of imports of goods and
services also declined during 1982,
but the decline was smaller than for
exports; the increasing price competitiveness of foreign goods, which resulted in part from the strong dollar,
helped support import demand. As a
result of these trade patterns, net exports, in real terms, fell $15 billion
over the four quarters of 1982; the
trade sector thus made an atypically
large contribution to the recession.
The U.S. current account, which was
in small surplus for 1981 as a whole,
recorded surpluses in the first half of
the year but then swung into deficit in
the second half as exports weakened.
The external financial position of
several large borrowing countries—
notably Argentina, Brazil, and Mexico
—worsened in 1982. These financing
problems have placed severe strains
on the banking system and on international markets generally, as the
need arose to refinance or reschedule
existing debt. During the year, borrowers and private and official lending institutions made repeated cooperative efforts to address these
problems, and the debtor countries,
to gain control of rising debt burdens,
are adopting strong policies of inter
33
nal and external adjustment. As a
result, debtor countries have reduced
their demand for exports from major
industrial countries, particularly the
United States because of its close ties
to Latin America.
Labor Markets
Employment in the United States fell
steadily throughout 1982, and by
year-end total nonfarm payroll employment was more than 2% million
below its July 1981 peak. As is typical
in recessions, the largest job losses
were in the cyclically sensitive manufacturing and construction industries.
In addition, employment fell in the
oil- and gas-drilling industries, and
trade employment suffered an unusually sizable decline. Employment
in the service sector continued to
grow in 1982, but at a slower pace
than in recent years.
The back-to-back recessions of the
early 1980s were accompanied by a
rise in total unemployment of about
5Vi million, and by the end of 1982,
the unemployment rate, at 10.8 percent, was nearly 2 percentage points
above its previous postwar peak. Increases in unemployment were especially large among adult men, who
hold a disproportionate number of
jobs in the cyclically sensitive industries. As the recession persisted
through 1982, the number of workers
unemployed for longer than a halfyear increased to more than 2Vi million. In order to support the incomes
of these long-term unemployed, the
period of eligibility for unemployment benefits was lengthened twice,
to as much as 55 weeks for some
workers.
Nevertheless, a little improvement
in labor demand began to be evident
around the turn of the year. The incidence of layoffs appeared to be
34
Monetary Policy Reports
moderating toward the end of 1982;
unemployed workers have been recalled in some industries. And in
January of this year, the civilian unemployment rate declined to 10.4
percent.
that business output was still declining cyclically; normally, productivity
tends to slump in the contraction
phase of the business cycle as firms
reduce output by more than the hours
worked.
Wages and Labor Costs
Prices
In 1982, all major price indexes advanced at considerably slower rates
than in 1981, and for some price
measures, the increases in 1982 were
the smallest in more than a decade.
The consumer price index rose 3.9
percent over the year, compared with
121/2 percent just two years earlier.
Capital goods prices were up less than
half as much as in 1981, and prices
were little changed for a broad range
of materials used in manufacturing
and construction.
In many ways the slowing of inflation this past year has reflected the
pervasive influence of the recession
on product and labor markets. In addition, the strength of the dollar has
helped to hold down the prices of
U.S. imports; bountiful harvests have
contributed to declines in agricultural
prices; and the worldwide recession
has depressed the prices of oil and
other commodities. Although these
influences themselves may prove to
be temporary, the foundation is now
in place for more lasting gains against
inflation. In particular, the wageprice interactions that served to
perpetuate inflation through the
1970s appear to have lost much of
their momentum. Workers generally
are agreeing to smaller pay increases
than in earlier years, and in some sectors in which long-term wage agreements are prevalent, the settlements
concluded in 1982 will help ensure
diminished labor cost pressures in
coming years. Lower labor costs are
relieving pressures on prices, and, in
The falloff in labor demand in 1982,
along with the general unwinding of
inflation, led to a sharp slowing in the
rise of wages and labor costs. The
wage rates of production workers increased about 6 percent during 1982,
the smallest advance in 15 years. The
moderation in wage increases was especially striking among new contracts
negotiated under major collective
bargaining agreements; in 1982, firstyear wage increases under these
agreements averaged 33/4 percent, less
than half the average increases reached
when these workers last negotiated.
In some particularly hard-pressed industries, workers agreed to new contracts that eliminated altogether the
fixed wage increases that had been
customary in past wage agreements,
and in some cases there were outright
wage reductions. Nevertheless, with
price inflation slowing even more
rapidly than nominal wages, real
wage rates in the nonfarm business
sector actually rose faster than in
most recent years.
Labor costs per unit of output were
up only AYi percent over the four
quarters of 1982, as an improved productivity performance reinforced the
impact of slower nominal increases in
wages and benefits. Qualitative reports throughout the year suggested
that business firms, many of them
hard-pressed financially, were engaged in aggressive efforts to cut costs
and bolster efficiency. Productivity
gains in the second half of the year
were particularly noteworthy, given
Monetary Policy Reports
turn, an improved price performance
is reducing expectations of inflation
and thus leading to a further slowing
of labor costs. This cumulative process of disinflation still appeared to
have momentum at year-end, thereby
providing solid grounds for continuing better price performance in 1983.
The Growth of Money and
Credit in 1982
The Federal Reserve has been seeking
to provide enough liquidity to facilitate an early upturn in economic activity, while maintaining the monetary discipline needed to sustain the
progress toward lower rates of inflation—a crucial element in satisfactory
economic performance over the
longer run. The specific monetary
target ranges chosen by the Federal
Open Market Committee (FOMC)
last February and reaffirmed in July
were as follows, with growth measured from the fourth quarter of 1981
to the fourth quarter of 1982: for Ml,
2Vi to 5Vi percent; for M2, 6 to 9 percent; and for M3, 61/2 to 9Vi percent.
The associated range for bank credit
was 6 to 9 percent at an annual rate,
measured from the average level of
December 1981 and January 1982 to
the fourth quarter of 1982; the base
period for bank credit was selected to
minimize distortions from the shifting of assets to newly established international banking facilities, first
authorized in late 1981.
It was recognized when selecting
these ranges that several factors could
affect the relationship of monetary
and credit growth to income and expenditure in the economy. In particular, the Committee contemplated that
Ml might deviate for periods of time
from expected patterns of growth in
the event that economic and financial
35
uncertainties fostered unusual desires
for liquidity. Such desires had already
been indicated by a surge in growth
around year-end 1981, at which time
it was believed that vigorous efforts
to bring money back within target
ranges rapidly would not be appropriate when the economy was still quite
weak. In addition, the demand for
Ml was seen as likely to demonstrate
a continuing sensitivity to changing
financial technology and the proliferation of new money- and near-moneytype instruments. The Committee
also anticipated that the broader aggregates, M2 and M3, might be affected by legislative and regulatory
changes, such as broadened eligibility
for individual retirement accounts
(IRAs) and Keogh accounts and the
ongoing deregulation of deposit
rates, as well as unusual desires for
liquidity. In July, while the Committee decided to retain the ranges
adopted earlier for monetary growth,
it underscored in its report to the
Congress its willingness to accommodate any unusual precautionary
demands for liquidity that might be
associated with unsettled economic
and financial conditions.
The behavior of the aggregates over
the year indeed diverged substantially
from normal historical patterns. Precautionary motives evidently boosted
demands for money and other highly
liquid assets relative to the expansion
of nominal GNP, which remained
quite sluggish. Ml expanded 8V2 percent on a fourth-quarter to fourthquarter basis, 3 percentage points
above the FOMC's target range,
largely reflecting relatively rapid
growth over the course of the year in
interest-bearing checking accounts
that also serve a savings function. In
addition, Ml growth was boosted by
special developments late in the year
36
Monetary Policy Reports
in connection with the large amounts
of maturing all savers certificates.
The broader aggregates, M2 and
M3, expanded at rates of 9.2 and 10.1
percent respectively, much closer to—
though still somewhat above—the upper limits of their ranges. These
growth rates for M2 and M3 are
lower than those observed before
some recent changes in money stock
definitions, the previous figures being
9.8 and 10.3 percent respectively. To
maintain consistency in the treatment
of various kinds of financial assets,
M2 and M3 now include balances in
tax-exempt money market mutual
funds, which have attributes very
similar to those of the highly liquid
taxable money funds, and exclude
balances in IRAs and Keogh accounts, which closely resemble pension funds and consequently are
much less like money balances. The
table shows figures for growth of M2
and M3 in recent years under both the
old and the new definitions.
The income velocity of various
measures of money—defined as the
ratio of gross national product to
measures of money—fell sharply in
1982. The velocity of Ml dropped 4VA
percent and that of M2 5Vi percent,
from the fourth quarter of 1981 to the
fourth quarter of 1982. For Ml, this
was the largest four-quarter decline in
the postwar period, and in fact there
have been very few four-quarter
spans in which Ml velocity declined
at all. In the case of M2, no parallels
for the steep velocity decline of last
year are to be found since the 1950s.
Although declines in velocity of M2
have not been uncommon during periods of recession, in past periods
they were explainable largely in terms
of reflows of funds from securities into M2-type balances when market
rates of interest fell below deposit
rate ceilings—a factor of much reduced importance in the present regulatory environment and with the emergence of money market mutual funds
as an important investment outlet.
The recent weakness in velocity more
Growth of Money and Credit1
Percentage change
Period
Ml
New
M2
Old
M2
New
M3
Old
M3
Bank
credit2
Outstanding debt
of domestic
nonfinancial
sectors
Fourth quarter
to fourth quarter
1978
.
. . .
1979
1980
1981
1982P
8.2
7.4
7.2
5.1 (2.5)
8.5
8.0
8.1
9.0
9.4
9.2
8.2
8.4
9.2
9.5
9.8
11.1
9.6
9.7
11.7
10.1
11.3
9.8
10.0
11.4
10.3
13.3
12.6
8.0
8.1
7.1
12.9
12.1
9.9
9.9
9.5
Annual average
to annual average
1978
1979
1980
1981
1982P
8.2
7.7
6.2
7.2(4.8)
6.5
8.5
8.2
8.0
9.5
9.4
8.8
8.5
8.3
9.8
9.8
11.5
10.2
9.0
11.6
10.5
11.7
10.3
9.3
11.6
10.5
12.4
13.6
8.6
9.4
5.8
12.2
13.1
12.3
10.0
10.0
1. Ml and the new M2 and M3 figures incorporate
minor effects of benchmark and seasonal adjustment
revisions. New M2 and M3 incorporate definitional
changes as well.
Ml figures in parentheses are adjusted for shifts to
NOW accounts in 1981.
2. Bank credit data are not adjusted for shifts to international banking facilities in 1981 and 1982. The
1982 growth rate, however, is calculated from a
December 1981 and January 1982 base to minimize
distortions owing to such shifts.
p Preliminary.
Monetary Policy Reports
probably reflects strong demands for
relatively safe, liquid assets on the
part of the public because of uncertainties in the business and financial
outlook.
Further evidence of strong precautionary demands is to be found in the
particular types of monetary assets
that the public chose to acquire last
year. Interest-bearing negotiable order
of withdrawal (NOW) accounts—
which are included in Ml—continued
to expand rapidly, though growth
was, of course, less rapid than in 1981
when they first became available nationwide. Such deposits, while serving the transaction needs of holders,
have many of the characteristics of
savings accounts, which in the past
have tended to grow during periods
of economic adversity. Indeed, during the first half of last year, when interest rates on other investments were
still relatively high, individuals began
once again to add to their savings
balances following a long downtrend
in such deposits; growth in savings
deposits surged once more in the final
months of 1982, apparently buoyed
in part by deposits of proceeds from
maturing all savers certificates. The
attractiveness of NOW and savings
accounts no doubt was enhanced
after midyear as lower interest rates
reduced the earnings disadvantage of
keeping funds in such highly liquid
form. Other types of liquid assets included in the aggregates also grew
rapidly in 1982. A sizable buildup of
balances occurred in the 7- to 31-day
accounts and 91-day accounts at depository institutions, soon after these
accounts were authorized in May and
September respectively. Shares of
money market mutual funds also increased substantially, albeit much less
rapidly than in 1981, when many people were first attracted to these sav
37
ings vehicles. By contrast, inflows to
longer-maturity time deposits were
moderate.
The apparent strong desire for liquidity, and the associated shifting in
asset demands, had an important
bearing on the FOMC's assessment of
the behavior of the aggregates as the
year progressed. The Committee felt
that some growth in the aggregates
above the longer-run target ranges
could be tolerated in the prevailing
economic conditions, which appeared
to be giving rise to greater precautionary demands for money than might
be anticipated in normal circumstances. The lengthening recession
and associated economic dislocations
prompted more cautious financial
management on the part of households and businesses, and this attitude of caution in financial markets
was intensified from time to time by
concerns about strains on some financial institutions and about the ability
of private and governmental borrowers in a number of foreign countries
to meet their debt-service obligations.
The latter part of the year, moreover,
brought a number of institutional developments that further complicated
the interpretation of the movements
in the money supply, necessitating a
more than ordinary degree of flexibility in responding to incoming data
on monetary growth.
Recognized in the early fall was
that the behavior of Ml during the
final three months of the year would
very likely be distorted by special factors. In particular, an extremely large
volume of all savers certificates
matured beginning in early October,
and this volume was expected to have
sizable temporary effects on Ml.
Also of potential importance was the
introduction (mandated by the GarnSt Germain Depository Institutions
38
Monetary Policy Reports
Act of 1982) of new deposit instruments for banks and thrift institutions that were to be competitive with
money market mutual funds. In the
event, the Depository Institutions
Deregulation Committee authorized,
beginning December 14, depository
institutions to offer a money market
deposit account (MMDA), which
could be used to a limited extent for
transaction purposes and would be
free from interest rate ceilings, and
authorized Super NOW accounts free
of interest rate ceilings beginning
January 5.
MMDAs, because of their more
limited transaction feature, are included only in the broader aggregates,
while Super NOWs, which have
unlimited transaction features but
also include a savings element, are included in Ml. These distinctions are
not clear-cut, and they illustrate the
increasing fuzziness of the dividing
line between Ml- and non-Ml-type
balances. In fact, in making this
definitional decision, the Federal
Reserve Board noted that it would be
monitoring carefully the behavior of
the new accounts to determine
whether some alteration in their treatment might be advisable.
The sizable shifts of funds that
might result from these developments
in the fourth quarter—and, in the
case of the new accounts, possibly
even shifts in anticipation of their
availability—seemed likely to have
direct and indirect effects on Ml that
would be large in magnitude and
would, particularly in the case of the
new accounts, affect the underlying
behavior of narrow money as the
public reallocated transaction and
savings funds. As a result, the FOMC
at its October meeting decided that it
would give considerably less weight to
Ml in the conduct of policy and rely
more on the broader aggregates, M2
and M3. It anticipated in this decision
that the special factors affecting
growth of Ml in the fourth quarter
would have a much smaller impact on
M2 and M3 because a major portion
of the shifts of funds would occur
among assets contained in these
broader aggregates; for example, proceeds from maturing all savers certificates (a component of M2) that were
deposited in transaction balances
would remain part of M2. However,
it was recognized that the advent of
the MMDA might boost expansion of
M2 late in the year.
In late December, growth of M2 in
fact was raised by sizable inflows to
MMDAs from sources outside M2—
such as market instruments and large
certificates of deposit—and growth
continued at an extraordinarily rapid
pace into the early weeks of 1983. The
new accounts were heavily advertised
by the depository institutions and
often were offered initially at interest
rates that were exceptionally high
relative to prevailing rates on comparable investments. By year-end,
MMDAs outstanding had risen to a
level of about $87 billion, and by the
end of January 1983 were about $230
billion. Growth of Super NOW accounts was much slower, reaching
about $18 billion by the end of
January.
Commercial bank credit grew 7.1
percent in 1982, near the midpoint of
the FOMCs range. The pace of bank
loan growth during the year was considerably affected by changes in the
pattern of business financing. During
the first half, when the persistence of
high long-term interest rates encouraged firms to concentrate their borrowing in short-term markets, business loans at banks expanded rapidly.
But as interest rates moved lower over
Monetary Policy Reports
the second half, corporations increasingly shifted their financing to longterm debt and equity markets; in the
third quarter, business loan growth
slowed sharply, and in the fourth
quarter these loans showed no net increase, as corporations used the proceeds from bond sales to avoid increasing bank indebtedness. Real
estate loans at banks also slowed as
the year progressed and, for the year
as a whole, increased only 5l/2 percent
—a rate below that of recent years.
Consumer loans continued weak, expanding only 3 Vi percent. While loan
growth slowed, banks greatly expanded their holdings of U.S. Treasury obligations during the year, acquiring close to $13 billion in the final
quarter alone.
The Federal Reserve's
Objectives for the Growth
of Money and Credit
The economy over the past year and a
half has passed through a most difficult period, one of high unemployment, depressed incomes, and severe
distortions in financial markets. There
is substantial evidence that the recession is ending. Forces seem to be in
place that are consistent with recovery
in economic activity. One positive
factor is the improvement in financial
market conditions in the past six
months, which is stimulating activity
in major credit-sensitive sectors of the
economy. A better balance is being
established between inventories and
final demands. Inflationary expectations, while still sensitive, have
abated. Substantial progress toward
restoring price stability has been
made and there is good reason to believe that further progress can be
achieved even as business activity
39
picks up. An improvement in productivity should bolster growth in real income and profitability during recovery and can be a factor in sustaining
better price performance. Diminishing inflation and a lowering of inflation expectations, in turn, should
promote further declines in interest
rates.
Against this backdrop, monetary
policy has been, and will continue to
be, concerned with fostering a lasting
expansion in business economic activity in a framework of continuing
progress against inflation. Monetary
expansion and liquidity should be
adequate to support the moderate
recovery that appears to be starting.
At the same time, although the recent
gains that have been made against inflation are highly encouraging, clearly the test of the success of our antiinflationary effort is still ahead.
Thus, the Federal Reserve remains
committed to a course of monetary
discipline that is essential to avoid a
resurgence of inflationary pressures
as economic expansion proceeds.
In setting guidelines for monetary
growth consistent with these goals,
the Federal Open Market Committee
recognized that the relationship between growth ranges and ultimate
economic objectives had deviated
substantially from past patterns during 1982. As noted earlier, monetary
growth was quite rapid relative to income, and by year-end exceeded the
targets set by the Committee for 1982.
This growth, however, appeared fully
consistent with the needs of the economy and progress against inflation,
given the indications of unusual demands for monetary assets that persisted during the past year. With
velocity declining sharply, rigid
adherence to the 1982 targets would
have produced a much more restric-
40
Monetary Policy Reports
tive economic effect than was appropriate.
The atypical behavior of velocity
last year will likely prove at least in
part temporary, to be followed by an
unwinding of the exceptional liquidity demands this year; appreciable increases in Ml velocity, in particular,
are common during the early stages
of economic recovery. It may well be
that the experience of 1982 reflected
in part a more basic shift in underlying demands for money, at least as
now defined. Institutional changes
have led to the increased availability
of transaction accounts that pay interest tied to market rates, and this
availability is likely to affect the trend
growth of money. The deceleration of
prices may increase the incentives to
hold money over time, especially as
the reduced inflation is reflected fully
in market interest rates. These considerations suggest that velocity in
1983 may well follow a pattern different from that of past recoveries. In
setting targets for 1983, account had
to be taken of the experience of 1982,
past cyclical behavior, and the possible alteration of underlying relationships between money and ultimate
economic objectives.
The members of the FOMC also
recognized that the introduction of
new deposit instruments very recently
has affected, and would continue to
affect for a time, the growth rates and
behavioral characteristics of the various aggregates. The extremely rapid
buildup of money market deposit accounts, in particular, already has
resulted in a substantial flow of funds
into M2 from market instruments,
greatly inflating the growth of this aggregate in the current quarter. Anticipations are that the redistribution of
funds associated with the MMDAs
and, to a lesser extent, Super NOW
accounts will continue to influence
the behavior of the aggregates, though
the effect of such shifts on the growth
rates of the different monetary measures clearly cannot be determined
with a high degree of confidence.
While the effects of these new deposit instruments on Ml seemed
smaller than might have been expected to date, the rapidly changing
composition of Ml since the introduction of nationwide NOW accounts at the beginning of 1981 seems
to have altered and made less predictable the behavior of that aggregate. The NOW accounts appear to
behave partly like savings accounts
and partly like transaction accounts.
Thus, the pattern of Ml movements
has come to be influenced by individuals' attitudes toward saving as well
as by transaction needs and interest
rates. As a result, the relationship of
this aggregate to income may well be
in the process of change that, by the
nature of things, can be accurately
determined only as new behavior patterns are reflected over time in the
data. Though they have not grown
rapidly in the early weeks of the year
when depository institutions were
promoting MMDAs so aggressively,
Super NOW accounts, which can be
offered free of interest rate ceilings,
have the potential for further disturbing Ml behavior relative to historical
tendencies.
All of these factors contributed to
the complexity of setting target
ranges for 1983, and the Committee
recognized that an unusual degree of
judgment would be necessary in interpreting the growth of money and
credit in coming months. Some flexibility in reassessing the ranges could
be important. The Committee decided
to continue setting target ranges for
all three measures of money, but with
Monetary Policy Reports
some departures from past practice to
deal with the special uncertainties it
faces currently.
In the case of M2, the Committee
felt that performance of this aggregate would be most appropriately
measured from a base period that
would be less affected by the initial,
highly aggressive marketing of
MMDAs. Thus, the expected growth
of M2 is 7 to 10 percent, measured
from the average level of February
and March 1983 to the average level
of the fourth quarter of this year.
This range is 1 percentage point
higher than that set for M2 last year,
but it makes allowance for some further shifting of funds into MMDAs
from non-M2 sources over the remainder of the year, although at a
greatly reduced pace from what evidently has occurred to date.
The range for M3 was set at 6V2 to
9Vi percent, measured in accordance
with past convention from fourth
quarter to fourth quarter. This range
is identical to that set for 1982, but
the Committee contemplates growth
below the actual outcome last year. In
adopting the range, the Committee
assumed that any net shifts of funds
over the year into the new types of
deposit accounts from market instruments would be moderate. M3
was expected to be less affected by the
new accounts because many depositories have the option of reducing
their issuance of large CDs if sizable
inflows of MMDAs and other core
deposits satisfy their needs for funds.
Whether this in fact turns out to be
the case will depend in part on the
public's perceptions of the risks entailed in uninsured investments and
on the ability and desire of depository
institutions to use their new liability
powers to expand their market shares
in financial intermediation.
41
For Ml, a growth range of 4 to 8
percent was specified for the period
from the fourth quarter of 1982 to the
fourth quarter of 1983. This range,
while pointing to slower actual growth
than in 1982, is both wider and higher
than the range tentatively set last July.
The new range reflects allowance for
a possible change in cyclical behavior
as well as for the evolving character
of Ml as a more important repository
for savings, especially in an environment of lower inflation and lower interest rates. The comparatively wide
range set for Ml also reflects the Committee's judgment that some allowance should be made in this fashion
for the uncertainties introduced by
the existence of the new deposit accounts.
An associated range for total
domestic nonfinancial debt was estimated at %Vi to 11 Vi percent over the
four quarters of 1983. This range encompasses growth about in line with
expected growth of nominal GNP, in
accordance with long-term trends;
however, Committee analysis of the
outlook suggested that, in the particular circumstances of 1983, somewhat more rapid growth of credit also
might be consistent with its overall
objectives. Owing to the extraordinary size of the federal budget deficit,
the share of credit flowing to the
private sector is expected to be lower
than that experienced generally in the
past. The commercial bank share of
total debt expansion is also expected
to put bank credit growth at between
6 and 9 percent this year.
The Committee members agreed
that the monetary ranges should be
reviewed in the spring in light of the
accumulated evidence available at
that time regarding the behavior of
the aggregates and their relationship
to other economic variables. For the
42
Monetary Policy Reports
time being, in implementing monetary policy, the Committee agreed that
substantial weight would be placed on
the behavior of the broader aggregates—M2 and M3—in anticipation
that current distortions from the initial adjustment to the new deposit accounts will abate. The behavior of
Ml will be monitored, with the degree
of emphasis given to that aggregate
over time dependent on evidence that
velocity behavior is resuming a more
predictable pattern. Debt expansion,
while not targeted directly, will be
evaluated in assessing the behavior of
the money aggregates and the impact
of monetary policy.
The Committee emphasized that
policy implementation in 1983 necessarily will involve a continuing appraisal of the relationships between
each of the measures of money and
credit and economic activity and
prices, particularly in the aftermath
of the unusual behavior of the velocities of both money and credit aggregates last year. This appraisal will involve taking account of patterns of
saving behavior and cash management among businesses and households and of indications of changing
conditions in domestic and international credit markets and in foreign
exchange markets.
The Outlook for the Economy
There are encouraging signs that the
economy will soon be in the early
stages of an economic upturn, if indeed the expansion has not already
begun. In its initial phases, the economic recovery may be less robust
than the average postwar expansion,
but, at the same time, the chances
that the recovery can be sustained
over the long run have been considerably enhanced by the significant
progress against inflation in the past
year or so.
Indications that the economy is
turning up have been apparent in recent weeks. The housing sector appears to be well along in the recovery
process, as both house sales and new
construction have registered significant advances. Retail sales also
picked up toward the end of 1982 and
held steady in January; auto sales in
particular have been at improved
levels in recent months. In the business sector, inventory liquidation
apparently has become less of a depressant of real activity, as both industrial production and employment
showed appreciable gains in January.
To be sure, because of the length of
the recession and the stresses and
uncertainties it has generated, consumers and businesses may follow
cautious economic strategies in coming quarters. In the business sector a
high degree of unused industrial
capacity probably will discourage investment spending for some time, as
firms boost the operating rates for
existing plant and equipment, rather
than investing in new physical capital;
commercial construction in the office
building area may be particularly
weak for a while. The export sector
may well continue to be a drag on
U.S. economic activity well into 1983.
Exports fell sharply in the second half
of last year, and given the widespread
weakness in foreign economies and
the still high value of the dollar, a
quick turnaround in export demand is
not likely.
Although the January employment
report provided encouraging signs of
improved labor demand, the gains in
coming months, on balance, may be
relatively moderate in view of the
uncertainties still present in the business environment. As demands pick
Monetary Policy Reports
up initially, businesses appear likely
to boost output in part by lengthening
work schedules or improving efficiency, rather than by committing themselves fully to higher levels of employment. Therefore, during the early
stages of the recovery, the unemployment rate probably will be slow to
retrace the increases sustained during
the past recession. The difficulties of
bringing unemployment down quickly may be compounded by structural
changes now apparent in the U.S.
economy; although the service sector
and industries in the forefront of
technology will be adding employees,
job opportunities in some traditional
industries may be trending lower over
a long period, and legitimate concern
exists about the ability of displaced
workers to find new employment
readily in the expanding sectors.
Nevertheless, once the recovery is
under way, the chance that it can be
sustained appears good. Fiscal policy
is providing significant near-term
support for the economy through a
continued rise in defense spending,
countercyclical transfer payments,
and further tax cuts. The current
monetary policy, too, is consistent
with an expansion: barring some unexpected reemergence of serious inflationary pressures in 1983, the
monetary growth targets established
by the FOMC should provide the
liquidity needed to support a recovery
in real activity.
A resurgence of inflation seems unlikely in the near term, even though
some commodity prices may rebound
from cyclically depressed levels as the
recovery takes hold. The underlying
trend in labor costs appears to have
moved down. In addition, the current
supply situations in agricultural and
energy markets appear conducive to
continuing progress against inflation;
43
indeed, recent developments in the international oil market seem to portend quite favorable price movements
for this key commodity.
There still are, however, reasons
for concern about the longer-run
outlook for the economy. One major
source of concern is the prospect that
federal deficits will continue to be
massive in the years ahead, even as
the economy is well along in the expansion. This prospect suggests a
serious risk that pressures on credit
markets will mount as the credit demands of private borrowers grow
with the recovery. In addition, the
prospective deficits tend to cast doubt
on the commitment of economic
policy to gain control of inflation
over the long run. For these reasons,
the budgetary picture continues to
have an unsettling influence on financial markets, and lenders remain hesitant to commit funds for a long period, except at interest rates that are
high relative to the current pace of
inflation.
Overcoming the still deep skepticism about the anti-inflation effort is
crucial in other ways to the achievement of strong and sustained economic growth. Generally recognized
is that periods of slowing inflation in
the past two decades have proved to
be temporary, and unless the commitment to see the present effort through
is made fully credible by the actions
of the fiscal and monetary authorities, there will be a danger that as
markets improve with recovery we
will see a reversion to aggressive patterns of wage and price behavior. If
this came to pass, the viability of the
economic expansion would be severely jeopardized.
We need, too, to deal with the
strains existing in the international
financial arena. Timely action to
44
Monetary Policy Reports
enhance the resources of the International Monetary Fund is essential.
But more generally, we must maintain the spirit of cooperation among
borrowers, lenders, and governmental authorities that has been the hallmark to date of the effort to resolve
the difficult problems confronting us.
The members of the Federal Open
Market Committee, together with
other Federal Reserve Bank presidents who alternate as Committee
members, believe that the economic
expansion that now appears to be
starting will result in a solid gain in
real GNP over the four quarters of
1983. The increases expected are
moderate in comparison with the first
year of most past recoveries, and the
consensus is that these gains can be
achieved without a resurgence in inflationary pressures, especially in
light of the favorable underlying
trend of unit labor costs.
In formulating these projections
for 1983, members of the FOMC and
the presidents of the Reserve Banks
took account of the target ranges
established for the various monetary
and credit aggregates, and assumed
that the Congress and the administration will make progress in the months
ahead in reducing federal deficits for
coming years, thereby diminishing
the threat those deficits would otherwise pose to long-run price stability
and sustainable economic growth. No
specific allowance was made for a
large decline in oil prices; also, the
special restraining influence on prices
exerted by the appreciation of the
dollar in 1982 is not expected to be
repeated in 1983.
The ranges of growth in money and
credit specified by the Committee for
1983 would appear compatible with
some further decline in market rates
of interest as inflation abates. However, the direction of fiscal policy
decisions will play a major role. Decisive action to reduce the Treasury's
demands on the credit markets in the
years ahead would be well received by
investors and would contribute greatly to a relaxation of the continuing
pressures on interest rates. Of critical
importance to the interest rate outlook—and one certainly not divorced
from the budget picture—is the behavior of inflation and expectations
of inflation. Lower rates of inflation
contribute directly to the reduction of
demands for money and credit, and
sustained progress in slowing the advance of wages and prices would do
much to relieve the concerns of in-
Economic Projections for 1983
FOMC members and
other Bank presidents
Item
Administration
CBO
Range
Central
tendency
IVAXOWA
8.0 to 9.0
8.8
8.9
3to5!/2
IViXoSVi
3.5 to 4.5
4.0 to 5.0
3.1
5.6
4.0
4.7
9Vi to 10^2
9.9 to 10.4
10.4
n.a.
Change, fourth quarter to
fourth quarter, percent
Nominal GNP
Real GNP
GNP deflator
Average level in the
fourth quarter, 1 percent
Unemployment rate
1. Percent of total labor force, including persons in
the Armed Forces stationed in the United States.
n.a. Not available.
Monetary Policy Reports
vestors as to the future course of interest rates.
Projections of the majority of the
Committee members (and other presidents of Reserve Banks) for growth
in the real GNP from the fourth quarter of 1982 to the fourth quarter of
1983 were in a range of VA to just
over 4 percent, a little higher than the
recent forecast of the administration,
and similar to the projection of the
Congressional Budget Office in the
accompanying table. Several expected
significantly more growth. Nearly all
believed that prospects were excellent
for less inflation than the 5.6 percent
increase in the GNP deflator projected by the administration, with the
majority expecting an increase of 4.5
percent or less. The combination of
real growth and inflation resulted in a
central tendency of 8 to 9 percent in
nominal GNP growth. Unemployment was expected to remain high
during the first year of recovery.
45
Behavior of Domestic Nonfinancial
Sector Debt
Changes in percent, fourth quarter to fourth quarter
Change in ratio
of debt to
GNP
Year
1960
1961
1962
1963
1964
5.2
5.7
6.7
6.9
7.2
-1.6
.9
.3
1.2
1965
1966
1967
1968
1969
7.2
6.9
6.8
8.4
7.1
-3.0
-1.1
.5
-.9
.3
1970
1971
1972
1973
1974
6.9
9.3
10.0
11.3
9.3
1.9
-.3
-1.4
-.2
2.1
1975
1976
1977
1978
1979
8.9
10.7
12.3
12.9
12.3
-1.0
1.3
.1
-1.6
2.4
1980
1981
1982
9.9
10.1
9.1
.4
.4
5.7
MEMO: average annual
change
3.1
8.7
Appendix
Note on Credit Aggregate
The specific measure of aggregate
credit used by the FOMC in establishing a range for growth is the total
debt of domestic nonfinancial sectors, as derived from the Board's
flow of funds accounts. This measure
includes borrowing by private domestic nonfinancial sectors and by the
federal and state and local governments in U.S. markets and from
abroad; it excludes borrowing by foreign entities in the United States.
Various statistical tests were used
to compare this measure with other
potential credit aggregates—such as
totals that included borrowing by foreign entities or by financial institutions, or that were augmented by equities. Comparisons also were made
with less comprehensive totals such as
aggregate private borrowing or financial assets other than equities held by
nonfinancial sectors. In these comparisons, which involved examining
the stability and predictability of relationships to GNP and other economic
variables, the domestic nonfinancial
debt total generally performed as well
as or better than the other series considered. The private borrowing aggregate clearly performed least well.
Report on July 20, 1983
The Outlook for the Economy
When the year began, an economic
expansion was under way, but it was
expected that the recovery, at least in
46
Monetary Policy Reports
its initial phases, would be significantly less rapid than the average
postwar cyclical upswing. The economic recessions of the early 1980s
and inflation that was more moderate
than anticipated had exposed serious
financial strains both at home and
abroad—strains that in part grew out
of practices that developed during
years of inflation. Consumer confidence was still at a low ebb, and a
high degree of caution was apparent
in the business community. Interest
rates, despite having declined substantially, were still at levels that appeared likely to inhibit strong growth
of activity in interest-sensitive sectors, and a weak demand for U.S. exports was expected to damp the pace
of economic expansion.
By the second quarter, however,
the recovery had gained vigor, and
was following in most respects a
typical cyclical pattern. Advances in
residential construction were exceptionally large during the first half,
and there were sustained increases in
consumer spending, particularly for
durable goods. Businesses continued
to liquidate inventories at a rapid
pace through the first quarter, but
then apparently began rebuilding
stocks in the second quarter as final
demands strengthened. Employment
gains became substantial as the recovery gathered speed, and the unemployment rate in June—while still
high historically—was V* of a percent
below the earlier peak.
Given the momentum of the recovery—and the added stimulus of another reduction in personal taxes at
midyear—there is a strong likelihood
that real gross national product will
continue growing at a healthy pace
through the second half of 1983.
Gains in employment have generated
sizable increases in income, which in
turn are laying the groundwork for
further advances in consumer spending. And business spending on equipment appears to be turning up. The
cumulative forces of economic expansion thus appear to be well established.
Real GNP growth in the second
half as a whole may not match the
rapid second-quarter pace, which
partly reflected the sharp swing in inventory positions. In addition, given
the level of housing starts reached in
the second quarter, and with mortgage interest rates no longer falling,
outlays for residential construction
seem unlikely to continue rising at the
extraordinary pace of early 1983.
Business spending for structures may
still be sluggish in the second half,
particularly with office space in ample supply in most cities. The foreign
sector, too, will exert a restraining influence on growth of output in the
United States, owing to a strong
dollar, relatively slow growth in the
other industrial nations, and financial
difficulties besetting many developing
countries.
Employment is likely to continue
expanding as the recovery in output
progresses, with gradual declines in
the unemployment rate. If past experience is any guide, however, the
strengthening economy will itself
prompt more job seekers to enter the
labor force, thereby reinforcing the
inertia of the unemployment rate.
Consequently, unemployment will remain high, relative to the earlier postwar period, for some time.
The near-term outlook for inflation continues to be reasonably favorable. Wage pressures have moderated
further into 1983; productivity is improving; and the continued strength
of the dollar is limiting increases in
the prices of imported goods. A par-
Monetary Policy Reports
tial rebound in energy prices during
the early spring, following the pronounced weakness earlier in the year,
appeared to be abating by midyear. A
spurt in some food prices resulting
from bad weather does not appear to
be cumulating into a major price advance. Given these considerations, as
well as the favorable first-half price
performance, the chances appear excellent that inflation rates for 1983 as
a whole will be as low as, or even
lower than, those of 1982.
At the same time that the general
trend of price increase is still slowing,
there are indications that some of the
cyclical influences that helped reduce
inflation during the recession have
waned. With demands for goods and
services strengthening, price discounting is diminishing; and the downward
pressures on prices and wages in some
markets will lessen as orders and
labor demand rise. Such developments are to some extent inevitable.
What is of critical importance is that
these cyclical influences not impair
more lasting progress toward reduction in the underlying rate of inflation, as reflected in the interactions of
wages, productivity, and costs.
Recently, the concerns on that score
have been heightened somewhat by
several factors. Preliminary indications are that growth in nominal GNP
approached 11 percent in the second
quarter. That high rate of spending
growth is a welcome development insofar as it has come about in the context of accelerated growth of real output and moderating prices. However,
growth in some measures of money
and credit also has been relatively
large recently, and growth in nominal
spending at the present rate over a
sustained period would suggest renewed inflationary pressures.
The vigor of the private economy
47
at midyear also has underscored the
potential problems associated with
federal budget deficits that will remain massive in the years ahead
unless there are decisive actions to
reduce expenditures or—absent such
action—to increase revenues. Prospects for interest rates are related to a
number of factors, including importantly the actual and perceived trend
in inflation. In 1982, when the economy was mired in recession and the
inflation rate was falling, record
large government deficits were consistent with declining interest rates.
However, should public credit demands remain at or near record highs
while private credit demands are expanding rapidly in response to rising
business activity, the outlook for interest rates would clearly be affected.
The difficulties of controlling federal deficits are evident in the legislative developments of recent months,
during which there have been extensive and laborious efforts to arrive at
a workable budget resolution. These
difficulties notwithstanding, unless
there is further progress in reducing
deficits, the risk of strains in credit
markets intensifying is apparent, impairing the prospects for a balanced
economic recovery.
Economic Projections
of FOMC Members
Members of the Federal Open Market
Committee believe that the current
economic recovery will be well maintained over the remainder of 1983 and
on through 1984. The central tendency of forecasts of the FOMC members shows this year's growth in real
GNP ranging between 5 and 53A percent—a significantly stronger rate of
growth than in the projections previously submitted to the Congress in
48
Monetary Policy Reports
the Monetary Policy Report of last
February. Real growth in 1984 is expected to be about 1 percent slower
than in 1983, and the unemployment
rate is projected to trend lower
through the end of next year.
Most FOMC members expect this
year's increase in the GNP implicit
price deflator to range between 4!4
and AVA percent—about the same as
last year's increase and in line with
the projections of the February Monetary Policy Report. There is less consensus about the inflation outlook for
1984, with some concerned that inflation is likely to accelerate. However,
most FOMC members feel that, with
appropriate policies, prices overall
are likely to rise in the same range as,
or only a shade more rapidly than, in
1983. The cyclical strengthening of
demand associated with the recovery
is one factor in this inflation projection, but price developments next
year will also reflect a number of
special factors, such as policies to
reduce farm product supplies and
raise farm incomes, cost pressures
from increased payroll taxes, and the
possibility of some weakening in the
foreign exchange value of the dollar.
The central-tendency projections of
the FOMC members, for prices as
well as for real GNP and unemployment, are closely in line with the economic assumptions prepared by the
administration for its midsession review of the budget.
While most FOMC members are
relatively optimistic about the prospects for maintaining economic
growth and containing inflation over
the next year and a half, they also are
mindful of potential difficulties that
could disrupt the outlook and cause
the nation's economic performance
to be less favorable than is now expected. There is, as already noted, the
prospect that federal budget deficits
will remain extremely large into the
indefinite future; as the private
recovery lengthens, the dangers
associated with those deficits are likely to increase, posing a threat to both
the inflation outlook and the sustainability of a balanced expansion.
Economic Projections for 1983 and 1984
FOMC members
Item
Administration
Range
Percent change, fourth quarter to
fourth quarter, 1983
Nominal GNP
Real GNP
Implicit deflator for GNP
Average level in the fourth
quarter, percent
Unemployment rate
Central
tendency
914 to 103/4
to 6
4 to 5VA
93/4 to 10
5 to 53/4
AVA to AVA
10.4
5.5
AVA
4.6
9 to 9%
About 9Vi
9.6
Percent change, fourth quarter to
fourth quarter, 1984
Nominal GNP
Real GNP
Implicit deflator for GNP
7 to 101*
3 to 5
3»/4to6!/ 2
9 to 10
4 to AVi
AVA to 5
9.7
4.5
5.0
Average level in the fourth
quarter, percent
Unemployment rate
8 1 /4to9 1 /4
8!4to8 3 /i
8.6
Monetary Policy Reports
There also are some broader risks,
not specifically related to the budget,
that some of the progress against inflation could be reversed as the private economy strengthens. The persistence of inflationary expectations
is evident both in recent surveys of
private opinion and in the behavior of
financial markets in which borrowers
remain willing to pay high nominal
rates of return on long-term debt instruments. As the recovery progresses,
wage and price development must be
monitored with great care to make
sure that these still present expectations of inflation are not undergirding
a new round of acceleration in actual
wage and price increases.
More generally, the United States
has become much more integrated
into the world economy than it was a
decade ago, and our economic fortunes have become closely linked with
those of other nations. Because of
those close linkages, the economic
difficulties of many foreign nations,
particularly the serious financial
problems still plaguing many developing countries, could affect this
nation's economic performance in the
period ahead.
To some extent, these risks in the
economic outlook can be moderated
by appropriate policies. For example,
the risk of a further deterioration in
the economic prospects facing the developing nations can be lessened if
lenders, borrowers, national authorities, and international organizations
maintain the high degree of cooperation that has become evident in the
past year. Prompt action by the
United States to bolster the resources
of the International Monetary Fund
and of the multilateral development
banks is an essential element in managing successfully a difficult adjustment process.
49
This country's budgetary problems
also are manageable, provided the
Congress and the administration take
action. The Federal Reserve, for its
part, remains committed to monetary
policies that will provide enough
money and credit to support economic growth in a context of containing inflation; without reductions in
future fiscal deficits, the goal of
maintaining a balanced recovery
while at the same time holding down
inflation could prove elusive.
The Federal Reserve's
Objective for Growth
of Money and Credit
The Committee reviewed its target
ranges for 1983 and established tentative ranges for 1984 in light of its
basic objectives of encouraging sustained economic recovery while continuing to make progress toward stability in the average level of prices. In
setting these ranges, the Committee
recognized that the relationships
among the money and credit aggregates and economic activity in the
period ahead are subject to considerable uncertainty; consequently, it was
emphasized that, in implementing
policy, the significance to be attached
to movements in the various aggregates would depend on evidence about
the strength of economic recovery,
the outlook for prices and inflationary expectations, and emerging conditions in domestic and international
financial markets.
With respect to the ranges for the
broader monetary aggregates—M2
and M3—-the Committee reaffirmed
the 1983 ranges of 7 to 10 percent and
6Vi to 9Vi percent respectively that
had been established earlier in the
year. The tentative ranges for next
year set for these aggregates were
50
Monetary Policy Reports
reduced Vi percentage point to 6V2 to
9Vi percent and 6 to 9 percent respectively, measured in both cases from
the fourth quarter of 1983 to the
fourth quarter of 1984.
It was expected, in setting these tentative ranges, that shifts into money
market deposit accounts (MMDAs)
would not significantly distort growth
in the broader aggregates, particularly M2, in contrast to the experience in
the early part of this year. However,
it was also recognized that the greater
flexibility in liability management for
banks and thrift institutions resulting
from the availability of MMDAs, together with the recent decision of the
Depository Institutions Deregulation
Committee to eliminate ceiling rates
on time deposits by October 1 of this
year,1 would be a factor encouraging
somewhat more rapid growth in M2
relative to M3, as banks and thrifts
may rely relatively less on large CDs
and other money market liabilities
in funding credit expansion. With
greater growth in real (and nominal)
GNP than anticipated earlier—but in
the context of moderating inflationactual growth in M2 and M3 may reasonably be higher in the ranges than
was thought likely earlier.
The FOMC also agreed that principal weight would continue to be
placed on the broader monetary aggregates in the implementation of
monetary policy, in view of the continuing uncertainties that attach to
the behavior and trend of Ml over
time. As discussed in the section entitled "The Growth of Money and
Credit in the First Half of 1983," an
unusual, sizable decline in the velocity of Ml has been experienced over
the past several quarters, likely re1. Except for accounts of less than $2,500
maturing in 31 days or less.
fleeting in part the fact that interestbearing, negotiable order of withdrawal (NOW) accounts have become
an important component of Ml.
These accounts, which have both savings and transaction characteristics,
appear to have increased the response
of Ml demand to changes in market
interest rates, which may explain a
good part of the acceleration of
growth in Ml that began last summer. Also, particularly in the course
of 1982, demand for Ml may have increased because savers sought to hold
funds in highly liquid forms in light
of various economic and financial
uncertainties.
Recent evidence suggests that the
decline in the velocity of Ml may be
abating. The income velocity of Ml
evidently declined only modestly in
the second quarter of this year. As the
upward impact on Ml demand of earlier interest rate declines has faded
and a sizable buildup in liquid
balances has taken place, it seems
probable that some pickup in the
velocity of Ml will develop over the
quarters ahead, in closer conformance with cyclical and secular patterns of earlier years.
Whether any rise in velocity would
be as strong as in earlier decades of
the post-World-War-II period remains
uncertain. Experience to date with a
measure of Ml that reflects to a
greater extent the savings propensities
of the public, as well as transaction
demands, has been relatively limited,
which makes it difficult to assess its
behavior under varying economic circumstances. Moreover, it is not clear
how responsive Ml demand will be to
market interest rates over the period
ahead if Super NOW accounts, which
yield a market return to holders,
become a more important element in
the aggregate. (If the authority to pay
Monetary Policy Reports
interest on transaction balances were
extended beyond currently eligible accounts, this too would affect Ml behavior, presumably in the short run
increasing the demand for the aggregate. No specific allowance has been
made for that possibility.)
Taking account of these various
uncertainties, for the purpose of
monitoring Ml behavior, the Committee established a growth range of 5
to 9 percent (annual rate) for the
period from the second quarter to the
fourth quarter of this year. The decision to establish a new base for monitoring Ml reflected a judgment that
the rapid growth over the past several
quarters should be treated as a onetime phenonemon, to be neither retraced nor long extended. A monitoring range of 4 to 8 percent was tentatively established for the period
from the fourth quarter of 1983 to the
fourth quarter of 1984. These ranges
anticipate no further decline in the
velocity of Ml during a period of
relatively strong growth in economic
activity and allow for the likelihood
of some rebound in velocity. Ml
growth would be expected to move
lower in these ranges as and if velocity strengthens.
The Committee reaffirmed the
range of SlA to 11 Vi percent used for
monitoring the behavior of domestic
nonfinancial sector debt in 1983.
That range was reduced to 8 to 11
percent for 1984. The federal government next year is expected to continue
absorbing an unusually large share of
overall credit supplies. The Committee's range would encompass the
possibility of growth of total debt in
excess of likely GNP growth (and the
long-term trend of credit in relation
to GNP) in light of the analysis of various factors bearing on credit growth.
Nevertheless, the prospect of intensi
51
fying conflict between sustained large
government requirements and growing private sector credit demands is a
serious concern.
The Performance of
the Economy in the
First Half of 1983
The economic expansion that began
at the end of 1982 gathered momentum over the first half of 1983. After
increasing moderately in the first
quarter, real gross national product
registered a strong advance in the second quarter, as production and employment rose in a broad range of industries. An apparent completion of
the recession-induced inventory liquidation accounted for much of the
second-quarter growth; but domestic
final sales also strengthened considerably, and forward-looking indicators
point to further output gains in the
months ahead.
To be sure, a number of serious
economic problems remain. The economic recovery is far from complete.
At midyear, 10 percent of the civilian
labor force was still unemployed.
Many companies continue to face
major adjustments in an effort to stay
competitive in their industries here
and abroad. Some domestic energy
producers remain in financial difficulty, as do many producers in the
agricultural sector. The nation's external sector continues to be a weak
link in the recovery, as exports are
being limited by a strong dollar, the
sluggishness of a number of other industrialized economies, and the
severe adjustment problems of much
of Latin America; the international
indebtedness and related economic
difficulties of a number of developing
countries remain matters of particular concern.
52
Monetary Policy Reports
This country's period of moderating inflation lengthened in the first
half of 1983. In 1982, many price
measures recorded the smallest increases in a decade, and price developments so far this year have been
even more favorable. Transitory elements clearly have played a part in
this improving price performance,
but there also continue to be indications of more lasting progress. In particular, productivity has been improving and increases in compensation
continue to moderate, so that the interactions between costs and prices,
which imparted a stubborn momentum to inflation through the 1970s,
are still working to reduce the
underlying or trend rate of inflation.
However, even though prices have
slowed dramatically, concerns persist
that inflation will reaccelerate as the
recovery progresses. To a considerable
extent, these concerns arise from the
experience of past business cycles and
from an expectation that the federal
government's budget deficits will remain massive in the years ahead,
making more difficult the sustained
application of a noninflationary
monetary policy. Because of such
concerns about the future, as well as
the present high level of actual government borrowing, short- and longterm interest rates in the first half of
1983 continued to be quite high, relative both to historical experience and
to the current pace of inflation.
As had been true during the recession, government debt rose rapidly in
the first half of 1983; in addition,
household borrowing picked up as
the expansion accelerated. Even
though the growth in business borrowing remained relatively low, total
debt outstanding in the domestic nonfinancial sectors grew at an annual
rate of about lOVi percent—a faster
pace than in 1982. Debt grew faster in
the second quarter than in the first.
Money holdings also increased
rapidly in the first half of 1983, as a
strengthening of private spending
bolstered the demand for transaction
balances and as lower interest rates
led many individuals and businesses
to hold a larger portion of their financial assets in the form of money
balances. In addition, money growth
was affected by portfolio shifts arising
from the progressive liberalization of
regulations on deposit rates; these
shifts were especially important in
boosting growth of the broader monetary aggregates early in the year.
Interest Rates
Short-term interest rates had fallen
sharply in the second half of 1982,
when the recession was deepening;
and by the end of last year, rates were
only about half the peak levels of
1981. Yields then fluctuated in a
relatively narrow range through most
of the first half of 1983, before moving a little higher around midyear as
the recovery strengthened. At midyear, short-term yields were generally
50 to 125 basis points above their
December levels; the Federal Reserve
discount rate remained unchanged
over the first half of the year.
Long-term rates eased further into
early 1983, extending the decline that
began in mid-1982. The further reduction in long-term yields resulted from
beliefs that the recovery might be
relatively weak, thereby limiting private credit needs and, at the same
time, enhancing the prospects for a
continued moderation of price inflation. In the second quarter, however,
long-term rates turned up slightly as
economic activity strengthened further and as market participants began
to focus more directly on the poten-
Monetary Policy Reports
tial effects of heavy federal borrowing and the implications of continued
rapid money growth.
Consumer Spending
Much of the vigor of the current expansion has arisen from increases in
income and spending in the household
sector. Throughout the recession, the
nominal disposable incomes of consumers had been unusually well maintained by a combination of countercyclical transfer payments, rising
interest income, and reductions in tax
rates. A rapid decline in inflation enhanced the purchasing power of these
nominal income gains, and by the end
of 1982, real disposable personal income was about 2 percent above its
prerecession level of mid-1981.
Households have strengthened their
balance sheets considerably in recent
years by acquiring large amounts of
liquid assets and holding down the accumulation of new indebtedness. In
addition, a sharp, sustained rise in
stock prices added considerably to
household wealth after mid-1982.
Thus, when aggregate wage and salary
income began rising with the upturn
in activity, consumers were well positioned to boost spending on goods
and services.
After a period of sluggish growth
through most of 1982, consumer
spending improved toward the end of
last year and strengthened further in
the first half of 1983. Second-quarter
spending, in particular, was quite
vigorous, as purchases of autos and
other big-ticket items increased markedly. Sales of domestic autos were at
an annual rate of about 63A million
units in the second quarter, the best
quarterly sales pace since mid-1981;
sales of foreign models were maintained at a rate of about 2VA million
units.
53
With income growth accelerating,
economic prospects brightening, and
interest rates lower than in 1982, consumers became more willing to take
on new debt in the first half of 1983.
In addition, lenders showed a greater
interest in making consumer loans,
partly—in the case of depository institutions—as an outlet for investing
the large inflows to new accounts.
Thus, after rising only 4 percent in
1982, installment debt rose at more
than a 7 percent annual rate in the
first quarter, and still faster growth
appears to have occurred in the second
quarter.
Business Spending
Economic conditions in the business
sector also have improved. Reduced
interest rates, the elimination of unwanted inventories, and an expanding
economy have relieved some of the
financial strains brought on by the
recession and, at the same time, have
created a better climate for investment spending. Business cash flows
improved in the first half, as profit
margins widened considerably. Buoyed
by rising investor confidence, stock
prices rose to new highs, enabling
businesses to rely heavily on equity
financing while limiting the growth in
indebtedness. In addition, encouraged by bond yields that were well
below earlier peaks, firms strengthened their balance sheets by shifting
their borrowing toward longer-term
maturities. These general trends notwithstanding, many firms that were
weakened by the recession continued
to face financial difficulties in the
first half of 1983, and the number of
business bankruptcies—though declining—remained high.
Business investment spending,
which fell nearly 8 percent in real
terms during the recession, turned up
54
Monetary Policy Reports
in the first half of 1983, as real outlays
for equipment rose in both the first
and second quarters. In contrast to
equipment, spending for structures
fell appreciably during the first half
of 1983, led by reduced outlays for
commercial and industrial buildings.
With office and industrial vacancy
rates now quite high, it may be some
time before the expanding economy
generates a sustained increase in
outlays for these types of facilities.
Businesses had liquidated inventories at a rapid pace during the recession in an effort to bring stocks more
in line with the recession-reduced
sales levels, and the momentum of
that liquidation carried into early
1983. More recently, with final sales
continuing to rise, businesses appear
to have begun a cautious rebuilding
of stocks. In the second quarter, a
move from sizable inventory liquidation to an apparent small accumulation of stocks provided a strong impetus for increased production, resulting in a rise in second-quarter
GNP much larger than the advance in
final sales.
Residential Construction
Responding to lower interest rates,
activity in the housing sector rose
sharply in late 1982 and increased further in the first half of this year. At
the end of last year, mortgage rates
were about 5 percentage points below
the peak rates reached in the fall of
1981, and they continued to trend
gradually lower before firming in the
past two months. Mortgage credit
flows increased strongly in the first
half—especially at thrift institutions,
whose fund availability was enhanced
by the advent of new deposit instruments.
In response to the drop in financing
costs, as well as demographic influ
ences, home sales turned up in 1982
and rose rapidly through the first half
of 1983. By the second quarter of
1983, sales were up nearly a third
from the final quarter of 1982; both
new and existing homes shared in the
sales gains. With the inventory of unsold new homes quite low, rising sales
have supported a strong advance in
new construction activity. Continuing
the uptrend evident in 1982, starts of
new single-family homes in the first
five months of 1983 rose to a level
about three-fourths above a year earlier—a sharper rebound than many
analysts had expected in light of
prevailing mortgage rates. Starts of
multifamily units also have been quite
strong so far in 1983, partly reflecting
enhanced profitability in the markets
for rental property. Low levels of
housing construction over the past
few years clearly left a sizable pent-up
demand that has provided strong support for new construction activity.
Government Sector
Federal spending declined moderately
during the first half of 1983, but the
drop resulted mainly from transitory
factors, particularly a reduced rate of
accumulation of farm inventories by
the Commodity Credit Corporation
(CCC). Abstracting from these inventory swings, federal expenditures
were still trending up in the first half.
Excluding outlays of the CCC, federal purchases of goods and services,
in current dollars, appear to have increased at an annual rate of more
than 10 percent from the fourth
quarter of 1982 to the second quarter
of this year.
The federal budget deficit was extremely large in the first half of 1983.
Because of changes in tax laws and,
until recently, slow growth in taxable
incomes, receipts have increased only
Monetary Policy Reports
moderately from the levels of two
years ago. During the same period,
spending has increased considerably,
owing to increased defense purchases,
recession-induced transfer payments,
and, on average, relatively high payments to support farm incomes. As a
result, the combined federal deficit
(unified plus off-budget) accumulated to about $95 billion over the
first half of 1983, three times the level
of a year earlier. During the first half,
direct federal borrowing (which does
not include federally guaranteed
loans or the debt of sponsored credit
agencies) absorbed more than twofifths of all funds raised in credit
markets by the domestic nonfinancial
sectors.
Real estate and local government
purchases edged lower in the first half
of 1983, extending the gradual decline
evident over the preceding two years.
Real outlays for employee compensation and new construction spending
were held down by the budget concerns still apparent among many
states and localities. As in 1982, a
number of governmental units raised
taxes to relieve pressing financial difficulties. By midyear, however, some
of the budgetary strains began to
ease, as rising economic activity expanded the state and local tax base,
boosting the sector's overall operating budget back into surplus.
Borrowing by state and local governments also increased rapidly,
though part of the rise probably
reflected a rush to market debt instruments in advance of a new requirement that securities be issued in
registered, rather than bearer, form;
the requirement took effect on July 1,
after having been postponed from
January 1. In addition, tax-exempt
borrowers took advantage of lower
interest rates to refund or prerefund
55
bond issues that were sold when borrowing costs had been higher.
The International Sector
As in 1982, net exports continued to
exert a negative influence on U.S.
economic activity in early 1983; slow
growth in foreign industrial economies and a strong dollar have both
constrained export sales. At the same
time, the vigorous expansion in the
U.S. domestic economy pushed imports higher, so that the trade account showed an increasing deficit
over the first half of the year.
An additional element limiting prospects for U.S. exports is the serious
external financing problems facing a
number of developing countries, including some that are major trading
partners of the United States. Among
these nations, reduced trade volume
and depressed commodity prices have
limited export earnings and—-in the
face of high world interest ratesmade debt repayment difficult. So
far, these repayment problems have
been contained through an extraordinary degree of cooperation among
borrowers, private creditors, national
authorities, and international organizations; in many instances, existing
debts have been restructured and new
funds have been raised, and the borrowing nations are implementing programs to restore internal financial
stability, to increase their debtservicing capacity, and to convince
international lenders of their creditworthiness. Nevertheless, the process
of adjustment is still far from complete.
Labor Markets
Labor markets began to strengthen
around the turn of the year, and by
June, payroll employment had increased 1.1 million from its December
trough, regaining more than one-
56
Monetary Policy Reports
third of the losses sustained during
the recession. Job gains have been
widespread over the past six months,
with especially large advances in services and manufacturing. In manufacturing, increases in employment during the past six months have retraced
nearly a fifth of the 2 million jobs lost
during the 1981-82 recession. Employment growth in the services industry, which had slowed during the
recession, appears to be showing renewed vigor as the expansion has
taken hold.
The total number of unemployed
workers declined almost a million
during the first half of 1983, and the
civilian unemployment rate fell to 10
percent, VA of a percentage point below the postwar peak reached last
December. Layoffs had begun easing
late last year, and with labor demands
strengthening through the first half,
many firms have started rehiring.
Despite these gains, jobless rates at
midyear remained far above the levels
of late 1979, before the two back-toback recessions that added greatly to
labor market slack in the early 1980s.
Wages and Labor Costs
The falloff of labor demand during
the recession, along with the general
unwinding of inflation, led to a sharp
slowing in the rate of wage and labor
cost increases, and that slowdown has
continued into the first half of 1983.
From the fourth quarter of last year
to the second quarter of 1983, the
average hourly earnings of production workers rose at about a 4lA percent annual rate, the slowest rate of
nominal wage increase since the mid1960s. But, because the rise in consumer prices has slowed even faster,
the slower nominal wage gain has
been consistent with increases in real
purchasing power.
The slowing of nominal wage increases has been broad based, affecting nearly all major industrial and occupational groups. With inflation
easing, workers in general are feeling
less pressure to catch up with past inflation or to try to stay ahead of anticipated future inflation. In addition,
in industries particularly hard hit by
recession, as well as by heightened
domestic or foreign competition,
workers have agreed to contract adjustments calling for wage freezes or
outright wage reductions.
Unit labor costs also moderated
further in the first half of 1983, as
strong productivity gains reinforced
the impact of smaller wage increases.
In the nonfarm business sector, labor
costs rose at only a 1 VA percent rate in
the first quarter, and evidently the
second-quarter advance also was quite
moderate.
The sizable productivity gains of
recent quarters have been an especially encouraging development because
they may reflect not only the customary cyclical patterns of an economic
expansion, but also some improvement in the trend rate of productivity
growth. Work rules in many establishments are being revised to enhance efficiency, and qualitative reports from
the business sector point to strong
efforts to trim costs and improve
market competitiveness.
Price Developments
Price developments continued to be
favorable in the first half of 1983.
The consumer price index rose at an
annual rate of only 3 percent from
December to May, and over the first
half the producer price index for
finished goods actually declined. An
acceleration of prices from the first to
the second quarter resulted mainly
from swings in energy prices that ap-
Monetary Policy Reports
pear to be temporary and from the
transitory effects of adverse weather
on the prices of some foods. The
prices of raw industrial materials rebounded from depressed levels early
in the year, but have leveled off in recent months. In other markets, including those for both consumer
goods and capital equipment, price
inflation in the second quarter still
seemed to be trending lower.
Price increases during the past year
have been the smallest since the early
1970s, and the period of moderating
inflation has now extended over two
and one-half years. Still, the recent
period of slower price increases has
by no means erased the memories of
accelerating inflation during the
previous two decades. The recent
deceleration in prices occurred during
a business recession, and there remains a deep-seated skepticism about
whether the gains against inflation
can be maintained as the period of
economic expansion is extended. The
task of economic policy is to overcome that skepticism by preserving
the gains already won against inflation while sustaining the economic expansion that took hold in the first
half of 1983.
The Growth of
Money and Credit
in the First Half of 1983
The 1983 ranges for the monetary and
credit aggregates announced in February were chosen by the Federal
Open Market Committee with the objective of providing sufficient liquidity to support economic recovery
while continuing to encourage progress toward price stability. In setting
those guidelines, the Committee recognized that the relationship between
the growth of the monetary aggregates
57
and economic activity had deviated
from the usual historical relationships
during 1982, and looking ahead, account had to be taken of the possibility that past patterns might be
shifting in some respects.
Specifically, during 1982, monetary
growth had been quite rapid relative
to income; the velocities of both Ml
and M2 had registered exceptionally
large declines over the year. Although
these declines in velocity were thought
likely to be in part temporary—Ml
velocity in particular commonly has
increased appreciably in the early
stages of a recovery—it also was believed that the experience of 1982
might well be indicative of a more
basic shift in the underlying demands
for money. Institutional changes have
led to the increased availability of
transaction accounts that bear interest, which would be likely to increase
the public's willingness to hold
Ml-type accounts. These accounts
are used partly as repositories for savings, as well as to support transactions, and this tendency was expected
to be reinforced by the introduction
of Super NOW accounts.
The Committee also recognized
that the introduction of new deposit
instruments had affected, and would
continue to affect, the behavior of the
broader aggregates. A very substantial inflow of funds into money
market deposit accounts (MMDAs)
from market instruments had greatly
inflated growth of M2 at the end of
1982 and in the early weeks of 1983.
It was anticipated that further flows
into these accounts, and to a lesser extent into Super NOW accounts,
would continue to affect the aggregates for some time, although the impact could not be determined with a
high degree of accuracy.
In implementing policy, Commit-
58
Monetary Policy Reports
tee members agreed that, for the time
being, primary emphasis would be
placed on the broader aggregates. It
was expected that distortions resulting from the initial adjustment to
new deposit instruments would
lessen. The behavior of Ml would be
monitored, with any increase in the
emphasis placed on that aggregate
dependent on evidence that its velocity behavior was assuming a more
predictable pattern. Debt expansion,
although not targeted directly, would
be reviewed in assessing the behavior
of the monetary aggregates and the
stance of monetary policy. The Committee emphasized that, given the
above uncertainties, policy implementation in 1983 would require a
greater degree of judgment, involving
crucially the evaluation of the relationship of monetary growth to
movements in income and prices,
until such time as the aggregates returned to more predictable behavior.
The specific target ranges announced in February were the following: for M2, an annual rate of 7 to 10
percent for the period from FebruaryMarch of 1983 to the fourth quarter
of 1983; and for M3, 6V4 to 9V4 percent for the period from the fourth
quarter of 1982 to the fourth quarter
of 1983. Also for the latter period, a
tentative range was established for
Ml of 4 to 8 percent, with the width
of this range reflecting the relative
uncertainty about the behavior of this
aggregate. An associated range of
growth for total domestic nonfinancial debt was estimated to be %Vi to
11 Vi percent, December to December,
while bank credit growth was expected to be between 6 and 9 percent for
the year.
Growth in M2 and M3 appears to
be broadly consistent with the target
ranges adopted in February. M2 ex
panded through June at a 9 percent
annual rate from the February-March
base period, a little above the midpoint of its range. M3 growth was
somewhat stronger and, at Wi percent from the fourth quarter of 1982
through June, was at the upper end of
its target growth path. In contrast,
Ml continued to surge, with growth
averaging 14 percent at an annual rate
from the fourth quarter of last year.
In setting the annual target range
for M2, the Committee selected the
February-March base period to reduce the distortions resulting from
the massive inflows to MMDAs after
the introduction of these accounts in
December. Moreover, the range of 7
to 10 percent was 1 percentage point
higher than that set for 1982, to allow
for some residual shifting from outside M2 into these accounts through
the remainder of the year. There is
growing evidence that the stock adjustment to MMDAs is abating; inflows to these new instruments slowed
from around $17 billion per week in
February to an average of about $1
billion weekly in June. Thus, it appears that the distorting effects of
these instruments have, as expected,
become relatively minor as time has
progressed. The interest rates offered
on these deposits—in absolute level
and relative to other short-term rates
—have fallen considerably from the
extraordinary yields posted immediately after the introduction of this account. Since March, the average rates
on MMDAs have been below rates
available on virtually all market instruments, although they remain
somewhat above the returns on
money market mutual funds.
The recent behavior of other components of M2 also appears to reflect
the waning of the public's initial adjustment to the availability of MMDAs.
Monetary Policy Reports
Runoffs of small-denomination time
deposits and M2-type money market
funds, which were substantial during
the first quarter, have slowed considerably, and in fact small time deposits
registered a slight increase in June.
Savings deposits, which likewise had
declined by record amounts earlier in
the year, increased at a moderate rate
in May and June.
For M3, the range selected of 6 to 9
percent was identical to that for 1982.
It was believed that M3 would be less
affected by the new accounts because
some of the funds flowing into them
would come directly from large deposits and, in any case, many depositories have the option of reducing
their issuance of large certificates of
deposit in response to greater inflows
to MMDAs or other core deposits.
However, the extent to which this
would occur depended in part on
changes in the public's perceptions of
the desirability of insured deposit accounts relative to open market instruments and the willingness of depositories to make use of their new deposit
authority to increase the extent of
their financial intermediation. In the
event, large CDs in the aggregate
declined sharply in the months after
the introduction of the new accounts,
but have tended to pick up recently as
inflows to MMDAs have slowed.
Besides running off large CDs,
commercial banks responded to the
influx of MMDA funds by increasing
their holdings of liquid assets, principally Treasury securities: commercial bank holdings of Treasury securities expanded at an annual rate of
more than 50 percent during the first
half of the year. Small banks in particular, which rely less on managed
liabilities than do large banks, invested heavily in these assets. Savings and
loan associations appear to have re
59
lied largely on asset adjustments to
MMDA inflows. These institutions
showed a sharp acceleration in their
holdings of cash and investment securities over the first quarter of 1983,
and only moderate declines in large
time deposits. In the second quarter,
with slower inflows into the new accounts and an apparent pickup in
mortgage lending, issuance of large
time deposits by savings and loans
registered a sizable increase.
The impacts on Ml of portfolio
shifts into the new accounts are difficult to assess, but appear to have been
largely offsetting. Funds shifted into
Super NOWs from outside Ml likely
were about equal in magnitude to
the outflow of funds from Ml into
MMDAs. Nevertheless, Ml has been
growing at a rate well above the range
of 4 to 8 percent that was set in February and much faster relative to
nominal GNP than has been normal
during periods of economic recovery,
when velocity has tended to rise at
above-average rates. In fact, the income velocity of Ml continued to decline during the first half of the year,
although the second-quarter decline
was modest.
The decreases in Ml velocity may
reflect in substantial part the changing nature of Ml. With interestbearing regular NOW accounts and
Super NOWs making up a growing
share of Ml, this aggregate is becoming increasingly influenced by components that bear interest and thereby
may attract "savings" as well as
transaction balances. Indeed, there
is evidence that the introduction of
NOW accounts nationwide at the beginning of 1981 has made Ml more
responsive to fluctuations in market
rates. With market rates registering
large declines in the latter half of
1982, the opportunity cost of holding
60
Monetary Policy Reports
NOW accounts—which carry a ceiling rate of 514 percent—fell sharply.
As money demand usually responds
to falling rates with a lag, this would
help explain the strong growth of Ml
in the latter half of 1982 and early
1983. More recently, however, some
of the strength likely reflected growing transaction needs accompanying
the pickup in economic activity.
Given the limited experience with
NOW and Super NOW accounts, uncertainty surrounding Ml behavior
remains substantial, but account
should be taken of the possibility that
more normal cyclical patterns may be
returning.
Full data are not yet available for
the second quarter, but preliminary
indications are that the aggregate
debt of domestic nonfinancial sectors
grew over the first half at a rate somewhat above the midpoint of the range
of SVi to IIV2 percent projected by
the FOMC, with a marked increase in
the second quarter. This aggregate
was swollen by federal borrowing,
which has accounted for more than
40 percent of total credit flowing to
domestic nonfinancial sectors since
December. As indicated in the accompanying table, growth in federal debt
has been very rapid in recent quarters,
averaging in excess of 20 percent at an
annual rate over the last four quarters. Residential mortgage financing
and consumer credit have picked up
since last year, reflecting the strengthening of these sectors. Business borrowing has remained moderate due to
reduced needs for external financing
and has been concentrated mainly
in longer-maturity debt: short- and
intermediate-term business borrowing
has been weak since the fourth quarter of last year. Borrowings by state
and local governments were strong
during the first half, as noted earlier,
partly reflecting heavy issuance of
tax-exempt bonds in advance of the
July 1 registration date and borrowing
for future refunding of higher-cost
debt.
Commercial bank credit, boosted
by heavy acquisitions of Treasury
securities, has expanded at an annual
rate of IOV2 percent since December.
Reflecting the general weakness in
business demand for short-term
credit, business loans at commercial
banks were about flat over the first
half, while bank mortgage and consumer lending has picked up. Some of
the buildup of Treasury securities
Domestic Nonfinancial Sector Debt
Annual rates of growth, in percent1
Total
U.S.
government
Households
Nonfinancial
business
State and
local government
Annually2
1979
1980
1981
1982
12.1
9.9
9.9
9.5
6.0
11.9
11.8
19.4
15.1
8.7
8.2
5.6
13.5
10.1
11.3
7.4
7.4
9.3
7.0
13.4
Quarterly3
1982*3
1982:4 ..
10.2
9.8
24.5
24.5
4.9
5.9
8.1
3.7
9.2
18.2
1983:1
1983:2P
9.6
11.4
19.1
23.0
7.4
8.5
5.3
5.4
13.5
19.1
Period
1. Based on end-of-period data.
2. December to December.
3. End-of-quarter to end-of-quarter.
p Preliminary.
Monetary Policy Reports
could be a temporary response to
strong inflows into MMDAs; these
securities could be held as a hedge
against possible withdrawals as rates
on MMDAs remain below market
yields. On the other hand, since some
investors evidently shifted funds to
insured MMDA accounts from open
market instruments, the increase in
investment holdings could mark a
permanent increase in overall intermediation by commercial banks,
thereby raising bank credit above its
normal range. Indeed, as thrift institutions likewise have become more
competitive with the introduction of
MMDAs, the share of total credit extended by all depository institutions
61
rose appreciably over the first half of
this year: about 40 percent of domestic nonfinancial credit was extended
by depositories during the first half,
compared with an average of less
than 30 percent from 1980 through
1982. During the first half, acquisitions of Treasury securities by commercial banks helped to absorb the
massive increase in Treasury financing, but, as private demands for
credit pick up in response to rising
business activity, such an absorption
of Treasury debt may be more difficult within the context of noninflationary growth of the monetary aggregates.
Part 2
Records, Operations,
and Organization
65
Record of Policy Actions
of the Board of Governors
Regulation D
(Reserve Requirements of
Depository Institutions)
January 7, 1983—Amendments
The Board amended Regulation D to
implement congressional action that
exempted money market deposit accounts from the phase-in of reserve
requirements specified in the Monetary Control Act of 1980. In a related
action, the Board also modified the
procedure for allocating the $2.1
million exemption from reserve requirements.
Votes for these actions: Messrs. Volcker,
Martin, Wallich, Partee, Mrs. Teeters,
Messrs. Rice, andGramley. Votes against
these actions: None.
Beginning December 14, 1982,
federally insured depository institutions were authorized to offer money
market deposit accounts, which are
deposit instruments having initial and
average balance requirements of
$2,500, no interest ceiling, no minimum maturity, and limited transaction capabilities. If the accounts were
subject to the reserve requirements
specified in the Monetary Control
Act, personal money market deposit
accounts at nonmember institutions
would have a zero percent reserve requirement, and member banks would
be phasing down reserve requirements to that level until 1984. On
nonpersonal accounts, nonmember
institutions would be phasing up to a
3 percent reserve requirement; member institutions already are subject to
that ratio.
On January 12, 1983, however,
Senate Joint Resolution 271, which
exempted money market deposit accounts from the phase-in of reserve
requirements, became effective. The
revision makes all covered institutions subject to reserve requirements
of zero percent on personal money
market deposit accounts and 3 percent on nonpersonal accounts. The
Board amended Regulation D to implement that change.
The Monetary Control Act of 1980
provided for an exemption from
reserve requirements on the first $2.1
million of an institution's reservable
liabilities. To provide institutions
with the maximum benefit from the
recent congressional action, the
Board revised the procedure for
allocating the $2.1 million so that the
base amount would apply first to
nonpersonal money market deposit
accounts.
For member institutions, these actions were effective December 14,
1982; for nonmember institutions,
they were effective January 13, 1983,
and applicable to the reserve maintenance period beginning January 27.
March 16, 1983—Amendment
The Board amended Regulation D,
effective March 31,1983, to eliminate
reserve requirements on personal time
deposits with maturities of 2Vi years
or longer.
Votes for this action: Messrs. Volcker,
Martin, Wallich, Partee, Mrs. Teeters,
Messrs. Rice, andGramley. Votes against
this action: None.
66
Board Policy Actions
Beginning April 1,1983, the Depository Institutions Deregulation Committee authorized a reduction in the
minimum maturity for time deposits
that are not subject to interest rate
ceilings from 3Vi years to 2lA years.
Regulation D had provided that nonpersonal time deposits issued in
maturities of 2Vi years to 3Yi years
would have a reserve requirement of 3
percent, while those with maturities
of more than 3 Vi years would have no
reserve requirements. Because such a
reserve structure would present a
disincentive for offering personal
time deposits in maturities of 2Vi to
3V4 years, the Board amended Regulation D so that reserve requirements
on nonpersonal time deposits with
maturities of 2Vi years or longer
would have a zero percent reserve requirement, after completion of the
phase-in periods.
In taking this action, Board members expressed concern that continued
adjustment of the reserve structure
could impair monetary control, and
they indicated that this amendment
should not be regarded as a commitment to continue adjusting reserve requirements in line with actions by the
Depository Institutions Deregulation
Committee to eliminate interest rate
ceilings.
June 15, 1983—Amendment
The Board amended Regulation D,
effective June 20, 1983, to impose reserve requirements on ineligible bankers acceptances, regardless of whether
they subsequently are discounted and
resold.
Votes for this action: Messrs. Volcker,
Wallich, Partee, Rice, and Gramley.
Votes against this action: None. Absent
and not voting: Mr. Martin and Mrs.
Teeters.
Eligible acceptances are exempt
from reserve requirements if they
arise from transactions involving the
exporting, importing, or domestic
shipment or storage of goods, and
have an original maturity of less than
six months. Ineligible acceptances do
not meet those criteria.
Under previous provisions of Regulation D, an ineligible bankers acceptance was subject to reserve requirements only if the institution that
created it also discounted and resold
it. The Board had become aware of
arrangements between banks and
brokers or other third parties whereby a broker would discount and resell
ineligible acceptances created by the
bank. Because the Board regarded
such arrangements primarily as devices for avoiding reserve requirements, and because of the difficulty
of proving the existence of such devices, the Board decided that any ineligible acceptance created after June
20, 1983, would be subject to reserve
requirements.
September 30,1983—Amendments
The Board amended Regulation D
(1) to reduce reserve requirements on
certain nonpersonal time deposits to
zero percent, effective October 6,
1983, and (2) to reduce the minimum
maturity of time deposits to 7 days,
effective October 1, 1983.
Votes for these actions: Messrs. Volcker,
Martin, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against these
actions: None. Absent and not voting:
Mr. Wallich.
In June 1983, the Depository Institutions Deregulation Committee removed interest rate restrictions on
most time deposits issued after September 30, 1983, and also authorized
institutions to issue time deposits in
Board Policy Actions
negotiable form with original maturities or required notice periods of 7 to
31 days. Existing provisions of Regulation D established reserve requirements of 3 percent for nonpersonal
time deposits with maturities shorter
than 2x/2 years; such time deposits
with longer maturities carried a zero
percent reserve requirement. The
Board decided to amend Regulation D
to reduce to 18 months the minimum
maturity of nonpersonal time deposits that carry a zero percent reserve requirement.
In a related action, the Board also
amended Regulation D and made a
conforming amendment to Regulation Q (Interest on Deposits), to reduce to 7 days the minimum maturity
or required notice period for time
deposits. This action also reflected revisions authorized by the Depository
Institutions Deregulation Committee.
November 30,1983—Amendments
The Board amended Regulation D,
effective January 12, 1984, (1) to increase the amount of transaction balances to which the lower reserve requirement applies; and (2) to increase
the amount of reservable liabilities
subject to a zero percent reserve requirement.
67
percent on balances above that level.
The act directed the Board to adjust
annually the amount subject to the 3
percent requirement to reflect changes
in the amount of transaction balances
in the banking system nationwide; by
the beginning of 1983 the amount had
been raised to $26.3 million. Recent
growth in such balances indicated
that a further increase of $2.6 million
was warranted. The Board, therefore,
amended Regulation D to increase to
$28.9 million the amount of transaction balances to which the lower reserve requirement applies.
The Garn-St Germain Depository
Institutions Act of 1982 established a
zero percent reserve requirement on
the first $2 million of an institution's
reservable liabilities. It also provided
for annual adjustments to that exemption based on nationwide growth in
deposits. Recent growth in deposits
indicated that the amount subject to
the zero percent reserve requirement
should be increased from $2.1 million
to $2.2 million, and the Board amended Regulation D accordingly.
Regulation G (Securities Credit
by Persons Other than Banks,
Brokers, or Dealers) and
Votes for these actions: Messrs. Volcker, Regulation U
Martin, Wallich, Partee, Rice, and (Credit by Banks for the
Gramley. Votes against these actions: Purpose of Purchasing or
None. Absent and not voting: Mrs. Carrying Margin Stocks)
Teeters.
July 27, 1983—Revisions
Under the Monetary Control Act The Board adopted revised and simof 1980, depository institutions, Edge plified Regulations G and U, effective
and Agreement corporations, and August 31, 1983, pursuant to its RegU.S. agencies and branches of foreign ulatory Improvement Project.
banks are subject to reserve requirements set by the Board. Initially,
reserve requirements were set at 3 percent of an institution's first $25 million in transaction balances and 12
Votes for these actions: Messrs. Volcker,
Martin, Wallich, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against these
actions: None. Absent and not voting:
Mr. Partee.
68
Board Policy Actions
As part of the general effort to improve and simplify regulations, the
Board proposed revisions to its securities credit regulations early in the
year. The Board revised Regulation T
(Credit by Brokers and Dealers) in
May and Regulations G and U in July
to reorganize them, remove unnecessary and obsolete provisions, and reduce regulatory and reporting burdens.
One of the changes in Regulation G
amends certain registration requirements for lenders other than banks or
broker-dealers. The revised regulation allows a lender to extend more
credit before registration is required
and exempts from registration those
who arrange credit but do not extend
it. Also, the new regulation deletes
the prohibition against lending to
brokers or dealers on an unsecured
basis.
The changes to Regulation U include the elimination of certain filing
and reporting requirements. Also
eliminated are the special filing and
collateral requirements for loans to
over-the-counter market makers,
third-market makers, and block positioners. Bank loans to qualified employee stock-ownership plans are now
exempt from margin requirements.
Also, a new section, similar to one in
Regulation T, has been added to notify nonmember banks that they are required by statute to comply with laws
and regulations that govern member
institutions.
Regulation K (International
Banking Operations)
June 1, 1983—Amendments
The Board amended Regulation K,
effective July 8, 1983, to implement
provisions of the Bank Export Services Act.
Votes for this action: Messrs. Volcker,
Martin, Wallich, Partee, Mrs. Teeters,
Messrs. Rice, andGramley. Votes against
this action: None.
The Bank Export Services Act permits investments in export trading
companies by bank holding companies, Edge and Agreement corporation subsidiaries of bank holding
companies, and bankers' banks. The
new regulations, which were adopted
as amendments to Regulation K, define an export trading company as
one that is engaged exclusively in activities related to international trade
and that derives more than half of its
revenue from exporting or from facilitating exports of goods or services
produced in the United States by persons other than the export trading
company or its subsidiaries. The new
regulations provide criteria for determining whether a company is engaged
exclusively in international trade. In
addition, the regulations implement
provisions in the act that require the
filing of a notice by organizations
proposing to invest in an export trading company or to expand the activities of such a company.
The Board indicated that after some
experience with the regulations, it will
determine whether expedited procedures would be appropriate for certain types of investments in export
trading companies.
December 16,1983—Amendments
The Board amended Regulation K,
effective December 20, 1983, (1) to
clarify when a bank holding company
must provide subsequent notice for
certain investments, and (2) to permit
the foreign subsidiaries of U.S. bank
holding companies and Edge and
Agreement corporations to operate
travel agencies abroad.
Board Policy Actions
Votes for these actions: Messrs. Martin,
Wallich, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against these
actions: None. Absent and not voting:
Mr. Volcker.
Regulation K had permitted an
eligible banking organization to invest in an export trading company 60
days after notifying the Board of its
intention to make the investment if
the Board raised no objection to the
proposal. However, it had required
an organization to provide a second
notice if the export trading company
subsequently intended to take title to
goods and had not described that activity in the original notice. The Board
amended Regulation K to eliminate
the need for the subsequent notice if
the trading company takes title to
goods only against firm orders for the
sale of those goods. The Board also
added a technical amendment to require that the proposed investment in
the export trading company be accomplished within a year after the
Board had reviewed the proposal.
The second action was an outgrowth of consideration by the Board
of an application by an Edge corporation to invest in a foreign company
that offered travel agency services in
conjunction with other financial services. The Board found that in some
foreign countries banking institutions
are permitted to offer travel agency
services as a routine part of their
operations. The Board, therefore,
amended Regulation K to add travel
agency services to the list of permissible activities for U.S. banking organizations operating abroad, provided
the travel agency is operated in connection with other financial services.
The amendment does not permit a
bank holding company or an Edge
corporation to operate a travel agency in the United States.
69
Regulation L (Management
Official Interlocks)
August 31, 1983—Amendments
The Board amended Regulation L,
effective November 30, 1983, to implement recent amendments to the
Depository Institutions Management
Interlocks Act.
Votes for this action: Messrs. Martin,
Partee, Mrs. Teeters, and Mr. Gramley.
Votes against this action: None. Absent
and not voting: Messrs. Volcker, Wallich, and Rice.
The Depository Institutions Management Interlocks Act generally prohibits interlocking relationships between management officials of
depository institutions in the same
community. It also authorizes the
federal financial regulatory agencies
to adopt rules for granting exceptions
to the prohibitions. The Board adopted several technical amendments that
will (1) simplify the procedures for
obtaining an exception, (2) broaden
the circumstances under which exceptions can be granted, (3) clarify the
circumstances that require termination of an interlocking relationship,
and (4) establish a 15-month period
within which to complete a required
termination of an interlock.
The other four federal regulators
of depository institutions adopted
similar amendments to their regulations.
Regulation O
(Loans to Executive Officers,
Directors, and Principal
Shareholders of Member Banks)
August 31, 1983—Amendments
The Board amended Regulation O,
effective October 20, 1983, to implement portions of the Garn-St Germain Depository Institutions Act of
1982.
70
Board Policy Actions
Votes for this action: Messrs. Martin,
Partee, Mrs. Teeters, and Mr. Gramley.
Votes against this action: None. Absent
and not voting: Messrs. Volcker, Wallich, and Rice.
In October 1982, the Board amended Regulation O to incorporate portions of the Garn-St Germain act that
eliminated existing limitations on certain types of loans to insiders and authorized the federal regulatory agencies to prescribe rules governing loans
for home mortgages and educational
purposes to bank insiders or their
affiliates. At that time, the Board
deferred adoption of the remaining
portions of the act pending further
review.
Having completed its review, the
Board amended Regulation O to limit
loans to executive officers for purposes other than a mortgage or education to no more than $25,000 or 2.5
percent of the bank's capital and unimpaired surplus, whichever is greater. At no time, however, may a bank's
outstanding loans to any executive officer for other than mortgage or educational purposes exceed $100,000. In
addition, the amendments require approval by the member bank's board
of directors in the following instances:
(1) any loan to an executive officer,
director, or principal shareholder or
related interest that, when added to
other such loans, would exceed $25,000
or 5 percent of the bank's capital and
unimpaired surplus; and (2) all insider loans that exceed $500,000 in the
aggregate. Moreover, loans to executive officers, principal shareholders,
or their interests may not exceed the
general lending limits on loans to a
single borrower.
December 16, 1983—Amendment
The Board amended certain reporting
DigitizedandFRASER
for disclosure requirements in Regu
lation O, effective December 31,1983,
to implement portions of the Garn-St
Germain Depository Institutions Act
of 1982.
Votes for this action: Messrs. Martin,
Wallich, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against this
action: None. Absent and not voting:
Mr. Volcker.
The Financial Institutions Regulatory and Interest Rate Control Act required insured banks to disclose annually specific information about
loans by the bank to its officers, principal shareholders, and their related
interests. Regulation O, which implements that act, required, among
other things, annual disclosures of
the aggregate amount of such insider
lending and the names of all insiders
who borrowed from the bank.
The Garn-St Germain act deleted
those specific requirements and instead authorized each federal banking
agency to develop appropriate disclosure rules. Accordingly, the Board
adopted a rule that requires member
banks to disclose, upon request, the
names of each executive officer or
principal shareholder who has, or
whose related interests have, borrowed
from the bank or its correspondents
$500,000 or more or 5 percent of the
bank's capital and unimpaired surplus, whichever is less. Disclosures
are not required if the aggregate lending to an individual and related interests by the bank or its correspondent
is less than $25,000. Member banks
must maintain records of requests for
the required information and of the
disposition of such requests.
Regulation Q
(Interest on Deposits)
September 30,1983—Amendments
The Board amended Regulation Q,
Board Policy Actions
71
effective October 1, 1983, to incorporate actions adopted by the Depository Institutions Deregulation Committee to remove interest rate ceilings
on most small-denomination time deposits and to reduce to 7 days the
minimum maturity of time deposits.
The technical amendments adopted
by the Board relate to actions taken
by the Depository Institutions Deregulation Committee since June 1983
concerning the removal of minimum
denominations on money market accounts, Super NOW accounts, and
deposits with maturities of 7 to 31
Votes for these actions: Messrs. Volcker,
Martin, Partee, Mrs. Teeters, Messrs.
days held for depositors' individual
Rice, and Gramley. Votes against these
retirement accounts or under a Keogh
actions: None. Absent and not voting:
plan; that removal became effective
Mr. Wallich.
December 1, 1983. The minimum denominations on such accounts other
The Depository Institutions Deregthan those in an IRA or a Keogh plan
ulation Committee, which is authorwill be phased out by January 1,1986.
ized to prescribe rules governing the
The Depository Institutions Deregupayment of interest on deposits, relation Committee also removed the
moved the interest rate ceilings on
differential on the maximum rate of
most time accounts and reduced the
interest payable on passbook savings
penalties for early withdrawal of time
accounts and on 7- to 31-day deposits
deposit contracts entered into, reof less than $2,500 at thrift institunewed, or extended after October 1,
1983. The Board amended Regulation tions and banks; beginning in 1984,
Q to eliminate interest ceilings on the ceiling for all such accounts is 5 Vi
percent.
time deposits with original maturities
or required notice periods of more
than 31 days. For time deposits with
maturities of 7 to 31 days, only those
denominations of less than $2,500 are
subject to interest rate limitations.
The ceilings for passbook savings and
NOW accounts remain in effect.
The Board also adopted an amendment, similar to a change in Regulation D (Reserve Requirements of Depository Institutions), that reduced to
7 days the minimum maturity or
notice period for all time deposits.
December 16,1983—Amendments
The Board amended Regulation Q,
effective January 1,1984, in conformance with recent actions by the Depository Institutions Deregulation Committee.
Votes for this action: Messrs. Martin,
Wallich, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against this
action: None. Absent and not voting:
Mr. Volcker.
Regulation T
(Credit by Brokers and Dealers)
May 16, 1983—Revision
The Board adopted a revised and simplified Regulation T, effective March
31, 1984, in connection with its Regulatory Improvement Project.
Votes for this action: Messrs. Volcker,
Martin, Wallich, Partee, Mrs. Teeters,
Messrs. Rice, and Gramley. Votes against
this action: None.
In 1982, when the Board made several substantive amendments to Regulation T and its other margin regulations, it also published for comment a
complete revision of Regulation T.
On the basis of comments received
and its own review, the Board has
adopted a completely revised Regulation T. The revised regulation takes
account of newly authorized types of
securities as well as recent revisions to
72
Board Policy Actions
the Securities Exchange Act of 1934.
The margin requirements for the new
securities are equal to the amount
specified by the rules of the exchange
on which the instruments are traded.
In addition, margin credit is now
authorized for corporate debt securities traded over the counter if at least
$25 million of the securities were
issued originally; previously, margin
credit was authorized if at least $25
million of the securities were outstanding when the credit was extended.
The Board had established an effective date of November 21, 1983,
for the new regulation, and allowed
creditors the option of operating
under the new rules after June 20,
1983. Because a number of brokers
and dealers reported operational difficulties in conforming to the regulation, the Board delayed the effective
date until March 31, 1984.
Regulation X
(Borrowers of Securities Credit)
December 16, 1983—Revision
The Board revised Regulation X, effective January 23, 1984, as part of its
Regulatory Improvement Project.
Votes for this action: Messrs. Martin,
Wallich, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against this
action: None. Absent and not voting:
Mr. Volcker.
Early in 1983, the Board revised the
margin credit regulations affecting
lenders, as part of its ongoing efforts
to update and simplify its regulations,
to eliminate unnecessary provisions,
and to reduce compliance burdens.
Regulation X, which affects borrowers of margin credit, has been revised
along those same lines. The new regulation eliminates the provisions that
govern purely domestic borrowings
because those rules are included in the
margin rules applicable to lenders.
However, borrowers who willfully
cause a violation of the margin regulations are not excluded from coverage. In addition, the revised regulation increases from $5,000 to $100,000
the exemption for margin credit extended to U.S. persons living abroad.
Regulation Y
(Bank Holding Companies and
Change in Bank Control)
August 10, 1983—Amendments
The Board amended Regulation Y,
effective September 9, 1983, to add
securities brokerage and related margin lending to the list of activities permissible for bank holding companies.
Votes for this action: Messrs. Wallich,
Partee, Rice, and Gramley. Votes against
this action: None. Absent and not voting: Messrs. Volcker and Martin, and
Mrs. Teeters.
In January 1983, when the Board
approved an application by a holding
company to acquire a discount securities brokerage firm, it also determined
that operating a discount brokerage
firm was an activity closely related to
banking. In February, the Board published for comment a proposal to
make the activity generally permissible for bank holding companies.
After consideration of the comments received and after court opinion upholding the Board's approval
of the acquisition, the Board amended Regulation Y to permit holding
companies to acquire discount brokerage firms provided the firm conducts
the brokerage service solely as agent
for customers. Underwriting securities and providing investment advice
cannot be coupled with discount brokerage services. The amendment also
permits holding companies and their
nonbank subsidiaries to provide re-
Board Policy Actions
lated margin credit, subject to the
Board's Regulation T.
December 14, 1983—Revision
The Board adopted a revised and
simplified Regulation Y in conjunction with its Regulatory Improvement
Project.
Votes for this action: Messrs. Volcker,
Wallich, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against this
action: None. Absent and not voting:
Mr. Martin.
Over the past several years, the
Board has been systematically reviewing all of its regulations to clarify and
simplify the language, eliminate unnecessary and obsolete provisions,
reduce regulatory and compliance
burdens, and codify within the regulations many important interpretations.
The revision to Regulation Y significantly accelerates the processing of
certain types of bank holding company applications and notices, and
eliminates them for certain other
types, particularly nonbanking applications.
The new Regulation Y also clarifies
the definition of "bank" and incorporates outstanding interpretations
that defined a bank and two related
terms: demand deposits and commercial loans. Negotiable order of withdrawal (NOW) accounts are considered demand deposits, and the
purchase of commercial paper and
certificates of deposit and the sale of
federal funds are now considered
commercial lending. A nonbank company that has acquired a financial institution that would be considered a
bank under the definition in the revised regulation will have two years to
divest the bank, to alter the bank's
activities so that it is no longer within
the definition, or to conform its nonbanking activities to those permissible
73
for bank holding companies. Companies that acquired such institutions
before December 10, 1982, may petition the Board for relief based on
hardship or unfairness.
The revised regulation adds to the
list of activities permissible for bank
holding companies five activities that
the Board had approved by order for
individual companies: (1) issuing
money orders, (2) arranging equity financing, (3) underwriting government
securities and money market instruments, (4) acting as a futures commission merchant, and (5) providing foreign exchange services. The Board
soon will consider whether to make
certain other activities generally permissible.
Among other changes, the regulation now specifies the procedures to
be followed by holding companies
seeking to redeem their own stock.
Also, bank holding companies must
obtain Board approval before investing in companies under the Bank
Service Corporation Act.
The revisions to the application
procedures are effective for applications filed after December 31, 1983;
the other changes in the regulation are
effective February 5, 1984.
Regulation Z (Truth in Lending)
March 31, 1983—Amendments
The Board adopted several amendments to Regulation Z, effective April
1, 1983, regarding arrangers of credit,
student loans, and the calculation of
annual percentage rates.
Votes for these actions: Messrs. Volcker,
Martin, Wallich, Mrs. Teeters, and Mr.
Gramley. Votes against these actions:
None. Absent and not voting: Messrs.
Partee and Rice.
The Garn-St Germain Depository
Institutions Act of 1982 made two re-
74
Board Policy Actions
visions to provisions of the truth in
lending legislation. One change deleted from the definition of "creditor" those who arrange extensions of
credit between two parties but who
otherwise are not involved in the
credit transaction. The second revision exempted from truth in lending
coverage loans made, insured, or
guaranteed under a program authorized by Title IV of the Higher Education Act of 1965. The Board amended
Regulation Z to implement these two
changes.
The Board also amended the regulation to reinstate provisions that protect creditors from liability if they use
faulty calculation tools. Before October 1982, creditors who made errors
in disclosing annual percentage rates
were protected from civil or administrative actions if the errors had resulted from faulty calculation tools that
had been used in good faith. In October 1982, the Board deleted those
provisions from the regulation in the
belief that the recent expansion of the
bona fide error defense in the Truth
in Lending Act made them unnecessary. Further review, however, disclosed that the protections provided
by the bona fide error clause were not
so complete as the deleted provisions
of the regulation had been. The Board
therefore reinstated those provisions
to provide that additional protection.
Policy Statements and
Other Actions
June 13, 1983—Revisions to the
Capital Adequacy Guidelines
The Board amended the capital adequacy guidelines for state member
banks and bank holding companies.
Votes for this action: Messrs. Volcker,
Martin, Partee, Rice, and Gramley.
Votes against this action: None. Absent
and not voting: Mr. Wallich and Mrs.
Teeters.
In December 1981, the Board and
the Comptroller of the Currency
adopted guidelines for assessing the
capital adequacy of well-managed national banks, state member banks,
and bank holding companies. The
guidelines divided banking organizations into three categories: 17 large
multinational organizations, as selected by the two agencies; regional organizations (those with more than $1
billion in assets that are not in the
multinational group); and community
organizations (those with less than $1
billion in assets). Specific capital
standards, based on the relation of
primary and secondary capital to total
assets, were established for regional
and community organizations. Multinational firms have ratios that are set
and monitored individually.
The revisions to these guidelines,
which also were adopted jointly with
the Comptroller of the Currency, (1)
establish specific guidelines for multinational organizations equal to those
for regional firms, and (2) expand the
definition of secondary capital to include unsecured long-term debt of the
parent or nonbank affiliates. In revising the guidelines, the Board emphasized that banking organizations are
expected to operate with capital levels
at or above the minimums specified.
In addition, banks whose operations
expose them to risks that are greater
than average are expected to have
commensurately higher capital levels.
June 15, 1983—Interpretation of
Bankers Acceptance Issues
The Board issued an interpretation,
effective July 20, 1983, to clarify the
treatment of participations in certain
bankers acceptances under the Bank
Export Services Act.
Board Policy Actions
75
Votes for this action: Messrs. Volcker,
Wallich, Partee, Rice, and Gramley.
Votes against this action: None. Absent
and not voting: Mr. Martin and Mrs.
Teeters.
reports are prepared according to
local accounting practices.
The Bank Export Services Act permits member banks and certain U.S.
agencies and branches of foreign
banks to create eligible bankers acceptances totaling up to 150 percent
of paid-up capital and unimpaired
surplus (or up to 200 percent with the
Board's permission). The act prohibits those institutions from issuing to
an individual eligible acceptances exceeding 10 percent of the institution's
capital and surplus; eligible acceptances arising from domestic transactions cannot exceed 50 percent of all
the acceptances authorized for the institution. The act also provides that
the Board will calculate the equivalent
value in dollars of the foreign parent's
capital to determine the limitations
applicable to agencies and branches
of foreign organizations. Questions
had arisen regarding which institution
is subject to the limitations if acceptances are transferred to another institution under participation agreements
and how the assets of a foreign company are to be evaluated.
Under the interpretation adopted
by the Board, eligible acceptances created by institutions covered by the
act's limitations and transferred
through participations to organizations not covered will continue to be
included in the limitations on the creating institutions. Participations to
covered institutions will be subject to
the limitations on the recipients rather
than on the issuers, regardless of
whether the issuers were covered.
The Board decided to use the Annual Reports of Foreign Banking Organizations (Form F.R. Y-7) to calculate a foreign company's capital and
Digitizedthe FRASERagency's limitations. The
for U.S.
The Board issued an interpretation,
effective June 10, 1984, clarifying the
limitations in the Bank Export Services Act on participations in bankers
acceptances.
November 30,1983—Participations
in Bankers Acceptances
Votes for this action: Messrs. Volcker,
Martin, Wallich, Partee, Rice, and
Gramley. Votes against this action:
None. Absent and not voting: Mrs.
Teeters.
When the Board adopted an interpretation in June 1983 regarding
bankers acceptances, it also published
for comment a proposed interpretation that would clarify the applicability of the act's limitations on the
issuance of bankers acceptances to
participations in such acceptances.
The act provides that any eligible acceptance created by a covered bank
(the senior bank) and conveyed by a
participation agreement to a second
covered bank (the junior bank) is excluded from the senior bank's limitations and included in the junior
bank's limitations. The statute did
not define a participation agreement.
The interpretation of these provisions adopted by the Board specifies
that the agreement must satisfy the
following minimum requirements to
be considered a participation in an
eligible acceptance that is exempt from
the act's limitations: (1) the written agreement between the two banks
must specify that the junior bank acquires the claim of the senior bank
against the account party for the
amount of the participation that is
enforceable if the account party fails
to perform according to the terms of
the acceptance; and (2) the agreement
must provide that the senior bank will
76
Board Policy Actions
obtain a claim against the junior
bank for the amount of the participation that is enforceable if the account
party fails to perform according to
the agreement. An eligible acceptance
conveyed through a participation
agreement that does not meet these
minimum requirements is included in
the senior bank's limitations.
The Board decided not to include
as a minimum requirement a third
provision that had been published for
comment; namely, that the senior
bank and the account party specifically agree that the senior bank's
rights could be assigned.
1983 Discount Rates
There were no changes in discount
rates during 1983, but the Board
voted at 15 meetings to turn down requests for changes submitted by individual Federal Reserve Banks. Under
the provisions of the Federal Reserve
Act, the boards of directors of the
Federal Reserve Banks are required to
establish rates on discounts for and
advances to depository institutions at
least every 14 days and to submit such
rates to the Board for review and
determination. The Board votes listed
below are those that involved disapprovals of actions to change existing
rates; votes involving requests for
maintaining rates already in effect are
not shown.
In reaching its decisions, the Board
took into account the general economic and financial developments that
are covered elsewhere in this REPORT.
Its individual decisions were also
made on the basis of current judgments about the course of market interest rates, the spread between those
rates and the discount rate, the
volume of borrowing by depository
institutions, and information about
Digitizedthe FRASER
for monetary aggregates in relation to
the objectives established by the
Federal Open Market Committee.
The basic discount rate cited in the
listing below is the rate on discounts
for and advances to depository institutions for short-term adjustment credit.
Other categories of discount window
credit include advances made over extended periods to depository institutions that are under sustained liquidity pressure. Such extended credit may
also be provided when exceptional
circumstances or practices adversely
affect a particular depository institution. Finally, so-called seasonal credit
may be provided for periods longer
than those permitted under adjustment credit to assist smaller institutions in meeting regular needs for
funds arising from certain expected
movements in their deposits and
loans.
As of December 31,1983, the structure of rates was as follows: a basic
rate of SVi percent for short-term adjustment credit and for seasonal
credit; and a rate on extended credit
of 8!/2 percent for the first 60 days of
borrowing, 9Vi percent for the next
90 days of borrowing, and 10 Vi percent after 150 days.
The listing of the Board's discount
rate actions during 1983, including
the votes on those actions, follows.
March 7, 1983
The Board disapproved actions taken
by the directors of the Federal Reserve
Bank of Minneapolis on February 24
to reduce the basic discount rate to
$lA percent (a reduction from 8Vi
percent), and by the directors of the
Federal Reserve Banks of Chicago
and Kansas City on February 24, by
the directors of the Federal Reserve
Bank of San Francisco on March 2,
and by the directors of the Federal
Reserve Bank of Boston on March 3
Board Policy Actions
to reduce the basic discount rate to 8
percent.
Votes for these actions: Messrs. Volcker,
Martin, Partee, Mrs. Teeters, and Mr.
Rice. Votes against these actions: None.
Absent and not voting: Messrs. Wallich
and Gramley.
March 21, 1983
The Board disapproved actions taken
by the directors of the Federal Reserve Bank of Boston on March 17 to
reduce the basic discount rate to 8
percent, and by the directors of the
Federal Reserve Bank of Richmond
on March 10 to increase the basic discount rate to 9 percent.
Votes for these actions: Messrs. Volcker,
Martin, Wallich, Partee, Mrs. Teeters,
and Messrs. Rice, and Gramley. Votes
against these actions: None.
April 4, 1983
The Board disapproved an action
taken by the directors of the Federal
Reserve Bank of Boston on March 30
to reduce the basic discount rate to 8
percent.
Votes for this action: Messrs. Volcker,
Martin, Wallich, Partee, Mrs. Teeters,
and Mr. Gramley. Votes against this action: None. Absent and not voting: Mr.
Rice.
April 11, 1983
The Board disapproved an action
taken by the directors of the Federal
Reserve Bank of Boston on April 7 to
reduce the basic discount rate to 8
percent.
Votes for this action: Mr. Volcker,
Mrs. Teeters, Messrs. Rice, and Gramley. Votes against this action: None.
Absent and not voting: Messrs. Martin,
Wallich, and Partee.
April 18, 1983
DigitizedThe Board disapproved
for FRASER
actions taken
77
by the directors of the Federal Reserve Bank of Richmond on April 14
to increase the basic discount rate to 9
percent, and by the directors of the
Federal Reserve Bank of Chicago on
April 14 to reduce the basic discount
rate to 8 percent.
Votes for these actions: Messrs. Martin,
Partee, Mrs. Teeters, Messrs. Rice, and
Gramley. Votes against these actions:
None. Absent and not voting: Messrs.
Volcker and Wallich.
April 25, 1983
The Board disapproved an action
taken by the directors of the Federal
Reserve Bank of Boston on April 21
to reduce the basic discount rate to 8
percent.
Votes for this action: Messrs. Volcker,
Martin, Wallich, Partee, Mrs. Teeters,
Messrs. Rice, and Gramley. Votes against
this action: None.
May 9, 1983
The Board disapproved actions taken
by the directors of the Federal Reserve Banks of Boston and Philadelphia on May 5 to reduce the basic discount rate to 8 percent.
Votes for these actions: Messrs. Martin,
Partee, and Gramley. Votes against
these actions: Mrs. Teeters and Mr.
Rice. Absent and not voting: Messrs.
Volcker and Wallich.
Mrs. Teeters and Mr. Rice would
have preferred to table the pending
reduction for later consideration on
the basis of further evidence on the
performance of the economy and related financial developments.
May 16, 1983
The Board disapproved an action
taken by the directors of the Federal
Reserve Bank of Chicago on May 12
78
Board Policy Actions
to reduce the basic discount rate to 8
percent.
Votes for this action: Messrs. Volcker,
Wallich, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against this
action: None. Absent and not voting:
Mr. Martin.
cisco on November 10 to reduce the
basic discount rate to 8 percent and
8*4 percent respectively.
Votes for these actions: Messrs. Volcker,
Martin, Wallich, Partee, Mrs. Teeters,
and Mr. Gramley. Votes against these
action: None. Absent and not voting:
Mr. Rice.
May 31, 1983
The Board disapproved an action
taken by the directors of the Federal
Reserve Bank of New York on May 19
to reduce the basic discount rate to 8
percent.
Votes for this action: Messrs. Martin,
Wallich, Mrs. Teeters, Messrs. Rice,
and Gramley. Votes against this action:
None. Absent and not voting: Messrs.
Volcker and Partee.
June 13, 1983
The Board disapproved an action
taken by the directors of the Federal
Reserve Bank of Atlanta on June 9 to
increase the basic discount rate to 9
percent.
Votes for this action: Messrs. Volcker,
Martin, Partee, Rice, and Gramley.
Votes against this action: None. Absent
and not voting: Mr. Wallich and Mrs.
Teeters.
October 31, 1983
The Board disapproved an action
taken by the directors of the Federal
Reserve Bank of Chicago on October
27 to reduce the basic discount rate to
8 percent.
Votes for this action: Messrs. Volcker,
Martin, Wallich, Partee, Mrs. Teeters,
Messrs. Rice, and Gramley. Votes against
this action: None.
November 21, 1983
The Board disapproved actions taken
by the directors of the Federal Reserve Banks of Chicago and San Fran
November 28, 1983
The Board disapproved actions taken
by the directors of the Federal Reserve Bank of Chicago on November
22 to reduce the basic discount rate to
8 percent, and by the directors of the
Federal Reserve Bank of San Francisco on November 23 to reduce the
basic discount rate to %VA percent.
Votes for these actions: Messrs. Volcker,
Martin, Wallich, Partee, Rice, and
Gramley. Votes against these actions:
None. Absent and not voting: Mrs.
Teeters.
December 5, 1983
The Board disapproved an action
taken by the directors of the Federal
Reserve Bank of Chicago on December 1 to reduce the basic discount rate
to 8 percent.
Votes for this action: Messrs. Martin,
Wallich, Partee, Rice, and Gramley.
Votes against this action: None. Absent
and not voting: Mr. Volcker and Mrs.
Teeters.
December 12, 1983
The Board disapproved an action
taken by the directors of the Federal
Reserve Bank of San Francisco on
December 8 to reduce the basic discount rate to 8!4 percent.
Votes for this action: Messrs. Martin,
Partee, Rice, and Gramley. Votes against
this action: None. Absent and not voting: Messrs. Volcker, Wallich, and Mrs.
Teeters.
79
Record of Policy Actions of the
Federal Open Market Committee
The record of policy actions of the
Federal Open Market Committee is
presented in the ANNUAL REPORT of
the Board of Governors pursuant to
the requirements of section 10 of the
Federal Reserve Act. That section
provides that the Board shall keep a
complete record of the actions taken
by the Board and by the Federal Open
Market Committee on all questions
of policy relating to open market operations, that it shall record therein
the votes taken in connection with the
determination of open market policies and the reasons underlying each
such action, and that it shall include
in its ANNUAL REPORT to the
Con-
gress a full account of such actions.
In the pages that follow, there are
entries with respect to the policy actions taken at the meetings of the
Federal Open Market Committee held
during the calendar year 1983, including the votes on the policy decisions made at those meetings as well
as a resume' of the basis for the decisions. The summary descriptions of
economic and financial conditions
are based on the information that was
available to the Committee at the time
of the meetings, rather than on data
as they may have been revised later.
It will be noted from the record of
policy actions that in some cases the
decisions were made by unanimous
vote and that in other cases dissents
were recorded. The fact that a decision in favor of a general policy was
by a large majority, or even that it
was by unanimous vote, does not necessarily mean that all members of the
DigitizedCommittee were equally agreed as to
for FRASER
the reasons for the particular decision
or as to the precise operations in the
open market that were called for to
implement the general policy.
During 1983 the policy record for
each meeting was released a few days
after the next regularly scheduled
meeting and was subsequently published in the Federal Reserve Bulletin.
Policy directives of the Federal
Open Market Committee are issued
to the Federal Reserve Bank of New
York as the Bank selected by the
Committee to execute transactions for
the System Open Market Account. In
the area of domestic open market activities, the Federal Reserve Bank of
New York operates under two separate directives from the Open Market
Committee: an Authorization for Domestic Open Market Operations and
a Domestic Policy Directive. (A new
Domestic Policy Directive is adopted
at each regularly scheduled meeting.)
In the foreign currency area, it operates under an Authorization for
Foreign Currency Operations and a
Foreign Currency Directive. These
four instruments are shown below in
the form in which they were in effect
at the beginning of 1983. Changes in
the instruments during the year are
reported in the records for the individual meetings.
Authorization for Domestic
Open Market Operations
In Effect January 1, 1983
1. The Federal Open Market Committee authorizes and directs the Federal
Reserve Bank of New York, to the extent
80
FOMC Policy Actions
necessary to carry out the most recent
domestic policy directive adopted at a
meeting of the Committee:
(a) To buy or sell U.S. Government
securities, including securities of the Federal Financing Bank, and securities that
are direct obligations of, or fully guaranteed as to principal and interest by, any
agency of the United States in the open
market, from or to securities dealers and
foreign and international accounts maintained at the Federal Reserve Bank of
New York, on a cash, regular, or deferred
delivery basis, for the System Open Market Account at market prices and, for
such Account, to exchange maturing U.S.
Government and Federal agency securities
with the Treasury or the individual agencies or to allow them to mature without
replacement; provided that the aggregate
amount of U.S. Government and Federal
agency securities held in such Account (including forward commitments) at the
close of business on the day of a meeting
of the Committee at which action is taken
with respect to a domestic policy directive
shall not be increased or decreased by
more than $4.0 billion1 during the period
commencing with the opening of business
on the day following such meeting and
ending with the close of business on the
day of the next such meeting;
(b) When appropriate, to buy or sell in
the open market, from or to acceptance
dealers and foreign accounts maintained
at the Federal Reserve Bank of New York,
on a cash, regular, or deferred delivery
basis, for the account of the Federal Reserve Bank of New York at market discount rates, prime bankers acceptances
with maturities of up to 9 months at the
time of acceptance that (1) arise out of the
current shipment of goods between countries or within the United States, or (2)
arise out of the storage within the United
States of goods under contract of sale or
expected to move into the channels of
trade within a reasonable time and that
are secured throughout their life by a
warehouse receipt or similar document
1. Pursuant to an action taken by the Committee at its meeting on December 20-21,1982,
the limit on changes between Committee meetings in System Account holdings of U.S. government and federal agency securities was set at
$4.0 billion for the period through the close of
business on February 9, 1983, at which time it
reverted to $3.0 billion.
conveying title to the underlying goods;
provided that the aggregate amount of
bankers acceptances held at any one time
shall not exceed $100 million;
(c) To buy U.S. Government securities, obligations that are direct obligations
of, or fully guaranteed as to principal and
interest by, any agency of the United
States, and prime bankers acceptances of
the types authorized for purchase under
l(b) above, from dealers for the account
of the Federal Reserve Bank of New York
under agreements for repurchase of such
securities, obligations, or acceptances in
15 calendar days or less, at rates that,
unless otherwise expressly authorized by
the Committee, shall be determined by
competitive bidding, after applying reasonable limitations on the volume of
agreements with individual dealers; provided that in the event Government
securities or agency issues covered by any
such agreement are not repurchased by
the dealer pursuant to the agreement or a
renewal thereof, they shall be sold in the
market or transferred to the System Open
Market Account; and provided further
that in the event bankers acceptances
covered by any such agreement are not
repurchased by the seller, they shall continue to be held by the Federal Reserve
Bank or shall be sold in the open market.
2. The Federal Open Market Committee authorizes and directs the Federal
Reserve Bank of New York (or, under
special circumstances, such as when the
New York Reserve Bank is closed, any
other Federal Reserve Bank) (a) to lend to
the Treasury such amounts of securities
held in the System Open Market Account
as may be necessary from time to time for
the temporary accommodation of the
Treasury, under such conditions as the
Committee may specify; and (b) to purchase directly from the Treasury for renewable periods not to exceed 30 days,
when authorized by the Board of Governors of the Federal Reserve System pursuant to an affirmative vote of not less
than five members, for its own account
(with discretion, in cases where it seems
desirable, to issue participations to one or
more Federal Reserve Banks) such
amounts of special short-term certificates
of indebtedness as may be necessary from
time to time for the temporary accommodation of the Treasury, provided that the
rate charged on such certificates shall be a
rate of lA of 1 percent below the discount
FOMC Policy Actions
rate of the Federal Reserve Bank of New
York at the time of such purchases and
provided that the total amount of such
certificates held at any one time by the
Federal Reserve Banks shall not exceed $2
billion.
3. In order to ensure the effective conduct of open market operations, the Federal Open Market Committee authorizes
and directs the Federal Reserve Banks to
lend U.S. Government securities held in
the System Open Market Account to Government securities dealers and to banks
participating in Government securities
clearing arrangements conducted through
a Federal Reserve Bank, under such instructions as the Committee may specify
from time to time.
4. In order to ensure the effective conduct of open market operations, while
assisting in the provision of short-term investments for foreign and international
accounts maintained at the Federal Reserve Bank of New York, the Federal
Open Market Committee authorizes and
directs the Federal Reserve Bank of New
York (a) for System Open Market Account, to sell U.S. Government securities
to such foreign and international accounts
on the basis set forth in paragraph 1 (a)
under agreements providing for the resale
by such accounts of those securities within
15 calendar days on terms comparable to
those available on such transactions in the
market; and (b) for New York Bank account, when appropriate, to undertake
with dealers, subject to the conditions imposed on purchases and sales of securities
in paragraph 1 (c), repurchase agreements
in U.S. Government and agency securities, and to arrange corresponding sale
and repurchase agreements between its
own account and foreign and international accounts maintained at the Bank.
Transactions undertaken with such accounts under the provisions of this paragraph may provide for a service fee when
appropriate.
Domestic Policy Directive
In Effect January 1, 19832
The information reviewed at this meeting
suggests that real GNP declined in the
fourth quarter, although final sales ap2. Adopted by the Committee at its meeting
on December 20-21, 1983.
81
parently were maintained, and that the
rise in prices remained much less rapid
than in 1981. Retail sales and housing activity have strengthened in recent months,
but business fixed investment apparently
has weakened further and efforts to reduce inventories have continued. In
November industrial production and nonfarm payroll employment declined further, and the unemployment rate rose 0.4
percentage point to 10.8 percent. Initial
claims for unemployment insurance,
although down from the early autumn
peaks, have remained relatively high. In
recent months the advance in the index of
average hourly earnings has slowed appreciably further.
The weighted average value of the
dollar against major foreign currencies
has declined from peaks reached in early
November. The U.S. merchandise trade
deficit rose sharply further in October.
Growth of Ml has remained rapid in recent months, while growth of M2 and M3
has continued at about or somewhat below the rates of earlier in the year. On
balance short-term market interest rates
have declined since mid-November, while
bond yields have risen somewhat in response to unusually heavy borrowing by
businesses and governments; mortgage
rates have edged down further. The Federal Reserve announced reductions in the
discount rate from 9Vz percent to 9 percent on November 19 and to 814 percent
on December 13.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation, promote a resumption of growth in
output on a sustainable basis, and contribute to a sustainable pattern of international transactions. In July, the Committee agreed that these objectives would
be furthered by reaffirming the monetary
growth ranges for the period from the
fourth quarter of 1981 to the fourth quarter of 1982 that it had set at the February
meeting. These ranges were 2lA to 5!/2
percent for Ml, 6 to 9 percent for M2, and
6^2 to 9!/2 percent for M3. The associated
range for bank credit was 6 to 9 percent.
The Committee agreed that growth in the
monetary and credit aggregates around
the top of the indicated ranges would be
acceptable in the light of the relatively low
base period for the Ml target and other
factors, and that it would tolerate for
some period of time growth somewhat
82
FOMC Policy Actions
above the target should unusual precautionary demands for money and liquidity
be evident in the light of current economic
uncertainties. The Committee had also
earlier indicated that it was tentatively
planning to continue the current ranges
for 1983, but it will review that decision
carefully at its February 1983 meeting in
light of economic developments and institutional changes associated with the
new deposit accounts authorized by the
Depository Institutions Deregulation
Committee.
Specification of the behavior of Ml
over the months ahead remains subject to
substantial uncertainty because of special
circumstances in connection with the
public's response to the new deposit accounts available at depository institutions.
The difficulties in interpretation of Ml
continue to suggest that much less than
usual weight be placed on movements in
that aggregate during the coming quarter.
The institutional changes also add a degree of uncertainty to the behavior of the
broader monetary aggregates.
In all the circumstances, the Committee
seeks to maintain expansion in bank reserves consistent with growth of M2 of
around 9Vi percent at an annual rate, and
of M3 at about an 8 percent rate, from
December to March, allowing in the case
of M2 for modest shifting into the new
money market accounts from largedenomination CDs or market instruments.
The Committee indicated that greater
growth would be acceptable if analysis of
incoming data and other evidence from
bank and market reports indicate that the
new money market accounts are generating more substantial shifts of funds into
broader aggregates from market instruments. The Chairman may call for Committee consultation if it appears to the
Manager for Domestic Operations that
pursuit of the monetary objectives and
related reserve paths during the period
before the next meeting is likely to be
associated with a federal funds rate persistently outside a range of 6 to 10 percent.
Authorization for Foreign
Currency Operations
In Effect January 1, 1983
1. The Federal Open Market Committee authorizes and directs the Federal
Reserve Bank of New York, for System
Open Market Account, to the extent
necessary to carry out the Committee's
foreign currency directive and express
authorizations by the Committee pursuant thereto, and in conformity with
such procedural instructions as the Committee may issue from time to time:
A. To purchase and sell the following
foreign currencies in the form of cable
transfers through spot or forward transactions on the open market at home and
abroad, including transactions with the
U.S. Treasury, with the U.S. Exchange
Stabilization Fund established by Section
10 of the Gold Reserve Act of 1934, with
foreign monetary authorities, with the
Bank for International Settlements, and
with other international financial institutions:
Austrian schillings
Belgian francs
Canadian dollars
Danish kroner
Pounds sterling
French francs
German marks
Italian lire
Japanese yen
Mexican pesos
Netherlands guilders
Norwegian kroner
Swedish kronor
Swiss francs
B. To hold balances of, and to have
outstanding forward contracts to receive
or to deliver, the foreign currencies listed
in paragraph A above.
C. To draw foreign currencies and to
permit foreign banks to draw dollars
under the reciprocal currency arrangements listed in paragraph 2 below,
provided that drawings by either party to
any such arrangement shall be fully
liquidated within 12 months after any
amount outstanding at that time was first
drawn, unless the Committee, because of
exceptional circumstances, specifically
authorizes a delay.
D. To maintain an overall open position in all foreign currencies not exceeding
$8.0 billion. For this purpose, the overall
open position in all foreign currencies is
defined as the sum (disregarding signs) of
net positions in individual currencies. The
net position in a single foreign currency is
defined as holdings of balances in that
currency, plus outstanding contracts for
future receipt, minus outstanding contracts for future delivery of that currency,
i.e., as the sum of these elements with due
regard to sign.
2. The Federal Open Market Committee directs the Federal Reserve Bank of
New York to maintain reciprocal currency
arrangements ("swap" arrangements) for
the System Open Market Account for
FOMC Policy Actions
periods up to a maximum of 12 months
with the following foreign banks, which
are among those designated by the Board
of Governors of the Federal Reserve System under Section 214.5 of Regulation N,
Relations with Foreign Banks and Bankers, and with the approval of the Committee to renew such arrangements on
maturity:
Foreign bank
Amount of arrangement
(millions of
dollars equivalent)
Austrian National Bank
National Bank of Belgium
Bank of Canada
National Bank of Denmark
Bank of England
Bank of France
German Federal Bank
Bank of Italy
Bank of Japan
Bank of Mexico1
Regular
Special
Netherlands Bank
Bank of Norway
Bank of Sweden
Swiss National Bank
Bank for International Settlements
Dollars against Swiss francs
Dollars against authorized European
currencies other than Swiss francs
250
1,000
2,000
250
3,000
2,000
6,000
3,000
5,000
700
325
500
250
300
4,000
600
1,250
1. Pursuant to an action taken by the Committee on
August 24, 1982, the special reciprocal currency arrangement with the Bank of Mexico of $325 million in
addition to the regular $700 million arrangement was
added, effective for the period from August 28, 1982,
through August 23, 1983.
Any changes in the terms of existing swap
arrangements, and the proposed terms of
any new arrangements that may be authorized, shall be referred for review and
approval to the Committee.
3. All transactions in foreign currencies
undertaken under paragraph 1(A) above
shall, unless otherwise expressly authorized by the Committee, be at prevailing
market rates. For the purpose of providing an investment return on System holdings of foreign currencies, or for the purpose of adjusting interest rates paid or
received in connection with swap drawings, transactions with foreign central
banks may be undertaken at nonmarket
exchange rates.
4. It shall be the normal practice to arrange with foreign central banks for the
coordination of foreign currency transactions. In making operating arrangements with foreign central banks on Sys-
83
tem holdings of foreign currencies, the
Federal Reserve Bank of New York shall
not commit itself to maintain any specific
balance, unless authorized by the Federal
Open Market Committee. Any agreements or understandings concerning the
administration of the accounts maintained by the Federal Reserve Bank of
New York with the foreign banks designated by the Board of Governors under
Section 214.5 of Regulation N shall be
referred for review and approval to the
Committee.
5. Foreign currency holdings shall be
invested insofar as practicable, considering needs for minimum working balances.
Such investments shall be in liquid form,
and generally have no more than 12 months
remaining to maturity. When appropriate
in connection with arrangements to provide investment facilities for foreign currency holdings, U.S. Government securities may be purchased from foreign
central banks under agreements for repurchase of such securities within 30 calendar days.
6. All operations undertaken pursuant
to the preceding paragraphs shall be reported promptly to the Foreign Currency
Subcommittee and the Committee. The
Foreign Currency Subcommittee consists
of the Chairman and Vice Chairman of
the Committee, the Vice Chairman of the
Board of Governors, and such other
members of the Board as the Chairman
may designate (or in the absence of members of the Board serving on the Subcommittee, other Board Members designated
by the Chairman as alternates, and in the
absence of the Vice Chairman of the
Committee, his alternate). Meetings of the
Subcommittee shall be called at the request of any member, or at the request
of the Manager for Foreign Operations,
for the purposes of reviewing recent or
contemplated operations and of consulting with the Manager on other matters
relating to his responsibilities. At the request of any member of the Subcommittee, questions arising from such reviews
and consultations shall be referred for determination to the Federal Open Market
Committee.
7. The Chairman is authorized:
A. With the approval of the Committee, to enter into any needed agreement or understanding with the Secretary
of the Treasury about the division of responsibility for foreign currency opera-
84
FOMC Policy Actions
tions between the System and the Treasury;
B. To keep the Secretary of the Treasury fully advised concerning System foreign currency operations, and to consult
with the Secretary on policy matters relating to foreign currency operations;
C. From time to time, to transmit
appropriate reports and information to
the National Advisory Council on International Monetary and Financial Policies.
8. Staff officers of the Committee are
authorized to transmit pertinent information on System foreign currency operations to appropriate officials of the
Treasury Department.
9. All Federal Reserve Banks shall participate in the foreign currency operations
for System Account in accordance with
paragraph 3G(1) of the Board of Governors' Statement of Procedure with Respect to Foreign Relationships of Federal
Reserve Banks dated January 1, 1944.
Foreign Currency Directive
In Effect January 1, 1983
1. System operations in foreign currencies shall generally be directed at countering disorderly market conditions, provided that market exchange rates for the
U.S. dollar reflect actions and behavior
consistent with the IMF Article IV,
Section 1.
2. To achieve this end the System shall:
A. Undertake spot and forward purchases and sales of foreign exchange.
B. Maintain reciprocal currency
("swap") arrangements with selected foreign central banks and with the Bank for
International Settlements.
C. Cooperate in other respects with
central banks of other countries and with
international monetary institutions.
3. Transactions may also be undertaken:
A. To adjust System balances in light
of probable future needs for currencies.
B. To provide means for meeting
System and Treasury commitments in
particular currencies, and to facilitate
operations of the Exchange Stabilization
Fund.
C. For such other purposes as may be
expressly authorized by the Committee.
4. System foreign currency operations
shall be conducted:
A. In close and continuous consultation and cooperation with the United
States Treasury;
B. In cooperation, as appropriate,
with foreign monetary authorities; and
C. In a manner consistent with the
obligations of the United States in the
International Monetary Fund regarding
exchange arrangements under the IMF
Article IV.
Meeting Held on
February 8-9, 1983
Domestic Policy Directive
Preliminary estimates of the Commerce Department indicated that real
gross national product had declined
at an annual rate oilVi percent in the
fourth quarter of 1982. The decline
was the result mainly of a sharp contraction in business inventories; final
sales increased appreciably in the
quarter. Average prices, as measured
by the fixed-weight price index for
gross domestic business product, rose
at an annual rate of about AVA percent. Over the four quarters of 1982,
real GNP declined about 1 VA percent,
nominal GNP grew about 3VA percent, and the increase in prices on
average decelerated sharply to about
4% percent.
The nominal value of retail sales
edged down in December, but rose 3
percent in the fourth quarter as a
whole. Retail sales at automotive outlets strengthened considerably in the
fourth quarter, and sales at general
merchandise and furniture and appliance stores also picked up. Sales of
new domestic automobiles were at an
annual rate of about 6 million units in
the fourth quarter, compared with an
average selling pace of about 5!/2
million units during much of 1982; in
January, sales continued at about the
fourth-quarter pace.
Private housing starts fell somewhat in December, following a surge
in November, but at an annual rate of
1 VA million units in the fourth quarter, starts were about 45 percent
above the cyclical trough of a year
earlier. Combined sales of new and
existing homes have advanced appreciably in recent months.
Spending for business fixed investment declined substantially further in
Digitizedthe FRASERquarter to a rate nearly 8 Vi
for fourth
FOMC Policy Actions
85
percent below the recent peak in the
fourth quarter of 1981. The decline
was concentrated in outlays for durable equipment, but nonresidential
construction spending also fell somewhat. According to the Department
of Commerce survey taken in November and December, plant and equipment spending would decline about
WA percent in 1983; taking account
of respondents' expectations of inflation, the survey results implied a
decline of about 5!4 percent in real
terms, compared with a decline of AVA
percent in 1982.
Nonfarm payroll employment increased 340,000 in January, after an
average monthly decline of about
200,000 in the second half of 1982.
Other indicators also suggested improvement in labor markets: in manufacturing, employment edged up for
the first time in about a year and a
half and the factory workweek increased 0.8 hour to 39.7 hours. However, the January data may have overstated the improvement in labor
market conditions because of seasonal adjustment problems. The civilian unemployment rate fell 0.4 percentage point to 10.4 percent, as the
civilian labor force declined substantially.
The producer price index for finished goods was about unchanged in
December, reflecting a decline in
prices of energy-related items and
only modest increases in prices of
consumer foods and other goods.
During 1982 the index rose iVi percent, about half the pace recorded in
1981. The consumer price index declined 0.3 percent in December, as
homeownership costs fell sharply and
prices for food and energy declined as
well. Over the year the index increased less than 4 percent, compared
with a rise of about 9 percent in 1981.
Price increases were smaller in 1982
86
FOMC Policy Actions
than in 1981 for all major components of the index. The rise in the
index of average hourly earnings
slowed further in the final months of
1982. Over the year the index rose
about 6 percent, compared with an
increase of about %Vi percent over
1981.
In foreign exchange markets the
trade-weighted value of the dollar
against major foreign currencies had
declined about 3 percent further from
mid-December to about mid-January.
Subsequently, the dollar appreciated
and was up on balance over the period since the Committee's meeting in
December. In the fourth quarter the
U.S. merchandise trade deficit was
close to the relatively high thirdquarter rate. Agricultural exports
continued at about the reduced thirdquarter rate while a decline in nonagricultural exports was roughly offset by a decline in imports.
In July 1982 the Committee reaffirmed the objectives for monetary
growth that it had set in early February for the period from the fourth
quarter of 1981 to the fourth quarter
of 1982 and also decided tentatively
to retain the 1982 target ranges for
1983. Those objectives included
ranges of 2Vi to 5 Vi percent for Ml, 6
to 9 percent for M2, and 6Vi to 9Vi
percent for M3. The associated range
for bank credit was 6 to 9 percent.
The Committee agreed that growth in
the monetary and credit aggregates
around the top of the indicated ranges
would be acceptable and that it would
tolerate for some period of time
growth somewhat above the target
ranges if uncertainties relating to
unsettled economic and financial conditions should lead to unusual precautionary demands for money and
liquidity.
Actual monetary growth during
Digitized1982 was above the Committee's
for FRASER
target ranges. Ml grew about 8 Vi percent on a fourth-quarter to fourthquarter basis, substantially more than
in 1981 and well above the target
range. M2 and M3 expanded 9.2 percent and 10.1 percent respectively
over the four quarters of 1982, somewhat above the upper limits of their
target ranges; prior to certain revisions and redefinitions of M2 and M3
in early 1983, their indicated growth
rates for 1982 had been 9.8 percent
and 10.3 percent respectively.3 Bank
credit expanded about 7 percent during the year.
At its meeting on December 20-21,
the Committee had decided to seek to
maintain expansion in bank reserves
consistent with growth of M2 at an
annual rate of around 9Vi percent
3. The revised data for the monetary aggregates reflect new benchmarks and revised
seasonal factors and some relatively minor
changes in definitions of the broader aggregates that were published on February 11,
1983. As redefined, the broader aggregates
now include balances in tax-exempt money
market mutual funds on the same basis as those
in taxable money funds and no longer include
balances in individual retirement or Keogh accounts at depository institutions and money
market mutual funds.
Ml comprises demand deposits at commercial banks and thrift institutions, currency in
circulation, travelers checks, negotiable order
of withdrawal (NOW) and automatic transfer
service (ATS) accounts at banks and thrift institutions, and credit union share draft accounts. M2 contains Ml and savings and smalldenomination time deposits at all depository
institutions, money market deposit accounts
(MMDAs) at all depository institutions, overnight repurchase agreements (RPs) at commercial banks and retail RPs at all depository institutions, overnight Eurodollars held at foreign
branches of U.S. banks by U.S. residents other
than banks, and taxable and tax-exempt money
market mutual fund shares other than those
restricted to institutions. M3 is M2 plus largedenomination time deposits at all depository
institutions, large-denomination term RPs at
commercial banks and savings and loan associations, and taxable and tax-exempt institution-only money market mutual fund shares.
and growth of M3 at an annual rate
of about 8 percent for the period
from December to March. The objective for M2 was designed to allow for
a modest amount of growth resulting
from shifts into the newly authorized
money market deposit accounts
(MMDAs) from large-denomination
certificates of deposit or market instruments. For both M2 and M3, the
Committee had noted that greater
growth would be acceptable if analysis of incoming data and other evidence from banking and market reports indicated that the new MMDAs
were generating more substantial
shifts of funds from market instruments into the broader aggregates.
The intermeeting range for the federal funds rate, which provides a
mechanism for initiating further consultation of the Committee, was set at
6 to 10 percent.
On several occasions following the
December meeting, the Committee
discussed the extraordinarily rapid
growth in MMDAs that had taken
place since the accounts had become
available in mid-December and the
implications of that growth for the
behavior and interpretation of the
monetary aggregates. At the conclusion of a discussion on January 28,
1983, it was the Committee consensus
to maintain the existing degree of
reserve restraint further in response
to the reported over-target growth of
the broader monetary aggregates because that growth appeared to be primarily related to the massive redistribution of funds under way.
M2 grew at an estimated annual
rate of about 29 percent in January,
following an increase at an annual
rate of about 8 percent in December.
At this meeting it was reported that
MMDAs had grown to more than
$210 billion by late January, and
Digitizedavailable evidence suggested that
for FRASER
FOMC Policy Actions
87
some of the December increase in M2
and much of the surge in January was
related to the associated shifts of
funds out of non-M2 assets—such as
market instruments and large-denomination CDs—into MMDAs. Abstracting from such shifts, which
could be calculated only very roughly,
the growth of M2 over the DecemberJanuary period was estimated to have
been at a pace that was generally consistent with the Committee's longerrun growth objective for this aggregate. Growth of M3, estimated at annual rates of about 314 percent in
December and 11 percent in January,
was much less affected by the introduction of MMDAs, as depository institutions responded to large net inflows of funds in part by allowing
their large-denomination certificates
of deposit to run off. Growth of Ml
remained rapid in January, although
the increase was appreciably smaller
than the average pace in other recent
months. To date, Ml growth appeared
to have been little affected on balance
by the introduction of MMDAs in
mid-December or of Super NOW accounts in early January.
Expansion in total and nonborrowed reserves slowed considerably in
January; the slowing reflected the
moderation in growth of transaction
balances as well as the substantial
reduction in required reserves associated with the attrition of largedenomination CDs and shifts out of
savings and other time deposits into
nonreservable MMDAs. Excess reserves were extraordinarily high
around the turn of the year, and also
were on the high side around midJanuary, reflecting usual year-end
pressures and the implementation of
two mandated reserve requirement reductions. Also reflecting typical yearend money market churning, adjustment borrowing (including seasonal
88
FOMC Policy Actions
borrowing) was quite large at the beginning of the year, but it tended to
be relatively low thereafter, with the
federal funds rate remaining close to
the 8V2 percent discount rate except
for a brief period around year-end.
Interest rates on private short-term
market instruments were little changed
over the period, while yields on corporate bonds were up about 30 basis
points. Yields on most U.S. Treasury
bills rose about 35 to 40 basis points,
and rates on Treasury notes and
bonds increased about 35 to 45 basis
points, apparently in response to the
substantially increased recent and
prospective volume of Treasury financing. The prime rate charged by
most commercial banks on shortterm business loans was reduced Vi
percentage point to 11 percent in midJanuary. Average rates on new commitments for fixed-rate conventional
home mortgage loans at savings and
loan associations declined about Vi
percentage point over the intermeeting period to a level a little above 13
percent.
Total credit at U.S. commercial
banks accelerated to an annual rate of
about 101/2 percent in December and
was estimated to have picked up further in January. Banks responded to
the strong inflows of funds into
MMDAs by purchasing sizable
amounts of Treasury and other securities. Banks also expanded their
loans somewhat.
Staff projections presented at this
meeting suggested that real GNP
would turn upward in the first
quarter and continue to grow moderately during 1983. The unemployment rate was expected to remain at a
high level, while inflation, as measured by the fixed-weight price index
for gross domestic business product,
was projected to slow somewhat furDigitizedther over the year.
for FRASER
In the Committee's discussion of
the economic situation and outlook,
members emphasized that signs of an
economic recovery had multiplied in
recent weeks, and while some question remained about the actual onset
of the recovery the members generally
agreed that moderate growth in real
GNP was a reasonable prospect for
1983 as a whole. The members also
believed that economic recovery
could be achieved without a resurgence in inflation, partly in light of
favorable prospects for productivity
growth and for oil prices. The cautionary note was expressed, however,
that inflationary expectations, as well
as actual prices and wages, would be
importantly influenced by federal
budgetary developments, and monetary policy also needed to remain
clearly oriented toward fostering further progress in containing inflation.
While the outlook for economic activity and prices was generally viewed
as favorable, it remained subject to
considerable uncertainty. Some members stressed the potential obstacles to
a sustained recovery, including the
prospect of continuing large federal
deficits in the absence of new legislation, the outlook for weak export
markets, real interest rates that were
still high by historical standards, and
the possibility of further disturbances
in international and domestic financial markets. On the other hand, a
number of members commented that
once under way, the recovery might
gather momentum and prove to be
markedly more vigorous than the
staff had projected, with the expansion in 1983 perhaps more in line with
the average experience in the first
year of previous economic recoveries.
For the period from the fourth
quarter of 1982 to the fourth quarter
of 1983, the central tendency of the
members' projections was for growth
in real GNP in a range of 3 Vi percent
to AVi percent, while the range for all
members was from 3 lA percent to 5 Vi
percent. The central tendency for the
GNP deflator was a range of 4 to 5
percent, and for growth in nominal
GNP it was a range of 8 to 9 percent.
Projections for the rate of unemployment in the fourth quarter of 1983
ranged from 9% to I M2 percent,
C /
with a central tendency of 9.9 to 10.4
percent. These projections were based
on the Committee's objectives for
monetary and credit growth established at this meeting, and the members generally assumed that legislative
progress would be made over the
months ahead in reducing federal
deficits in future years.
In reviewing at this meeting the
monetary and credit objectives for
1983 that it had tentatively established in July within the framework
of the Full Employment and Balanced
Growth ("Humphrey-Hawkins") Act
of 1978, the Committee recognized
that its assessment of appropriate
growth targets for implementing
broad economic goals was complicated by a number of economic and
institutional factors. Members took
particular note of the fact that the
relationships between monetary and
credit growth to income and expenditures had deviated markedly from
past patterns during 1982. The deviations in question were reflected in
atypical behavior of the income
velocity of various measures of
money—the ratio of gross national
product to the individual monetary
measures—all of which fell sharply in
1982. To a considerable extent the
declines in velocity appeared to be a
consequence of strong precautionary
demands for monetary assets in a period characterized by economic uncertainties and severe strains in finanDigitizedcial FRASER
for markets. In addition, declining
FOMC Policy Actions
89
short-term market rates in the latter
half of the year had encouraged inflows into NOW accounts, which
have become an increasingly important component of Ml, as the cost of
holding such accounts relative to
market instruments fell considerably.
Late in the year, the authorization by
the Depository Institutions Deregulation Committee (DIDC) of new deposit instruments incorporating transaction features and paying interest
returns tied to market rates may have
been associated with some anticipatory increases in balances at depository institutions. Against the background of sharply declining velocity,
the Committee had concluded that
rigid adherence to the 1982 targets
would have resulted in a much more
restrictive policy impact than had
been intended.
For 1983 the Committee faced the
question of whether underlying relationships between monetary and ultimate economic objectives might still
be in the process of changing. Past
cyclical expansions had typically been
accompanied by sharp increases in
velocity, particularly for the narrower
measures of money. Developments
during 1982 suggested, however, that
increases in velocity might be relatively restrained in 1983. Reduced rates of
inflation, a markedly lower level of interest rates, and institutional changes
characterized by a greater availability
of market-related interest rates on
transaction accounts could induce
larger holdings of monetary assets
relative to income than usually occurs
during a cyclical upturn. The payment
of market rates on the new Super
NOW account could have an especially pronounced impact on the income
velocity of Ml as could the continued
attractiveness of regular NOW accounts if short-term market interest
rates were to remain near, or fall
90
FOMC Policy Actions
below, current levels. More generally,
movements in Ml could be influenced
increasingly by attitudes toward savings as well as by transaction needs as
the share of NOW accounts, which
have both savings and transaction
features, expands in this aggregate.
Members recognized that it could
take some time before this newly
emerging behavior of Ml in relation
to GNP became clear. The broader
monetary aggregates, too, were being
affected by institutional changes,
with M2 especially influenced in 1983
by shifts into its MMDA component
from market instruments and largedenomination CDs. Moreover, the
phased deregulation of interest rate
ceilings was undoubtedly changing
the cyclical characteristics of the
broader aggregates.
The Committee's assessment of appropriate monetary growth ranges
was greatly complicated by the massive flows of funds associated with recently introduced deposit instruments, the Super NOW accounts and
especially the money market deposit
accounts. The extremely rapid buildup of MMDAs since mid-December
had resulted in a substantial flow of
funds into M2 from market instruments and large-denomination certificates of deposit, which are not included in M2, with the consequence
that growth of that aggregate had
been greatly inflated over the course
of recent weeks. It was anticipated
that further redistribution of funds
associated with MMDAs and to a
lesser extent with Super NOW accounts would continue to influence
the behavior of the monetary aggregates to some degree. While uncertainties in predicting flows into these
accounts were obviously great, the
staff expected those inflows to moderate over the weeks ahead.
In the course of the Committee's
discussion, a consensus emerged in
favor of setting target ranges for all
three measures of money but to depart from past practice in some respects in light of the complexities and
uncertainties that were involved. Most
of the Committee members agreed
that it would be desirable for the
time being to place substantial weight
on the broader aggregates, M2 and
M3. It was expected that, once the
bulk of shifts had taken place, the
performance of those aggregates in
relation to economic activity might be
somewhat more predictable than that
of Ml during the year ahead, although major uncertainties affected
all of the aggregates. Thus the members recognized that an unusual degree of judgment would be required
in interpreting the performance of the
monetary aggregates as a group. The
ongoing appropriateness of the target
ranges would need to be judged in the
light of evolving economic conditions,
including developments in domestic
and international financial markets.
In this connection a number of members stressed the overriding importance of assuring that monetary performance remained consistent with
the basic objectives of fostering sustained economic recovery in a context
of continuing progress toward price
stability.
After weighing alternative growth
ranges for 1983, a majority of the
Committee expressed support for retaining the 1982 range for M3 and
adopting higher ranges for M2 and
Ml than had been targeted in 1982
to allow for ongoing institutional
changes. The preferred range for M3
was therefore 6V2 percent to 9Vi percent on a fourth-quarter 1982 to
fourth-quarter 1983 basis. In favoring this range, which contemplated
growth below the actual outcome for
1982, Committee members assumed
that M3 would not be greatly affected
on balance by shifts of funds associated with the new deposit accounts.
Depository institutions had the option, which many had already exercised in recent weeks, of reducing
their issuance of large-denomination
certificates of deposit if sizable inflows of MMDAs and other core
deposits satisfied their need for funds.
For M2 majority sentiment centered on a range of 7 to 10 percent
and the use of a February-March
1983 base period in the expectation
that the latter would minimize distortions stemming from the highly aggressive marketing of vfMDAs in the
weeks since their mid-December introduction. The members assumed
that the bulk of the MMDA-generated
shifts into M2 from assets not included in that aggregate would be accomplished by March. The range did,
however, allow for some modest
future asset shifts into M2. Thus,
while the new 7 to 10 percent range
was above its 1982 counterpart, it was
judged in practical effect to represent
about the same or slightly lower
growth over the balance of the year,
after abstracting from the further anticipated shifts of funds into M2.
Moreover, given the growth experienced in 1982, an actual outcome
within the target range implied slower
effective growth in 1983.
Committee members' views varied
considerably on the weight to attach
to Ml—which had been given much
less emphasis as a target beginning in
the fourth quarter of last year when
its behavior was distorted by maturing all-savers certificates and preparation for the introduction of new depository accounts—and some members questioned the desirability of
adopting an Ml target at this time.
More generally, the performance of
DigitizedthatFRASER
for aggregate had been subject over
FOMC Policy Actions
91
the past year or more to substantial
uncertainties related to the growing
role of NOW accounts and an apparent shift in the behavior of its income
velocity. Against that background, a
majority of the members supported
setting an Ml target with a relatively
wide range for 1983 as a whole, and
most members found acceptable a
proposal to establish a specific range
of 4 to 8 percent. The comparatively
wide range for Ml reflected allowance for some possible change in its
cyclical behavior as well as for its
evolving character as an increasingly
important vehicle for savings, especially in an environment of reduced
inflation and interest rates. Only
modest allowance was made for the
possibility that the new Super NOW
accounts would draw funds into Ml
from other sources. It was understood that the target for Ml would
have to be reassessed if the DIDC
should extend the authority for depository institutions to pay market
rates on transaction balances held by
business firms.
It was agreed that the behavior of
Ml would be monitored and that the
degree of emphasis to be placed on
that aggregate as the year progressed
would depend on evidence about
whether the behavior of the velocity
of Ml was becoming more predictable and beginning to show its usual
cyclical characteristics. Over the year,
growth in the lower part of the range
would be appropriate if velocity rose
strongly, as had usually been the case
during recoveries. An outcome near
the upper end would be appropriate if
velocity did not rebound sharply
from the declines in 1982 and tended
to stabilize close to current levels.
In addition to the specification of
monetary growth targets, the members agreed on the desirability of indicating for the first time the Commit-
92
FOMC Policy Actions
tee's expectations with respect to
growth of total debt of domestic nonfinancial sectors during 1983 and a
consensus was expressed for a growth
range of SV2 to HVi percent for that
variable. A consistent range for
growth in bank credit, which the
Committee had associated with its
monetary targets in previous years,
was judged to be 6 to 9 percent, unchanged from the range in 1982. The
new range for total credit encompassed growth about in line with expected growth of nominal GNP in accordance with longer-term trends, but
the Committee recognized that in the
particular circumstances likely to
prevail in 1983, growth in the upper
part of the range might occur. It was
observed that data for such a broad
credit aggregate were not currently
available on a monthly basis, and that
the Committee did not have the tools
to exert close influence over total
flows of credit. However, the Committee intended to monitor total debt
flows closely for whatever information they could provide in assessing
appropriate responses to developments in the targeted monetary aggregates.
Given the uncertainties and complexities involved in setting monetary
growth targets for 1983, the members
anticipated the need for reviewing
those targets during the spring and
possibly altering them in light of the
accumulated evidence available at
that time regarding the behavior of
the aggregates and their relationship
to other economic variables. Policy
implementation in 1983 would in fact
require a continuing reassessment of
the performance of the monetary and
credit aggregates, particularly in the
aftermath of the unusual behavior of
income velocities in 1982. Such reassessment would involve taking acDigitizedcount of patterns of saving behavior
for FRASER
and cash management among businesses and households, and of indications of changing conditions in domestic and international credit markets and in foreign exchange markets.
At the conclusion of its discussion,
the Committee adopted the following:
The information reviewed at this meeting indicates that real GNP declined in the
fourth quarter because of a sharp reduction in business inventories. Final sales increased appreciably, and the rise in prices
remained much less rapid than in 1981.
Retail sales and housing activity have
strengthened in recent months, but business fixed investment has weakened further. Nonfarm payroll employment rose
in January, after an extended period of
declines, and the civilian unemployment
rate fell 0.4 percentage point to 10.4 percent. In recent months the advance in the
index of average hourly earnings has
slowed further.
The weighted average value of the dollar against major foreign currencies depreciated moderately further from midDecember to mid-January, but a subsequent appreciation has more than offset
that decline. In the fourth quarter the
U.S. merchandise trade deficit was close
to the relatively high third-quarter rate.
Growth of M2 surged to an extraordinary pace in January, apparently reflecting shifts of funds into recently authorized money market deposit accounts.
Growth of M3 accelerated, following very
slow expansion in December. Growth of
Ml remained rapid in January, although
it was down appreciably from the average
pace in other recent months. Market interest rates on U.S. Treasury obligations
have risen somewhat since the latter part
of December, while rates on most private
market instruments are about unchanged
to slightly higher. Mortgage rates have declined further.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation further, promote a resumption of
growth in output on a sustainable basis,
and contribute to a sustainable pattern of
international transactions. In establishing
growth ranges for monetary and credit aggregates for 1983 in furtherance of these
objectives, the Committee recognized that
FOMC Policy Actions
the relationships between such ranges and
ultimate economic goals have been less
predictable over the past year; that the
current impact of new deposit accounts on
growth rates of monetary aggregates cannot be determined with a high degree of
confidence; and that the availability of interest on large portions of transaction accounts, declining inflation, and lower
market rates of interest may be reflected
in some changes in the historical trends in
velocity. A substantial shift of funds into
M2 from market instruments, including
large certificates of deposit not included
in M2, in association with the extraordinarily rapid build-up of money market
deposit accounts has distorted growth in
that aggregate during the current quarter.
In establishing growth ranges for the
aggregates for 1983 against this background, the Committee felt that growth in
M2 might be more appropriately measured after the period of highly aggressive
marketing of money market deposit accounts has subsided. The Committee also
felt that a somewhat wider range was appropriate for monitoring Ml. Those
growth ranges will be reviewed in the
spring and altered, if appropriate, in the
light of evidence at that time.
With these understandings, the Committee established the following growth
ranges: for the period from FebruaryMarch of 1983 to the fourth quarter of
1983, 7 to 10 percent at an annual rate for
M2, taking into account the probability of
some residual shifting into that aggregate
from non-M2 sources; and for the period
from the fourth quarter of 1982 to the
fourth quarter of 1983, 6Vi to 9V£ percent
for M3, which appears to be less distorted
by the new accounts. For the same period
a tentative range of 4 to 8 percent has been
established for Ml, assuming that Super
NOW accounts draw only modest amounts
of funds from sources outside Ml and assuming that the authority to pay interest
on transaction balances is not extended
beyond presently eligible accounts. An
associated range of growth for total
domestic nonfinancial debt has been estimated at 8V2 to IIV2 percent.
In implementing monetary policy, the
Committee agreed that substantial weight
would be placed on behavior of the
broader monetary aggregates, expecting
that current distortions in M2 from the
initial adjustment to the new deposit accounts will abate. The behavior of Ml will
93
be monitored, with the degree of weight
placed on that aggregate over time dependent on evidence that velocity characteristics are resuming more predictable
patterns. Debt expansion, while not
directly targeted, will be evaluated in
judging responses to the monetary aggregates. The Committee understood that
policy implementation would involve continuing appraisal of the relationships between the various measures of money and
credit and nominal GNP, including evaluation of conditions in domestic credit and
foreign exchange markets.
Votes for this action: Messrs. Volcker,
Solomon, Balles, Gramley, Martin,
Partee, Rice, and Mrs. Teeters. Votes
against this action: Messrs. Black, Ford,
Mrs. Horn, and Mr. Wallich.
Mr. Black and Mrs. Horn dissented
from this action because they preferred to give more weight to Ml as a
policy objective. While recognizing
the difficulties in interpreting Ml currently, they believed that over time
Ml was more reliably related to the
Committee's ultimate economic objectives than were the broader aggregates and that it constituted a better
basis for setting appropriate paths for
reserve growth. They also favored reemphasizing Ml because they viewed
it as a more controllable aggregate. In
addition, Mr. Black indicated that he
saw a need for lower target ranges,
but he wanted to reduce monetary expansion gradually to avert dislocative
effects.
Mr. Ford dissented because he believed that policy should focus more
firmly on implementing noninflationary growth via a smaller number of
monetary targets. He also saw an
urgent need to begin gradually reducing the rate of monetary growth in
light of its inflationary potential, particularly when complemented by
highly stimulative fiscal policy. He
felt strongly that this combination of
policies ran the risk of triggering
94
FOMC Policy Actions
another short-lived recovery that
might be aborted in 1984 by a private
credit shortage and the return of high
inflation and interest rates.
Mr. Wallich favored somewhat
lower monetary growth ranges for
1983, which in his view would be
more consistent with the objectives of
fostering economic recovery while
minimizing the risks of stimulating
inflation.
In their discussion of policy for the
weeks immediately ahead, Committee
members were generally in favor of
maintaining the existing degree of
restraint on reserve positions. Reference was made to an analysis that indicated that the current degree of
restraint was likely to be associated
with a slowing in the growth rates of
the various monetary aggregates, although M2 would probably remain
relatively rapid. The members agreed
that the near-term outlook for growth
in the monetary aggregates remained
subject to unusual uncertainties, and
an appropriate assessment of such
growth would need to take account of
distortions that might continue to be
created by the introduction of new
deposit accounts. If, after adjustment
for such distortions, monetary growth
were to slow appreciably over the
weeks ahead and the monetary aggregates appeared to be growing at rates
in line with or below the paths implied
by the Committee's ranges for the
year, most of the members indicated
that they would find a reduced degree
of reserve restraint acceptable. With
regard to the intermeeting range for
the federal funds rate, which provides
a mechanism for initiating consultation of the Committee, the members
favored retention of the current range
of 6 to 10 percent.
At the conclusion of the Committee's discussion, the following shortDigitizedrun FRASER
for operational paragraph of the
domestic policy directive was approved and issued to the Federal Reserve Bank of New York:
For the more immediate future, the
Committee seeks to maintain the existing
degree of restraint on reserve positions.
Lesser restraint would be acceptable in the
context of appreciable slowing of growth
in the monetary aggregates to or below the
paths implied by the long-term ranges,
taking account of the distortions relating
to the introduction of new accounts. The
Chairman may call for Committee consultation if it appears to the Manager for
Domestic Operations that pursuit of the
monetary objectives and related reserve
paths during the period before the next
meeting is likely to be associated with a
federal funds rate persistently outside a
range of 6 to 10 percent.
Votes for this action: Messrs. Volcker,
Solomon, Balles, Black, Gramley, Mrs.
Horn, Messrs. Martin, Partee, Rice,
Mrs. Teeters, and Mr. Wallich. Vote
against this action: Mr. Ford.
Mr. Ford dissented from this action because he believed that policy
should be directed more firmly toward gradually reducing monetary
growth in the period immediately
ahead. He was concerned that continued monetary expansion at recent
rapid rates would restimulate inflation and threaten the sustainability of
the economic recovery, especially
against the backdrop of a very expansionary fiscal policy.
Meeting Held on
March 28-29, 1983
1. Domestic Policy Directive
Based on partial information available
for the first quarter, it appeared that
real GNP rose moderately in the first
three months of the year, following a
decline at an annual rate of about 1
percent in the fourth quarter of 1982.
The turnaround in economic activity
reflected a considerable slowing in the
pace of inventory liquidation. Meanwhile, private final sales in real terms,
which had risen in the fourth quarter,
continued to increase. The rise in
average prices, as measured by the
fixed-weight price index for gross
domestic business product, slowed
further.
Final sales were sustained by a
marked strengthening in housing activity in early 1983. Private housing
starts rose to an average annual rate
of 1.7 million units in January and
February, up nearly 40 percent from
the pace in the fourth quarter. Newly
issued permits for residential construction also rose substantially over
the two-month period. Sales of new
homes increased in January, the latest
month for which data were available;
although sales of existing homes
dipped in February, they were appreciably higher in the first two months
combined than in the fourth quarter.
Other elements of final sales were
not quite so strong on balance as in
the fourth quarter of last year. Personal consumption expenditures continued to expand in early 1983, but at
a slower rate than in the previous
quarter. The nominal value of retail
sales fell in January and February,
primarily reflecting declines in sales
at automotive outlets, gasoline stations, and furniture and appliance
stores, although sales at general merchandise and apparel stores rose appreciably from their level in the
fourth quarter. Sales of new domestic
automobiles continued at an annual
rate of about 6.1 million units, the
same as in the fourth quarter.
Spending for business fixed investment has remained weak in recent
months. Shipments of nondefense
capital goods fell sharply in January
and edged down further in February,
and new orders dropped appreciably
Digitizedin February after firming for several
for FRASER
FOMC Policy Actions
95
months. Outlays for nonresidential
construction increased in January,
but high vacancy rates for office
buildings and the reduced drilling activity associated with declining oil
prices apparently have damped such
expenditures recently. The Department of Commerce survey taken in
late January and February indicated
that in 1983 business outlays for plant
and equipment would decline about
VA percent in nominal terms, about
the same as in 1982.
Nonfarm payroll employment rose
about 150,000 on balance over January and February, after an extended
period of declines. The month-tomonth employment figures, which
showed a substantial rise in January
and a decline in February, were distorted by unusual weather patterns.
But employment in manufacturing—
particularly in the auto and related
metals industries—increased in both
months. The civilian unemployment
rate was unchanged in February at
10.4 percent. Industrial production
has risen at an annual rate of about
714 percent since its trough in November, less than the average pace in
the early stages of previous cyclical
recoveries.
The producer price index for
finished goods fell nearly 1 percent
over the first two months of the year,
reflecting sharp declines in prices of
energy-related items. The consumer
price index was virtually unchanged
over the period, as a substantial drop
in prices of gasoline and other petroleum products was about offset by
moderate increases in prices of most
other commodities and services. Food
prices have changed little thus far in
1983 and in February were only 2 percent above their level a year earlier.
The advance in the index of average
hourly earnings has slowed further in
recent months. With productivity ap-
96
FOMC Policy Actions
parently continuing to improve in
early 1983, cost pressures in the nonfarm business sector have abated further.
In foreign exchange markets the
trade-weighted value of the dollar
had risen about 2 percent on balance
since the Committee's meeting in
February. The U.S. merchandise
trade deficit declined marginally in
January. Exports rose somewhat and
total imports continued at about the
fourth-quarter rate, as oil imports
dropped sharply while non-oil imports strengthened.
At its meeting on February 8-9,
1983, the Committee established the
following ranges for growth of the
monetary aggregates: for the period
from February-March of 1983 to the
fourth quarter of 1983, 7 to 10 percent at an annual rate for M2, taking
into account the probability of some
residual shifting into that aggregate
from non-M2 sources; and for the
period from the fourth quarter of
1982 to the fourth quarter of 1983,
61/2 to 9Vi percent for M3, which appeared to be less distorted by shifts
associated with new deposit accounts.
For the same period, a tentative range
of 4 to 8 percent was established for
Ml, assuming that Super NOW accounts would draw only modest
amounts of funds from sources outside Ml and that the authority to pay
interest on transaction accounts
would not be extended beyond currently eligible accounts. An associated range of growth for total domestic nonfinancial debt was estimated at
8V2 to IV/i percent.
At the February meeting, the Committee agreed that the near-term outlook for growth in the monetary aggregates remained subject to unusual
uncertainties and that an appropriate
assessment of such growth would need
Digitizedto take account of the distortions that
for FRASER
might continue to be created by the
introduction of new deposit accounts.
Consequently, the Committee decided
that open market operations in the
period until this meeting should be
directed toward maintaining the existing degree of restraint on reserve positions. It was agreed that lesser restraint
would be acceptable in the context
of appreciable slowing of growth in
the monetary aggregates, to or below
the paths implied by the long-term
ranges.
M2 grew at an estimated annual
rate of about 24 percent in February,
only a little below the exceptional
pace in January, as its growth continued to be greatly affected by shifts
of funds from market instruments
and other non-M2 sources into the
new money market deposit accounts
(MMDAs) included in M2. M3 grew
at annual rates of about 12 and 13Vi
percent in January and February respectively. However, growth in both
of the broader aggregates appeared to
have decelerated substantially during
March. The deceleration reflected in
part a marked slowing in the volume
of funds shifted into MMDAs from
market instruments and apparently
also a moderation in the underlying
growth of the nontransaction component of these aggregates. Growth
in Ml accelerated to an extraordinary
annual rate of about 22 percent in
February, and, on the basis of preliminary data, was estimated to have
remained rapid in March, though
probably slowing somewhat from the
February rate. An acceleration in
growth of NOW accounts and a large
increase in holdings of currency contributed to the expansion in Ml. The
income velocity of Ml apparently
declined sharply in the first quarter,
continuing the trend that became evident in the course of 1982.
Total and nonborrowed reserves
FOMC Policy Actions
97
declined appreciably in February, but larly Treasury securities, and also exturned up in March. The behavior of panded their loans somewhat. Very
reserves did not reflect the strength in preliminary data suggested that the
the aggregates largely because re- total debt of domestic nonfinancial
quired reserves at member banks were sectors was increasing in early 1983 at
lowered by shifts out of personal sav- a rate near the lower end of the Comings and small time deposits into non- mittee's estimated range for the year.
reservable MMDAs and there was an There was a sharp increase in the
associated runoff of large-denomina- share of debt financed through detion CDs. The monetary base grew pository institutions, which had expeconsiderably more than the reserve rienced massive inflows of funds as a
measures, owing to the rapid expan- result of aggressive marketing of the
sion of currency in circulation. Ad- newly authorized MMDAs.
justment borrowing (including seaStaff projections presented at this
sonal borrowing) fluctuated between meeting indicated that real GNP
$140 million and $600 million over would probably grow at a moderate
the intermeeting period. Excess pace throughout 1983, with unemreserves were also volatile and were ployment remaining high. Private
somewhat higher than usual on final purchases were projected to pick
average; strong demands for excess up somewhat in the latter half of the
reserves at times appeared to be year, partly in response to the third
related to slow responses by banks to phase of the tax cut. It was anticireductions in reserve requirements. pated that the liquidation of business
Federal funds continued to trade near inventories would end by midyear
the SVi percent discount rate over and that some restocking of depleted
most of the intermeeting interval, inventories would occur in the second
though rising to around $3A percent half. The rise in the average level
in the week prior to this meeting.
of prices was expected to remain
Most short-term market interest moderate, even as economic recovery
rates rose about 3/s percentage point proceeded over the balance of 1983,
over the intermeeting interval, while given the favorable outlook for oil
bond rates declined about V% to Viprices and the prospects for continpercentage point. The average rate on ued limited increases in unit labor
new commitments for fixed-rate con- costs.
ventional home mortgage loans at
In the Committee's discussion of
savings and loan associations declined the economic situation and outlook,
20 basis points further. At the end of the members agreed that a recovery in
February, the prime rate charged by economic activity appeared to be
most commercial banks on short- under way, although several comterm business loans was reduced by mented that the evidence available
Vi percentage point to lOVi percent.
thus far was too fragmentary to perTotal credit outstanding at U.S. mit a firm evaluation of the strength
commercial banks, which had grown of the upturn. While the staff projecat an annual rate of about 6 percent tion of moderate growth for 1983 as a
in the fourth quarter of 1982, ex- whole was cited as a reasonable expanded at an average annual rate of pectation, members commented on
about 10 percent over the first two the many uncertainties surrounding
months of this year. Banks acquired a the economic outlook and expressed
Digitized sizable volume of securities, particu- differing views regarding the direcfor FRASER
98
FOMC Policy Actions
tion of possible deviations from the
staff projection.
Some members saw the staff projection as the middle of a plausible
range of possible outcomes for 1983,
given the outlook for fiscal and monetary policy. Several members believe,
however, that the risks of a deviation
were in the direction of a shortfall.
These members stressed potential obstacles to a vigorous recovery. These
included the possibility of further
unsettlement in international and
domestic financial markets, the outlook for poor export markets, and the
prospects for continuing weakness in
business investment, at least over the
quarters immediately ahead, against
the backdrop of low capacity utilization rates in industry and recent overbuilding of many types of commercial
properties. Reference was also made to
the retarding impact of relatively high
real interest rates, and some members
expressed the view that an appreciable
rise in interest rates, if such a rise
were to occur, could greatly inhibit
the recovery in interest-sensitive sectors of the economy, such as housing
and automobiles, which had tended
to lead the recovery thus far.
A differing view was expressed,
which stressed the possibility of a
stronger recovery that, like many
previous recoveries in the postwar
period, would tend to gather momentum as it developed. In support of
this view, it was noted that private
final purchases had risen appreciably
in the fourth and first quarters, and
such purchases could strengthen markedly further in reaction to the federal
tax cut at midyear and anticipated
improvement in business spending.
Moreover, cutbacks in inventories had
been unusually pronounced during the
recession, so that gains in consumer
spending would tend to be translated
directly into increased production.
Members referred to the favorable
outlook for prices in 1983, partly
associated with an improved trend in
productivity and reduced wage-cost
pressures, but some members also
commented that the longer-run outlook for inflation and for a sustainable recovery would be influenced
greatly by progress in holding down
future federal deficits and by success
in achieving the Committee's objectives for monetary growth. It was
noted that the effects of an expansionary federal budget would be offset to some extent by efforts of state
and local governments to curb expenditures and to raise taxes. On balance,
however, it appeared that markets remained apprehensive about the outlook for the federal budget, and that
concern was reflected in continued
pressures on interest rates, especially
in long-term debt markets.
In discussing a policy course for the
weeks immediately ahead, Committee
members recognized that substantial
uncertainties affected both the economic outlook and the interpretation
of the monetary aggregates. Concern
was expressed about the implications
of the rapid growth in the monetary
aggregates, particularly if it should
continue. However, it was also noted
that the rapid expansion of recent
months, given the distortions related
to various institutional changes, probably did not have the significance for
future economic and price developments that it might have had in the
past. It was generally recognized that
much of the recent growth in the
broad aggregates, especially M2, reflected shifts of investment preferences by individuals away from market instruments toward the new
MMDAs, given the very attractive
rates being offered on the accounts by
depository institutions in a highly
competitive environment. Note was
also taken of the marked slowing in
monetary growth that appeared to be
in train for March, and of a staff
analysis suggesting that underlying
growth of the broad aggregates—as
well as growth in Ml—might be moderate in the months ahead as the
lagged effects of earlier declines in
market interest rates dissipated. With
respect to Ml, most members felt that
persistence of its unusually sharp
decline in velocity early this year cast
doubt on the aggregate as a principal
guide for policy at this time; however,
a view was also expressed in favor of
giving Ml more weight in the formulation of the Committee's policy.
In evaluating the overall financial
situation, it was also pointed out that
the strength of the aggregates needed
to be judged in the context of the
apparently moderate expansion of
domestic nonfinancial debt and of the
relatively high level of real interest
rates. With the economic recovery
still in its early and fragile stages, the
view was expressed that strong upward pressures on interest rates
would involve an unacceptable risk of
unduly retarding, and perhaps aborting, the recovery. The view was also
expressed that a sustainable recovery
might not develop at the present
levels of nominal and real interest
rates. On the other hand, no member
expressed sentiment for a substantial
easing in the existing degree of reserve
restraint in the absence of clear evidence of a pronounced slowing in
monetary growth or of indications
that the economic recovery was
faltering.
While a few members indicated a
preference for leaning in the direction
of slightly more, or slightly less,
restraint on reserve positions in the
period immediately ahead—depending on their assessment of the ecoDigitizednomic outlook, credit conditions, and
for FRASER
FOMC Policy Actions
99
the monetary aggregates—all of the
members found acceptable a policy
calling for maintaining generally the
current degree of reserve restraint,
pending the availability of further
evidence on the behavior of the
monetary aggregates and on the economic situation. The members anticipated that such a policy course would
be consistent with substantial slowing
in the growth of M2 and M3 to annual rates of about 9 percent and 8
percent respectively over the period
from March to June; these growth
rates assumed that shifts of funds
into the new deposit accounts from
market instruments would have only
a relatively small further impact on
the broad aggregates—perhaps no
more than a percentage point or so in
the case of M2. The Committee also
expected that Ml growth at an annual
rate of about 6 to 7 percent over the
three-month period would be associated with its objectives for the broader
aggregates, assuming basically no distortion in Ml on balance from the
newly introduced accounts. Should
these assumptions about distortions
from the new accounts prove to be incorrect, it was understood that appropriate adjustments would have to be
made in the monetary growth objectives.
The Committee members agreed
that lesser restraint on reserve positions would be acceptable in the context of more pronounced slowing in
the growth of the monetary aggregates, after taking account of any distortions relating to the introduction
of new deposit accounts, or of evidence of a weakening in the pace of
the economic recovery. If monetary
expansion proved to be appreciably
higher than expected, without being
clearly explained by the effects of
ongoing institutional changes, it was
understood that the Committee would
100 FOMC Policy Actions
consult about the desirability under
the prevailing circumstances of any
substantial further restraint on bank
reserve positions. It was further
understood that the intermeeting
range for the federal funds rate,
which provides a mechanism for initiating consultation of the Committee,
would be retained at 6 to 10 percent.
At the conclusion of its discussion,
the Committee issued the following
domestic policy directive to the Federal Reserve Bank of New York:
The information reviewed at this meeting suggests that real GNP rose moderately
in the first quarter, after a decline in the
fourth quarter; the turnaround reflects a
considerable slowing in inventory liquidation. Private final sales apparently increased only slightly less than in the fourth
quarter with housing activity strengthening further. Business fixed investment has
remained weak. Nonfarm payroll employment rose on balance in January and February, after an extended period of declines; the civilian unemployment rate was
unchanged in February at 10.4 percent. In
early 1983 the rise in average prices and
the advance in the index of average hourly
earnings have slowed further.
The weighted average value of the
dollar against major foreign currencies
rose somewhat on balance between early
February and late March. The U.S. merchandise trade deficit declined marginally
in January.
M2 continued to grow at an exceptional
rate in February and M3 also expanded at
a rapid pace, but growth in both of the
broader aggregates appears to be
decelerating substantially in March. The
deceleration reflects in part the marked
slowing in growth of money market deposit accounts (MMDAs) in recent weeks
and apparently also a moderation in the
underlying growth of these aggregates,
abstracting from shifts from market instruments. Ml has expanded rapidly since
late January, largely reflecting accelerated
growth in NOW accounts. Growth in debt
of domestic nonfinancial sectors appears
to have been moderate in the first quarter.
Short-term interest rates have risen somewhat since early February while long-term
rates, including mortgage rates, have
declined.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation further, promote a resumption of
growth in output on a sustainable basis,
and contribute to a sustainable pattern of
international transactions. At its meeting
in February the Committee established
growth ranges for monetary and credit aggregates for 1983 in furtherance of these
objectives. The Committee recognized
that the relationships between such ranges
and ultimate economic goals have been
less predictable over the past year; that the
current impact of new deposit accounts on
growth rates of monetary aggregates cannot be determined with a high degree of
confidence; and that the availability of interest on large portions of transaction accounts, declining inflation, and lower
market rates of interest may be reflected
in some changes in the historical trends in
velocity. A substantial shift of funds into
M2 from market instruments, including
large certificates of deposit not included
in M2, in association with the extraordinarily rapid build-up of money market
deposit accounts, has distorted growth in
that aggregate during the first quarter.
In establishing growth ranges for the
aggregates for 1983 against this background, the Committee felt that growth in
M2 might be more appropriately measured
after the period of highly aggressive
marketing of money market deposit accounts has subsided. The Committee also
felt that a somewhat wider range was appropriate for monitoring Ml. Those
growth ranges will be reviewed in the
spring and altered, if appropriate, in the
light of evidence at that time.
With these understandings, the Committee established the following growth
ranges: for the period from FebruaryMarch of 1983 to the fourth quarter of
1983, 7 to 10 percent at an annual rate for
M2, taking into account the probability of
some residual shifting into that aggregate
from non-M2 sources; and for the period
from the fourth quarter of 1982 to the
fourth quarter of 1983, 6Vi to 9Vi percent
for M3, which appeared to be less distorted by the new accounts. For the same
period a tentative range of 4 to 8 percent
was established for Ml, assuming that
Super NOW accounts would draw only
modest amounts of funds from sources
outside Ml and assuming that the authority to pay interest on transaction balances
FOMC Policy Actions 101
is not extended beyond presently eligible
accounts. An associated range of growth
for total domestic nonfinancial debt was
estimated at SlA to IIV2 percent.
In implementing monetary policy, the
Committee agreed that substantial weight
would be placed on behavior of the
broader monetary aggregates, expecting
that distortions in M2 from the initial adjustment to the new deposit accounts will
abate. The behavior of Ml will be monitored, with the degree of weight placed on
that aggregate over time dependent on
evidence that velocity characteristics are
resuming more predictable patterns. Debt
expansion, while not directly targeted, will
be evaluated in judging responses to the
monetary aggregates. The Committee
understood that policy implementation
would involve continuing appraisal of the
relationships between the various measures of money and credit and nominal
GNP, including evaluation of conditions
in domestic credit and foreign exchange
markets.
For the short run, the Committee seeks
to maintain generally the existing degree
of restraint on reserve positions, anticipating that would be consistent with a slowing from March to June in growth of M2
and M3 to annual rates of about 9 and 8
percent, respectively. The Committee expects that Ml growth at an annual rate of
about 6 to 7 percent would be consistent
with its objectives for the broader aggregates. Lesser restraint would be acceptable in the context of more pronounced
slowing of growth in the monetary aggregates relative to the paths implied by the
long-term ranges (taking account of the
distortions relating to the introduction of
new accounts), or indications of a weakening in the pace of economic recovery.
The Chairman may call for Committee
consultation if it appears to the Manager
for Domestic Operations that pursuit of
the monetary objectives and related reserve paths during the period before the
next meeting is likely to be associated with
a federal funds rate persistently outside a
range of 6 to 10 percent.
Votes for this action: Messrs. Volcker,
Solomon, Gramley, Guffey, Keehn,
Martin, Morris, Partee, Rice, Roberts,
Mrs. Teeters, and Mr. Wallich. Votes
against this action: None.
2. Review of Continuing
Authorizations
The Committee followed its customary practice of reviewing all of its
continuing authorizations and directives at this first regular meeting of
the Federal Open Market Committee following the election of new
members from the Federal Reserve
Banks to serve for the year beginning
March 1, 1983. The Committee reaffirmed the authorization for foreign
currency operations, the foreign currency directive, and the procedural instructions with respect to foreign currency operations in the forms in which
they were currently outstanding.
Votes for these actions: Messrs.
Volcker, Solomon, Gramley, Guffey,
Keehn, Martin, Morris, Partee, Rice,
Roberts, Mrs. Teeters, and Mr. Wallich. Votes against these actions: None.
3. Authorization for Domestic
Open Market Operations
On the recommendation of the Manager for Domestic Operations, System Open Market Account, the Committee amended paragraph l(a) of the
authorization for domestic open market operations to raise from $3 billion
to $4 billion the limit on intermeeting
changes in System account holdings
of U.S. government and federal agency securities. The Manager noted that
in recent years the Committee had
found it necessary to authorize temporary increases in the limit with
greater frequency because of the
longer intervals between Committee
meetings and the increased size of the
net variation in market factors affecting reserves. In 1981 and 1982, such
temporary increases had been authorized in half of the intermeeting periods. A permanent increase in the limit
to $4 billion would reduce the number
of occasions requiring special Com-
102 FOMC Policy Actions
mittee action, while still calling to the
Committee's attention needs for particularly large changes. The Committee concurred in the Manager's view
that such an increase would be appropriate.
The Committee also approved the
deletion of paragraph 2 of the authorization, which had authorized, under
certain conditions, the direct lending
of securities held in the System account to the U.S. Treasury and the
purchase of special short-term certificates of indebtedness directly from
the Treasury. Paragraph 2 had been
in a state of de facto suspension since
June 1981 when the statutory authority on which it was based expired. In
the past, the Congress had enacted
the legislation for limited periods and
occasionally had allowed it to lapse
prior to its renewal. Since no legislation to renew the authority was under
consideration, the Committee concurred in a staff recommendation to
delete paragraph 2 and renumber the
remaining paragraphs in the authorization.4
Accordingly, effective March 28,
1983, the authorization for domestic
open market operations was amended
to read as follows:
1. The Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York, to the extent
necessary to carry out the most recent
domestic policy directive adopted at a
meeting of the Committee:
4. The following conforming amendments to
other Committee documents were also approved: deletion of section 270.4(d) of the
Regulation Relating to Open Market Operations of Federal Reserve Banks and redesignation of the remaining paragraph as 270.4(d);
and deletion of paragraph 2 of the Resolution
of Federal Open Market Committee Authorizing Certain Actions by Federal Reserve Banks
during an Emergency, and renumbering of remaining paragraphs.
(a) To buy or sell U.S. Government
securities, including securities of the Federal Financing Bank, and securities that
are direct obligations of, or fully guaranteed as to principal and interest by, any
agency of the United States in the open
market, from or to securities dealers and
foreign and international accounts maintained at the Federal Reserve Bank of
New York, on a cash, regular, or deferred
delivery basis, for the System Open Market Account at market prices, and, for
such Account, to exchange maturing U.S.
Government and Federal agency securities
with the Treasury or the individual agencies or to allow them to mature without
replacement; provided that the aggregate
amount of U.S. Government and Federal
agency securities held in such Account (including forward commitments) at the
close of business on the day of a meeting
of the Committee at which action is taken
with respect to a domestic policy directive
shall not be increased or decreased by
more than $4.0 billion during the period
commencing with the opening of business
on the day following such meeting and
ending with the close of business on the
day of the next such meeting;
(b) When appropriate, to buy or sell
in the open market, from or to acceptance
dealers and foreign accounts maintained
at the Federal Reserve Bank of New York,
on a cash, regular, or deferred delivery
basis, for the account of the Federal
Reserve Bank of New York at market discount rates, prime bankers acceptances
with maturities of up to nine months at
the time of acceptance that (1) arise out of
the current shipment of goods between
countries or within the United States, or
(2) arise out of the storage within the
United States of goods under contract of
sale or expected to move into the channels
of trade within a reasonable time and that
are secured throughout their life by a
warehouse receipt or similar document
conveying title to the underlying goods;
provided that the aggregate amount of
bankers acceptances held at any one time
shall not exceed $100 million;
(c) To buy U.S. Government securities, obligations that are direct obligations
of, or fully guaranteed as to principal and
interest by, any agency of the United
States, and prime bankers acceptances of
the types authorized for purchase under
l(b) above, from dealers for the account
of the Federal Reserve Bank of New York
FOMC Policy Actions
under agreements for repurchase of such
securities, obligations, or acceptances in
15 calendar days or less, at rates that,
unless otherwise expressly authorized by
the Committee, shall be determined by
competitive bidding, after applying
reasonable limitations on the volume of
agreements with individual dealers; provided that in the event Government securities or agency issues covered by any such
agreement are not repurchased by the
dealer pursuant to the agreement or a
renewal thereof, they shall be sold in the
market or transferred to the System Open
Market Account; and provided further
that in the event bankers acceptances
covered by any such agreement are not
repurchased by the seller, they shall continue to be held by the Federal Reserve
Bank or shall be sold in the open market.
2. In order to ensure the effective conduct of open market operations, the Federal Open Market Committee authorizes
and directs the Federal Reserve Banks to
lend U.S. Government securities held in
the System Open Market Account to Government securities dealers and to banks
participating in Government securities
clearing arrangements conducted through
a Federal Reserve Bank, under such instructions as the Committee may specify
from time to time.
3. In order to ensure the effective conduct of open market operations, while assisting in the provision of short-term investments for foreign and international
accounts maintained at the Federal Reserve Bank of New York, the Federal
Open Market Committee authorizes and
directs the Federal Reserve Bank of New
York (a) for System Open Market Account, to sell U.S. Government securities
to such foreign and international accounts
on the bases set forth in paragraph l(a)
under agreements providing for the resale
by such accounts of those securities within
15 calendar days on terms comparable to
those available on such transactions in the
market; and (b) for New York Bank account, when appropriate, to undertake
with dealers, subject to the conditions imposed on purchases and sales of securities
in paragraph l(c), repurchase agreements
in U.S. Government and agency securities, and to arrange corresponding sale
and repurchase agreements between its
own account and foreign and international accounts maintained at the Bank.
Transactions undertaken with such ac-
103
counts under the provisions of this paragraph may provide for a service fee when
appropriate.
Votes for these actions: Messrs.
Volcker, Solomon, Gramley, Guffey,
Keehn, Martin, Morris, Partee, Rice,
Roberts, Mrs. Teeters, and Mr. Wallich. Votes against these actions: None.
Subsequently, on May 9-10, 1983,
members of the Committee voted to
increase from $4 billion to $5 billion
the limit on changes between Committee meetings in System Account
holdings of U.S. government and
federal agency securities specified in
paragraph l(a) of the authorization
for domestic open market operations,
effective May 10 for the period ending with the close of business on
May 24, 1983.
Votes for this action: Messrs. Volcker,
Gramley, Guffey, Keehn, Martin, Morris, Partee, Rice, Roberts, Mrs. Teeters,
Messrs. Wallich, and Timlen. Votes
against this action: None. (Mr. Timlen
voted as alternate for Mr. Solomon.)
This action was taken on recommendation of the Manager for Domestic Operations. The Manager had
advised that since the March meeting,
large net purchases of securities had
been undertaken to meet reserve
needs due to increases in currency in
circulation and required reserves,
reducing the leeway for further purchases over the intermeeting interval
to slightly under $1 billion. It appeared likely that purchases in excess
of that leeway would be required over
the remainder of the intermeeting
period.
4. Agreement with Treasury to
Warehouse Foreign Currencies
At its meeting on January 17-18,
1977, the Committee had agreed to a
suggestion by the Treasury that the
104 FOMC Policy Actions
Federal Reserve undertake to "warehouse" foreign currencies—that is, to
make spot purchases of foreign currencies from the Exchange Stabilization Fund (ESF) and simultaneously
to make forward sales of the same
currencies at the same exchange rate
to the ESF. Pursuant to that agreement, the Committee had agreed that
the Federal Reserve would be prepared to warehouse for the Treasury
or for the ESF up to $5 billion of
eligible foreign currencies. At this
meeting the Committee reaffirmed
the agreement on the terms adopted
on March 18, 1980, with the understanding that it would be subject to
annual review.
Votes for this action: Messrs. Volcker,
Solomon, Gramley, Guffey, Keehn,
Martin, Morris, Partee, Rice, Roberts,
Mrs. Teeters, and Mr. Wallich. Votes
against this action: None.
Meeting Held on
May 24, 1983
Domestic Policy Directive
The information reviewed at this
meeting suggested that growth in real
GNP would accelerate, perhaps rather
substantially, in the current quarter,
after an increase at an annual rate of
about 2Vi percent in the first quarter.
To a considerable extent, the expected pickup in growth reflected an
apparently marked further slowing in
the rate of inventory liquidation, with
an ending of liquidation possible during the quarter. At the same time
final demands for goods and services,
which had strengthened in late 1982,
were being relatively well maintained.
The rise in average prices, as measured by the fixed-weight price index
for gross domestic business product,
appeared to be continuing at about
the moderate pace recorded over the
past year.
The index of industrial production
rose 2.1 percent in April, the largest
monthly increase since the summer of
1975, to a level about 6 percent above
its recent trough in November. Gains
in output were spread across a broad
range of industries, and were particularly strong for consumer durable
goods and durable goods materials.
Production of business equipment,
which had contracted sharply since
late 1981, also rose substantially in
April after turning up in March.
Rates of capacity utilization in
manufacturing and at materials producers increased from record lows
late in 1982 to around 71 percent in
April.
Nonfarm payroll employment increased more than 250,000 in April,
after an increase of about 200,000 in
March. Employment gains in manufacturing and service industries accounted for the bulk of the rise in
both months. The civilian unemployment rate edged down further to 10.2
percent in April.
The dollar value of retail sales advanced 1.6 percent in April, about the
same as in March. Outlays at apparel
and furniture and appliance stores
were brisk, but a major factor in the
April gain was increased spending on
new cars. Sales of new domestic automobiles, which had held at an annual
rate of slightly over 6 million units
since November, rose to a rate of 6.4
million units in April and strengthened somewhat further in early May.
Total private housing starts declined somewhat in both March and
April, but at an annual rate of 1.5
million units in April, they were still
about 40 percent above the depressed
1982 average. Newly issued permits
for residential construction picked up
in April, reflecting a marked increase
in permits for multifamily units. Sales
of new and existing homes increased
substantially in the first quarter of
1983.
The producer price index for finished goods edged down in both
March and April; prices of energyrelated items, which are lagged one
month in this index, declined considerably further while prices of consumer foods increased. The consumer
price index rose 0.6 percent in April,
after having edged up 0.1 percent in
March; more than one-third of the
April increase reflected the rise in
gasoline prices associated with implementation of the higher federal excise
tax. Thus far in 1983 the consumer
price index has increased little, and
the index of average hourly earnings
has risen at a considerably slower
pace than in 1982.
Since late March the trade-weighted
value of the dollar in foreign exchange
markets had remained in a narrow
range near its recent high level. The
U.S. foreign trade deficit in the first
quarter was about one-third less than
in the preceding quarter, as oil imports dropped sharply, reflecting a
decline in price and a considerable reduction in volume.
At its meeting on March 28-29,
1983, the Committee had decided that
open market operations in the period
until this meeting should be directed
at maintaining generally the existing
degree of restraint on reserve positions, anticipating that such a policy
would be consistent with a slowing
from March to June in growth of M2
and M3 to annual rates of about 9
and 8 percent respectively. The Committee expected that growth in Ml at
an annual rate of about 6 to 7 percent
over the three-month period would be
associated with its objectives for the
broader aggregates. The Committee
members agreed that lesser restraint
on reserve positions would be acceptDigitized able in the context of more profor FRASER
FOMC Policy Actions 105
nounced slowing in the growth of the
monetary aggregates (after taking account of any distortions relating to
the introduction of new deposit accounts) or of evidence of a weakening
in the pace of economic recovery. If
monetary expansion proved to be appreciably higher than expected, without being clearly explained by the effects of ongoing institutional changes,
it was understood that the Committee
would consult about the desirability
under the prevailing circumstances of
any substantial further restraint on
bank reserve positions. The intermeeting range for the federal funds
rate was retained at 6 to 10 percent.
Growth in M2, which had slowed
to an annual rate of about 11 percent
in March, decelerated further in April
to an annual rate of about 3 percent.
The deceleration reflected, in part,
substantial shifts of funds into individual retirement and Keogh accounts
before the April 15 tax date. Growth
in M3 slowed to an annual rate of
about 4!/2 percent, after expanding at
an 814 percent pace in March. Partial
data suggested that expansion in both
M2 and M3 had picked up in early
May, but growth to date still appeared to be below the annual rates of
9 and 8 percent respectively expected
by the Committee for the period from
March to June.
Ml declined at an annual rate of
about 3 percent in April but, according to preliminary data, strengthened
markedly in early May. Thus far in
the second quarter, growth in Ml appeared to be running substantially
above the annual rate of 6 to 7 percent deemed consistent with the Committee's expectations for the broader
aggregates.
Growth in debt of domestic nonfinancial sectors appeared to have
continued in April at about the same
pace as in the first quarter. Over the
106 FOMC Policy Actions
first four months of the year, debt expansion was estimated at an annual
rate of about 9lA percent, well within
the Committee's range of SVi to 11 Vi
percent for the year. Funds raised by
the U.S. Treasury grew at about twice
the rate of total debt expansion,
while private debt rose at a moderate
pace. Growth in total credit outstanding at U.S. commercial banks slowed
somewhat in April, as banks continued to acquire sizable amounts of
Treasury securities but reduced substantially their holdings of business
loans.
Growth in total and nonborrowed
reserves slowed appreciably in April
and early May, as weakness in transaction deposits over much of March
and in April was reflected with a lag
in reduced demand for required reserves. Apart from large borrowings
around the end-of-quarter statement
date early in the intermeeting period,
adjustment borrowing from the Federal Reserve discount window, including seasonal borrowing, fluctuated
within a range of about $200 million
to $675 million. Special factors, such
as relatively sizable weekend borrowing associated with wire transfer problems, contributed at times to increased
demands for borrowing. Excess reserves also continued to be volatile
and were relatively high on average.
Federal funds generally traded in a
range of %Vi to 8% percent during the
intermeeting interval.
Market interest rates changed little
on balance over the intermeeting interval. Short-term interest rates declined about lA percentage point
while most long-term rates were
slightly lower or up only marginally.
Market rates had fallen considerably
in the early part of the period but had
risen again most recently, as growth
in the monetary aggregates seemed to
Digitizedbe strengthening, signs of economic
for FRASER
recovery became more widespread,
and prospects increased that private
credit demands would strengthen
while Treasury borrowing remained
exceptionally large. Average rates on
new commitments for fixed-rate conventional home mortgage loans at
savings and loan associations fell
about 30 basis points further.
The staff projections presented at
this meeting indicated that growth in
real GNP in the second half of the
year would be a little higher than had
been expected, though probably slowing somewhat from the secondquarter pace. Recent evidence, including increased spending for business equipment, strength in new
orders at durable goods manufacturers, and survey reports of marked improvement in consumer attitudes,
suggested somewhat stronger private
final demands from businesses and
consumers than had been anticipated
previously. The unemployment rate
was projected to decline only modestly from its recent high level, and the
rise in the average level of prices was
expected to remain moderate.
In the Committee's discussion of
the economic situation and outlook, a
number of members expressed general agreement with the staff projection, but several emphasized that economic activity might well prove to be
stronger than projected, especially
during the quarters immediately
ahead. Members observed that consumer sentiment appeared to have improved considerably, and that retail
sales should benefit from the increased market value of financial
asset portfolios as well as from the
federal tax cut at midyear. A turnaround from sharp inventory liquidation to little change, or possibly even
some accumulation, was seen as likely
and would have a pronounced positive impact on GNP and on income
FOMC Policy Actions 107
flows, at least for a quarter or two.
Members also commented that an increasingly stimulative fiscal policy
would add strength to the recovery
over the period ahead, and an unduly
large federal deficit was likely to
create problems later as private credit
demands expanded.
While all Committee members anticipated continuing and possibly substantial improvement in economic
activity over the months ahead, a
number also questioned the balance
and sustainability of the recovery.
They noted that, though business
capital spending was showing signs of
reviving, it would need to improve
markedly further to foster an extended recovery. Such spending could be
inhibited if a continuing need to
finance large federal deficits engendered rising interest rates as the recovery proceeded. The outlook for exports was also thought to be relatively
weak, although exports should eventually improve if the foreign exchange
value of the dollar were to decline
substantially and if major disturbances in international financial markets were averted. One member commented that housing activity could be
less strong than was widely anticipated and another observed that consumer spending could prove to be disappointing, particularly if consumers
did not react more positively to the
approaching tax cut than they had to
the 1982 reduction. Another member
commented that recent indications of
a more vigorous recovery might reflect mainly a short-lived inventory
adjustment.
Other members expressed a differing view and emphasized that the
prospects for an extended recovery
were relatively favorable. In support
of this view it was observed that substantial improvements in consumer
spending and inventory investment
were likely to be followed by increasing capital investment, in the pattern
characteristic of earlier cyclical expansions. In this connection some
members stressed that the expansion
might well gather momentum and
prove to be much stronger than the
staff was projecting, partly because
the recovery would follow a relatively
long and severe recession.
At this meeting the Committee reviewed the monetary growth ranges
that it had established in February for
the year 1983. It decided not to
change any of the ranges or the
relative importance of the various aggregates for policy, pending a further
review at the July meeting. Growth of
the broader aggregates appeared to be
within the Committee's ranges for the
year. Earlier in the year, growth of
M2 had been affected to a major extent by large shifts of funds associated with the introduction of money
market deposit accounts; such shifts
had slackened substantially, although
MMDAs were still expanding at a
somewhat faster rate than the staff
had projected earlier. Ml had grown
substantially in excess of the Committee's expectations in the latter part of
1982 and the first quarter of 1983.
Staff analysis based on recent research suggested that this earlier
growth reflected to a substantial extent lagged responses to the decline in
interest rates that began during the
summer of 1982. That decline had enhanced the attractiveness of NOW accounts, which serve as a vehicle for
savings as well as for transactions.
The performance of Ml would continue to be affected by substantial
uncertainties relating to the interest
and income sensitivity of fixed-ceiling
NOW accounts and also by the growing importance in Ml of the more
recently introduced Super NOW accounts, which bear a market-related
108 FOMC Policy Actions
rate of interest. While the effects of
earlier declines in interest rates should
now be diminishing, given the relative
stability of rates over recent months,
some time would be needed to evaluate the evolving role of Ml as a vehicle for savings.
Turning to policy for the short run,
the members noted a staff analysis,
which suggested that maintenance of
the existing degree of restraint on
reserve positions might be associated
with second-quarter growth of M2
and M3 marginally below the rates
established by the Committee at the
previous meeting, but with expansion
of Ml above the level anticipated by
the Committee, given the surge in Ml
growth during the first part of May.
The staff analysis also indicated that,
within limits, alternative policy
courses would have relatively little
impact on the second-quarter growth
of the monetary aggregates in light of
the limited time remaining in the
quarter, but would affect their growth
more substantially over the months
ahead.
In the course of their discussion,
Committee members expressed differing views with regard to the appropriate course for policy in the weeks
immediately ahead. The members
were narrowly divided between those
who favored some increase in reserve
restraint over the next few weeks and
others who preferred to maintain the
degree of reserve restraint contemplated at the March meeting. This
divergence reflected varying assessments of the strength and sustainability of the economic recovery; differing views with regard to the interpretation of the monetary aggregates;
and different opinions concerning the
risks associated with the likely impact
of alternative policy courses on domestic interest rates. Members also
noted the potential sensitivity of in-
ternational financial conditions and
the foreign exchange value of the
dollar to firmer credit conditions in
the United States, suggesting for
some a dilemma for monetary policy
stemming in substantial part from the
budgetary situation.
Members who supported retention
of the current short-run policy emphasized that the growth of the
broader monetary aggregates, on
which the Committee had focused,
was within the Committee's 1983
ranges for the year to date. Moreover, such growth seemed to be falling a bit short of the second-quarter
targets that the Committee had set at
the previous meeting. Expansion in
total domestic nonfinancial debt also
appeared to be within the range for
1983 that the Committee had established for monitoring purposes. Ml
clearly was growing at a pace well
above the Committee's expectations,
but many members continued to view
that aggregate as an unreliable guide
for policy and they preferred to give
little or no weight to its performance,
at least for the present.
A number of members were also
concerned that under current circumstances even a modest tightening of
reserve conditions might have a disproportionate impact on sentiment in
domestic and international financial
markets and lead to sizable increases
in domestic interest rates. In their
view increases in interest rates would
have adverse consequences for interest-sensitive sectors of the economy
and possibly for the sustainability of
the economic recovery. Indeed, one
member believed that lower interest
rates were likely to be needed to ensure continued economic expansion.
Moreover, appreciably higher U.S.
interest rates might have particularly
damaging consequences internationally by raising the foreign exchange
FOMC Policy Actions 109
value of the dollar and intensifying
the severe pressures on countries with
serious external debt problems.
Other Committee members, however, weighed the risks associated
with alternative policy courses differently. They felt that at least limited
tightening of reserve conditions was
desirable in light of the very rapid
growth in Ml against the background
of accumulating evidence. While,
consistent with previous decisions,
Ml was not given so much weight as a
monetary policy target as it had had
earlier, a number of members nonetheless saw a need to move toward
restraining its growth, which clearly
was running well above the pace for
the second quarter that the Committee had expected would be consistent
with the behavior of the broader aggregates.
Several members commented that
slightly greater restraint on reserves
would be desirable at this point to
minimize the possible need for more
substantial restraint later, reducing
the interest rate impact on financial
markets over time and helping to sustain the expansion. Reference was
made to the favorable effect such a
move might have on market perceptions about monetary policy and the
outlook for containing inflation, with
the consequence that prospects for
stable or declining interest rates in
long-term debt markets would be
enhanced as the recovery proceeded.
The view was also expressed that the
external debt difficulties of a number
of foriegn countries were continuing
problems. The Federal Reserve could
best contribute to the resolution of
those problems by following policies
that would foster sustained, noninflationary economic growth. Deferring
any actions could well pose a greater
dilemma at a later time.
Digitized forAt the conclusion of the CommitFRASER
tee's discussion, a majority of the
members indicated that they favored
marginally more restraint on reserve
positions for the near term. Although
these members differed on the precise
degree of additional restraint that
they preferred, they indicated their
acceptance of a directive calling for
only slightly more restraint on reserve
positions than had been approved at
the previous meeting. It was understood that at this point M2 and M3
seemed to be on courses that would
bring their growth to slightly below
the rates of 9 and 8 percent respectively that had been set at the March
meeting for the second quarter, but
that Ml would probably expand at a
rate well above the growth that had
been anticipated for the quarter. The
members agreed that lesser restraint
would be appropriate in the context
of more pronounced slowing in the
growth of the broader monetary aggregates within their 1983 ranges and
deceleration of Ml growth, or of indications that the pace of the economic recovery was weakening. It
was understood that the intermeeting
range for the federal funds rate,
which provides a mechanism for initiating consultation of the Committee, would remain at 6 to 10 percent.
At the conclusion of its discussion,
the Committee issued the following
domestic policy directive to the Federal Reserve Bank of New York:
The information reviewed at this
meeting suggests that growth in real GNP
has accelerated in the current quarter following a moderate increase in the first
quarter. Industrial production increased
sharply in April after rising at a moderate
pace in previous months; nonfarm payroll
employment and retail sales rose considerably in March and April. Housing starts
declined somewhat in both months but
were still well above depressed 1982 levels.
Data on new orders and shipments suggest
that the demand for business equipment is
110 FOMC Policy Actions
reviving. The civilian unemployment rate
edged down to 10.2 percent in April.
Average prices have changed little and the
index of average hourly earnings has risen
at a much reduced pace in the early
months of 1983.
The weighted average value of the
dollar against major foreign currencies
has remained in a narrow range near its recent high level since late March. The U.S.
foreign trade deficit fell substantially in
the first quarter, reflecting a sharp drop in
the value of oil imports.
Growth in M2 and M3 decelerated further in April to relatively low rates but appears to have picked up recently. Ml declined in April but has strengthened
markedly in early May. Growth in debt of
domestic nonfinancial sectors appears to
have been moderate over the first four
months of the year. Interest rates have
changed little on balance since late March.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation further, promote a resumption of
growth in output on a sustainable basis,
and contribute to a sustainable pattern of
international transactions. At its meeting
in February the Committee established
growth ranges for monetary and credit aggregates for 1983 in furtherance of these
objectives. The Committee recognized
that the relationships between such ranges
and ultimate economic goals have been
less predictable over the past year; that the
impact of new deposit accounts on growth
ranges of monetary aggregates cannot be
determined with a high degree of confidence; and that the availability of interest
on large portions of transaction accounts,
declining inflation, and lower market
rates of interest may be reflected in some
changes in the historical trends in velocity.
A substantial shift of funds into M2 from
market instruments, including large certificates of deposit not included in M2, in
association with the extraordinarily rapid
buildup of money market deposit accounts, distorted growth in that aggregate
during the first quarter.
In establishing growth ranges for the
aggregates for 1983 against this background, the Committee felt that growth in
M2 might be more appropriately measured after the period of highly aggressive
marketing of money market deposit accounts had subsided. The Committee also
felt that a somewhat wider range was ap-
propriate for monitoring Ml. Those
growth ranges were to be reviewed in the
spring and altered, if appropriate, in the
light of evidence at that time. The Committee reviewed the ranges at this meeting
and decided not to change them at this
time, pending further review at the July
meeting. With these understandings, the
Committee established the following
growth ranges: for the period from February-March of 1983 to the fourth quarter
of 1983, 7 to 10 percent at an annual rate
for M2, taking into account the probability of some residual shifting into that aggregate from non-M2 sources; and for the
period from the fourth quarter of 1982 to
the fourth quarter of 1983, 6V2 to 9Vi percent for M3, which appeared to be less
distorted by the new accounts. For the
same period a tentative range of 4 to 8
percent was established for Ml, assuming
that Super NOW accounts would draw
only modest amounts of funds from
sources outside Ml and assuming that the
authority to pay interest on transaction
balances was not extended beyond presently eligible accounts. An associated
range of growth for total domestic nonfinancial debt was estimated at 8V2 to
11 Vi percent.
In implementing monetary policy, the
Committee agreed that substantial weight
would continue to be placed on behavior
of the broader monetary aggregates expecting that distortions in M2 from the
initial adjustment to the new deposit accounts will abate. The behavior of Ml will
continue to be monitored, with the degree
of weight placed on that aggregate over
time dependent on evidence that velocity
characteristics are resuming more predictable patterns. Debt expansion, while not
directly targeted, will be evaluated in
judging responses to the monetary aggregates. The Committee understood that
policy implementation would involve continuing appraisal of the relationships between the various measures of money and
credit and nominal GNP, including evaluation of conditions in domestic credit and
foreign exchange markets.
The Committee seeks in the short run to
increase only slightly the degree of reserve
restraint. The action was taken against the
background of M2 and M3 remaining
slightly below the rates of growth of 9 and
8 percent, respectively, established earlier
for the quarter and within their long-term
ranges, Ml growing well above anticipated
FOMC Policy Actions 111
levels for some time, and evidence of
some acceleration in the rate of business
recovery. Lesser restraint would be appropriate in the context of more pronounced
slowing of growth in the broader monetary aggregates relative to the paths implied by the long-term ranges and deceleration of Ml, or indications of a weakening in the pace of economic recovery. The
Chairman may call for Committee consultation if it appears to the Manager for
Domestic Operations that pursuit of the
monetary objectives and related reserve
paths during the period before the next
meeting is likely to be associated with a
federal funds rate persistently outside a
range of 6 to 10 percent.
and it was not predictably related to
nominal GNP.
Under current economic and financial circumstances, the implementation of firmer reserve conditions
would also incur an undue risk of an
exaggerated reaction in domestic and
international financial markets. Substantially higher domestic interest
rates would have damaging consequences for interest-sensitive industries and could limit the recovery in
economic activity. These members
agreed that current interest rate levels
appeared to be more consistent with
Votes for this action: Messrs. Volcker, continuing economic expansion in the
Gramley, Keehn, Martin, Partee, Rob- months immediately ahead, but Mrs.
erts, and Wallich. Votes against this action: Messrs. Solomon, Guffey, Mor- Teeters believed that lower interest
rates might well be needed later to
ris, Rice, and Mrs. Teeters.
sustain the recovery.
These members also referred to the
Messrs. Solomon, Guffey, Morris, potentially disruptive international
Rice, and Mrs. Teeters dissented impact of rising U.S. interest rates.
from this action because they wanted Messrs. Solomon, Guffey, and Moropen market operations to continue ris in particular believed that the
being directed toward maintaining already strong dollar in foreign exapproximately the degree of reserve change markets, the tenuous situation
restraint approved at the previous of some of the developing countries,
meeting. In the view of these mem- the still fragile economic recovery in
bers, a firming of reserve conditions other industrial countries, and the
was not warranted by the perfor- continuing weak outlook for U.S. exmance of the monetary aggregates or ports counseled against an increase in
by the current economic situation. M2 reserve restraint.
and M3 were expanding more slowly
On June 23 the Committee held a
in the second quarter than the Com- telephone conference to review recent
mittee had anticipated at its previous developments in the domestic and inmeeting and for the year to date these ternational economy and financial
broader aggregates, along with total markets since the May 24 meeting.
domestic nonfinancial credit, were Evidence suggested that economic acgrowing at rates that were within the tivity was continuing to strengthen at
Committee's 1983 ranges. Ml had a somewhat more rapid pace than had
been expanding at a pace markedly in generally been anticipated earlier.
excess of the Committee's expecta- Some interest rates had increased
tions in recent weeks and for the year modestly in recent weeks. Growth in
to date, but this aggregate was not monetary aggregates, particularly
viewed as a sufficiently reliable guide Ml, had been relatively rapid alfor policy, at least for the present, though growth in M2 and M3 resince its performance was substantial- mained close to the targets estably distorted by various developments lished for the quarter as a whole.
112 FOMC Policy Actions
Against that background, the consensus was that a modest increase in
reserve restraint, within the framework of the directive adopted at the
May 24 meeting and consistent with
recent reserve conditions, remained
appropriate.
Meeting Held on
July 12-13, 1983
Domestic Policy Directive
The information reviewed at this
meeting suggested that the economic
recovery was proceeding at a strengthened pace. The latest data suggested
that growth in real GNP may have
been even more rapid in the second
quarter than the 6Vi percent preliminary estimate of the Commerce Department, and it appeared that relatively strong growth would be sustained into the current quarter. Expenditures for consumer goods were
especially large, and a swing in business inventories from liquidation to
accumulation seemed to be developing more rapidly than anticipated
earlier.
The dollar value of retail sales advanced appreciably in May, marking
the third consecutive monthly increase. Outlays at general merchandise outlets and at furniture and appliance stores were brisk, but sizable
expenditures on autos and automotive products continued to be an important factor in the strength of retail
sales. Sales of new domestic automobiles rose to a rate of 7.2 million units
in June, the strongest monthly selling
pace in nearly two years. Survey reports of marked improvement in consumer confidence accompanied the
vigorous recent gains in consumer
spending.
Total private housing starts increased
considerably
in May to an annual rate
of nearly 1.8 million units, following
small declines during the two preceding months. Starts in May were about
40 percent above their average level in
the fourth quarter of 1982. Other indicators of housing activity also exhibited strength: newly issued permits
for residential buildings rose further
in May as did combined sales of new
and existing homes. Both measures
were more than 30 percent above the
average levels in the fourth quarter of
last year.
With inventories depleted and sales
strong, businesses have been meeting
demands out of current production
and appear to have started rebuilding
stocks in some lines. The index of industrial production rose 1.1 percent
in May to a level 7 percent above its
trough six months earlier, and available data, including the statistics on
employment and hours worked in
manufacturing, suggested another
sizable gain in output in June. As in
other recent months, gains in output
and employment occurred across a
broad range of industries. Nonfarm
payroll employment rose nearly
350,000 in June, after an increase of
about 300,000 in May. The civilian
unemployment rate declined to 10.0
percent in June, down 0.8 percentage
point from its peak in December.
Data on new orders and shipments
continued to indicate improvement in
the demand for business equipment.
Production of business equipment,
which had contracted sharply in 1982
and had continued to decline during
the first quarter of this year, rose
substantially in May for the second
month in a row.
The producer price index for finished goods (PPI) and the consumer
price index (CPI) increased 0.3 percent and 0.5 percent respectively in
May, largely reflecting a sharp rise in
energy prices at both the producer
and the consumer levels. Exclusion of
the volatile energy components would
have resulted in no change in the PPI
and nearly a halving of the increase in
the CPI. During the first five months
of 1983, the PPI declined at an annual rate of about 2 lA percent and the
CPI increased at an annual rate of 3
percent. Over the same period, the index of average hourly earnings for
private nonfarm production workers
rose at an annual rate of 4lA percent,
compared with an increase of 6 percent for the year 1982.
In foreign exchange markets the
trade-weighted value of the dollar
against major foreign currencies rose
more than 2Vi percent in late May
and early June to a record level; subsequently it had fluctuated in a narrow range. Reflecting the strength of
the economy and the persistently high
level of the dollar, the U.S. foreign trade deficit increased sharply in
the April-May period from its reduced first-quarter rate; exports declined and both oil and non-oil imports rose.
At its meeting on May 24, 1983, the
Committee had decided that open
market operations in the period until
this meeting should be directed at increasing only slightly the degree of
restraint on reserve positions. That
action had been taken against the
background of growth in M2 and M3
remaining within their long-term
ranges and slightly below the annual
rates of 9 and 8 percent respectively
established earlier for the quarter, Ml
growing substantially above anticipated levels for some time, and evidence of an acceleration in the rate of
business recovery. The Committee
had agreed that lesser restraint on reserve positions would be appropriate
in the context of more pronounced
slowing of growth in the broader
Digitizedmonetary aggregates relative to the
for FRASER
FOMC Policy Actions
113
paths implied by the long-term ranges
and deceleration of Ml, or of indications of a weakening in the pace of
economic recovery. The intermeeting
range for the federal funds rate was
retained at 6 to 10 percent.
Growth in M2 and M3 accelerated
in May and continued relatively strong
in June, with both aggregates expanding at an estimated annual rate of
about 10 percent. For the March-toJune period both M2 and M3 grew at
an annual rate of about 8 Vi percent, a
bit below the quarterly objective established for M2 and a bit above that
for M3. Relative to the longer-run
ranges, M2 by June was somewhat
above the midpoint of its range and
M3 was around the upper limit of its
range for the year.
Ml, which had surged to an annual
rate of growth of about 26 percent in
May, expanded at a rate of around
\0Vi percent in June. From the fourth
quarter of 1982 to June, Ml grew at
an annual rate of about 13% percent,
considerably above the Committee's
tentative range of 4 to 8 percent for
the year.
Though the pace of expansion in
debt of domestic nonfinancial sectors
over the first half of the year was estimated to have remained within the
Committee's annual range of 8Vi to
MVi percent, growth in debt appeared to have been more rapid in the
second than in the first quarter. This
development reflected an acceleration
in borrowing by the U.S. Treasury as
well as a pickup in private credit demand. Total credit outstanding at
U.S. commercial banks expanded at
an annual rate of nearly 10 percent in
June and in the second quarter as a
whole. Sizable acquisitions of Treasury securities continued to make the
major contribution to the expansion
in bank credit in June, but real estate
lending strengthened further and
114 FOMC Policy Actions
business loans registered their first
significant increase since January.
Strong demands for money were
associated with relatively rapid expansion in total reserves in June, but
growth in nonborrowed reserves (plus
extended credit at the discount window) was considerably slower than
the increase in total reserves. With
open market operations holding back
on the supply of reserves, depository
institutions increased their short-term
borrowing at the discount window
and sought reserves more actively in
the federal funds market. Adjustment
borrowing from the Federal Reserve
discount window (including seasonal
borrowing) rose to about $680 million
in June and rose further in the first
part of July; borrowing temporarily
bulged to over $1 billion in the reserve
statement week that encompassed the
midyear bank statement date and the
July 4 holiday period. The federal
funds rate traded in a range of %3A to
9 percent for most of the period, but
most recently the rate had moved
up into the 9 to 9Vs percent range;
somewhat higher rates were temporarily associated with the management of reserve positions over the
midyear statement date and the holiday period.
Other short-term market rates rose
about 3A to 1 percentage point during
the intermeeting period, reflecting in
part responses to the modest tightening of reserve market conditions that
was under way and apparently also
some anticipatory reaction to the
strength of incoming data on the
monetary aggregates and economic
activity. Most long-term interest rates
on taxable securities increased about
3
A percentage point over the period,
while yields on tax-exempt issues were
little changed on balance. Average
rates on new commitments for fixedDigitizedrate conventional home mortgage
for FRASER
loans at savings and loan associations
also rose about VA percentage point.
Given the momentum in economic
activity that appeared to be in train,
the staff projections presented at this
meeting indicated that growth in real
GNP in the second half of the year
would be somewhat higher than had
been anticipated earlier. Final purchases in private domestic sectors,
buoyed by expenditures for consumer
goods, were expected to be maintained
at a relatively strong pace in the latter
half of the year and businesses were
expected to be adding appreciably to
inventories. A gradual decline in the
unemployment rate was anticipated
over the balance of the year, and a
further decline was expected in 1984
in association with continued, though
more moderate, economic recovery.
Upward price pressures were expected
to be relatively modest over the projection horizon, assuming that inflationary expectations remained
damped, with related restraint on
wage and price policies of labor and
business.
In their review of the economic
situation and outlook, the members
focused on evidence of the economy's
strong forward momentum and the
prospects for continuing sizable gains
in real GNP during the months immediately ahead. Consumer spending,
which along with housing has played
a major role in fostering the recovery,
was likely to be sustained by the further reduction in personal income
taxes at midyear. Most of the members agreed, however, that economic
activity would probably expand at a
more moderate pace later in the year
and in 1984. Spending for business inventories was expected to become a
less expansive factor as the recovery
proceeded, and the outlook for exports remained relatively weak. The
members also referred to a number of
FOMC Policy Actions 115
potential threats to the recovery, in- creases would be sensitive to expectacluding financial strains related to the tions as conditioned by fiscal and
debt problems of numerous develop- monetary policy developments.
ing countries and the adverse impact
The individual members of the
of continuing large federal deficits in Committee had prepared specific prothe absence of measures to reduce jections of economic activity and
them.
prices for this meeting. With regard
While the expansive fiscal policy to growth in real GNP, the projecadded to purchasing power and sup- tions had as their central tendency a
ported consumption, members were range of 5 to 53A percent for 1983 and
concerned that the need to finance 4 to 4Vi percent for 1984, measured
large Treasury borrowing in a period from fourth quarter to fourth quarwhen private credit demands were ac- ter. Most of the members projected a
celerating would put increasing up- rise in the implicit GNP deflator in a
ward pressure on interest rates and range of 4lA to 43A percent during
curtail the availability of financing to 1983 and 454 to 5 percent during
private borrowers. Sectors heavily 1984. The rate of unemployment was
dependent on credit, such as housing expected to decline gradually over the
and business investment, would be projection period, with most memparticularly affected, as would small bers anticipating an average rate of
businesses. The view was expressed about 91/2 percent in the fourth quarthat the restraining impact on private ter of 1983 and %VA to 8% percent in
credit demands and economic activity the fourth quarter of 1984.
of even current relatively high interest
At its meeting on May 24, the
rates—which seemed especially high Committee had reviewed the growth
in real terms—could well be under- ranges for the monetary and credit
estimated, and a view was expressed aggregates that it had established in
that a decline in interest rates from February for the year 1983 and had
present levels would probably be decided not to change those ranges
needed to prolong the recovery dur- but to review them further at this
ing 1984.
meeting. For the broader monetary
Members generally continued to re- aggregates, on which the Committee
gard the near-term outlook for prices had agreed to place principal weight,
as favorable, and it was observed that the ranges included annual growth
wage increases remained quite moder- rates of 7 to 10 percent for M2, meaate. However, several members saw sured from February-March 1983 to
acceleration in the rate of increase in the fourth quarter of 1983, and 6Vi to
prices as a likely prospect for 1984. 9!/2 percent for M3, measured from
Reference was made to a number of the fourth quarter of 1982 to the
developments that were potentially fourth quarter of 1983. The range for
unfavorable, including possible in- monitoring Ml was set at 4 to 8 percreases in prices of key farm products cent and an associated range for total
as a consequence of governmental domestic nonfinancial debt was estipolicies to reduce farm supplies, and mated at SVi to IIVi percent, both
pressures stemming from rising prices for the period from the fourth quarof imports if the foreign exchange ter of 1982 to the fourth quarter of
value of the dollar were to weaken, as 1983.
many observers anticipated. It was
At this meeting the Committee reviewed its target ranges for 1983 and
Digitized also pointed out that actual price infor FRASER
116 FOMC Policy Actions
established tentative ranges for 1984
in light of the basic objectives of encouraging sustained economic recovery while fostering continued progress
toward price stability and promoting
a sustainable pattern of international
transactions. In setting these ranges,
the Committee recognized that the
relationships among the money and
credit aggregates and nominal GNP
in the period ahead were subject to
considerable uncertainty. It was
therefore understood that the significance to be attached to movements in
the various aggregates in the implementation of policy would depend
on continuing appraisal of evidence
about the strength of the economic
recovery, the performance of prices,
and emerging conditions in domestic
and international financial markets.
In the Committee's discussion, all
of the members supported a proposal
to retain the 1983 ranges for growth
in M2 and M3 established in February.
Recent experience suggested that actual growth of M2 and especially of
M3 might be in the upper half of their
respective ranges for the year rather
than near the midpoints as anticipated earlier. The members noted
that the massive shifts of funds into
M2 stemming from the introduction
of money market deposit accounts
and the much more limited shifts
relating to the new Super NOW accounts had abated about as anticipated; and they assumed that these
accounts, along with the further
deregulation of interest rates on time
deposits scheduled for October 1,
would have relatively little impact on
growth of the broader aggregates
over the balance of 1983 and in 1984.
The members differed only marginally with regard to the appropriate
ranges that should be established for
growth in M2 and M3 in 1984. Most
Digitizedfavored a reduction of Vi percentage
for FRASER
point from the 1983 ranges, but in the
course of the discussion two members
expressed a preference for retaining
the 1983 ranges. One member believed
that the prospective relationship between M2 and nominal GNP was subject to a very high degree of uncertainty and that therefore no specific
target should be set for that aggregate
at this time.
In the view of most members, the
establishment of lower ranges for
1984 would be consistent with the
Committee's objective of providing
adequate monetary growth to support
continued economic recovery while
encouraging progress toward reasonable price stability. It was recognized,
however, that attainment of these
broad economic objectives would be
greatly facilitated by complementary
governmental policies, notably further actions to reduce future federal
deficits. Members who preferred to
retain the current M2 and M3 ranges
for 1984 were concerned that lower
ranges might prove to be more restrictive than was desirable and, given the
uncertainties that were involved, they
preferred not to reduce the ranges
unless there were substantial evidence
that inflationary pressures were reviving. In the view of most members,
however, modest and timely action to
curb monetary growth would enhance, rather than reduce, prospects
for sustaining the economic recovery
and for lower interest rates over time
in the context of diminishing inflationary pressures.
A majority of the members also
supported a proposal to retain for
1983 the associated range for total
domestic nonfinancial debt that had
been set earlier but to reduce that
range by Vi percentage point for 1984.
Some sentiment was expressed in
favor of a reduction of 1 percentage
point for 1984 on the ground that the
range contemplated by the majority
was a little high in relation to the central tendency of the members' projections of nominal GNP; in the past,
growth in this aggregate had tended
to approximate growth in nominal
GNP. However, a majority of the
members concluded that allowance
should be made for expansion in total
debt in 1984 in excess of nominal
GNP growth. Such a development
would be consistent with this year's
experience and might be connected
with the relatively rapid expansion in
federal debt.
The members discussed at considerable length what longer-run ranges
to establish for Ml and what weight
the Committee should attach to that
aggregate in the implementation of
monetary policy. The income velocity
of Ml—the ratio of nominal GNP to
Ml—had deviated substantially from
normal cyclical patterns since the
beginning of 1982. It had declined
more sharply and longer than usual
during the recent recession and had
failed to rebound as quickly as in the
past with the onset of recovery. A
number of factors apparently contributed to this unusual behavior, including for a time precautionary
demands for highly liquid balances by
the public in the face of various
economic and financial uncertainties.
Over the last several months, the
behavior of Ml velocity seemed to
reflect the greater sensitivity of this
aggregate to declines in market interest rates probably resulting from
the much increased share of interestbearing NOW accounts in the total.
NOW accounts, which may serve as a
savings vehicle as well as fulfilling
transactions needs, have been the
most rapidly growing component of
Ml since they were introduced on a
nationwide basis at the beginning of
Digitized 1981. Regular NOW accounts bear a
for FRASER
FOMC Policy Actions 117
ceiling rate of 5 lA percent. The sharp
drop in market rates during the second half of 1982 made the opportunity cost of holding NOW accounts
relatively small and, with a lag, increased the demand for them. It was
noted, though, that the recent expansion in Ml, with currency and demand deposits showing strength as
well, probably also reflected growing
transaction needs relating to the
recovery in economic activity.
Against this background, a key uncertainty confronting the Committee
was whether Ml velocity in the future
would exhibit characteristics more in
line with earlier postwar experience.
Recent evidence seemed to suggest
that the decline in Ml velocity was
ending, as might be expected as the
lagged upward effect on demand from
earlier declines in interest rates wore
off and as business and consumer
attitudes became more optimistic.
While acknowledging the major
uncertainties that existed, a majority
of the members nonetheless believed
that a monitoring range should be retained for Ml. In this view Ml would
continue to be given reduced weight
in the formulation of monetary policy
and primary emphasis would continue
to be placed on the broader aggregates. A few members, however, preferred to suspend the targeting of Ml
at this time because they viewed its
prospective behavior as too uncertain
to permit the establishment of a
meaningful range. A subsidiary reason cited in support of this view was
the difficulty of communicating a
proper assessment of the reduced role
of Ml to outside observers so long as
the Committee continued to set a specific range. One result was a tendency
for participants in financial markets
to attach undue importance to weekly
fluctuations in Ml data, with the consequence that on occasion published
118 FOMC Policy Actions
figures had a needlessly unsettling im- date the possibility that the demand
pact on financial markets.
for Ml would remain stronger than it
In reviewing the Ml range for 1983, had been in the earlier postwar
members discussed whether that period, given income and interest
range should continue to be based on rates. At the other extreme such a
the fourth quarter of 1982 or rebased range could allow for a fairly sizable
on the second quarter of 1983 in view increase in Ml velocity; however,
of the probability of a prospective given the ongoing changes in the comchange in the behavior of velocity. If position of Ml, it was recognized that
the fourth quarter of 1982 were con- the increase could be somewhat less
tinued as a base, Ml growth would than experienced in previous cyclical
need to be sharply curtailed to the expansions.
point of little or no growth for the
Discussion of specific ranges for
rest of the year; alternatively, the Ml Ml centered on 5 to 9 percent or 4 to
range for the year would need to be 8 percent for the second half of 1983
raised substantially from the current and the year 1984, although one
4 to 8 percent, given the rapid expan- member preferred a lower range for
sion during the first half of the year, 1984. Most of the members indicated
to allow for any significant further that they could accept a proposal to
growth in the second half. If instead establish a range for growth in Ml of
Ml were rebased on the second quar- 5 to 9 percent for the period from the
ter, or perhaps on June, some mem- second quarter of 1983 to the fourth
bers were concerned that this could be quarter of 1983 and a tentative range
misconstrued as an indication that the of 4 to 8 percent for the period from
Committee was now weighing Ml the fourth quarter of 1983 to the
more heavily in the formulation of fourth quarter of 1984. It was undermonetary policy. However, most stood that growth within the lower
members favored rebasing the Ml portions of those ranges would be aprange for 1983 on the second quarter propriate if the velocity of Ml tended
to help make it clear that the rapid toward a relatively normal cyclical ingrowth in Ml over the past several crease as the recovery proceeded;
quarters was related to special cir- growth in the upper portions of the
cumstances and that the Committee ranges would be acceptable if the
expected and wished to see slower upturn in Ml velocity remained relagrowth in the future. Such an ap- tively weak. If there should occur an
proach, it was stressed, did not in unexpectedly rapid increase or a
itself imply placing more weight on decline in Ml velocity, the Committee
Ml relative to the other aggregates in would reassess the ranges; it would in
policy implementation.
any event review the tentative range
The members who preferred to for 1984 early in the year in the light
continue setting a longer-run range of economic and financial conditions
for Ml generally also agreed that it prevailing then.
should encompass growth rates close
In implementing policy, the Comto, or below, the Committee mem- mittee agreed that primary emphasis
bers' outlook for expansion in would continue to be placed on the
nominal GNP. At one extreme the broader aggregates. The behavior of
Ml range could allow for very little Ml would be monitored, with any inchange, or perhaps only a minor in- crease in the weight placed on that aggregate dependent on evidence that its
Digitizedcrease, in Ml velocity to accommofor FRASER
FOMC Policy Actions 119
velocity behavior was assuming a
more predictable pattern. Expansion
in total nonfinancial domestic debt
would also be monitored in assessing
the behavior of the monetary aggregates and the general stance of
monetary policy.
At the conclusion of its discussion
the Committee voted for the following longer-run policy:
specifically M3, total liquid assets,
and total domestic nonfinancial debt
as targets for monetary policy.
In the Committee's discussion of a
policy course for the short run, most
of the members indicated that they
could support a slight further increase
in the degree of reserve restraint. In
the context of an economy that was
much stronger than expected, these
members believed that such a policy
The Committee reaffirmed the longerwould provide some insurance against
run ranges established earlier for growth
the possible need for a considerably
in M2 and M3 for 1983. The Committee
also agreed on tentative growth ranges for
greater degree of restraint later to
the period from the fourth quarter of 1983
maintain control on inflation and
l
to the fourth quarter of 1984 of 6Vi to 9 A
growth in money and credit. For the
percent for M2 and 6 to 9 percent for M3.
third quarter, the members expected
The Committee considered that growth in
Ml in a range of 5 to 9 percent from the
this policy to be associated with consecond quarter of 1983 to the fourth quar- siderable moderation in the growth of
ter of 1983, and in a range of 4 to 8 perthe monetary aggregates, especially
cent from the fourth quarter of 1983 to
Ml, although they recognized the subthe fourth quarter of 1984 would be consistent with the ranges for the broader agstantial uncertainties that governed
gregates. The associated range for total
the short-run performance of the
domestic nonfinancial debt was reaffirmed at 8V2 to 11 Vi percent for 1983 and monetary aggregates, again especially
tentatively set at 8 to 11 percent for 1984.5 that of Ml.
One member expressed a preference
Votes for this action: Messrs. Volcker,
for somewhat more tightening of
Solomon, Gramley, Guffey, Keehn,
reserve conditions over the weeks
Martin, Partee, Rice, Roberts, Mrs.
ahead, while another favored no
Teeters, and Mr. Wallich. Vote against
this action: Mr. Morris.
change from the existing degree of
restraint. In the view of several memMr. Morris dissented from this ac- bers, a slight further tightening by the
tion because he did not believe that Committee need not itself be reflected
target ranges should be set for Ml in sizable further changes in interest
and M2. Because of financial innova- rates generally, given the increases
tions, these aggregates in his view are that had already occurred. It was
no longer predictably related to nomi- recognized, however, that actual
nal GNP—an essential characteristic movements in market rates would deof an intermediate target for monetary pend importantly on economic and
policy. Thus, the Committee should financial developments in the weeks
turn to broader financial aggregates, ahead, including the performance of
the monetary aggregates, the outlook
for the budget, and emerging private
credit demands against the background of a rapidly expanding econ5. The Board's Midyear Monetary Policy
omy. It was also suggested that such
Report pursuant to the Full Employment and
an approach to short-run policy
Balanced Growth Act of 1978 (the Humphreywould improve prospects for the deHawkins Act) was transmitted to the Congress
velopment of conditions that would
Digitized on July 20, 1983.
for FRASER
120 FOMC Policy Actions
permit some easing in the degree of
reserve restraint later.
At the conclusion of the Committee's discussion, a majority of the
members indicated that they favored
a slight increase in the degree of reserve restraint for the near term. It
was anticipated that such a policy
course would be associated with
growth of M2 and M3 at annual rates
of about SVi and 8 percent respectively for the period from June to September. Primary weight would be
placed on the performance of these
broader monetary aggregates in evaluating the conduct of open market
operations. The members agreed that
lesser restraint on reserve conditions
would be acceptable in the event of a
significant shortfall in the growth of
the aggregates over the period ahead,
while somewhat greater restraint
would be acceptable in the context of
more rapid growth in the aggregates.
It was understood that the need for
greater or lesser reserve restraint
would also be evaluated on the basis
of available evidence about trends in
economic activity and prices and conditions in domestic and international
financial markets, including foreign
exchange markets. The Committee
anticipated that its third-quarter objectives for the broader aggregates
would be consistent with a deceleration in Ml growth to an annual rate
of around 7 percent from June to
September, and that expansion in
total domestic nonfinancial debt
would remain within the range of %Vi
to WVi percent established for the
year. It was agreed that the intermeeting range for the federal funds rate,
which provides a mechanism for initiating consultation of the Committee,
would remain at 6 to 10 percent.
At the conclusion of its discussion,
the Committee issued the following
Digitized domestic policy directive to the
for FRASER
Federal Reserve Bank of New York:
The rapid growth in real GNP in the
second quarter and other information
reviewed at this meeting suggest that the
economic recovery is proceeding at a
strengthened pace. Expenditures on consumption and housing expanded substantially in the second quarter and businesses
apparently began to add to inventories
after a period of sharp liquidation. Nonfarm payroll employment rose considerably in May and June and the civilian unemployment rate declined to 10.0 percent
in June. Industrial production continued
to rise markedly in May and partial data
suggest a sizable gain in June. Data on
new orders and shipments continued to indicate improvement in the demand for
business equipment. In May housing
starts increased substantially following
small declines earlier and retail sales rose
appreciably further. Average prices and
the index of average hourly earnings have
risen at a reduced pace in the first five
months of 1983.
The weighted average value of the
dollar against major foreign currencies
rose substantially in late May and the first
half of June and subsequently has fluctuated in a narrow range. Reflecting the
strength of the U.S. economy and the persistent high level of the dollar, the U.S.
foreign trade deficit increased sharply in
April-May from its reduced first-quarter
rate; exports declined and both oil and
nonoil imports rose.
Strong growth in the broader aggregates in May and June raised M2 to a level
somewhat above the midpoint of the
Committee's range for 1983 and M3 to
around the upper limit of its range. Ml
grew very rapidly over both months and
was well above its range for the year.
Growth in debt of domestic nonfinancial
sectors appears to have picked up in the
second quarter. Interest rates have risen
appreciably since early May.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation further, promote growth in output on
a sustainable basis, and contribute to a
sustainable pattern of international transactions. At its meeting in February the
Committee established growth ranges for
monetary and credit aggregates for 1983
in furtherance of these objectives. The
Committee recognized that the relation-
FOMC Policy Actions 121
ships between such ranges and ultimate
economic goals have been less predictable
over the past year; that the impact of new
deposit accounts on growth ranges of
monetary aggregates cannot be determined with a high degree of confidence;
and that the availability of interest on
large portions of transaction accounts, declining inflation, and lower market rates
of interest may be reflected in some
changes in the historical trends in velocity.
In establishing growth ranges last
February for the aggregates for 1983
against this background, the Committee
felt that growth in M2 might be more appropriately measured after the period of
highly aggressive marketing of money
market deposit accounts had subsided.
The Committee also felt that a somewhat
wider range was appropriate for monitoring Ml. With these understandings, the
Committee established the following
growth ranges: for the period from February-March of 1983 to the fourth quarter
of 1983, 7 to 10 percent at an annual rate
for M2, taking into account the probability
of some residual shifting into that aggregate from non-M2 sources; and for the
period from the fourth quarter of 1982 to
the fourth quarter of 1983, 6V2 to 9Vi percent for M3, which appeared to be less
distorted by the new accounts. For the
same period a tentative range of 4 to 8
percent was established for Ml assuming
that Super NOW accounts would draw
only modest amounts of funds from
sources outside Ml and assuming that the
authority to pay interest on transaction
balances was not extended beyond presently eligible accounts. An associated
range of growth for total domestic nonfinancial debt was estimated at 8V£ to
W/i percent. These ranges were reviewed
at the May meeting and left unchanged,
pending further review in July.
At this meeting, the Committee reaffirmed the longer-run ranges established
earlier for growth in M2 and M3 for 1983.
The Committee also agreed on tentative
growth ranges for the period from the
fourth quarter of 1983 to the fourth
quarter of 1984 of 6Vi to 9Vi percent for
M2 and 6 to 9 percent for M3. The Committee considered that growth in Ml in a
range of 5 to 9 percent from the second
quarter of 1983 to the fourth quarter of
1983, and in a range of 4 to 8 percent from
the fourth quarter of 1983 to the fourth
quarter of 1984 would be consistent with
the ranges for the broader aggregates. The
associated range for total domestic nonfinancial debt was reaffirmed at 8 Vi to
11V£ percent for 1983 and tentatively set
at 8 to 11 percent for 1984.
In implementing monetary policy, the
Committee agreed that substantial weight
would continue to be placed on the behavior of the broader monetary aggregates. The behavior of Ml and total
domestic nonfinancial debt will be monitored, with the degree of weight placed on
Ml over time dependent on evidence that
velocity characteristics are resuming more
predictable patterns. The Committee
understood that policy implementation
would involve continuing appraisal of the
relationships between the various measures of money and credit and nominal
GNP, including evaluation of conditions
in domestic credit and foreign exchange
markets.
The Committee seeks in the short run to
increase slightly further the existing degree
of reserve restraint. The action is expected
to be associated with growth of M2 and
M3 at annual rates of about 8 Vi and 8 percent respectively from June to September,
consistent with the targets established for
these aggregates for the year. Depending
on evidence about the strength of economic recovery and other factors bearing
on the business and inflation outlook,
lesser restraint would be acceptable in the
context of a significant shortfall in growth
of the aggregates from current expectations, while somewhat greater restraint
would be acceptable should the aggregates
expand more rapidly. The Committee anticipates that a deceleration in Ml growth
to an annual rate of around 7 percent
from June to September will be consistent
with its third-quarter objectives for the
broader aggregates, and that expansion in
total domestic nonfinancial debt would
remain within the range established for
the year. The Chairman may call for
Committee consultation if it appears to
the Manager for Domestic Operations
that pursuit of the monetary objectives
and related reserve paths during the period before the next meeting is likely to be
associated with a federal funds rate persistently outside a range of 6 to 10 percent.
Votes for this action: Messrs. Volcker,
Solomon, Gramley, Guffey, Keehn,
Martin, Morris, Partee, Rice, and
122 FOMC Policy Actions
Roberts. Votes against this action: Mrs.
Teeters and Mr. Wallich.
Mrs. Teeters dissented from this
action because she preferred to direct
open market operations toward maintaining the existing degree of reserve
restraint. In her view the additional
upward pressure on interest rates
from further restraint on reserve positions was unnecessary and would
retard activity in interest-sensitive
sectors of the economy and threaten
the sustainability of the recovery.
Mr. Wallich dissented from this action because he favored a directive
calling for somewhat greater reserve
restraint. In his judgment, such a
policy course would contribute to better control of the monetary aggregates and, given the strong momentum of the economy, would be more
likely to prove consistent with the
Committee's longer-run objectives of
fostering sustained economic recovery
while curbing inflation.
Meeting Held on
August 23, 1983
1. Domestic Policy Directive
The information reviewed at this
meeting suggested that real GNP,
which had grown at an annual rate of
about 9!4 percent in the second quarter, was continuing to expand quite
rapidly in the current quarter, propelled to a large extent by the relatively sharp swing in business inventories
from liquidation to accumulation that
appeared to be in process. Available
indicators of final purchases remained
generally favorable, though suggestive of a slowing from the unusually
strong rate of expansion in the second
quarter.
Personal consumption expenditures
in the second quarter had risen at an
Digitizedexceptional annual rate of nearly 10
for FRASER
percent in real terms. Much of the increased spending occurred in April
and May, as sales in all major categories advanced sharply. In June and
July the nominal value of retail sales
showed little further change, but surveys indicated a continuing high level
of consumer confidence. Sales of new
domestic automobiles moved up in
June to a relatively strong annual rate
of 7 VA million units and continued at
that pace in July. In early August
auto sales rose somewhat further
despite reductions in the availability
and value of financing concessions
and other purchase incentives.
Total private housing starts edged
down in July, as they had in June, to
an annual rate of VA million units.
Permits, however, rose over the JuneJuly period—substantially for multifamily units and marginally on
balance for single-family units. In the
second quarter, combined sales of
new and existing houses had risen to a
rate more than 50 percent above the
cyclical low in the third quarter of
1982, but there was evidence of some
slowdown as the quarter progressed.
Moreover, reports of an appreciable
reduction in mortgage loan applications and an increase in cancellations
of sales contracts suggested some
weakening in home sales in July.
On the other hand, recent data
continued on the average to indicate
strengthening in business capital
spending. The second quarter had
marked a turnaround in that sector:
new orders and shipments of nondefense capital goods were up 14 percent
and 4lA percent respectively from the
previous quarter; and expenditures
for equipment rose at an annual rate
of 14 percent in real terms, the largest
one-quarter advance in five years.
This strengthening tendency appeared
to be continuing. Production of business equipment remained strong in
June and July, and shipments of nondefense capital goods rose in June to
a level well above the average for the
second quarter.
The index of industrial production
rose 1.8 percent in July following
large advances in the second quarter.
As in other recent months, sizable
gains in output occurred across a
broad range of industries and were
particularly large for consumer durable goods. By July the index had risen
about lO1/^ percent from its trough in
November 1982, close to the average
increase for comparable stages of
economic recovery in the postwar
period.
Nonfarm payroll employment,
which had increased about 1 million
in the second quarter, rose about Vi
million further in July, and the civilian
unemployment rate fell 0.5 percentage
point to 9.5 percent. In manufacturing, employment advanced about
160,000, marking the fourth consecutive month of large gains, and the
average workweek lengthened a bit
further to 40.3 hours.
In July the producer price index for
finished goods edged up 0.1 percent
and the consumer price index rose 0.4
percent. Thus far in 1983, the producer price index has declined slightly, and the consumer price index and
the index of average hourly earnings
have risen at rates considerably below
those in 1982.
In foreign exchange markets the
trade-weighted value of the dollar
against major foreign currencies rose
about AVi percent further in July and
early August but subsequently depreciated about 3 percent. The fluctuation in the exchange rate was related
in part to movements in U.S. interest
rates over the period. The U.S.
foreign trade deficit was smaller in
June than in May, but the deficit was
Digitizedmuch larger in the second quarter
for FRASER
FOMC Policy Actions 123
than in the first, as imports rose while
exports were essentially unchanged.
At its meeting on July 12-13, 1983,
the Committee had decided that open
market operations in the period until
this meeting should be directed at increasing slightly further the existing
degree of reserve restraint. That action was expected to be associated
with growth of M2 and M3 at annual
rates of about %Vi and 8 percent
respectively from June to September, consistent with the Committee's
longer-run ranges of 7 to 10 percent
for M2 for the period from FebruaryMarch of 1983 to the fourth quarter
of 1983 and 6V2 to 9Vi percent for M3
for the period from the fourth quarter of 1982 to the fourth quarter of
1983. The Committee had anticipated
that a deceleration in growth of Ml to
an annual rate of around 7 percent
from June to September would be
consistent with its third-quarter objectives for the broader aggregates
and that expansion in total domestic
nonfinancial debt would remain
within its associated range of iVi to
HI/2 percent for the year. The intermeeting range for the federal funds
rate was retained at 6 to 10 percent.
Growth in M2 and M3 slowed substantially in July to annual rates of
about 6lA percent and 5 percent respectively. By July M2 was at a level
near the midpoint of the Committee's
range for 1983 and M3 was somewhat
below the upper limit of its range.
Growth in Ml decelerated to an annual rate of about 9 percent in July,
less than half the average pace in the
May-June period, but the level of Ml
remained above the Committee's
monitoring range for the second half
of the year.
Total borrowing by domestic nonfinancial sectors was estimated to
have slowed somewhat in July from
its average in the second quarter,
124 FOMC Policy Actions
largely because of reduced borrowing
by the federal government, with
growth in nonfinancial debt remaining within its longer-run range for
1983. Expansion of bank credit was
at an annual rate of around 10 percent in July, about the same as in the
second quarter. Its composition,
however, changed substantially.
Total loans expanded at a rate more
than double the pace in the second
quarter, while acquisitions of U.S.
Treasury securities slowed appreciably. Outstanding business loans,
which had declined slightly in the second quarter, grew at an annual rate
of about 12 percent in July, and consumer loans expanded at an annual
rate of more than 20 percent, nearly
twice the pace recorded in the second
quarter. The pickup in lending to
businesses by banks in part reflected
reduced issuance of bonds by corporations in reaction to increases in
long-term market interest rates.
Growth in total reserves decelerated
to an annual rate of about 6 percent
in July, but nonborrowed reserves
(including extended credit at the discount window) changed little as adjustment plus seasonal borrowing
rose from about $680 million in June
to around $875 million in July. Such
borrowing increased further in the
first half of August to about $1
billion.
With a little greater restraint on
reserve availability relative to
demands, the federal funds rate and
other short-term interest rates rose
about 20 to 40 basis points on balance
over the intermeeting period. Atypically, long-term rates rose by more
than short-term rates, increasing
about 80 basis points. Market participants apparently reacted to indications of further strength in the
economy, to concern about possible
Digitizedincreases in inflationary pressure later
for FRASER
during the economic recovery, and to
the heavy borrowing by the U.S.
Treasury, particularly in connection
with the mid-August financing, as
well as to the slightly firmer degree of
restraint on bank reserve positions.
After reaching an intermeeting peak
in the second week of August, most
interest rates retraced the greater part
of their earlier increases, apparently
reflecting responses to slower-thanexpected growth in the money supply
and incoming data—including the
leveling off of retail sales in June and
July—that suggested a more moderate pace of economic expansion.
Most commercial banks raised the
prime rate charged on short-term
business loans by Vi percentage point
to 11 percent in the early part of
August. Average rates on new commitments for fixed-rate conventional
home mortgage loans at savings and
loan associations were up about 60
basis points over the period; the ceiling rate on FHA- and VA-underwritten mortgage loans, which had been
raised 1 percentage point as of
August 1, was reduced Vi percentage
point to 13 percent, effective on the
day of this meeting.
The staff projections presented at
this meeting indicated that the economic recovery would continue in the
latter part of 1983 and in 1984,
though at a more moderate pace than
in the second and third quarters of
this year. Consumer spending, while
continuing to grow, was expected to
become a less expansive factor. Gains
stemming from expenditures on housing and increased business inventories
were also expected to provide less
stimulus over the projection period.
On the other hand, the staff expected
business fixed investment to provide
some additional impetus to overall
economic growth. The staff continued to project a gradual decline in the
unemployment rate over the balance
of the year and a further decline in
1984. Upward pressures on prices and
wages were expected to remain
relatively moderate over the projection horizon, although the impact on
food prices of adverse weather conditions might be expected to raise
prices, overall, a little more than had
been previously projected.
During the Committee's discussion
of the economic situation and outlook, the members noted the tentative
indications of some slowing in the
pace of the recovery, but they agreed
that continuing economic expansion
was a likely prospect for the period
through 1984. Views differed to some
extent regarding the prospective
strength of the ongoing recovery,
although all the members expected
the rate of growth to moderate considerably from its recent pace. Several
agreed that growth at about the
moderate pace projected by the staff
was a reasonable expectation for the
next several quarters. But some believed that the expansion could be on
the faster side, whereas others
thought that slower growth was more
probable.
Factors that would tend to strengthen
the expansion included, it was noted,
the substantial momentum of the recovery and the favorable prospects
in such circumstances that a substantial pickup in business fixed investment might develop as businesses became more optimistic about the outlook. Orders for business equipment
had been running higher over the
course of recent months, and many
businesses were reporting expanding
sales and rising profits. On the other
hand, members who were less sanguine
about the long-run strength of the
recovery cautioned that housing and
other interest-sensitive sectors of the
Digitizedeconomy might weaken appreciably
for FRASER
FOMC Policy Actions 125
over coming months, given the current relatively high level of real interest rates. Reports of a slowdown in
new mortgage applications, increased
cancellations of existing sales contracts, and high vacancy rates in rental units were cited as indications that
the recovery in the housing sector
might wane. A few members also expressed the view that automobile sales
might slow somewhat more than generally expected as the pent-up demand for automobiles began to be
satisfied. Another member suggested
more generally that growth in consumer spending would probably be
more moderate than anticipated as
consumers attempted to save a
higher, and more normal, proportion
of their incomes than had been the
case in recent quarters.
Members continued to express concern about the prospects for large
federal deficits. Although a stimulative fiscal policy had contributed to
the rebound in economic activity,
continued large deficits as the recovery proceeded would tend to intensify
credit market pressures and divert
financial and real resources from
needed private investment in plant
and equipment and housing. The view
was expressed that actions to reduce
future deficits, if of sufficient magnitude, could work to ease pressures on
interest rates in a period of rising private credit demands. Actual interest
rates would of course be influenced
by a broad range of developments, including the degree of strength in
private credit demands, the outlook
for inflation, and the volume of
capital inflows from abroad.
A number of members commented
that strong competition in many
markets, including foreign competition, along with successful efforts by
many businesses to cut costs, was
having a restraining effect on prices
126 FOMC Policy Actions
and wages. Concern was expressed,
however, that upward pressures on
prices and wages could develop as
levels of capacity utilization and employment continued to rise. Members
also noted the possibility that the
domestic price level would be adversely affected by higher import
prices if the value of the dollar were
to decline substantially on foreign exchange markets and by rising food
prices that would result from the interaction of adverse weather conditions and governmental policies to
reduce farm supplies.
Turning to policy for the near term,
the Committee considered whether
any further adjustment in the degree
of restraint on bank reserve conditions would be desirable under current economic and financial circumstances, given the behavior of the
monetary and credit aggregates. The
members noted that growth in the
broader aggregates, on which the
Committee had been placing primary
emphasis, had slowed substantially.
Both M2 and M3 appeared to be expanding at rates that were somewhat
below their June-to-September target
paths and their recent levels were
within the longer-run ranges that the
Committee had established for the
year. A staff analysis suggested that
the slowdown in the growth of M2
and M3 might have resulted in part
from special factors, including an
unusually large buildup in July in the
average level of Treasury balances,
which probably led to reduced bank
reliance on managed liabilities to
finance credit expansion. An unwinding of these developments in the
weeks ahead could be associated with
some acceleration in the growth of M2
and M3 over the balance of the third
quarter. Growth in Ml had moderated somewhat further in July, but it
Digitizedremained above the short-run, Junefor FRASER
to-September path that the Committee had expected would be consistent
with its third-quarter objectives for
the broader aggregates and also above
its longer-run monitoring range. Incoming data suggested, however, that
Ml growth would probably continue
to decelerate in August.
At the conclusion of the discussion
the members agreed that no change
needed to be made at this time in the
degree of pressure on bank reserves.
Accordingly, a consensus was expressed in favor of maintaining about
the existing degree of reserve restraint
for the period immediately ahead.
The members anticipated that such a
policy course would be associated
with growth of both M2 and M3 at
annual rates of around 8 percent for
the period from June to September.
The members also agreed that the
need for greater or lesser restraint on
reserve conditions should be evaluated
against the background of available
evidence about trends in economic
activity and prices and conditions in
domestic and international financial
markets, including foreign exchange
markets. Depending upon such developments, lesser restraint would be acceptable in the event of a significant
shortfall in the growth of the aggregates over the period ahead, while
somewhat greater restraint would be
acceptable in the context of more
rapid growth in the aggregates. The
Committee continued to anticipate
that its third-quarter objectives for
the broader aggregates would be consistent with a deceleration in Ml
growth to an annual rate of around 7
percent from June to September, and
that expansion in total nonfinancial
debt would remain within the range
of 8 Vi to 11 Vi percent established for
the year. It was agreed that the intermeeting range for the federal funds
rate, which provides a mechanism for
FOMC Policy Actions 127
initiating consultation of the Committee, would remain at 6 to 10 percent.
The following domestic policy
directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests continued rapid growth in
real GNP in the current quarter. Industrial production increased sharply in July
following large gains in the second quarter. Nonfarm payroll employment also
rose substantially further in July and the
civilian unemployment rate declined Vi
percentage point to 9.5 percent. After rising sharply in the spring, retail sales have
leveled off recently. Housing starts edged
down over the past two months but permits continued to rise. Recent data on new
orders and shipments on average continued to indicate strength in the demand
for business equipment. In July, information on producer and consumer prices and
the index of average hourly earnings was
consistent with earlier indications of a
considerable moderation in the rate of
inflation.
Growth in the broader monetary aggregates slowed substantially in July, bringing M2 to a level near the midpoint of the
Committee's range for 1983 and M3 to a
level somewhat below the upper limit of
its range. Growth in Ml decelerated considerably from its May-June pace, but its
level remained above the Committee's
monitoring range for the year. Interest
rates rose appreciably through much of
the intermeeting period but recently
market rates have retraced most of their
rise.
In part reflecting the course of U.S. interest rates, the weighted average value of
the dollar against major foreign currencies
rose substantially further in July and early
August, but the rise was followed by a
subsequent decline that reversed most of
the earlier increase. The U.S. foreign
trade deficit was smaller in June than in
May, but the deficit in the second quarter
was much larger than in the first as imports rose while exports were essentially
unchanged.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation further, promote growth in output on
a sustainable basis, and contribute to a
sustainable pattern of international transactions. At its meeting in July the Committee reconsidered the growth ranges for
monetary and credit aggregates established earlier for 1983 in furtherance of
these objectives and set tentative ranges
for 1984. The Committee recognized that
the relationships between such ranges and
ultimate economic goals have become less
predictable; that the impact of new deposit accounts on growth of the monetary
aggregates cannot be determined with a
high degree of confidence; and that the
availability of interest on large portions of
transaction accounts may be reflected in
some changes in the historical trends in
velocity.
Against this background, the Committee at its July meeting reaffirmed the
following growth ranges for the broader
aggregates: for the period from FebruaryMarch of 1983 to the fourth quarter of
1983, 7 to 10 percent at an annual rate for
M2; and for the period from the fourth
quarter of 1982 to the fourth quarter of
1983, 6Vi to 9Vi percent for M3. The
Committee also agreed on tentative
growth ranges for the period from the
fourth quarter of 1983 to the fourth
quarter of 1984 of 61/z to 9Vi percent for
M2 and 6 to 9 percent for M3. The Committee considered that growth in Ml in a
range of 5 to 9 percent from the second
quarter of 1983 to the fourth quarter of
1983, and in a range of 4 to 8 percent from
the fourth quarter of 1983 to the fourth
quarter of 1984 would be consistent with
the ranges for the broader aggregates. The
associated range for total domestic l nonfinancial debt was reaffirmed at S A to
WVi percent for 1983 and tentatively set
at 8 to 11 percent for 1984.
In implementing monetary policy, the
Committee agreed that substantial weight
would continue to be placed on the behavior of the broader monetary aggregates. The behavior of Ml and total
domestic nonfinancial debt will be monitored, with the degree of weight placed on
Ml over time dependent on evidence that
velocity characteristics are resuming more
predictable patterns. The Committee
understood that policy implementation
would involve continuing appraisal of the
relationships between the various measures of money and credit and nominal
GNP, including evaluation of conditions
in domestic credit and foreign exchange
markets.
128 FOMC Policy Actions
The Committee seeks in the short run to
maintain the existing degree of reserve
restraint. The action is expected to be
associated with growth of M2 and M3 at
annual rates of around 8 percent from
June to September, consistent with the
targets established for these aggregates for
the year. Depending on evidence about
the strength of economic recovery and
other factors bearing on the business and
inflation outlook, lesser restraint would
be acceptable in the context of a significant shortfall in growth of the aggregates
from current expectations, while somewhat greater restraint would be acceptable
should the aggregates expand more rapidly. The Committee anticipates that a
deceleration in Ml growth to an annual
rate of around 7 percent from June to
September will be consistent with its thirdquarter objectives for the broader aggregates, and that expansion in total
domestic nonfinancial debt would remain
within the range established for the year.
The Chairman may call for Committee
consultation if it appears to the Manager
for Domestic Operations that pursuit of
the monetary objectives and related
reserve paths during the period before the
next meeting is likely to be associated with
a federal funds rate persistently outside a
range of 6 to 10 percent.
Votes for this action: Messrs. Volcker,
Solomon, Gramley, Guffey, Keehn,
Martin, Morris, Partee, Rice, Roberts,
Mrs. Teeters, and Mr. Wallich. Votes
against this action: None.
2. Authorization for Foreign
Currency Operations
In August 1982 the Committee had
authorized the temporary establishment of a special swap arrangement
of $325 million with the Bank of
Mexico, in addition to the regular
swap arrangement of $700 million,
effective for the period from August
28, 1982, through August 23, 1983.
At this meeting the Committee was
apprised that the Bank of Mexico was
making the final repayment of dollars
drawn under the special swap facility
and that
the facility would expire
today as scheduled. It was also noted
that drawings made on the $700 million regular swap arrangement had
been repaid earlier and that as of this
date there would be no outstanding
drawings on the Federal Reserve
System by the Bank of Mexico.
Meeting Held on
October 4, 1983
Domestic Policy Directive
The information reviewed at this
meeting suggested that real GNP had
continued to grow rapidly in the third
quarter, although the pace of expansion had moderated from the exceptionally strong annual rate of about
9VA percent in the second quarter. A
major factor in the third-quarter expansion was a sharp swing in business
inventories from liquidation to
accumulation.
The index of industrial production
rose 0.9 percent in August, following
sizable advances in previous months.
As in other recent months, gains were
widespread across industry groupings
and were particularly strong for consumer durable goods. By August the
index had risen about IIV2 percent
from its trough in November 1982 to
a level 2V4 percent below the previous
peak in July 1981.
Nonfarm payroll employment, adjusted for strike activity, rose about
300,000 in August, continuing the
strong upward trend that had been
evident since March. With growth in
the civilian labor force roughly
matching the rise in employment, the
unemployment rate, which had declined 0.5 percentage point to 9.5
percent in July, was unchanged in
August.
After rising sharply in the spring,
consumer spending had moderated
substantially in recent months. The
nominal value of retail sales edged
down in July and fell appreciably further in August as sales of durable
goods, particularly in the automotive
sector, declined. Sales of new domestic automobiles fell in August to an
annual rate just above 6K2 million
units, compared with an average rate
of 7 VA million units in the preceding
two months. The slowdown in auto
sales, which continued into early September, apparently reflected the elimination of interest subsidies and other
incentives to buyers as well as the
limited availability of some popular
models. Auto sales picked up in midSeptember with the introduction of
1984 models and the associated increase in dealer inventories. Although
the growth in consumer spending had
moderated recently, consumer financial positions appeared to be quite
strong and surveys indicated a continuing high level of consumer confidence.
Total private housing starts rose to
an annual rate of more than 1.9 million units in August, nearly 10 percent
above the average rate over the previous three months. However, other
indicators suggested some weakening
in housing activity: newly issued permits for residential construction
declined in August, and sales of both
new and existing homes fell for the
second month in a row.
Data on new orders and shipments
generally continued to indicate
strength in the demand for business
equipment. Investment in nonresidential structures had stabilized in recent
months, after declines earlier in the
year. The Department of Commerce
survey of business spending plans
conducted in late July and August
suggested that plant and equipment
expenditures in 1983 as a whole
would be about 3 percent lower, in
Digitized nominal terms, than in 1982. Given
for FRASER
FOMC Policy Actions
129
the reduced level of spending reported for the first half of 1983, the
survey results implied a substantial
increase in investment outlays in the
second half of the year.
The producer price index for finished goods and the consumer price
index both rose 0.4 percent in August,
somewhat more than the average increase in the previous few months.
The summer drought appeared to
have had little immediate impact on
prices of foods at the wholesale and
consumer levels, but at the farm level
the producer price index for crude
foods jumped nearly 4 percent in
August after three months of decline.
Over the first eight months of the
year, the producer price index had
shown virtually no change, while the
consumer price index had increased at
an annual rate a little over 3 percent.
Along with the moderation in price
pressures, nominal wage increases
had generally been quite modest, with
the index of average hourly earnings
of production workers rising only
about 3 percent at an annual rate
since the beginning of the year.
The debt of domestic nonfinancial
sectors expanded somewhat less
rapidly in August and apparently in
September than in July, as growth
in funds raised by private sectors
slowed. Governmental credit demands
remained unusually strong, with U.S.
government borrowings accounting
for roughly half of the total funds
raised in credit markets by domestic
nonfinancial borrowers. Credit at
U.S. commercial banks expanded at
an annual rate of about 11 VA percent
in August, somewhat above the average pace of other recent months, but
data for early September suggested a
slowing in the growth of bank credit,
in part reflecting reduced demand for
business loans. Issuance of commercial paper by nonfinancial businesses
130 FOMC Policy Actions
was maintained in September at
about the relatively rapid pace recorded in August, while bond offerings remained at a reduced pace.
The foreign exchange value of the
dollar, as measured by its tradeweighted average against major foreign currencies, had fluctuated within
a relatively narrow range since midAugust. Fluctuations in the exchange
rate over the period generally paralleled changes in the spread between
U.S. interest rates and foreign rates.
The U.S. foreign trade deficit rose
substantially in July-August from the
rate in the second quarter, as imports
increased further in association with
the pickup in U.S. economic activity.
At its meeting on August 23, 1983,
the Committee had decided that open
market operations in the period until
this meeting should be directed at
maintaining about the existing degree
of reserve restraint. That action was
expected to be associated with growth
of M2 and M3 at annual rates of
around 8 percent from June to September, consistent with the targets
established for those aggregates for
the year. The Committee had also
agreed that, depending on evidence
about the strength of the economic
recovery and other factors bearing on
the business and inflation outlook,
lesser retraint would be acceptable in
the context of a significant shortfall
in growth of the aggregates from current expectations, while somewhat
greater restraint would be acceptable
should the aggregates expand more
rapidly than expected. The Committee had anticipated that a reduction in
growth of Ml to an annual rate of
around 7 percent from June to September would be consistent with its
third-quarter objectives for the
broader aggregates and that expansion in total domestic nonfinancial
Digitized debt would remain within its range
for FRASER
for the year. The intermeeting range
for the federal funds rate was retained at 6 to 10 percent.
In the latter part of the summer,
growth in M2 remained at, or below,
its reduced pace in July, and over the
June-to-September period its growth
was estimated to have been well
below the annual rate of around 8
percent expected by the Committee.
Growth in M3 strengthened somewhat in late summer and in the third
quarter that aggregate expanded at a
pace close to the expected rate. Meanwhile, expansion in Ml fell to an annual rate a little below 3 percent in
August, and growth remained relatively low in September. By September all three monetary aggregates appeared to be within the longer-run
ranges specified by the Committee,
with M2 in the lower portion of its
range, M3 in the upper portion of its
range, and Ml somewhat above the
midpoint of its monitoring range.
Growth in total domestic nonfinancial debt also appeared to be well
within its range for the year.
Consistent with the policy directive
adopted at the August FOMC meeting, a slightly lesser degree of reserve
restraint than that prevailing at the
time of the meeting was sought as the
intermeeting period progressed, in
light of slower than anticipated
money growth in the context of evidence of a moderation in the rate of
economic expansion and continued
restraint on inflationary pressures.
Nonborrowed reserves of depository
institutions, after declining in July
and August, rose somewhat in September as institutions employed the
increased availability of reserves in
part to repay borrowings from the
Federal Reserve. Adjustment plus seasonal borrowing, which had averaged
somewhat over $1 billion in August,
fell off in September. However, the
average level for September was inflated in part by complications in reserve management related to the redistribution of reserves around the
banking system in connection with a
huge buildup in U.S. Treasury cash
balances at depository institutions
and also at Federal Reserve Banks
following the mid-September tax date.
Borrowings (excluding extended credit) surged to nearly $1.6 billion during
the statement week ending September
21, but were in a range of about $650
million to $750 million during other
weeks in September.
Interest rates in general fluctuated
around a modest downward trend
over the intermeeting interval, as the
market responded to incoming data
on the economy and the monetary aggregates, to some weakening in credit
demands, and to varying expectations
about implications for the stance of
monetary policy. Short-term interest
rates in general declined about !4 to
Vi percentage point on balance over
the intermeeting interval. The federal
funds rate averaged close to 9Vi percent through most of the intermeeting
period, down slightly from its average
in the first half of August. The rate
dropped to about 9 percent in the last
full statement week of September, apparently in part because of reserve
distribution effects stemming from
the large buildup in Treasury deposits. However, the funds rate rose substantially in the days just before this
meeting, reflecting usual pressures
around the end-of-quarter statement
date. Most long-term rates fell about
10 to 20 basis points over the period,
and the average rate on new commitments for fixed-rate conventional
mortgage loans at savings and loan
associations declined about lA percentage point.
The staff projections presented at
Digitizedthis meeting indicated that growth of
for FRASER
FOMC Policy Actions 131
real GNP would proceed at a less
rapid pace in the fourth quarter and
in 1984, partly reflecting lessened
stimulus from inventory rebuilding
and from expenditures on residential
structures. Growth in consumer
spending was projected to recover
somewhat over the balance of the
year from a reduced rate in the third
quarter but to moderate again during
1984. A decline in the unemployment
rate was anticipated over the projection period, and upward pressures on
prices were expected to remain moderate.
In the Committee's discussion of
the economic situation, the members
were generally optimistic about the
prospects for continued recovery in
economic activity and containment of
inflationary pressures. They agreed
that the staff projection of moderate
economic growth seemed to be the
most likely outcome for the year
ahead, and in this connection some
members commented that a more
moderate rate of economic growth
than that experienced recently would
be more consistent over time with sustaining the expansion and containing
inflation. The view was expressed,
however, that the rate of inflation
could turn out to be somewhat higher
than projected and the rate of expansion somewhat slower. Several members also emphasized that financial
markets and the economy could be
adversely affected by unpredictable
developments, including possible disturbances originating abroad such as
a major interruption in oil shipments
due to hostilities in the Middle East or
a debt-servicing crisis that led to a disruption of international credit flows.
Concern was also expressed about the
continued lag in demand in traditional heavy capital equipment industries and also about the restraint that
would be exerted over time on capital
132 FOMC Policy Actions
investment and housing by the current high level of long-term interest
rates.
In the latter context, the members
again expressed a great deal of concern about the prospects for massive
federal deficits. It was observed that
the Treasury's large borrowing needs
were already exerting upward pressure on interest rates, and that greater
pressure could be expected if relatively large Treasury credit demands
continued and were augmented by
growing business demands for a substantial amount of external funds to
finance their investments. To date, a
relatively good rebound in corporate
cash flow had combined with moderate investment demands to limit the
net external financing needs of the
business sector. Moreover, large net
inflows of capital from abroad had
been helping to finance the federal
deficit, and the sustainability of such
inflows was open to question, with
possible implications for the exchange value of the dollar and for
domestic interest rates.
The members commented at some
length on the related rise in the foreign trade and current account deficits to historic and disturbing levels.
A substantial decline in the foreign
exchange value of the dollar, which
many forecasters anticipated, would
help to reduce the deficit over time,
but it would probably also foster some
inflationary pressures in the domestic
economy. On balance, though, foreign trade developments were viewed
as having a disproportionately adverse
impact on some domestic industries
and, more generally, appeared to be
retarding the economic recovery.
Members referred to the substantial progress that had been made in
curbing the rise of prices and wages
and to the concessions that were still
Digitizedbeing made in some wage settlements.
for FRASER
However, it was noted that a number
of recent settlements, primarily in industries not subject to strong competitive or financial pressures, had
called for wage increases substantially
higher than the rate of inflation.
There also appeared to be a "catch
up" demand for higher wages from
workers in previously troubled firms.
Concern was expressed that, with
continuing expansion in economic activity, an increasing number of firms
would become less willing to resist
inflationary wage demands and that
progress in containing wage costs
might be halted or reversed.
In the Committee's discussion of
monetary policy for the weeks ahead,
a consensus was expressed in favor of
making no further adjustment in the
degree of reserve restraint at this time
beyond the slight easing that had been
sought in recent weeks on the basis of
the directive issued at the August
meeting. A staff analysis suggested
that such reserve restraint was likely
to be associated with some increase in
monetary growth from the reduced
third-quarter pace, reflecting in part
an abatement of the restraining effects of the rise in interest rates in late
spring and summer. Growth of all the
monetary aggregates was likely to remain within the Committee's longerrun ranges, however, given a projection of moderate expansion in
nominal GNP in the fourth quarter.
According to the staff analysis, the
removal of most remaining controls
on time deposits by the Depository
Institutions Deregulation Committee,
effective October 1, would under prevailing circumstances probably have
only a minor, and possibly undetectable, near-term effect on the monetary aggregates—in the direction of
restraining growth of Ml and increasing that of the broader aggregates.
The Committee members recognized that the behavior of the monetary aggregates remained subject to a
great deal of uncertainty, and they
focused on the issue of how promptly
and to what extent open market operations should respond to any deviations in monetary expansion from expected growth rates. The members
agreed on the desirability of continuing to take account of emerging economic and financial developments,
including the international financial
situation, in policy implementation.
In this connection, some members
felt that the Committee should be
prepared to respond a little more
promptly and aggressively in an easing direction than in a tightening
direction, should developments seem
to warrant a change in the degree of
reserve restraint. These members
underscored the sensitivity of key sectors of the economy to interest rate
developments and the impact of U.S.
interest rates on the strained international debt situation. On the other
hand, others called attention to the
need for caution in light of the inflationary risks of being too accommodative in the provision of reserves,
with even more adverse consequences
over time both domestically and internationally.
At the conclusion of the discussion
the members agreed that no change
should be made at this time in the
degree of pressure on reserve positions and that operations should be
directed toward maintaining the
slightly reduced reserve restraint that
had been sought in recent weeks. The
members anticipated that such a
policy course would be associated
with growth of both M2 and M3 at an
annual rate of around 8 Vi percent for
the period from September to December; this growth rate allowed for a
Digitizedminor impact from the October 1
for FRASER
FOMC Policy Actions 133
deregulation of time deposits on the
growth of the broader aggregates in
the fourth quarter. The members also
agreed that the need for greater or
lesser restraint on reserve conditions
should be evaluated against the background of developments relating to
the strength of the economic recovery, the outlook for inflation, and
conditions in domestic and international financial markets. Depending
upon such developments, lesser restraint would be acceptable in the
event of a significant shortfall in the
growth of the aggregates over the
weeks ahead, while somewhat greater
restraint would be acceptable in the
context of more rapid growth in the
aggregates. The Committee anticipated that its fourth-quarter objectives for the broader aggregates
would be consistent with Ml growth
at an annual rate of around 7 percent
from September to December, and
that expansion in total domestic nonfinancial debt would remain within
the range of 8V2 to WVi percent established for the year. It was agreed
that the intermeeting range for the
federal funds rate, which provides a
mechanism for initiating consultation
of the Committee, would remain at 6
to 10 percent.
At the conclusion of the discussion,
the Committee issued the following
domestic policy directive to the Federal Reserve Bank of New York:
The information reviewed at this meeting suggests that real GNP continued to
grow rapidly in the third quarter, although the rate of expansion moderated
from that in the second quarter. Industrial
production and employment increased appreciably further in August, following
large gains in previous months, and the
civilian unemployment rate remained at
9.5 percent. After rising sharply in the
spring, growth in consumer spending has
moderated substantially. Housing starts
134 FOMC Policy Actions
rose in August but permits turned down.
Data on new orders and shipments generally continued to indicate strength in the
demand for business equipment. Producer
and consumer prices increased somewhat
more in August than in other recent
months, but over the first eight months of
the year average prices and the index of
average hourly earnings have risen more
slowly than in 1982.
After slowing substantially in July,
growth in M2 remained at a reduced pace
over the August-September period, while
expansion in M3 picked up. Through September M2 is estimated to be at a level in
the lower portion of the Committee's
range for 1983 and M3 in the upper portion of its range. Growth in Ml decelerated considerably further in August-September and moved within the Committee's
monitoring range for the second half of
the year. Interest rates have declined
somewhat since mid-August.
The foreign exchange value of the
dollar, as measured by its weighted average value against major foreign currencies, has fluctuated within a relatively narrow range since mid-August. The U.S.
foreign trade deficit rose substantially in
July-August from the second-quarter
rate, reflecting a further increase in imports of a broad range of goods.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation further, promote growth in output on
a sustainable basis, and contribute to a
sustainable pattern of international transactions. At its meeting in July the Committee reconsidered the growth ranges for
monetary and credit aggregates established earlier for 1983 in furtherance of
these objectives and set tentative ranges
for 1984. The Committee recognized that
the relationships between such ranges and
ultimate economic goals have become less
predictable; that the impact of new deposit accounts on growth of the monetary
aggregates cannot be determined with a
high degree of confidence; and that the
availability of interest on large portions of
transaction accounts may be reflected in
some changes in the historical trends in
velocity.
Against this background, the Committee at its July meeting reaffirmed the following growth ranges for the broader aggregates: for the period from FebruaryMarch of 1983 to the fourth quarter of
1983, 7 to 10 percent at an annual rate for
M2; and for the period from the fourth
quarter of 1982 to the fourth quarter of
1983,6Vi io9Vi percent for M3. The Committee also agreed on tentative growth
ranges for the period from the fourth
quarter of 1983 to the fourth quarter of
1984 of 6Vi to 9Vi percent for M2 and 6 to
9 percent for M3. The Committee considered that growth in Ml in a range of 5 to 9
percent from the second quarter of 1983
to the fourth quarter of 1983, and in a
range of 4 to 8 percent from the fourth
quarter of 1983 to the fourth quarter of
1984, would be consistent with the ranges
for the broader aggregates. The associated
range for total domestic nonfinancial debt
was reaffirmed at 8 Vi to 11 Vi percent for
1983 and tentatively set at 8 to 11 percent
for 1984.
In implementing monetary policy, the
Committee agreed that substantial weight
would continue to be placed on the behavior of the broader monetary aggregates. The behavior of Ml and total
domestic nonfinancial debt will be monitored, with the degree of weight placed on
Ml over time dependent on evidence that
velocity characteristics are resuming more
predictable patterns. The Committee
understood that policy implementation
would involve continuing appraisal of the
relationships between the various measures of money and credit and nominal
GNP, including evaluation of conditions
in domestic credit and foreign exchange
markets.
The Committee seeks in the short run to
maintain the slightly lesser degree of reserve restraint sought in recent weeks. The
action is expected to be associated with
growth of M2 and M3 at annual rates of
around 8/2 percent from September to
December, consistent with the targets established for these aggregates for the year.
Depending on evidence about the strength
of economic recovery and other factors
bearing on the business and inflation
outlook, lesser restraint would be acceptable in the context of a significant shortfall in growth of the aggregates from current expectations, while somewhat greater
restraint would be acceptable should the
aggregates expand more rapidly. The
Committee anticipates that Ml growth at
an annual rate of around 7 percent from
September to December will be consistent
with its fourth-quarter objectives for the
broader aggregates, and that expansion in
FOMC Policy Actions 135
total domestic nonfinancial debt would
remain within the range established for
the year. The Chairman may call for
Committee consultation if it appears to
the Manager for Domestic Operations that
pursuit of the monetary objectives and
related reserve paths during the period before the next meeting is likely to be associated with a federal funds rate persistently outside a range of 6 to 10 percent.
Votes for this action: Messrs. Volcker,
Solomon, Gramley, Guffey, Keehn,
Martin, Morris, Partee, Rice, Roberts,
Mrs. Teeters, and Mr. Wallich. Votes
against this action: None.
Meeting Held on
November 14-15, 1983
1. Domestic Policy Directive
The information reviewed at this
meeting suggested that real GNP was
growing at a relatively rapid rate in
the current quarter, although the pace
of expansion appeared to have moderated from the annual rates of about
9VA percent and nearly 8 percent reported by the Commerce Department
for the second and third quarters
respectively. Renewed strength in personal consumption expenditures and
a substantial further increase in inventory accumulation were expected
to contribute to the continued expansion in economic activity. Meanwhile,
price and wage increases generally
have remained moderate, although
there has been some pickup in recent
months in average wage costs and in
nonfood consumer prices.
The index of industrial production,
which had risen 1.3 percent in both
August and September, increased 0.8
percent further in October. Output of
business equipment rose sharply,
while production of consumer durable goods and construction supplies
edged up slightly further, following
very large increases in the second and
Digitizedthird quarters. By October the index
for FRASER
had risen about 14H percent from its
trough in November 1982 to a level
slightly above the previous peak in
July 1981.
Nonfarm payroll employment, adjusted for strike activity, rose about
330,000 in October, about the same
as the average monthly increase in the
preceding five months. Employment
gains were particularly marked in
manufacturing and service industries,
and employment in retail trade and
construction also continued to
strengthen. The civilian unemployment rate fell 0.5 percentage point to
8.8 percent, two percentage points
below its peak in December 1982.
The nominal value of retail sales,
after changing little on balance during the summer months, rose about
WA percent in both September and
October. Outlays at apparel stores
and furniture and appliance outlets
rose substantially in October, and
sales at automotive outlets increased
markedly in both months. Sales of
new domestic automobiles picked up
to an average annual rate of 7 million
units in the two months, and sales of
imported cars surged in October, apparently in response to the increased
availability of popular Japanese models. Consumers remained optimistic
about the near-term outlook, according to recent surveys of consumer
confidence. Moreover, recent data indicated marked gains in consumers'
real disposable incomes, reflecting
substantial increases in nominal personal income augmented by the midyear tax cut and a continued moderate rate of increase in the average
level of prices.
Following a surge in August, private housing starts fell to an annual
rate of 1.65 million units in September, close to their average in the second quarter. Newly issued permits for
residential construction also fell in
136 FOMC Policy Actions
September, marking the second consecutive monthly decline. Sales of existing homes remained at about the
reduced July-August pace, while
sales of new homes rose after three
months of decline.
Business spending for capital goods
has remained strong. Outlays for producers' durable equipment, which
had increased at an annual rate of
about 20 percent in real terms in the
second quarter, rose at a rate of nearly 16 percent in the third quarter. Recent data on new orders and shipments indicated further strength in
the demand for business equipment.
Investment in nonresidential structures rose at an annual rate of about
12 percent in the third quarter, after
declines earlier in the year.
The producer price index for finished goods rose 0.3 percent in October, about the same as in other recent
months. Most of the October increase
was attributable to higher prices for
consumer foods; prices of energyrelated items and of finished consumer goods other than foods were little
changed. Thus far in 1983 the index
had increased at an annual rate of less
than 1 percent. The consumer price
index rose 0.5 percent in September,
following advances of 0.4 percent in
the preceding two months. Consumer
prices had changed little early in the
year and over the first nine months of
1983 had increased at an annual rate
of about VA percent. The index of
average hourly earnings rose somewhat more in September and October
than in previous months, but the index has risen more slowly this year
than in 1982.
In foreign exchange markets the
trade-weighted value of the dollar
against major foreign currencies had
risen a little more than 1 percent since
early October. The eruption of politiDigitizedcal FRASER
for and military conflicts in a number
of locations around the world was a
factor in the dollar's strength, as
some investors viewed the dollar as a
44
safe haven" during the period of
heightened international tensions.
The rise was also associated in part
with some widening of the differential between U.S. and key foreign interest rates. The U.S. foreign trade
deficit increased considerably in the
third quarter as imports, especially of
petroleum, rose faster than exports.
At its meeting on October 4, 1983,
the Committee had decided that in
the short run, open market operations should be directed toward maintaining the slightly reduced reserve
restraint that had been sought in the
weeks just prior to that meeting. This
policy was expected to be associated
with growth of both M2 and M3 at an
annual rate of around %Vi percent for
the period from September to December. The members had agreed that the
need for greater or lesser restraint on
reserve conditions should be evaluated against the background of developments relating to the strength of
the economic recovery, the outlook
for inflation, and conditions in domestic and international financial markets. Depending on such developments, lesser restraint would be acceptable in the event of a significant
shortfall in the growth of the aggregates, while somewhat greater restraint
would be acceptable in the context of
more rapid growth in the aggregates.
The Committee anticipated that Ml
growth at an annual rate of around 7
percent from September to December
would be consistent with its fourthquarter objectives for the broader aggregates, and that expansion in total
nonfinancial debt would remain within the range of 8 Vi to 11 Vi percent established for the year. The intermeeting range for the federal funds rate
was retained at 6 to 10 percent.
In October, both M2 and M3 grew
at annual rates close to the SVi percent pace sought by the Committee
for the September-to-December period: growth in M2, after slowing substantially over the summer months,
accelerated to an estimated annual
rate of about 9 percent, while growth
in M3 was at an estimated annual rate
of about 8V4 percent. On the other
hand, expansion in Ml, at an annual
rate of about 1 Vi percent, remained
low. Through October, M2 was at a
level in the lower portion of the Committee's range for 1983 and M3 was in
the upper portion of its range. Ml
was in the lower portion of the Committee's monitoring range for the second half of the year.
Growth in the debt of domestic
nonfinancial sectors was estimated to
have slowed somewhat in October,
but it remained well within the Committee's monitoring range for the
year. Growth in funds raised by private sectors apparently moderated,
while funds raised by the federal government continued relatively large.
Expansion in credit at U.S. commercial banks increased at an estimated
annual rate of about 10 percent in October, considerably faster than in September and close to the average pace
for the year to date. The acceleration
in October reflected primarily a substantial increase in banks' acquisitions
of U.S. Treasury securities but also
strong growth in consumer loans. Borrowing by businesses remained moderate, as funds generated internally
covered the bulk of financing needs;
such borrowing continued to be concentrated in the short-term area.
Total reserves contracted somewhat in October, but growth of nonborrowed reserves (including extended credit at the discount window)
picked up. Adjustment plus seasonal
Digitized borrowing averaged $630 million durfor FRASER
FOMC Policy Actions 137
ing the five statement weeks ending
November 9, somewhat below the
level that had prevailed during most
weeks in the previous intermeeting interval.
Interest rates generally fluctuated
in a narrow range over the intermeeting period. Federal funds traded mainly around 93/s percent, down from
earlier weeks. Other short-term rates
were up marginally on balance over
the intermeeting period. Most longterm rates rose somewhat, apparently
in response to indications of continued strength in economic activity and
to uncertainties about the prospective
pattern of Treasury financing as passage of legislation to raise the debt
ceiling was delayed. In contrast, average rates on new commitments for
fixed-rate conventional home mortgage loans declined about 20 basis
points and the ceiling rate on regular
FHA/VA mortgage loans was reduced Vi percentage point to \2Vi
percent.
The staff projections presented at
this meeting indicated that growth in
real GNP would slow from the rapid
rate of recent quarters to a more
moderate pace during 1984. A key
element in the expected slowdown
was a projection of lessened stimulus
from inventory rebuilding and housing activity; growth in consumer
spending was also projected to slow
somewhat. On the other hand, business fixed investment was expected to
accelerate and the foreign sector was
expected to be less of a damping factor over the course of 1984 than over
1983. A decline in the unemployment
rate was anticipated over the projection period, and upward pressures on
prices were expected to remain generally moderate.
In the Committee's discussion of
the economic situation and outlook,
members commented that the eco-
138 FOMC Policy Actions
nomic expansion had remained stronger than generally anticipated. Reports
from around the country suggested
increasingly widespread optimism
about business conditions and a high
degree of consumer confidence. While
all the members expected the rate of
economic growth to moderate over
the year ahead, there were some differences of view with regard to the
timing and likely extent of the slowdown. Some members anticipated
that the slowdown might be appreciably less than projected by the
staff, with unfavorable implications
for inflationary pressures and the ultimate sustainability of the expansion.
In support of this view, reference was
made to the favorable conditions for
a surge in business fixed investment
created by the momentum of the expansion. In addition, it was pointed
out that a highly stimulative fiscal
policy remained in prospect for 1984.
Thus, while the expansionary impact
of housing and inventory accumulation could be expected to wane during
the second year of the recovery, vigorous growth in fixed investment expenditures in conjunction with the
prospective federal deficit might well
sustain relatively rapid expansion in
overall economic activity during the
year ahead. It was also suggested
that, at least for the near term, consumer spending and inventory accumulation might provide more stimulus to the economy than was generally
anticipated.
Other members placed more emphasis on some elements of potential
weakness in the economic outlook. It
was pointed out that there was as yet
no firm evidence that business fixed
investment would prove to be exceptionally strong during 1984. Indeed,
such investment might continue to be
held down by the persistence of weak
Digitizeddemand for the output of some tradifor FRASER
tional producers of capital equipment, and, more generally, by relatively high interest rates in the context
of massive Treasury debt financings.
International developments might
also continue to exert a retarding impact on the domestic economy, especially if the dollar failed to depreciate
as many observers expected and if the
economies of foreign countries remained relatively sluggish, thereby
limiting export markets for U.S.
products while encouraging foreign
firms to compete aggressively in U.S.
markets. Reference was also made to
the possibility that problems related
to the international debt situation
could have adverse consequences for
U.S. financial markets and economic
activity.
With regard to the prospects for
prices, several members questioned
whether further progress could be
made in containing inflationary pressures if the rate of economic expansion did not slow to a more moderate
pace over the year ahead. One member observed that by late 1984, capacity utilization rates could reach levels
that would tend to generate inflationary cost pressures even if unemployment were still high relative to earlier
expansion periods. On the other
hand, some members felt that there
was little current evidence that price
and wage pressures or inflationary expectations were worsening. One member also noted that the economy was
still operating well below capacity
and that further significant improvements in productivity, along with
competitive pressures from world
markets, were likely to restrain inflation during 1984.
In the Committee's discussion of
policy for the period immediately
ahead, all of the members found acceptable a policy directed toward
maintaining the existing degree of
reserve restraint. In the view of some,
however, an argument could be made
in favor of a small, precautionary
step in the direction of firming in
light of the continuing strength of the
economic expansion and the associated danger of a resurgence of inflationary pressures during the year
ahead. While acknowledging the risks
of inflation in a rapidly expanding
economy combined with large budget
deficits and the relatively rapid
monetary growth earlier in the year,
most members saw sufficient uncertainties in the outlook to counsel
against any change in reserve pressures at this time. Some members
were also concerned that under the
prevailing circumstances even a
modest increase in restraint on reserves might have a disproportionate
impact on domestic and international
financial markets. The result could be
an increase in domestic interest rates
large enough to have damaging consequences for housing and other interestsensitive sectors of the economy and
to intensify greatly the pressures on
countries with severe external debt
problems.
According to a staff analysis, a
policy of maintaining the present degree of restraint on reserve conditions
was likely to be associated with growth
in M2 and M3 at rates that were consistent with the objectives that the
Committee had set previously for the
fourth quarter and for the year as a
whole. Such a policy might also result
in an acceleration in the growth of
Ml over the last two months of the
year, primarily in response to increasing needs for transaction balances in
a rapidly expanding economy. Given
the limited growth of Ml in October,
however, its expansion for the entire
fourth quarter was likely to be below
the growth rate of around 7 percent
Digitizedanticipated earlier. The staff also infor FRASER
FOMC Policy Actions 139
dicated that the demand for transaction balances remained subject to a
great deal of uncertainty, and that
transaction needs related to strengthened business activity could continue
to be met for a time, at least in part,
out of balances that had been built up
earlier, including NOW accounts.
One member indicated a preference
for giving increased weight to Ml in
the formulation of monetary policy
and commented that its slow growth,
should it persist, could threaten the
sustainability of the economic expansion. Other members commented that
the deceleration of Ml growth in recent months had to be evaluated
against the background of unusually
rapid expansion in the latter part of
1982 and the first half of 1983. It was
also pointed out that the broader
monetary aggregates emphasized by
the Committee had been growing in
line with the Committee's objectives.
All the members indicated that they
could support a directive that called
for maintaining the current degree of
restraint on reserve positions over
the near term, but they also agreed
that the directive should continue to
allow for some leeway to adjust the
degree of reserve pressure during the
intermeeting period. In this connection, a number of members were in
favor of being particularly sensitive
to evidence of continued unexpected
strength in the economy and the related potential for greater price and
wage pressures, should growth in the
monetary aggregates appear to be exceeding expectations.
At the conclusion of the discussion
the Committee decided that no change
should be made at this time in the
degree of restraint on reserve positions. The members anticipated that
such a policy would continue to be
associated with growth of both M2
and M3 at an annual rate of around
140 FOMC Policy Actions
SVi percent for the period from September to December. The members
also agreed that the need for greater
or lesser restraint on reserve conditions should be evaluated against the
background of developments relating
to the strength of the economic recovery, the outlook for inflation, and
conditions in domestic and international financial markets. Depending
upon such developments over the
weeks ahead, greater restraint would
be acceptable in the event of more
rapid growth in the broader monetary
aggregates, while lesser restraint
would be acceptable in the context of
a significant shortfall in such growth.
The Committee anticipated that,
given the relatively slow growth of
Ml in October, its expansion at an
annual rate of around 5 to 6 percent
from September to December would
be consistent with the fourth-quarter
objectives for the broader aggregates,
and that expansion in total domestic
nonfinancial debt would remain within the range of SlA to 1114 percent
established for the year. It was agreed
that the intermeeting range for the
federal funds rate, which provides a
mechanism for initiating consultation
of the Committee, would remain at 6
to 10 percent.
At the conclusion of the discussion,
the Committee issued the following
domestic policy directive to the
Federal Reserve Bank of New York:
The information reviewed at this meeting suggests that real GNP is growing at a
relatively rapid pace in the current quarter, although the rate of expansion appears to have moderated since the spring
and summer. In October, industrial production increased appreciably, following
large gains in previous months. Nonfarm
payroll employment rose substantially
further, and the civilian unemployment
rate declined Vi percentage point to 8.8
percent. After changing little on balance
during the summer months, retail sales
strengthened in September and October.
Housing starts and permits declined in
September while home sales rose somewhat. Recent data on new orders and shipments indicate further strength in the demand for business equipment. Producer
and consumer prices have continued to increase at about the same pace as in other
recent months. The index of average hourly earnings rose somewhat more in September and October than in previous
months, but over the first ten months of
the year the index has risen more slowly
than in 1982.
The foreign exchange value of the dollar has risen since early October against a
trade-weighted average of major foreign
currencies. The U.S. foreign trade deficit
increased considerably in the third quarter, with imports, especially of petroleum,
rising faster than exports.
After slowing substantially over the
summer months, growth in M2 accelerated in October, while M3 continued to
expand at a moderate rate. Through October, M2 was at a level in the lower portion of the Committee's range for 1983
and M3 in the upper portion of its range.
Ml continued to grow at a sluggish pace
in October and was in the lower portion of
the Committee's monitoring range for the
second half of the year. Longer-term
market rates have risen somewhat on
balance since early October, and shortterm rates generally have fluctuated in a
narrow range.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation further, promote growth in output on
a sustainable basis, and contribute to a
sustainable pattern of international transactions. At its meeting in July the Committee reconsidered the growth ranges for
monetary and credit aggregates established earlier for 1983 in furtherance of
these objectives and set tentative ranges
for 1984. The Committee recognized that
the relationships between such ranges and
ultimate economic goals have become less
predictable; that the impact of new deposit accounts on growth of the monetary
aggregates cannot be determined with a
high degree of confidence; and that the
availability of interest on large portions of
transaction accounts may be reflected in
some changes in the historical trends in
velocity.
FOMC Policy Actions
Against this background, the Committee at its July meeting reaffirmed the
following growth ranges for the broader
aggregates: for the period from FebruaryMarch of 1983 to the fourth quarter of
1983, 7 to 10 percent at an annual rate for
M2; and for the period from the fourth
quarter of 1982 to the fourth quarter of
1983, 6Vi to 9Vi percent for M3. The
Committee also agreed on tentative
growth ranges for the period from the
fourth quarter of 1983 to the fourth
quarter of 1984 of 6Vi to 9Vi percent for
M2 and 6 to 9 percent for M3. The Committee considered that growth of Ml in a
range of 5 to 9 percent from the second
quarter of 1983 to the fourth quarter of
1983, and in a range of 4 to 8 percent from
the fourth quarter of 1983 to the fourth
quarter of 1984, would be consistent with
the ranges for the broader aggregates. The
associated range for total domestic nonfinancial debt was reaffirmed at 8V2 to
IIV2 percent for 1983 and tentatively set
at 8 to 11 percent for 1984.
In implementing monetary policy, the
Committee agreed that substantial weight
would continue to be placed on the behavior of the broader monetary aggregates. The behavior of Ml and total
domestic nonfinancial debt will be monitored, with the degree of weight placed on
Ml over time dependent on evidence that
velocity characteristics are resuming more
predictable patterns. The Committee
understood that policy implementation
would involve continuing appraisal of the
relationships between the various measures of money and credit and nominal
GNP, including evaluation of conditions
in domestic credit and foreign exchange
markets.
The Committee seeks in the short run to
maintain the existing degree of reserve
restraint. The action is expected to be
associated with growth of M2 and M3 at
annual rates of around 8I/2 percent from
September to December, consistent with
the targets established for these aggregates
for the year. Depending on evidence about
the continuing strength of economic recovery and other factors bearing on the
business and inflation outlook, somewhat
greater restraint would be acceptable
should the aggregates expand more rapidly; lesser restraint might be acceptable in
the context of a significant shortfall in
growth of the aggregates from current expectations. Given the relatively slow
141
growth in October, the Committee anticipates that Ml growth at an annual rate of
around 5 to 6 percent from September to
December will be consistent with its
fourth-quarter objectives for the broader
aggregates, and that expansion in total
domestic nonfinancial debt would remain
within the range established for the year.
The Chairman may call for Committee
consultation if it appears to the Manager
for Domestic Operations that pursuit of
the monetary objectives and related
reserve paths during the period before the
next meeting is likely to be associated with
a federal funds rate persistently outside a
range of 6 to 10 percent.
Votes for this action: Messrs. Volcker,
Solomon, Gramley, Guffey, Keehn,
Martin, Morris, Partee, Rice, Roberts,
Mrs. Teeters, and Mr. Wallich. Votes
against this action: None.
2. Authorization for Domestic
Open Market Operations
At this meeting the Committee voted
to increase from $4 billion to $5 billion the limit on changes between
Committee meetings in System Account holdings of U.S. government
and federal agency securities specified
in paragraph l(a) of the authorization
for domestic open market operations,
for the intermeeting period ending
with the close of business on December 20, 1983.
Votes for this action: Messrs. Volcker,
Solomon, Gramley, Guffey, Keehn,
Martin, Morris, Partee, Rice, Roberts,
Mrs. Teeters, and Mr. Wallich. Votes
against this action: None.
This action was taken on the recommendation of the Manager for Domestic Operations. The Manager had
advised that projections for the upcoming intermeeting period indicated
a substantial need for additions to reserves relating to a seasonal increase
in currency in circulation. Accordingly, the need for net purchases of U.S.
142 FOMC Policy Actions
government and federal agency securities during the intermeeting interval
was considered likely to exceed the
standard $4 billion limit on intermeeting changes in holdings of such
securities.
Meeting Held on
December 19-20, 1983
1. Domestic Policy Directive
The information reviewed at this
meeting suggested that real GNP was
growing at a relatively rapid pace in
the current quarter, although the rate
of expansion appeared to have moderated from the third-quarter pace.
Strength in personal consumption expenditures and in business spending—
particularly for inventories and equipment—is apparently contributing to
the continued expansion in economic
activity. Price and wage increases
generally have remained moderate,
though advances in some indexes
have been somewhat larger than in
the spring and summer.
The index of industrial production
increased 0.8 percent in November,
the same as in October. Output of
business equipment continued to rise
briskly, registering average increases
of nearly 1 Vi percent in each of the
two months. Output of materials also
continued to increase rapidly, but
production of consumer goods and
construction supplies rose only slightly. The rate of capacity utilization in
manufacturing increased 0.5 percentage point further in November to 79.4
percent, well above its recession low
of 68.8 percent a year earlier.
Nonfarm payroll employment, adjusted for strike activity, advanced
about 345,000 further in November;
the rise was larger than in October
but about the same as the average
monthly increase in the second and
third quarters. Employment gains
were widespread, and were particularly marked in manufacturing and
service industries. The civilian unemployment rate fell 0.4 percentage
point further to 8.4 percent, nearly
2Vi percentage points below its peak
in December 1982.
The nominal value of retail sales
rose 1.9 percent in November, after
increases of 1.4 percent in each of the
preceding two months. Sales increased
at most major categories of stores in
November, including a substantial
rise in purchases of discretionary
items, as indicated by strong outlays
at general merchandise and apparel
stores. Sales at automotive outlets
also rose markedly. While sales of
new domestic automobiles, at an annual rate of about 7 million units in
both October and November, were up
only slightly from the average selling
pace in the third quarter, the annual
rate of imported car sales averaged
about 350,000 units higher in those
months than in the third quarter.
Private housing starts rose about
6Vi percent in November, to an annual rate of about 1 VA million units,
and newly issued permits for residential construction increased marginally. For both series, the levels in
November were close to the averages in the third quarter. In October,
sales of existing homes fell about 5Vi
percent below their average in the
third quarter, while sales of new
homes rose for the second consecutive
months.
Indicators of business capital spending have moved somewhat erratically
in recent months, but generally suggest continued relatively strong expansion in that sector. Shipments of nondefense capital goods surged in September but fell somewhat in October.
New orders, however, recorded strong
gains in September and October, and
FOMC Policy Actions
the backlog of unfilled orders rose
sharply in both months.
The producer price index for
finished goods had changed little on
average over the previous two months,
rising 0.3 percent in October and falling 0.2 percent in November. Thus
far in 1983 the index had increased at
an annual rate of less than Vi percent.
The consumer price index rose 0.4
percent in October, about the same as
in the preceding three months; over
the first ten months of the year, consumer prices had increased at an annual rate of about 4 percent. The index of average hourly earnings was
little changed in November, after rising somewhat faster in September
and October than in previous months.
Thus far in 1983 the index had increased at an annual rate of about 3 Vi
percent, compared with a rise of 6
percent in 1982.
In foreign exchange markets the
trade-weighted value of the dollar
had risen more than 3 percent since
the FOMC meeting in mid-November,
surpassing the peak recorded in
August. Increasing international tensions apparently contributed to the
dollar's strength, as investors viewed
dollar assets as a "safe haven" in the
face of concerns about the security of
financial assets in some other parts of
the world. Evidence of continued
strong expansion in U.S. economic
activity also fueled the dollar's rise.
News of a record trade deficit for October, at a rate markedly higher than
that in the third quarter, slowed the
appreciation of the dollar only temporarily. The rise in the deficit
reflected a sharp increase in imports,
as exports were about unchanged.
At its meeting on November 14-15,
1983, the Committee had decided that
in the short run, open market operations should be directed toward maintaining the existing degree of reserve
143
restraint. The members anticipated
that such a policy would continue to
be associated with growth of M2 and
M3 at an annual rate of around 8 Vi
percent for the period from September
to December, consistent with the
growth ranges established for those
aggregates for the year. Those ranges
were 7 to 10 percent at an annual rate
for M2 for the period from FebruaryMarch of 1983 to the fourth quarter
of 1983; and 6V2 to 9Vi percent for
M3 for the period from the fourth
quarter of 1982 to the fourth quarter
of 1983. It was agreed that over the
coming intermeeting period the need
for greater or lesser restraint on reserve conditions should be evaluated
on the basis of evidence about the
continuing strength of the economic
recovery and other factors bearing on
the business and inflation outlook.
Depending on such evidence, somewhat greater restraint would be acceptable should the aggregates expand more rapidly, while lesser
restraint might be acceptable in the
context of a significant shortfall in
growth of the aggregates from current expectations.
Growth in M2 and M3, after slowing substantially over the summer
months, strengthened in October and
November. M2 was growing at a pace
close to the annual rate of 8 Vi percent
specified by the Committee for the
September-to-December period; M3
grew at an annual rate of SVi percent
in October but increased at a faster
pace in November, as banks relied
more on managed liabilities, partly to
offset a massive runoff of U.S. Treasury balances associated with the temporary delay in raising the federal
debt limit. Ml continued to expand at
a sluggish pace in November but increased substantially in early December. Through November, M2 was in
the lower portion of the Committee's
144 FOMC Policy Actions
longer-run range for the year 1983,
M3 was close to the upper limit of its
range, and Ml was near the lower end
of the Committee's monitoring range
of 5 to 9 percent for the period from
the second quarter of 1983 to the
fourth quarter of 1983.
The debt of domestic nonfinancial
sectors was estimated to have continued expanding at a moderate pace
in November, and its level remained
well within the Committee's monitoring range of SVi percent to IIK2 percent for the year. Growth in credit at
U.S. commercial banks rose to an estimated annual rate of about 14 percent
in November, reflecting an acceleration in growth of total loans and continued heavy acquisitions of Treasury
securities. Real estate and consumer
lending, while moderating somewhat
in November, remained strong. Borrowing by businesses picked up, as
issuance of commercial paper slowed
considerably from the brisk pace of
previous months and financing in
long-term debt markets remained
light.
Total reserves contracted in November, as required reserves declined in
association with a drop in demand deposits. Nonborrowed reserves fell by
more, as the average level of adjustment borrowing rose in that month.
Demands for borrowing eased off in
the first half of December, however.
Over the intermeeting interval as a
whole, adjustment plus seasonal borrowing ranged from about $440 million to $865 million, averaging about
$685 million during the four statement weeks ending December 14, only
slightly above the average during the
previous intermeeting period.
Federal funds continued to trade in
a range of about 9lA to 9Vi percent
over the period, with recent trading
generally near the upper end of that
Digitizedrange. Other short-term interest rates
for FRASER
rose about VA to VA percentage point
over the intermeeting period, while
most long-term rates increased about
VA percentage point. Rates on municipal bonds rose somewhat more, as
issuers marketed large volumes of
such securities in advance of deadlines on some types of issuance or in
anticipation of legislation in 1984 imposing restrictions on the issuance of
certain tax-exempt bonds. Average
rates on new commitments for fixedrate conventional home mortgage
loans changed little over the period
and have fluctuated in a narrow range
near 13.40 percent since late October.
The staff projections presented at
this meeting continued to indicate
that growth of real GNP would slow
from the rapid rate of recent quarters
to a more moderate pace in 1984.
Consumption expenditures and housing outlays were projected to moderate after growing rapidly in 1983, and
the stimulus to economic growth
from inventory accumulation was
likely to diminish. However, business
fixed investment was expected to show
continued strength, and the deterioration in net exports of goods and services was expected to slow over the
course of 1984. A decline in the unemployment rate was anticipated over
the projection period, and upward
pressures on prices were expected to
remain generally moderate.
In the Committee's discussion of
the economic situation and outlook,
the members commented that further
expansion in economic activity remained a likely prospect for 1984 but
that the rate of growth would probably slow considerably from the pace
in recent quarters. At the same time,
members referred to the many uncertainties that clouded the outlook,
and several expressed concern that inflationary pressures might worsen
during the year. Reports from around
FOMC Policy Actions 145
the country indicated widespread improvement in business conditions and
the development of considerable optimism in the business community,
although it was also noted that some
industries were still operating well
below capacity.
In the view of some Committee
members, the expansion in economic
activity during 1984 might well exceed
the staff projection, given the momentum of the recovery and a stimulative fiscal policy. In particular, it
was suggested that the currently high
level of confidence among businessmen and large cash flows to business
firms favored relatively rapid expansion in business fixed investment.
Some members also referred to the
possibility of a buildup in inventories
by firms that had been experiencing
strong sales and increasing delays
in obtaining new supplies of many
products.
Other members were somewhat
less sanguine about the prospective
strength of the ongoing expansion.
Some emphasized the vulnerability of
the economy to a substantial rise in
interest rates, should one occur, from
levels that were already high in real
terms. In this connection, members
referred to the desirability of prompt
action to reduce the federal deficit,
whose size, both current and prospective, was a major factor maintaining
upward pressure on interest rates.
High interest rates, apart from their
adverse impact on interest-sensitive
sectors of the domestic economy such
as housing, also would tend to exert
upward pressure on the value of the
dollar in foreign exchange markets,
with further unfavorable consequences for U.S. exports, and would
add to difficulties inherent in the current international debt situation.
Other comments about the economic outlook included the view of
one member that, if very sluggish
growth in Ml over the course of recent months were to continue, it
could lead to a downturn in economic
activity by the second or third quarter
of 1984. Another member raised the
possibility that sales might prove to
be disappointing over the months
ahead in relation to the apparently exuberant expectations of many business leaders, and such a development
would tend to restrain spending on
both fixed investment and inventories. One member also commented
that the backlog in demand for housing appeared to have been used up,
and further demand was likely to be
weak under foreseeable financial conditions.
Partly because of these differences
about the outlook for economic activity, the members expressed somewhat
divergent views with regard to prospects for inflation over the year
ahead. A number of members, while
acknowledging the possibility of
some rise in the rate of inflation during the second year of a recovery,
believed that any such rise was likely
to be moderated by sizable margins of
unused capacity in many industries,
by continuing strong competition
from foreign suppliers, and by a still
relatively high, if declining, rate of
unemployment. Some of these members also observed that recent statistics on commodity and other prices
did not suggest that the rate of inflation was accelerating.
Other members were less optimistic
about the prospects for inflation.
Several commented on indications of
a strengthening in inflationary expectations among participants in financial markets and among businessmen,
many of whom were reportedly looking for opportunities to raise prices.
Underlying wage pressures, which
had been held down by depressed
146 FOMC Policy Actions
conditions in many industries, were
also seen by many members as likely
to increase as profits continued to improve. Reference was also made to
the adverse implications for costs and
for inflationary pressures of a projected decline in productivity growth.
One member expressed the view that
large increases in Ml during the latter
part of 1982 and the first part of 1983
would probably be reflected, after an
expected lag, in accelerating inflation
by the latter part of 1984. It was also
noted that a significant decline in the
foreign exchange value of the dollar,
if it should occur as many observers
expected, would contribute to domestic inflation. In this connection concern was expressed that, as the foreign exchange value of the dollar rose
to a relatively high level, the dollar
would be exposed increasingly to a
precipitate drop, and if such a drop
came when the economy was operating closer to full capacity, it would
tend to have a much more substantial inflationary impact than otherwise.
At its meeting in July, the Committee had agreed on tentative growth
ranges of 6!/2 to 9Vi percent for M2
and 6 to 9 percent for M3 during the
period from the fourth quarter of
1983 to the fourth quarter of 1984.
The Committee believed that growth
of Ml in a range of 4 to 8 percent
from the fourth quarter of 1983 to the
fourth quarter of 1984 would be consistent with the ranges for the broader
aggregates. The associated range for
total domestic nonfinancial debt was
provisionally set at 8 to 11 percent for
1984. At this meeting the Committee
began a review of the ranges for 1984
in the expectation that at its next
meeting it would complete the review
and establish ranges for the year
within the framework of the Full Employment and Balanced Growth Act
of 1978 (the Humphrey-Hawkins Act).
In the Committee's discussion of
policy for the near term, most of the
members agreed that the continued
strength of the economic expansion
and the spreading optimism, with the
attendant risk that inflationary sentiment would intensify, argued against
any easing of reserve conditions and
in favor of maintaining at least the
existing degree of reserve restraint.
Such a policy would contemplate a
slight move toward greater restraint if
economic and monetary developments
appeared to warrant such a course.
According to an analysis presented at
this meeting, the existing restraint on
reserve conditions was likely to be
associated with growth in M2 and M3
during the period from November to
March at rates that were well within
the ranges that the Committee had
tentatively set previously for 1984.
Such a policy was also likely to result
in a considerable acceleration in the
growth of Ml over the four-month
period, given the anticipation that
demands for transaction balances
would be more in line with spending
than they had been in recent months.
While nearly all the members could
accept a policy of maintaining at least
the existing degree of reserve restraint, some expressed a preference
for some slight firming immediately
in light of their assessment of the economic situation and concerns about
the potential for a reemergence of inflationary pressures. Other members
preferred to make no change in the
existing degree of restraint for now,
pending a further evaluation of economic developments and monetary
growth. In the view of some of these
members, even a slight firming of
reserve conditions at this time would
incur the risk of a relatively pronounced reaction in financial markets, with damaging consequences for
FOMC Policy Actions
housing and other interest-sensitive
sectors of the economy. Some members also emphasized that higher domestic interest rates could have a very
undesirable impact on the value of
the dollar in foreign exchange markets and on the international debt situation. A number of members were
also influenced by the relatively sluggish growth of Ml over the course of
recent months, although such growth
appeared to be accelerating in December. Some urged that greater weight
be placed on Ml in the formulation
and implementation of policy; and in
the view of one member, reserve conditions should be eased promptly if it
became clear that growth in Ml was
remaining sluggish.
At the conclusion of the discussion,
most of the members indicated their
acceptance of a short-run policy that
called for maintaining at least the existing degree of restraint on reserve
positions, subject to the possibility of
a slight increase in such restraint depending on developments relating to
the outlook for economic activity and
price pressures and on evidence that
monetary growth appeared to be exceeding the Committee's expectations. The members anticipated that
such a policy would be associated
with growth of both M2 and M3 at an
annual rate of around 8 percent for
the period from November 1983 to
March 1984. The Committee believed
that an acceleration in the growth of
Ml to an annual rate of around 6 percent for the four-month period was
likely to be consistent with its objectives for the broader aggregates and
that expansion in total domestic nonfinancial debt over this period would
be within the tentative range of 8 to
11 percent established for the year
1984. It was agreed that the intermeeting range for the federal funds
rate, which provides a mechanism for
147
initiating consultation of the Committee, would remain at 6 to 10 percent. It was also understood that the
Committee would consult should the
aggregates and the economy turn out
to be significantly weaker than expected.
At the conclusion of the meeting,
the Committee issued the following
domestic policy directive to the Federal Reserve Bank of New York:
The information reviewed at this meeting suggests that real GNP has grown at a
relatively rapid pace in the current quarter, although the rate of expansion appears to have moderated since the spring
and summer. In November, industrial
production and nonfarm payroll employment increased appreciably further and
the civilian unemployment rate declined
0.4 percentage point to 8.4 percent. Retail
sales rose substantially in November following sizable gains in September and October. Housing starts increased in November to a level close to their third-quarter
average. Recent data indicate continuing
expansion in business capital spending.
Producer prices were little changed on
average in October and November, and
consumer prices continued to increase in
October at about the same pace as in other
recent months. The index of average
hourly earnings changed little in November after rising somewhat faster in September and October than in previous
months; over the first eleven months of
the year the index has risen more slowly
than in 1982.
The foreign exchange value of the dollar has risen considerably further since
mid-November against a trade-weighted
average of major foreign currencies. In
October the U.S. foreign trade deficit was
markedly higher than in the third quarter,
reflecting a sharp rise in imports.
After slowing substantially over the
summer months, growth in M2 and M3
strengthened in October and November.
Ml continued to grow at a sluggish pace
in November but increased substantially
in early December. Through November,
M2 was at a level in the lower portion of
the Committee's range for 1983, M3 was
close to the upper limit of its range, and
Ml was near the lower end of the Committee's monitoring range for the second
148 FOMC Policy Actions
half of the year. Most interest rates have
risen somewhat since mid-November.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation further, promote growth in output on
a sustainable basis, and contribute to a
sustainable pattern of international transactions. At its meeting in July the Committee reconsidered the growth ranges for
monetary and credit aggregates established
earlier for 1983 in furtherance of these objectives and set tentative ranges for 1984.
The Committee recognized that the relationships between such ranges and ultimate
economic goals have become less predictable; that the impact of new deposit accounts on growth of monetary aggregates
cannot be determined with a high degree
of confidence; and that the availability of
interest on large portions of transaction
accounts may be reflected in some changes
in the historical trends in velocity.
Against this background, the Committee at its July meeting reaffirmed the following growth ranges for the broader aggregates: for the period from FebruaryMarch of 1983 to the fourth quarter of
1983, 7 to 10 percent at an annual rate for
M2; and for the period from the fourth
quarter of 1982 to the fourth quarter of
1983, 6!/2 to 9lA percent for M3. The
committee also agreed on tentative growth
ranges for the period from the fourth
quarter of 1983 to the fourth quarter of
1984 of 6lA to 9l/z percent for M2 and 6 to
9 percent for M3. The Committee considered that growth of Ml in a range of 5 to 9
percent from the second quarter of 1983
to the fourth quarter of 1983, and in a
range of 4 to 8 percent from the fourth
quarter of 1983 to the fourth quarter of
1984, would be consistent with the ranges
for the broader aggregates. The associated
range for total domestic nonfinancial debt
was reaffirmed at SlA to HVi percent for
1983 and tentatively set at 8 to 11 percent
for 1984.
In implementing monetary policy, the
Committee agreed that substantial weight
would continue to be placed on the behavior of the broader monetary aggregates.
The behavior of Ml and total domestic
nonfinancial debt will be monitored, with
the degree of weight placed on Ml over
time dependent on evidence that velocity
characteristics are resuming more predictable patterns. The Committee understood
that policy implementation would involve
continuing appraisal of the relationships
between the various measures of money
and credit and nominal GNP, including
evaluation of conditions in domestic credit
and foreign exchange markets.
The Committee seeks in the short run to
maintain at least the existing degree of reserve restraint. The action is expected to
be associated with growth of M2 and M3
at annual rates of around 8 percent from
November to March. The Committee anticipates that Ml growth at an annual rate
of around 6 percent from November to
March will be consistent with its objectives for the broader aggregates, and that
expansion in total domestic nonfinancial
debt would continue at around its recent
pace. Depending on evidence about the
continuing strength of economic recovery
and other factors bearing on the business
and inflation outlook, somewhat greater
restraint would be acceptable should the
aggregates expand more rapidly. The
Chairman may call for Committee consultation if it appears to the Manager for
Domestic Operations that pursuit of the
monetary objectives and related reserve
paths during the period before the next
meeting is likely to be associated with a
federal funds rate persistently outside a
range of 6 to 10 percent.
Votes for this action: Messrs. Volcker,
Solomon, Gramley, Guffey, Keehn,
Morris, Partee, Rice, Roberts, Mrs.
Teeters, and Mr. Wallich. Vote against
this action: Mr. Martin.
Mr. Martin dissented from this action because of his concern that any
tightening of reserve conditions and
the associated increase in interest
rates would present a threat to the sustainability of the economic expansion:
needed business investment would be
more expensive, international debt
servicing more burdensome, and interest-sensitive housing more vulnerable.
2. Authorization for Domestic
Open Market Operations
At its previous meeting the Commit-
FOMC Policy Actions 149
tee had voted to increase from $4 billion to $5 billion the limit on changes
between Committee meetings in System Account holdings of U.S. government and federal agency securities
specified in paragraph l(a) of the authorization for domestic open market
operations, for the inter meeting period ending with the close of business
on December 20, 1983. At this meeting the Committee voted to retain the
$5 billion limit for the upcoming intermeeting interval beginning on December 21, 1983.
Votes for this action: Messrs. Volcker,
Solomon, Gramley, Guffey, Keehn,
Martin, Morris, Partee, Rice, Roberts,
Mrs. Teeters, and Mr. Wallich. Votes
against this action: None.
This action was taken on the recommendation of the Manager for
Domestic Operations. The Manager
had advised that substantial net sales
of securities were likely to be required
during the weeks ahead in order to
absorb reserves that had been provided recently to meet seasonal needs for
currency in circulation.
150
Consumer and Community Affairs
In 1983, the Board of Governors of
the Federal Reserve System sought to
reduce the costs of compliance with
its consumer regulations while maintaining the protections for consumers
that the underlying statutes provide.1
As discussed further in this report,
the Board monitored the effects of
the simplification of Regulation Z
(Truth in Lending), and sent to the
Congress proposed legislation for
simplifying the Consumer Leasing
Act by reducing the complexity and
number of lease disclosures and
bringing under the act's coverage
rental-purchase agreements, such as
those for television sets and other
home appliances. The Board also
undertook a review of Regulation B
(Equal Credit Opportunity) to evaluate ways to clarify its guidance to
creditors, to identify more effectively
and prohibit any illegal discriminatory practices, and to address other
concerns. The review was initiated
under the Board's Regulatory Improvement Project, which requires
periodic efforts to update and
simplify all Board regulations. This
report also summarizes the Board's
1983 regulatory actions, which affect
rules on truth in lending, home mortgage disclosures, electronic fund transfers, and consumer leasing.
The Board also sought to strengthen
the System's enforcement of consumer
regulations by improving consumer
1. These statutes, on which the Board is required to report annually to the Congress, are
the Truth in Lending Act, the Equal Credit Opportunity Act, the Electronic Fund Transfer
Act, the Community Reinvestment Act, and
the Federal Trade Commission Improvement
DigitizedAct.FRASER
for
examination reports, expanding the
program for educating consumer
compliance examiners, and producing pamphlets and videotapes to help
state member banks comply with
consumer-related regulations.
This report offers a statistical summary of consumer complaints handled
by the Board, and describes the way
the Board monitors acts or practices
by banks that may be unfair or deceptive. Also discussed are the extent of
compliance by institutions with Regulation Z, Regulation B, and Regulation E (Electronic Fund Transfers);
the economic impact of Regulation E;
implementation of the Community
Reinvestment Act; the activities of
the Consumer Advisory Council; and
legislative recommendations from the
agencies with enforcement responsibilities under the Truth in Lending,
Equal Credit Opportunity, and Electronic Fund Transfer Acts.
In 1983, the Board and the Reserve
Banks continued distribution of a
wide variety of consumer education
pamphlets and teaching packages and
held further workshops for teachers
on the consumer credit education
laws. Two popular consumer credit
films, "To Your Credit" and "EFT:
At Your Service," were put on videotape for national distribution for
classroom use. In May, the Board
was host for a systemwide meeting on
consumer and economic education to
consolidate ongoing activities and to
plan programs for 1984.
Simplification of Regulation Z
In 1983, the Board monitored the effects of the restructured, shortened,
Consumer and Community Affairs
and simplified version of Regulation
Z. After the first full year of mandatory compliance, which began in October 1982, the Board found significant improvements in compliance,
litigation, and interpretation.
In 1983, the number of institutions
with no violations of Regulation Z
jumped by nearly 9 percent, to 42 percent of all institutions examined.
Over half of the institutions with
some violations of the regulation had
only a few (one to five). Moreover,
virtually no litigation has arisen
under the revised regulation. This is
an especially significant result,
because the hope of reducing litigation was a driving force in the
Board's simplification efforts.
The official staff commentary on
Regulation Z, which interprets the
Board's truth in lending rules, has
proved to be an effective regulatory
tool. Before it was developed, the
Board issued many individual letters
of interpretation, including official
and unofficial staff opinions, as well
as formal Board interpretations.
Creditors were required to search for,
collect, and sort through these interpretations for guidance on many specific issues, an inconvenient and costly process. Because the commentary
brings together all interpretations
into a single document, is updated
regularly, and is arranged for quick
reference, it eases many tasks for
creditors. The commentary has apparently succeeded in making the interpretations more manageable for
creditors and in reducing the related
costs of compliance.
Simplification of the
Consumer Leasing Act
In early 1983, the Board sent to the
Congress proposed legislation for
Digitizedsimplifying the Consumer Leasing
for FRASER
151
Act. The act, passed in 1976 to assure
that lessees of personal property are
given meaningful disclosures of lease
terms, applies to personal property
leased for more than four months for
personal, family, or household use.
The simplified version was introduced in the U.S. Senate in late April
(as S. 1152), and was later incorporated into an omnibus bill introduced in
November.
The draft is written in plain language with short, concise sentences that
eliminate redundancy and unnecessary "legalese." Emphasizing straightforward disclosures of essential cost
information, it simplifies the leasing
rules by applying many of the concepts
and principles used in the 1980 simplification of the Truth in Lending
Act. As a result, this version substantially reduces both the number and
the complexity of the required disclosures and concentrates on the information most likely to be used in shopping
and decisionmaking. It also requires
that all disclosures be presented to the
consumer separately from other information so as to emphasize their importance.
The draft legislation adds coverage
of rental-purchase agreements, which
are covered neither by the Consumer
Leasing Act nor by the Truth in Lending Act. Under a rental-purchase
agreement, the consumer rents the
property (typically a television set or
other home appliance) for a week or a
month. The rental is automatically
renewed with each subsequent payment, and after a specified number of
payments, the consumer owns the
property.
Some consumer groups have expressed concern that consumers enter
these agreements without adequate
cost disclosures. They say that the industry emphasizes the option to own
the property without specifying the
152 Consumer and Community Affairs
dollar amount necessary to acquire
ownership—an amount that may be
several times the retail price of the
goods. They believe that many consumers enter these agreements without knowing the ultimate cost of the
item and without understanding that
they have no equity in the item if they
stop making payments. Consumer
groups also contend that much of the
industry's advertising is aimed at lowincome people and that it fosters the
belief that leasing is the only way lowincome people can acquire certain
high-priced items.
Representatives of the appliance
rental-purchase industry contend
that this type of transaction fills a
legitimate need in the marketplace.
They point out that the agreements
offer advantages over purchasing on
credit, such as comprehensive maintenance of the property, the right to terminate without penalty, and the
absence of a credit check. Now, however, these representatives favor coverage under the Consumer Leasing
Act, largely as a result of a number of
court cases and at least one new state
law that classifies rental-purchase
agreements as credit sales for some
purposes. They are concerned about
such treatment on the state level and
would prefer coverage by federal law.
Review of Regulation B
In June 1983, the Board announced
its review of Regulation B, explaining
that the purpose of any revisions
would be to update the regulation
rather than to make broad and extensive changes, because the Equal Credit Opportunity Act, under which it
issued the regulation, had not been
amended. The Board asked for comment generally on ways to simplify
the regulation's guidance to creditors
DigitizedandFRASER
for to reduce compliance burdens
without removing the protections
against discrimination. The Board also
asked whether the regulation should
be modified so as more effectively to
identify and prohibit discriminatory
practices. Finally, the Board specified
several technical issues on which
public comment would be helpful: the
need for improving the sample notice
of reasons for adverse action, the
adequacy of the regulation's provisions on credit history, the circumstances under which a creditor may
consider an application withdrawn,
and the need for new rules related to
reapplications on open-end credit accounts.
The Board of Governors expects to
issue for public comment the proposed
changes to the regulation, as well as a
staff commentary, in the first quarter
of 1984.
Regulatory Actions
In 1983, the Board amended Regulation Z (Truth in Lending) to reflect statutory changes and published
changes to the regulation's official staff
commentary. In addition, the Board
issued final determinations that the
Truth in Lending Act preempts certain provisions of the laws of several
states. The Board also granted applications from four states for the renewal of exemptions from the disclosure requirements of Regulation C
(Home Mortgage Disclosure).
Amendments
In April, the Board amended Regulation Z, effective October 1, 1982, to
reflect amendments to the Truth in
Lending Act that were contained in
the Garn-St Germain Depository Institutions Act of 1982. The 1982
amendment revised the Truth in
Lending Act by deleting " arrangers
of credit" from the definition of
Consumer and Community Affairs
creditor, thereby excluding all such
arrangers from the act's coverage. The
amendments also prospectively and
retroactively exempt from coverage
loans that are made, insured, or guaranteed pursuant to a program authorized by title IV of the Higher Education Act of 1965. These loans include
the Guaranteed Student Loans, the
Auxiliary Loans to Assist Students,
and National Direct Student Loans.
These programs provide the majority
of federal student loans covered by
the regulation.
The Board also amended Regulation Z to provide that an error in the
disclosure of the annual percentage
rate or finance charge is not considered a violation of the regulation if
the error results from a corresponding error in a calculation tool that the
creditor used in good faith, and if the
creditor discontinues use of the tool
and notifies the Board in writing of
the error in the tool.
In December 1983, the Board announced two technical amendments
to Regulation C. The first implements
changes in terminology related to the
definition of metropolitan areas that
were adopted by the U.S. Office of
Management and Budget (OMB). The
second reflects the shift in the authority to define standard metropolitan
statistical areas from the Department
of Commerce to the OMB. These
amendments are effective January 1,
1984.
Interpretations
At the same time that the Board
issued the amendments to Regulation
Z, the staff published changes to the
official staff commentary for the
regulation. Some changes correspond
to the regulatory amendments implementing the 1982 legislative amendDigitizedments, while others update the docufor FRASER
153
ment. Because the commentary is the
sole vehicle for interpreting Regulation Z, the staff plans to update the
commentary at least annually. Proposed revisions generally will be
published in November of each year
for a 60-day comment period. Final
changes will be issued by March 31 of
the following year; compliance will be
optional until October 1 of that year,
when compliance will become mandatory. In accordance with this plan,
the staff issued proposed amendments to the commentary in late
November 1983.
Determinations of
Preemptions and Exemptions
To eliminate burdensome inconsistencies between state and federal
laws, the Board issued final determinations in 1983 that, for certain transactions, selected parts of the laws of
Arizona, Florida, Missouri, South
Carolina, and Mississippi are preempted by the Truth in Lending Act
and Regulation Z.
Determinations of truth-in-lending
preemptions are based on whether the
state law is inconsistent with the federal law and regulation. An inconsistent state law is one that requires disclosures or actions by creditors that
significantly impede the operation of
the federal law, interfere with its purpose, or contradict it. Such inconsistencies include requiring use of the
same term to describe a different
amount or meaning than the federal
law does, defining a term differently
from the way the federal law does,
and requiring the use of a term different from the federal term to describe
the same item.
In 1983, the Board developed three
principles for determining whether a
state law is inconsistent with the
Truth in Lending Act:
154 Consumer and Community Affairs
• State law is viewed as requiring
the use of specific terms if it uses
those terms in its provisions on disclosures, even if it does not impose
penalties for non-usage.
• A state disclosure that has no
functional federal equivalent does not
pose any question of inconsistency.
• A state law is preempted only
when inconsistency exists and not
when there is merely a potential for it.
In addition, the Board decided that
a preemption determination about a
particular state's law will not affect
similar provisions in the laws of states
that do not request preemption. Finally, the Board delegated the authority
for preemption determinations under
Regulation Z, Regulation E, and Regulation M (Consumer Leasing) to the
Director of the Board's Division of
Consumer and Community Affairs.
The Board also proposed preemption of certain provisions in the Massachusetts law on electronic transfers
because they were inconsistent with
the federal Electronic Fund Transfer
Act and Regulation E and because,
according to a preliminary review,
they did not afford the consumer
greater protection than did the
federal law. The Massachusetts Division of Banks and Loan Agencies
then revised those provisions to
eliminate the grounds for preemption. Therefore, in September the
Board issued a final determination
that the federal law did not preempt
the Massachusetts law.
Enforcement of
Consumer Protection Laws
In 1983, the Board strove to improve
the enforcement of consumer protection regulations and to strengthen
institutional compliance with those
Digitizedregulations. These efforts resulted in
for FRASER
revisions of the Board's examination
report to make it more comprehensible, an expansion of the System's
program for educating examiners,
and the production and distribution
of pamphlets and videotapes on compliance issues. At year-end, the Board
was also considering improvements to
the System's implementation of the
Community Reinvestment Act that
are based on proposals of the Consumer Advisory Council.2
In January 1983, the Federal
Reserve Banks implemented new
standards for the format and content
of bank examination reports. The
revised report emphasizes a bank's
substantive compliance problems and
their causes. When possible, the
reports also make specific suggestions
about corrective action that the bank
should take. During the compliance
examination, examiners note minor
violations which may not be indicative of the bank's general practices;
such violations are not presented formally in the report unless they indicate a more systematic problem. The
Board believes that this new approach
will better communicate with bank
management and help them both to
correct specific violations and to
change operational procedures and
other factors that may contribute to
violations.
During the year, the Federal Reserve System further strengthened its
consumer compliance program with
new centralized training for senior examiners. The one-week Advanced
Consumer Compliance School, which
is designed for examiners with 18 to
24 months of field experience, focuses
on effectiveness in compliance examinations and on new regulatory
2. See the discussion of the work of the Consumer Advisory Council below.
Consumer and Community Affairs
issues. Two sessions were offered in
1983. The new school supplements
the basic school for new examiners,
topical seminars for experienced examiners, and a variety of informal
training programs at the regional
level.
In 1983, the Board produced videotapes and pamphlets to help examiners, other regulatory personnel, and
financial institutions better understand the requirements of the consumer regulations. One of the videotapes was "How to Edit HMDA
Data," which the Federal Financial
Institutions Examination Council distributed to each office of the regulatory agencies that are responsible for
collecting from financial institutions
the data required under the Home
Mortgage Disclosure Act. This
17-minute videotape proved effective
in improving the quality of the
HMDA data that the Council aggregates each year.
A second videotape, "Truth in
Lending Disclosures for Alternative
Mortgages," was aimed at helping examiners and others understand how
the disclosure requirements of Regulation Z apply to mortgage financing
that involves graduated payments,
variable rates, growing equity, and
seller or consumer buydowns. The
videotape was distributed with booklets to the Federal Reserve Banks,
which in turn have offered the program to interested groups.
The Board distributed three pamphlets to help state member banks
meet the requirements of the consumer regulations: "The Board of
Directors' Opportunities in Community Reinvestment," "How to
Determine the Credit Needs of Your
Community," and "The Board of
Directors' Role in Consumer Law
Compliance." Examiners will disDigitizedtribute the appropriate pamphlets to
for FRASER
155
banks during compliance examinations.
Responsibilities under the
Federal Trade Commission Act
The Board has three major responsibilities under the Federal Trade
Commission Act: first, to receive
complaints against state member
banks and to take appropriate action
to remedy them; second, to identify
unfair or deceptive banking practices
and to adopt regulations that prohibit
them; and third, within 60 days of the
effective date of rules adopted by the
Federal Trade Commission (FTC)
that prohibit unfair or deceptive practices, to promulgate substantially
similar regulations that are applicable
to banks unless certain exceptions
apply.
State Member Banks
The Board and the Federal Reserve
Banks investigate and act to resolve
complaints against state member
banks and forward to appropriate enforcement agencies any complaints
received that involve other businesses
or creditors. In 1983, the Federal
Reserve System received 2,487 complaints: 1,725 by mail, 724 by telephone, and 28 in person (see the
accompanying table). Of these complaints, 1,030 involved state member
banks. The Board also received 279
written inquiries concerning consumer credit laws, regulations, and
banking policies and practices in
1983. In responding to both the complaints and the inquiries, members of
the Board's staff provided consumers
with specific explanations of laws,
regulations, and banking practices,
and with helpful printed material.
Staff members of the Board's Division of Consumer and Community
Affairs continue regularly to review a
156 Consumer and Community Affairs
Consumer Complaints Received by the
Federal Reserve System, by Subject,
1983
Subject
Regulation B (Equal Credit
Opportunity)
Regulation C (Home Mortgage
Disclosure)
Regulation E (Electronic Fund
Transfers)
Regulation M (Consumer Leasing)
Regulation Q (Interest on Deposits)
Regulation X (Securities Credit)
Regulation Z (Truth in Lending)
Regulation BB (Community
Reinvestment)
Number
266
2
71
5
155
0
492
3
Fair Credit Reporting Act
Fair Debt Collection Practices Act
Fair Housing Act
Holder in due course
Transfer agents
Municipal securities dealer regulation ..
Unregulated bank practices
Other'
66
22
1
4
2
21
1,340
37
Total
2,487
1. "Other" refers primarily to miscellaneous complaints against business entities.
sample of the correspondence that involves complaints processed by the
Reserve Banks and to evaluate the actions of the Banks for adherence to
System procedures and guidelines.
The results of the review are then discussed with the pertinent Reserve
Bank. This procedure provides the
Board with the information necessary
to strengthen the System's handling
of complaints.
To assess the attitudes of complainants concerning the handling of their
complaints, the Board sent follow-up
questionnaires to consumers whose
complaints against state member
banks were handled by the System. In
1983, consumers returned 45 percent
of these questionnaires; in 1982, the
return rate was 60 percent. Approximately 70 percent of the respondents
reported that the explanations they
received were clear and understandable; 80 percent, that they were satisfied with the promptness in handling
their complaints; 98 percent, that
they were treated courteously by
Federal Reserve staff; 88 percent,
that they would contact the Federal
Reserve again if they had other problems with banks; and 57 percent that
the resolutions of their complaints
were acceptable. The proportion of
those satisfied with the outcome is
relatively lower than the proportion
of those satisfied with the System's
handling of the complaints because a
number of the complaints involved
practices that, although of concern to
consumers, are permissible banking
practices.
The following table summarizes the
nature and resolution of the complaints against state member banks in
1983. The complaints are classified
according to bank functions: loans,
deposits, electronic fund transfers,
trust services, and other. About 55
percent of the complaints against
state member banks concerned lending functions: 30 percent alleged discrimination on a prohibited basis;
and 25 percent dealt with credit denial
on a nonprohibited basis (such as
length of residency), disclosures of
credit costs, and other general lending
functions. Approximately 28 percent
involved interest on deposits and
general practices concerning deposit
accounts.
Unregulated Practices
The Board continued to monitor complaints about unregulated practices to
identify those that might require
special attention.
As in the past, the Board identified
the unregulated practices that were
the subject of 15 or more complaints
per quarter or 50 for the year as a
whole. Of the 1,340 complaints, 357
fell into one or the other of these
categories. They were of five types:
complaints about credit denial based
Consumer and Community Affairs
157
Consumer Complaints Received by the Federal Reserve System,
by Function and Resolution, 1983
Type of complaint
Type of resolution
Total complaints
Total concerning state
member banks
Insufficient information'
Information furnished2
Bank legally correct
No accommodation
Accommodation made 3 . . . .
Clerical error, corrected
Factual dispute *
Bank violation, resolved5
Possible bank violation,
unresolved6
Customer error
Pending, December 31
Total
complaints
Loan functions
Deposit
function
Electronic
fund
transfers
Trust
services
Other
Discrimination
Other
2,487
272
1,015
738
71
17
374
1,030
30
180
169
3
25
399
10
92
293
8
45
36
1
2
9
0
0
124
8
16
373
131
115
33
18
83
15
13
2
2
136
59
34
7
10
94
36
49
16
4
14
4
4
2
2
6
0
1
0
0
40
17
14
6
0
10
13
127
0
1
25
3
3
45
4
4
33
1
3
3
0
2
2
2
19
0
1. The staff has been unable, after follow-up correspondence with the consumer, to obtain sufficient
information to process the complaint.
2. When it appears that the complainant does not
understand the law and that there has been no violation on the part of the bank, the Federal Reserve
System explains the law in question and provides the
complainant with other pertinent information.
3. In these cases the bank appears to be legally
correct but chooses to make an accommodation.
4. These cases involve factual disputes not resolvable by the Federal Reserve System and contractual
disputes that can be resolved only by the courts. Con-
sumers wishing to pursue the matter may be advised
to seek legal counsel or legal aid, or to use small
claims courts.
5. In these cases a bank appears to have violated
a law or regulation and has taken corrective measures
voluntarily or as requested by the Federal Reserve
System.
6. When a bank appears to have violated a law or
regulation, customers are advised to seek civil remedy
through the courts. Cases that appear to involve criminal irregularity are referred to the appropriate law
enforcement agency.
on credit history (91, or 7 percent of
the total complaints about unregulated practices); disputed deposits
(73, or 5 percent); excessive time to
clear checks, including delayed availability of funds (65, or 5 percent);
discrepancies in accounts (64, or 5
percent); and charges and procedures
related to insufficient funds (64, or 5
percent).
The two largest categories of complaints received involved credit denial
because of credit history and disputed
deposits. In the first category, the
complaints did not clearly involve
practices that are unfair or deceptive.
Many of the complaints indicated
that the applicant for credit did not
Digitizedrealize the implications of a poor
for FRASER
credit history or the lack of borrowing experience for a lender's decision
about the applicant's creditworthiness. The second category involves
factual disputes between the consumer and the bank; in these disputes, no single policy or procedure
engendered enough complaints to
constitute a trend of unfair practices.
Each of these categories accounts for
only a small fraction (3 percent or
less) of all consumer complaints
received.
In March 1983, the Board initiated
research to heighten its understanding
of the difficulties consumers have
with availability of funds. As part of
the Survey on Consumer Attitudes
conducted by the Survey Research
158 Consumer and Community Affairs
Center of the University of Michigan,
the Board asked consumers about
their experiences with delayed availability of funds deposited into checking, savings, and money market deposit accounts. The large majority of
deposit account holders did not have
problems of delayed availability in
the past few years. Of the respondents
who had problems, few reported that
the problems occurred frequently.3
In September, the Board's Vice
Chairman, Preston Martin, testified
before the Subcommittee on Consumer Affairs of the Senate Committee on Banking, Housing, and Urban
Affairs on legislation that had been
proposed to address the issue of delayed availability. Although acknowledging that the practice causes problems for some consumers, the Vice
Chairman testified that the steps the
industry has voluntarily taken should
be given a chance to resolve the issue
before legislation is enacted. Throughout 1983, the Board continued to encourage such steps by, among other
things, meetings with industry representatives.
In early 1984, the Board proposed
to the other federal financial agencies
that they all issue a joint policy statement on the practice of delayed availability of funds. The Board suggested
that the policy statement call on
financial institutions that delay availability to review and disclose their
policies; take into account individual
factors that may indicate whether a
risk of loss exists; provide a means
for depositors to request an exception
from the standard delay policies; and
refrain from imposing holds on social
security and other federal government checks.
3. "Frequently" was defined as at least once
month.
Digitizedafor FRASER
FTC Rules
In 1983, the Board continued to monitor the status of three rules proposed
by the FTC to determine the need for
substantially similar rules applicable
to banks. These rules are the Credit
Practices Rule, an amendment to the
Holder-in-Due-Course Rule, and the
"Used Car Rule."
The proposed Credit Practices Rule
would prohibit certain contractual
terms that creditors have used when
collecting unpaid debts and would require creditors to make certain disclosures. The proposal, which was first
issued for comment by the FTC in
1975, has been modified to meet some
of the technical objections that were
raised during hearings held by the
Commission in 1977 and 1978. The
Board presented testimony to the
Commission concerning the proposal
in June 1983. On July 20, 1983, the
FTC gave conditional approval to the
rule by mnanimously adopting six of
the ten provisions, some of which had
been modified since they were originally proposed. The approval of the
rule depends on the preparation by
FTC staff of two documents, a regulatory analysis and a statement of
basis and purpose, for consideration
by the Commission. If the FTC accepts the documents, the effective
date of the rule will be one year from
the date of promulgation.
The proposed amendment to the
Holder-in-Due-Course Rule is pending at the FTC. The purpose of the
rule, according to the FTC, is to ensure that no legal device interferes
with a seller's duty to perform its
responsibilities when a consumer has
agreed to pay for goods. The seller
portion of the rule has been in effect
since May 14, 1976; the amendment
would extend the requirements of the
rule to creditors besides sellers.
Consumer and Community Affairs
In August 1981, the FTC adopted
in final form the "Used Car Rule,"
which requires certain disclosures by
sellers of used motor vehicles. In September 1981, the Commission submitted the rule to the Congress for
review pursuant to the legislative-veto
provisions of the act, and the rule was
vetoed in May 1982. Although the
Supreme Court found that veto unconstitutional, subsequent lower
court action has further delayed the
effective date of the rule.
Compliance with
Consumer Regulations
The five federal agencies that supervise financial institutions reported
that overall compliance with the consumer regulations improved in 1983.
The other agencies that enforce these
laws also reported high levels of compliance. This section summarizes
these reports on compliance with regulations under the Truth in Lending
Act, the Equal Credit Opportunity
Act, and the Electronic Fund Transfer Act. The reports cover the period
July 1, 1982, to June 30, 1983.4
Truth in Lending
(Regulation Z)
Four of the five federal agencies that
regulate financial institutions reported that compliance with Regulation Z continued to improve in 1983.
The Board, the Office of the Comptroller of the Currency (OCC), the
National Credit Union Administration (NCUA), and the Federal Home
Loan Bank Board (FHLBB) reported
that 42 percent of all institutions ex4. Although the federal agencies that regulate financial institutions do not all use the
same method to summarize compliance data,
the data they provide support the general conDigitizedclusions presented here.
for FRASER
159
amined were found to have no violations at all, compared with 33 percent
in 1982. The three agencies that were
able to provide ranges of violations
(the Board, the OCC, and the
NCUA) reported that 58 percent of
the institutions they examined were in
full compliance, 25 percent had committed no more than five violations,
and only 17 percent had committed
more than five violations. The Federal Deposit Insurance Corporation
(FDIC) reported a slight decrease (3
percent) in the number of institutions
in full compliance.
Summaries of examination findings
compiled by the Board of Governors,
the OCC, the FDIC, the FHLBB, and
the NCUA indicate that the most frequent violations of Regulation Z are
the following:
• Failure to disclose the number,
amount, or timing of payments
scheduled to repay the indebtedness.
• Failure to disclose correctly the
annual percentage rate.
• Failure to disclose with sufficient
precision the finance charge and the
total of payments.
• Failure to make written disclosures, properly grouped and segregated in a form that the customer
may retain.
• Failure to disclose properly and
to itemize the amount financed on
closed-end credit.
The FDIC issued one cease-anddesist order for violations of Regulation Z. The Board entered into three
formal administrative enforcement
actions, and the OCC into one, that
included provisions requiring compliance with Regulation Z. Approximately 618 institutions supervised by
the Board, the OCC, the FDIC, and
the FHLBB reimbursed more than $2
million on 38,821 accounts under the
Regulation Z enforcement policy; the
1981 figure was $5.5 million. The
160 Consumer and Community Affairs
marked decline in both the number
and total dollar amount of restitutions indicates continued improvement in disclosing annual percentage
rates and finance charges properly.
The Federal Trade Commission
(FTC) initiated a pilot program to increase voluntary compliance with the
provisions of the Truth in Lending
Act regarding credit advertising. The
FTC monitored real estate advertisements in newspapers in 16 major
cities and notified advertisers of any
violation observed. As a result, compliance with these provisions rose
from an average of 13 percent in
January 1983 to more than 84 percent
in June; nearly 1,300 advertisers were
brought into compliance without formal enforcement actions. Since June,
the FTC has expanded monitoring to
additional major cities. It also has
entered into three consent agreements
that require the creditors involved to
correct violations of advertising requirements of the Truth in Lending
Act and the error-resolution requirements of the Fair Credit Billing Act.
In addition, the FTC sought civil
penalties against a creditor that failed
to comply with an earlier order that
cited advertising violations.
The other agencies with enforcement responsibilities—the Packers
and Stockyards Administration of the
U.S. Department of Agriculture, the
Farm Credit Administration, and the
Civil Aeronautics Board—reported
generally high levels of compliance.
The Farm Credit Administration reported that the investigation of a formal complaint against a federal land
bank association led to the discovery
of a pattern of miscalculated annual
percentage rates. The land bank reimbursed about $35,000 to 1,300 customers. The Civil Aeronautics Board
issued a cease-and-desist order to one
Digitizedair carrier for failure to credit refunds
for FRASER
promptly to consumers as required by
the Truth in Lending Act.
Maine, Connecticut, Massachusetts, Oklahoma, and Wyoming,
which are exempt from certain parts
of the Truth in Lending Act, reported
satisfactory compliance in 1983 with
truth-in-lending rules.
Equal Credit Opportunity
(Regulation B)
Each of the agencies that regulate
financial institutions reported continued improvement of compliance with
the Equal Credit Opportunity Act
(ECOA) and Regulation B. Approximately 76 percent of the institutions
examined had no violations, up from
67 percent in 1982. The Board instituted three formal administrative actions that addressed noncompliance
with Regulation B, and the OCC
instituted one. The most frequent violations of Regulation B were the
following:
• Failing to provide adequate and
timely notice of action taken on a
credit application.
• Failing to use the appropriate
form and provide specific reasons for
adverse action when credit is denied.
• Requesting prohibited information (such as the race, color, religion,
or national origin of an applicant, except as required for monitoring purposes) or requests for information
about "other income" without the required disclosure that it is optional.
• Requiring the signature of an applicant's spouse or other person,
other than a joint applicant, when the
applicant qualifies under the creditor's
standards of creditworthiness.
The Federal Trade Commission
took four formal enforcement actions
against creditors: three of the creditors were charged with discrimination
prohibited by the act, and a depart-
Consumer and Community Affairs
ment store chain was charged with
failing to tell applicants the specific
reason for credit denial and failing to
provide disclosures required by the
Fair Credit Reporting Act.
Although most creditors seem to be
complying, the FTC staff is pursuing
several investigations. These investigations involve issues such as discouraging applications from the elderly
because of age or lack of full-time
employment, restrictions on the
repayment periods of loans to the
elderly, failure to retain applications,
and failure to provide notices of
adverse action.
The Small Business Administration
(SBA) reported one violation related
to age. The ECOA prohibits consideration of an applicant's age except in
an appropriate credit-scoring system
to determine a pertinent element of
creditworthiness, such as whether the
amount of employment or retirement
income will support the debt until
maturity. The SBA's standard operating procedure states merely that the
age and health of an applicant are
valid concerns when looking at the
ability to repay a loan. The procedure
is now being amended to give more
specific guidance for weighting an applicant's circumstances in keeping
with the ECOA and Regulation B.
The other federal agencies responsible for enforcing the act reported
satisfactory compliance.
Electronic Fund
Transfer Act (Regulation E)
The financial regulatory agencies
reported substantial improvement in
compliance with the Electronic Fund
Transfer Act. Of the institutions examined, 84 percent were in compliance, up from 74 percent in 1982.
Digitized forThe following were the most freFRASER
161
quent violations of Regulation E in
1983:
• Failure to provide initial disclosures, or correct ones, when a customer contracts for EFT service or
before the first transfer on the
account.
• Failure to provide a notice of
error-resolution procedure at least
once each calendar year.
• Failure to provide adequate information on the periodic statement.
The FTC, which also has responsibilities for enforcement of this act,
reported satisfactory compliance. According to the Securities and Exchange
Commission, a few broker-dealers
are beginning activities that may be
subject to the provisions of the act.
The Commission will monitor those
parties' activities closely to ensure
compliance.
The Economic Impact of
Regulation E
As the Electronic Fund Transfer Act
requires, the Board monitors the effects of the act on the costs and benefits to financial institutions and consumers. The application of the act
broadened during 1983 as more financial institutions offered electronic
fund transfers (EFTs) and more consumers used them. A growing number
of institutions made preauthorized
transfers through automated clearinghouses (ACHs), provided automated teller machines (ATMs), or
engaged in other forms of EFT. Although larger institutions are more
likely to offer a full range of consumer EFT services than smaller
ones, shared networks and joint ventures continue to make more EFT services available to smaller institutions
and their customers. As the automation of operations spreads among financial institutions of all sizes, the
162 Consumer and Community Affairs
cost of providing EFTs to consumers
will continue to fall. Because of
declining cost and growing consumer
demand for the benefits from EFT
services, consumer use of EFT is likely to grow.
More consumers than in the previous year had accounts at institutions
that offered EFT services. Furthermore, they made greater use of such
features. A Board-sponsored survey
conducted in April 1983 found that of
households with a checking, savings,
negotiable order of withdrawal
(NOW), or share draft account, more
than 68 percent had an account with
an EFT feature and used it at least occasionally; the proportion in March
1981 was 54 percent. ATMs are currently the most widely used of the five
principal forms of EFT (the others
are telephone bill payment, home
banking, point-of-sale payments, and
transfers through ACHs).
The benefits to consumers from the
Electronic Fund Transfer Act are difficult to measure because they cannot
be isolated from consumer protections that would have been provided
otherwise. Compliance statistics from
examination reports do not suggest
any widespread compliance problem
or violations of the consumer rights
established by the act. All five federal
agencies that regulate financial institutions reported decreases from the
previous year in the percentage of institutions not in full compliance. The
most frequent violations involved
failure to provide one or more information disclosures to consumers.
Moreover, the majority of institutions cited for noncompliance had
only one to five violations, a good
record in light of the volume of consumer EFT transactions.
Further evidence that consumers
have no serious problems with EFT
DigitizedliesFRASER from the Board's Confor in data
sumer Complaint Control System.
Only 71 of the 2,487 complaints processed in 1983 involved EFTs. The
Federal Reserve System forwarded 27
of these complaints to other agencies
for resolution; of the remaining 44,
only 4 involved a possible violation of
the regulation.
Costs associated with the act are
also difficult to quantify because the
costs of industry practices that would
have evolved in the absence of statutory requirements are unknown. Research by the Board staff has found
that, on average, data processing
changes, labor, and administration
were the most costly elements in compliance. The compliance cost of an
EFT transaction is probably not high
enough to compromise the cost advantage EFT transactions may otherwise have over check-based transactions. As EFT systems mature, as
transaction volume builds, and as
start-up costs for compliance are
amortized, compliance costs for each
EFT transaction are likely to fall. The
cost burden of the act is therefore
likely to decline.
Community Reinvestment Act
The Board of Governors is required
by the Community Reinvestment Act
(CRA) to encourage institutions
under its jurisdiction to help meet the
credit needs in their communities—
including low- and moderate-income
neighborhoods—consistent with the
safety and soundness of the institutions. The CRA requires the Board to
assess the record of an institution in
meeting such needs and to take that
record into account in deciding certain applications that the institution
files.
During the 1983 reporting period
(July 1, 1982 through June 30, 1983),
Federal Reserve System personnel ex-
Consumer and Community Affairs
amined 785 state member banks for
CRA compliance. These institutions
are ranked for compliance on a scale
of 1 through 5, with 5 representing
the lowest level of performance and
3, less than satisfactory performance.
No bank fell into the lowest category,
and less than 4 percent failed to
achieve at least a satisfactory performance.
To assure a balanced perspective
on whether a bank is responding to
the needs of its community, Federal
Reserve examiners often interview
community representatives. In the
1983 reporting period, 1,036 such interviews were conducted with government officials, community-based
organizations, community development corporations, and civil rights
and consumer advocates.
In the 1983 reporting period, three
applications that the Federal Reserve
System processed were protested under
the CRA. The first application was
protested by a community organization which alleged that the applicant
had failed to meet the credit needs of
the low- and moderate-income population in the community. In a private
meeting between the applicant and
the community organization, the
organization agreed to withdraw its
protest. Following the protest, numerous lenders in the area expressed an
interest in working with community
groups to establish a local neighborhood housing services program. The
protest appeared to open new channels of communication between the
community and its lenders. The second application was also approved
following the withdrawal of the protest, again as a result of private meetings between the applicant and the
protestant. The third was approved
by the System following a finding
that the protest was nonsubstantive.
In 1983,
the Community Affairs
163
Officers at the Reserve Banks sponsored numerous programs to foster
constructive dialogue between financial institutions and their communities. These officers also assisted
lenders in fulfilling their obligations
under the CRA and in promoting revitalization through initiatives of the
private sector.
Consumer Advisory Council
The Consumer Advisory Council met
in March, July, and October 1983 to
advise the Board with regard to its
rulewriting and enforcement responsibilities and to discuss other issues
relating to consumer financial services. The council has 30 members,
who represent a wide spectrum of
the interests of both consumers and
financial institutions. The council's
meetings are open to the public.
In 1983, the council considered the
following issues:
• The merits of state or federal
rules that would govern disclosures
for time deposits and savings accounts.
• The Board's proposed revision
of the Consumer Leasing Act.
• The way limitations on creditor
remedies may affect the availability
of consumer credit and the number of
consumer bankruptcies.
• The relationship between commercial and consumer interest rates.
• Bank policies on dormant accounts.
• Legislative and operational developments relating to delayed availability of funds.
• The Board's plan for reviewing
Regulation B.
• The effectiveness of the Federal
Reserve System's implementation of
the Communty Reinvestment Act.
• The economic effects of credit
card use on consumers, merchants,
and card issuers.
164 Consumer and Community Affairs
• Credit card fraud and proposed
legislation to expand existing law.
• Bankruptcy reform.
In 1983, the council forwarded to
the Board "The Federal Reserve
System's Implementation of the
Community Reinvestment Act of
1977," a report requested by Chairman Volcker. The review committee
of 11 council members focused on
four areas: bank examinations, the
training of consumer compliance personnel, applications and protests, and
community affairs.
The council's report commends
many of the System's efforts to implement CRA, especially the appointment of a community affairs officer
at the Board and at each of the
Federal Reserve Banks; the System's
community outreach program; and
the CRA training for consumer compliance examiners. In addition, the
report offers recommendations to
strengthen implementation of the act,
within a framework of general beliefs:
• The Board should assign a
higher, more clearly defined priority
to enforcement and other efforts
necessary to implement the CRA.
Specifically, the council recommends
that System examiners use more effective methods to detect bank practices that discourage minorities and
other protected classes from applying
for loans, and that the System produce additional educational materials
to inform consumers of the Federal
Reserve's willingness to respond to
CRA complaints against state member banks.
• The System should strive for better coordination in various CRArelated activities. For example, the
community affairs officers, who are
expected to have the most wellrounded view of CRA issues, should
be directly involved in training new
Digitizedexaminers and should work closely
for FRASER
with them in interviews with local
community groups and agencies in
maintaining CRA-related information. Also, the Board should offer
specialized education for examiners
and monitor the performance of the
officers. The council also recommends increased coordination of the
enforcement effort of the federal
supervisory agencies, especially in
developing and maintaining CRArelated information, such as community profiles.
• The Federal Reserve System
should exercise leadership in fostering
constructive dialogue between bankers and their communities. Specifically, the System should encourage
community affairs officers to use
community resources, especially experienced community specialists, more
fully; to urge examiners to interview a
broad range of community representatives; and to seek better written
communications with the public. The
report suggests that Reserve Banks
improve their special mailings to
community groups and that newspaper notices of applications by
banks and bank holding companies
be written in plain English and state
that the Federal Reserve will consider, in deciding on the application,
a bank's performance in helping to
meet the credit needs of the community. The council also recommends
that the CRA statement be changed
to make it a more useful instrument
of public disclosure.
The Board is currently studying the
council's recommendations to determine how the System's implementation of CRA may be enhanced.
Legislative Recommendations
Each year the Board asks the agencies
with enforcement responsibilities
with regard to Regulations B, E, and
Consumer and Community Affairs 165
Z for any legislative recommendations concerning the underlying acts.
Although the Board has no legislative
recommendations beyond those regarding the Consumer Leasing Act
(summarized earlier in this section),
other agencies have made suggestions.
The Interstate Commerce Commission has requested consideration of
an amendment to the Equal Credit
Opportunity Act that would eliminate
it as an agency responsible for enforcing the act. In support of its request,
the commission notes that most customers of the carriers that it regulates
are business firms rather than individuals. Moreover, the commission notes
that although the carriers of household goods, which serve individuals,
may appear to have opportunities to
discriminate in ways prohibited by
the act, those carriers tend to restrict
credit to corporations and relocation
companies. "Should the extension of
credit to individuals become more
prevalent," the commission advises,
"the commission staff will regard the
household goods sector as a potential
problem area warranting scrutiny,
but we are unaware of any movement
in that direction."
The Office of the Comptroller of
the Currency believes that provisions
in the Electronic Fund Transfer Act
governing consumer liability for unauthorized electronic transfer of
funds should be re-evaluated. The act
establishes a three-tiered structure for
determining consumer liability that,
according to the OCC, is complex and
confusing for consumers and financial institutions alike. Moreover, the
OCC believes that financial institutions face difficulties in establishing
consumer liability, because they must
prove when the consumer learned of
the loss or theft and, in some instances, must also prove that the
losses would not have occurred if the
consumer had notified the institution.
The OCC also believes that clarification of congressional intent is needed with regard to section 909 of the
Electronic Fund Transfer Act. The
OCC points out that, in a dispute
about unauthorized transfers, the act
puts the burden of proof upon the
financial institution, and that the
Board's Regulation E requires merely
a "good faith investigation" of the
institution's records in resolving a
dispute. As a result, the act's requirement about burden of proof is weakened. The OCC also suggests clarification as to whether this requirement
applies only in a judicial procedure or
also in pretrial stages of a consumer
complaint.
The Federal Deposit Insurance
Corporation reiterates its recommendation that the Congress review and
overhaul the Truth in Lending Act,
which the FDIC finds complex and
unmanageable. The agency suggests
that the Congress reexamine the
scope of the act and the nature and
extent of the abuses that gave rise to
the statute. It observes that a broad
category of simple-interest loans
could well be exempted from the cost
disclosures of the law as long as any
associated credit insurance was in fact
voluntary.
166
Legislative Recommendations
The Board of Governors has made
the following recommendations for
legislation to the Congress of the
United States.
Bank Holding Company
Legislation
Legislation is under consideration in
the Congress to expand banking
powers and revise the banking laws to
be responsive to technological and
market changes, competitive forces,
and customer needs.
The Federal Reserve believes that
reform of the existing statutory
framework is urgent to accommodate
the constructive evolution of the
banking system and to channel the
forces of change in a manner consistent with continuing public policy objectives.
The Federal Reserve has recommended that the framework for legislative action should include the following essential elements:
• New statutory definitions to
clarify what is a bank, what is a thrift
institution, and what is the proper
scope of powers for state-chartered
banks.
• Expansion of the powers of bank
holding companies.
• Streamlining of the procedures
of the Bank Holding Company Act.
Definitions
New definitions of the terms "bank"
and "thrift institution" are urgent to
assure an orderly framework for the
development of the financial system,
to promote competitive equity, and to
establish clearly the competitive rules
for the various segments of the financial service industry. The Board takes
as its point of departure the basic
proposition that banks, and depository institutions generally, continue
to perform a unique and critical role
in the financial system and the economy—as operators of the payments
system, as custodians of the bulk of
liquid savings, as key and impartial
suppliers of short-term credit, and as
the link between monetary policy and
the economy.
The Board believes that all institutions having the unique character of
banks should be subject to the rules
applicable to banking institutions—
that is, the limitations on the range of
activities and ownership, as well as
the protections against conflict of interest, concentration of resources,
and excessive risk. To achieve that end
and to close the so-called "nonbank
bank" loophole, the Board has recommended clarifying the definition of
"bank" in the Bank Holding Company Act by, among other changes,
extending the definition to cover all
institutions that are insured by the Federal Deposit Insurance Corporation.
The Board has also recommended
that thrift institutions meet a minimum residential mortgage test to remain eligible for the special benefits
provided by law for such institutions.
The holding companies of thrift institutions not meeting the test would be
limited so that the scope of their permissible nonbanking activities would
be similar to those of bank holding
companies.
The Board has also recommended
that the Congress establish limits with
Legislative Recommendations 167
respect to the ability of states to
authorize state-chartered institutions
to engage in activities that are beyond
the powers permitted under federal
law to depository institutions and
their holding companies. Otherwise,
to the extent that the Congress, in the
national interest, finds it necessary to
circumscribe the activities of depository institutions and their holding
companies, such limitations could be
rendered null and void over time by
unrestrained state action.
Powers
The Board has recommended permitting bank holding companies to engage in a broader range of activities
including the following:
• The expansion of securities
powers, specifically revenue bond
underwriting and mutual investment
fund powers.
• Insurance brokerage and underwriting activities with some constraints on the size combinations of
banks and insurance firms.
• Real estate brokerage and the exercise of real estate investment and
development powers with certain prudential limitations.
• The operation of a thrift institution insured by the Federal Savings
and Loan Insurance Corporation.
• Any activity determined by the
Board to be of a financial nature or
closely related to banking.
latory burdens. The Board has recommended legislation eliminating the
"benefits and burdens" test of present
law, limiting bank holding company
examinations and reports, providing
for expedited notice procedures for
approval of new activities, and setting
out new and simplified criteria for
determining the permissibility of new
activities generally.
Increasing the Number
of Class C Directors
The Board has recommended that the
Federal Reserve Act be amended to
increase the number of Class C directors at each Federal Reserve Bank
from three to five. The proposal aims
to diversify further the backgrounds
and interests represented on the
boards of directors of the Reserve
Banks as a way of accomplishing one
of the objectives of the Federal Reserve Reform Act of 1977. That act
provides for the representation of the
interests of consumers, labor, and
services, in addition to agriculture,
commerce, and industry, on the boards
of the Reserve Banks.
The Board also has recommended
that thrift institutions be added to the
groups that should be considered in
selecting Class C directors in view of
the changes made by the Monetary
Control Act of 1980. That act applied
reserve requirements to such institutions and made Federal Reserve credit
and services available to them.
Procedures
The Board favors streamlining the
procedures for dealing with bank
holding company applications. By recent changes in the regulation governing holding company activities, the
Board has gone as far as it believes it
can, consistent with present law, to
speed up procedures and lessen regu-
Amendments to the
Consumer Leasing Act
The Board has submitted to the Congress draft legislation to simplify and
improve the Consumer Leasing Act.
The Board suggested that the law,
which requires disclosure of the terms
and cost of leasing personal property
168 Legislative Recommendations
by consumers, could benefit from the
kind of streamlining that characterized
the simplification of the Truth in
Lending Act in 1980. The Board's
proposal would accomplish the
following:
• Emphasize disclosure of the essential cost information in a straightforward manner.
• Reduce both the number and the
complexity of the required disclosures
and concentrate on information most
likely to be used in shopping and decisionmaking.
• Require disclosures to be presented separately from other information so as to highlight them for the
consumer.
One major change recommended by
the Board is to expand the coverage
of the act to include " rental-purchase
agreements." These are short-term
(usually week-to-week or month-tomonth) rentals of television sets or
other goods; the agreement may be
canceled by the consumer at any time,
but provides that the consumer will
own the goods after a certain number
of payments. Because of tjie need for
cost information for these increasingly
popular transactions and because of
the similarity of rental-purchase
agreements to longer-term leases, the
Board has recommended that they be
covered by the act.1
Federal Reserve Bank Branches
The Board has recommended that the
Federal Reserve Act be amended with
respect to the limit on the cumulative
dollar amount that may be spent on
construction of Federal Reserve Bank
branch buildings. The System incurs
1. See the section "Consumer and Community Affairs" in this Report for a further
discussion of the Board's suggestions for
amending the Consumer Leasing Act.
expenses for branch construction
principally for additions to, or replacements for, existing branch facilities. The current limitation, set in
1974, will be exhausted by projects
that are under way or that are currently at an advanced planning stage.
Branches of Federal Reserve Banks
provide important services to the financial system and the public, including the distribution of coin and currency, the clearing of checks, and the
processing of electronic payments.
The current statutory limitation will
prevent needed renovation and new
construction at branch buildings.
Amendments to the
International Banking Act
The International Banking Act of
1978 (IBA) provided a federal regulatory framework governing the operations of foreign banks within the
United States and also contained provisions relating to the organization
and operations of Edge corporations.
As required by the IBA, the Board in
1980 submitted to the Congress a report containing its recommendations
to improve the implementation of the
IBA. The Board's current recommendations include the following elements:
• Authorize access for Edge corporations to the Federal Reserve discount window without requiring them
to become members of the Federal
Reserve System.
• Authorize the Board to permit
majority ownership of an Edge corporation by a U.S. bank that is controlled by foreign individuals.
• Eliminate the statutory limitation on investments by a member
bank in Edge corporations and
authorize the Board to determine
Legislative Recommendations 169
amounts of aggregate and individual
investments in Edge corporations.
• Clarify the Board's authority to
require prior approval or notice of a
change in ownership or control of an
Edge corporation, and revise the Edge
act to provide rules applicable to
ownership of Edge corporations that
are comparable to those applicable to
owners of other U.S. banking institutions.
• Eliminate the statutory requirement that Edge corporations be examined at least annually.
• Authorize the Board to impose
reserve requirements on all foreign
banking institutions in the United
States, including commercial lending
companies and agencies of foreign
banks with consolidated worldwide
assets of less than $1 billion.
• Amend the Bank Holding Company Act so as effectively to prohibit
bank holding companies from acquiring by merger banks outside their
principal state of bank operations,
and clarify the intent of the Congress
under section 5 of the IBA with
respect to a change in home state.
• Provide specifically by statute
that the banking agencies may exempt
from disclosure information obtained
from foreign banking organizations
that is not disclosed, either by law or
by custom, in their home countries.
• Authorize the banking agencies
to exchange examination and other
supervisory information with foreign
banking authorities about banks and
bank holding companies under suitable agreements to maintain confidentiality of that information.
170
Litigation
During 1983, the Board of Governors
was named in thirty-two pending lawsuits, compared with thirty-four in
1982. Of the new lawsuits filed in
1983, five raised questions under the
Bank Holding Company Act, compared with six such actions filed in
1982. As of December 31, 1983, nineteen cases were pending, seven of
which involve questions under the
Bank Holding Company Act. A brief
description of each of these cases and
of those disposed of in 1983 follows.
Board's order was upheld in an opinion dated October 17, 1983 (717 F.2d
242). On November 17, 1983, a petition for rehearing and a suggestion
for rehearing en bane were denied.
In First Bancorporation v. Board
of Governors, no. 82-1401 (10th Circuit, filed April 9, 1982), petitioner
seeks judicial review of a Board order
approving petitioner's application to
acquire an industrial loan company,
subject to the conditions that that
company not both offer negotiable
order of withdrawal accounts and engage in the business of commercial
Bank Holding Companieslending, and that NOW accounts ofAntitrust Action
fered be subject to federal limitations
In 1983, the U.S. Department of on interest rates and reserve requireJustice filed no challenges under the ments (Federal Reserve Bulletin,
antitrust laws of the United States to volume 68, April 1982, page 253).
bank holding company acquisitions Oral argument was held on November
or mergers that had been approved 14, 1983. The case is awaiting the
previously by the Board, and no such court's decision.
cases were pending from previous
In Wyoming Bancorporation v.
years.
Board of Governors, no. 82-1634
(10th Circuit, filed May 20, 1982),
Bank Holding Company Act—
petitioner seeks judicial review of the
Review of Board Actions
Board's order dated April 27, 1982
In Gustafson v. Board of Governors, (Federal Reserve Bulletin, volume 68,
nos. 82-4113 and 82-4213 (5th Cir- May 1982, page 313), disapproving
cuit, filed March 24, and June 4, petitioner's application to acquire the
1982), petitioner sought judicial American State Bank of Powell,
review of an order of the Federal Powell, Wyoming. Petitioner chalReserve Bank of Dallas approving the lenges the Board's definition of the
application of Raymondville State relevant geographic market for
Bancshares, Inc., Raymondville, assessing the competitive impact of
Texas, to acquire Raymondville State the proposal. Oral argument was held
Bank, Raymondville, Texas, pur- on November 14, 1983. The case is
suant to authority delegated by the awaiting the court's decision.
Board of Governors {Federal Reserve
In Association of Data Processing
Bulletin, volume 68, April 1982, page Service Organizations, Inc., et al. v.
260). The petition was denied and the Board of Governors, nos. 82-1910 and
Litigation
82-2108 (D.C. Circuit, filed August
6, and September 20, 1982), petitioners seek judicial review of Board
orders approving an application by
Citicorp, New York, New York, to
engage, through a subsidiary, in certain data processing activities
(Federal Reserve Bulletin, volume 68,
August 1982, page 505), and amending the Board's Regulation Y to
designate those activities as closely
related to banking and thus permissible for bank holding companies generally (Federal Reserve Bulletin,
volume 68, September 1982, page
552). The cases are awaiting the
court's decision.
In Securities Industry Association
v. Board of Governors, no. 83-614
(Supreme Court, filed February 3,
1983), plaintiff seeks judicial review
of the Board's order, dated January
7, 1983, approving an application by
Bankamerica Corporation, San Francisco, California, to acquire The
Charles Schwab Corporation, San
Francisco, California, which owns a
discount securities brokerage firm,
Charles Schwab & Co., Inc. (Federal
Reserve Bulletin, volume 69, February 1983, page 105). The court issued
an opinion on July 15, 1983, upholding the Board's order (716 F.2d 92).
A petition for certiorari is pending,
52 U.S.L.W. 3324 (U.S., October 12,
1983) (no. 83-614).
In Dakota Bankshares, Inc. v.
Board of Governors, no. 83-1697
(8th Circuit, filed May 26, 1983),
petitioner sought judicial review of a
Board order, dated May 3, 1983, disapproving petitioner's application to
acquire 80 percent of the outstanding
voting shares of Dakota Bank of
Wahpeton, Wahpeton, North Dakota,
based on the financial resources and
future prospects of petitioner (Fed
171
eral Reserve Bulletin, volume 69,
June 1983, page 442). Petitioner's
motion to dismiss was granted on
September 28, 1983.
In Independent Insurance Agents
of America, Inc., et al. v. Board of
Governors, nos. 83-1818 and 83-1819
(8th Circuit, filed June 21, 1983),
petitioners seek judicial review of the
Board's orders dated May 31, 1983,
approving applications by Commerce
Bancshares, Inc., Kansas City,
Missouri, and St. Louis, Missouri,
and Mercantile Bancorporation, Inc.,
St. Louis, Missouri, to engage in the
sale of property and casualty insurance directly related to financial services provided by the applicants' subsidiaries (Federal Reserve Bulletin,
volume 69, June 1983, page 447). The
cases have been fully briefed and are
awaiting oral argument.
In Oklahoma Bankers Association
v. Federal Reserve Board, no. 83-2591
(10th Circuit, filed December 13,
1983), plaintiff seeks judicial review
of a Board order dated November 17,
1983, approving the application of
Citicorp, New York, New York, to
acquire de novo Citicorp Savings and
Trust Company, Tulsa and Oklahoma
City, Oklahoma, a limited-purpose
trust company that will engage in industrial bank activities. The case is
pending.
In Dimension Financial Corporation et al. v. Board of Governors,
nos. 83-2604 and 83-2605 (10th Circuit, filed December 14, 1983), and
no. 83-2647 (10th Circuit, filed
December 23, 1983), petitioners challenge the definition of "commercial
loan" and "demand deposit" in an
amendment to the Board's Regulation Y that was approved by the
Board on December 14, 1983. The
case is pending.
172 Litigation
Other Litigation Involving
Challenges to Board
Procedures and Regulations
The Monetary Control Act of 1980
In First Bank & Trust Co. v. Board of
Governors, no. 81-38 (E.D. Ky., filed
February 24, 1981), plaintiff seeks
declaratory and injunctive relief from
a Board determination that plaintiff
is ineligible under the provisions of
the Monetary Control Act of 1980 regarding the phase-in of reserve requirements for nonmember banks. A
status hearing was held on November
21, 1983, with respect to the parties'
cross-motions for summary judgment
or dismissal.
In Bank Stationers Association et
al. v. Board of Governors, no.
C81-1417A (N.D. Ga., filed July 27,
1981), plaintiff sought declaratory
and injunctive relief from the fee
schedule for automated clearinghouse
services adopted by the Board pursuant to the Monetary Control Act of
1980. By order dated December 22,
1981, the district court dismissed
plaintiff's complaint for lack of
standing (no. 82-8058). On May 12,
1983, the court of appeals affirmed
the district court's dismissal for lack
of standing (704 F.2d 1233).
In Jet Courier Services, Inc., et al.
v. Federal Reserve Bank of Atlanta et
al., no. 83-3128 (6th Circuit, filed
February 17, 1983), petitioners appealed the district court's dismissal of
their action challenging new checkcollection fees and presentment deadlines. On July 29, 1983, the court affirmed the dismissal (713 F.2d 1221).
Financial Institutions
Supervisory Act of 1966
In Wolfson v. Board of Governors,
no. 81-913 CWTK (M.D. Fla., filed
September 28, 1981), plaintiff sought
declaratory and injunctive relief and
compensatory damages in connection
with the Board's issuance of an order
pursuant to the Financial Institutions
Supervisory Act of 1966. By order
dated July 13, 1983, the district court
granted the Board's motion for summary judgment. An appeal is pending.
In a case filed with the U.S. District
Court for the District of Columbia,
no. 83-3593 (filed December 1,1983),
and placed under seal by court order,
plaintiff sought preliminary relief to
restrain enforcement of a temporary
cease and desist order issued by the
Board. Petitioner claimed that the
Board acted in an arbitrary and
capricious manner and with an abuse
of discretion in issuing the cease and
desist order. In a decision issued
December 21, 1983, the court denied
the petitioner's request for a preliminary injunction.
The Glass-Steagall Act
inA.G. Becker Inc. v. Board of Governors et al., no. 80-2614 (D.D.C.,
filed October 14,1980), and Securities
Industry Association v. Board of
Governors et al., no. 80-2730
(D.D.C., filed October 24, 1980),
plaintiffs sought review of a Board
statement, dated September 26, 1980,
denying in part plaintiffs' petition
that the Board prohibit Bankers Trust
Company, a state member bank, from
selling third-party commercial paper
as an agent of the issuer. Plaintiffs
also filed petitions for review of the
Board's statement in the U.S. Court of
Appeals for the District of Columbia
Circuit (no. 80-2258, filed October
14, 1980, and no. 80-2314, filed October 24, 1980). In an opinion and
order dated July 28, 1981 (519 F.
Supp. 602), the district court declined
Litigation
to order the Board to initiate enforcement proceedings against Bankers
Trust, but invalidated the legal conclusions contained in the Board's
statement. The Board and A.G.
Becker appealed the district court's
judgment (nos. 81-2070, 81-2058,
and 81-2096).
In an opinion and order dated
November 2, 1982, the U.S. Court of
Appeals for the District of Columbia
Circuit reversed the action of the
district court and upheld the Board's
statement under the Glass-Steagall
Act (693 F.2d 136). On October 3,
1983, a joint petition for certiorari
(no. 82-1766) was granted (104 S.
Ct. 65).
Freedom of Information Act
In 9 to 5 Organization for Women
Office Workers v. Board of Governors, no. 80-2905-C (D. Mass., filed
December 30, 1980), plaintiff seeks
disclosure under the Freedom of Information Act of records regarding a
wage survey conducted by a consortium of employers in Massachusetts
and used by the Board in approving
salaries of the Federal Reserve Bank
of Boston. By orders dated December
21, 1981, and June 17, September 30,
and December 2, 1982, the district
court partially granted and partially
denied each of the parties' crossmotions for summary judgment. The
Board appealed the district court's
decision that data from salary surveys
were not protected from disclosure
under exemption (b)(4) of the act (no.
83-1171). On November 2, 1983, the
U.S. Court of Appeals for the First
Circuit vacated the decision of the
district court and remanded the case
to the district court. On November
16, 1983, plaintiffs filed a motion
173
with the court of appeals for rehearing or rehearing en bane.
In Flagship Banks, Inc. v. Board of
Governors, no. 82-2920 (D.D.C.,
filed October 12, 1982), plaintiff
seeks disclosure of Board records pertaining to a notice filed pursuant to
the Change in Bank Control Act. The
case has been suspended pending approval of a proposed acquisition of
plaintiff.
Administrative Procedure Act
In Philadelphia Clearing House Association et ai v. Board of Governors,
no. 82-3245 (E.D. Pa., filed July 27,
1982), plaintiffs sought injunctive
and other relief under the Administrative Procedure Act with respect to
a determination to set a uniform
deadline of 12 noon for presentment
of "city items" by Federal Reserve
Banks to depository institutions for
clearing and settlement. By stipulation of the parties, the action was dismissed on April 28, 1983.
In Sundorph Aeronautical Corp. v.
Federal Reserve Bank of Chicago,
no. C83-4723 (N.D. Ohio, filed November 18, 1983), petitioner, an unsuccessful bidder for a private transportation contract with the Federal
Reserve Bank of Chicago, alleges that
the Reserve Bank and the Board violated the Administrative Procedure
Act and the federal procurement law
in the solicitation process for service contracts with the Reserve Bank.
The Board's motion to dismiss is
pending.
Other Actions
In Berkovitz et al. v. Government of
Iran, no. C80-0097-WWS (N.D.
Cal., filed June 13, 1980), plaintiffs
sought to impose a trust on assets of
174 Litigation
the Government of Iran, and to recover damages in connection with the
death of Martin Berkovitz, a U.S.
citizen. By stipulation of the parties,
the action was dismissed on May 9,
1983.
In Gordon v. Heimann et al., nos.
C80-1265A (N.D. Ga., filed July 25,
1980) and 81-288A (N.D. Ga., filed
February 15, 1981), plaintiff sought
damages from 44 defendants in connection with alleged violations of the
Securities Act of 1933, the Securities
Exchange Act of 1934, and the Racketeer Influenced and Corrupt Organizations Act (RICO). Both actions
were dismissed by the district court by
orders dated December 2, 1980, and
May 28, 1981, respectively. By orders
dated September 25, 1981, the district
court awarded attorneys' fees to certain defendants in both cases and
denied attorneys' fees to certain other
defendants in no. C80-1265A. Plaintiff's appeals from the district court's
orders of September 25, 1981 (nos.
81-8017 and 81-8018) were consolidated before the U.S. Court of Appeals for the Eleventh Circuit with
cross-appeals from the denial of attorneys' fees to certain defendants in
no. C80-1265A. On September 19,
1983, the court of appeals affirmed
the district court's order awarding attorneys' fees and remanded with
directions for reconsideration of
previous denials of attorneys' fees.
The case is pending.
In Public Interest Bounty Hunters
v. Board of Governors, no. C811184A (N.D. Ga., filed June 25,
1981), plaintiff alleges that various
Board actions violate the Bank Holding Company Act and the GlassSteagall Act. On November 29, 1982,
plaintiff appealed the district court's
orders dated June 23, 1982, dismiss
ing the action, and dated September
30, 1982, awarding attorneys' fees to
defendant (no. 82-8743). On December 1, 1983, the court of appeals affirmed the district court's decision.
In Vick v. Volcker, no. 82-0592
(D.D.C., filed March 2, 1982), plaintiff sought damages and other relief
in connection with the alleged unconstitutionality of the Federal Reserve
Act. The district court dismissed the
complaint for lack of standing. Plaintiff filed notices of appeal (D.C. Circuit, nos. 82-1504, 82-1505, 82-1506,
82-1510). On March 18, 1983, the
court dismissed plaintiff's appeals
and motion to proceed in forma
pauperis.
In Richter v. Board of Governors
et al., no. 82-C-3150 (N.D. 111., filed
May 21, 1982), plaintiff sought injunctive relief in connection with the
Board's conduct of national monetary policy. The Board's motion to
dismiss was granted by court order on
October 3, 1983.
In Bowler v. Treasurer of the
United States et al., no. 82-0151-B
(D. Me., filed July 15, 1982), plaintiff
sought relief in connection with the
alleged unconstitutionality of issuance of Federal Reserve notes as legal
tender in the United States. The district court granted the Board's motion to dismiss by order dated November 17, 1982. Plaintiff appealed
the district court's order in the Court
of Appeals for the First Circuit (no.
82-1879). The district court's order
was affirmed on January 26, 1983.
In Hayton v. State of Utah et al.,
no. C82-6595 (D. Utah, filed September 10, 1982), plaintiff sought
various relief in connection with the
alleged unconstitutionality of issuance of Federal Reserve notes as legal
tender in the United States. The
Litigation
Board's motion to dismiss was
granted on February 25, 1983.
In Taxpayers of the U.S.A. et al.
v. Board of Governors et al., no. 82183 (E.D. Ky., filed on November 27,
1982), plaintiffs alleged, among other
claims, that the Federal Reserve System is involved in a conspiracy to
overthrow the U.S. government. On
January 24, 1983, the court dismissed
the case for lack of subject matter
jurisdiction.
In Flagship Banks, Inc. v. Board of
Governors, no. 83-0200 (D.D.C.,
filed January 25, 1983) and no. 831199 (D.D.C., filed February 22,
1983), petitioner seeks injunctive and
other relief from the Board's decision
not to object to a notice filed by Juan
Vicente Perez Sandoval and Inversiones Credival, C.A., Caracas, Venezuela, under the Change in Bank
Control Act to acquire up to 24.99
percent of its outstanding voting
shares. The case was suspended pending approval of a proposed acquisition of petitioner.
175
In The Committee for Monetary
Reform et al. v. Board of Governors, no. 83-1730 (D.D.C., filed
June 16, 1983), plaintiff challenged
the constitutionality of the Federal
Open Market Committee and the
Board's regulation of the nation's
money supply. The court granted the
defendant's motion to dismiss on October 26, 1983. Plaintiffs' motion to
reconsider or amend the judgment
was denied on December 1, 1983.
In Wendell L. White v. Commissioner of Internal Revenue et al., no.
83-5148 IH ( C D . Cal., filed August
9, 1983), plaintiff challenges the
valuation of Federal Reserve notes
for tax purposes. The case is pending.
In a case filed in the U.S. District
Court for the District of Minnesota,
no. 4-83-995 (filed November 16,
1983), and placed under seal by court
order, plaintiff alleges that the Board
reviewed and copied his financial records at a national bank in violation of
the Right to Financial Privacy Act.
The case is pending.
176
Legislation Enacted
Bretton Woods Agreement
Title VIII of Public Law 98-181, approved November 30,1983, authorizes
the U.S. Governor of the International Monetary Fund to consent to an increase in the U.S. quota in the Fund.
The authority to extend loans to the
Fund under the General Agreements
to Borrow is also increased, subject to
certification by the Secretary of the
Treasury that supplementary resources
are needed to forestall or cope with
an impairment of the international
monetary system and that the Fund
has fully explored other means of
funding. Title VIII also requires congressional consultation before future
increases in the quota are negotiated
or agreed to, and consultation by the
Secretary of the Treasury with relevant congressional committees at least
90 days before any vote to allocate
Special Drawing Rights.
Title VIII also includes provisions
instructing the U.S. Executive Director of the Fund to do the following,
among other things:
• Work for adoption of Fund policies that promote conditions contributing to the stability of exchange rates
and that avoid the manipulation of exchange rates among major currencies.
• Propose and vote for adoption of
Fund procedures to collect and disseminate information, on a quarterly
basis, from and to Fund members,
and to disseminate publicly information that the Fund determines will enhance the informational base upon
which international borrowing and
lending decisions are taken.
• Actively oppose any facility involving the use of Fund credit by any
Communist dictatorship or by any
country that practices apartheid, unless the Secretary of the Treasury notifies the Congress and makes certain
findings, including the finding that
the drawing is in the best economic
interest of the majority of the people
in that country.
• Recommend and work for changes
in Fund policies that would, among
other things, (1) convert short-term
bank debt into long-term debt at significantly narrower interest rate spreads,
where such action is consistent with a
country's need to obtain adequate external private financing; and (2) assure
that annual external debt service is
manageable.
• Oppose and vote against any
Fund drawing where, in the judgment
of the U.S. Executive Director, Fund
resources would be drawn principally
to repay loans imprudently made by
banking institutions.
• Work to insure that the Fund encourage borrowing countries and banks
to negotiate, where appropriate, a rescheduling of debt that is consistent
with safe and sound banking practices
and with the country's ability to repay.
• Propose policies requiring the
Fund (1) to intensify examination of
the trend and volume of external indebtedness in a country seeking assistance and to consider the extent to
which this information could be made
public; (2) to consider placing limits
on external short- and long-term borrowing in the public sector as part of
any stabilization program; and (3) to
Legislation Enacted 177
publish the Fund's evaluation of the
trend and volume of international
lending.
• Propose and work for adoption
of Fund policies to bring the rate of
charges on Fund drawings in line with
market rates.
• Work for Fund policies that reduce obstacles to, and restrictions
upon, international trade and investment, that eliminate unfair trade and
investment practices, and that promote mutually advantageous economic relations.
International Lending Supervision
Title IX of Public Law 98-181, the International Lending Supervision Act
of 1983, approved November 30,1983,
among other things, does the following:
1. Directs the federal banking agencies to consult with supervisory authorities of other countries to reach
understandings aimed at achieving the
adoption of effective and consistent
supervisory policies and practices concerning international lending.
2. Directs the federal banking agencies to evaluate foreign country exposure and transfer risk, and to establish
procedures to assure that these factors
are taken into account in evaluating
the capital adequacy of banks.
3. Provides for the maintenance of
special reserves whenever the quality
of an institution's assets has been impaired by a protracted inability of
public or private borrowers in a foreign country to make payments on
their external indebtedness, or where
no definite prospects exist for the
orderly restoration of debt service.
Such special reserves must be charged
against current income and will not
be regarded as capital and surplus or
as allowances for loan losses for regulatory, supervisory, or disclosure purposes.
4. Provides that, in the restructuring of an international loan, no fee
may be charged that exceeds the administrative cost of the restructuring
unless the fee is amortized over the
life of the loan.
5. Directs the federal banking agencies to collect information on foreign
country exposure from banks at least
four times a year and to require banks
to disclose publicly information regarding material foreign country exposure in relation to assets and capital.
6. Directs the federal banking agencies to establish minimum levels of
capital for banking institutions. Provisions are included regarding the
agencies' authority to enforce the
minimum capital levels, and new procedures are specified for issuing orders
to increase capital levels.
7. Requires a bank that makes a
loan exceeding $20 million to finance
foreign mining projects to prepare a
written evaluation of economic feasibility. The evaluation must include,
among other things, a review of the
profit potential of the project, its impact on world markets, and its effect
on long-term economic development
of the host country, and an assessment of whether the loan can be repaid from project revenues.
8. Directs the federal banking agencies to establish uniform systems of implementation, and provides civil penalties for violations.
9. Authorizes the General Accounting Office to review and evaluate the
international regulation, supervision,
and examination activities of the federal banking agencies.
178
Banking Supervision and Regulation
One of the Federal Reserve's principal
responsibilities is the supervision and
regulation of commercial banking organizations. In carrying out its duties,
the Federal Reserve supervises and
regulates state member banks; bank
holding companies and their nonbank
subsidiaries; the international activities of banks and bank holding companies; and the U.S. banking and
nonbanking operations of foreign
banks. Many of these supervisory activities are coordinated with other
federal and state regulatory agencies.
A description of how the System fulfilled these responsibilities during
1983 follows.
Supervision for
Safety and Soundness
The Federal Reserve conducts three
main activities to ensure the safety
and soundness of financial institutions: on-site examinations and inspections, surveillance and monitoring, and enforcement and other
supervisory actions.
Examinations and Inspections
The on-site review of operations is the
primary means for ensuring the safety
and soundness of financial institutions. Examinations or inspections of
these operations entail (1) an appraisal of the quality of the institution's
assets; (2) an evaluation of management, along with internal policies,
operations, and procedures; (3) an
assessment of the key financial factors of capital, earnings, asset and
liability management, and liquidity;
and (4) a review for compliance with
applicable laws and regulations.1
State Member Banks
The Federal Reserve is the primary
federal supervisor and regulator of
state-chartered commercial banks
that are members of the System. At
the end of 1983, there were 1,089 state
member banks, accounting for about
8 percent of all insured commercial
banks. Because these banks typically
were larger than the average, they
held about 18 percent of total assets
of insured commercial banks.
State member banks are examined
every 18 months, except when significant weaknesses or other conditions
call for more frequent examination.
In 1983, System personnel conducted
736 examinations, many jointly or
concurrently with examiners from
state regulatory agencies.
Bank Holding Companies
During 1983, the number of bank
holding companies increased by 814
to a total of 5,371. These organizations control commercial banks that
hold about 87 percent of the total
1. The Board's Division of Consumer and
Community Affairs is responsible for reviewing compliance with consumer and civil rights
laws. This responsibility is accomplished mainly through examinations by specially trained
Reserve Bank examiners. These regulatory responsibilities are described in the "Consumer
and Community Affairs" section of this
REPORT. Compliance with other statutes and
regulations, which is treated in this section, is
the responsibility of the Board's Division of
Banking Supervision and Regulation and of the
Reserve Bank examiners, who check for safety
and soundness.
Banking Supervision and Regulation 179
assets of insured commercial banks in
the United States.
Most large bank holding companies, as well as small companies with
significant nonbank assets, are inspected at least every 18 months,
others at least every three years. The
inspection focuses on the operations
of the parent holding company and
its nonbank subsidiaries; the subsidiary banks are examined by the appropriate federal banking regulatory
agency. During the year, System examiners conducted 1,398 inspections
of bank holding companies.
Federal Reserve examined 14 foreign
branches of state member banks and
25 foreign subsidiaries of Edge corporations and bank holding companies.
U.S. activities of foreign banks. In
recent years, foreign entities have
rapidly expanded their operations in
the United States and have become a
significant element in the U.S. banking system. As of December 31, 1983,
225 foreign banks operated 355 statelicensed uninsured branches and
agencies, 31 state-licensed branches
insured by the Federal Deposit Insurance Corporation (FDIC), and 64
branches and agencies licensed by the
International Activities
The Federal Reserve oversees a num- Office of the Comptroller of the Curber of international banking activi- rency (of which 3 have FDIC insurance). Foreign banks also owned a
ties.
controlling interest in 67 U.S. banks.
Edge and Agreement corporations.
Edge corporations are chartered by Together, these foreign banks conthe Board to conduct an international trolled 13.6 percent of U.S. banking
banking business to provide all seg- assets as of June 30, 1983.
The Federal Reserve has broad resiments of the U.S. economy with a
dual and oversight authority for the
means of financing international
trade, exports in particular. An Agree- supervision and regulation of foreign
ment corporation is a company that banks that engage in banking in the
enters into an agreement with the United States through branches, agenBoard not to exercise any power that cies, commercial lending companies,
is impermissible for an Edge corpora- and banks. In exercising this authortion. During 1983, the Federal Re- ity, the Federal Reserve relies on exserve conducted 124 examinations of aminations conducted by the approEdge and Agreement corporations priate federal regulatory agency for
insured branches and for federally
and their branches.
licensed branches and agencies, or
Overseas operations of U.S. banking organizations. Examinations of commercial bank subsidiaries, and on
the international operations of state examinations by the appropriate state
member banks, Edge corporations, authority for state-licensed branches
and bank holding companies are con- and agencies. Although the states
ducted principally at the banking have primary authority for examining
organization's head office in the state-licensed uninsured branches and
United States, where the ultimate agencies, the Federal Reserve particiresponsibility for overseas facilities pated in the examination of 128 such
lies. To verify and supplement the offices in 1983.
results of the head-office examinations, on-site reviews of important
overseas facilities are performed at Specialized Examinations
least every three years. In 1983, the The Federal Reserve conducts special-
180 Banking Supervision and Regulation
ized examinations in the following
areas of bank activity.
Electronic Data Processing
The Federal Reserve examines the
electronic data processing (EDP) activities of state member banks, Edge
and Agreement corporations, and independent centers that provide EDP
services to these institutions. During
the year, System examiners conducted 323 on-site EDP reviews. In
addition, the Federal Reserve reviews
EDP examination reports of independent centers that provide EDP
services to state member banks. These
centers are examined by the other federal agencies under the Interagency
EDP Examination Program.
Trust Activities
The Federal Reserve examines trust
departments of state member banks,
trust companies that are members of
the Federal Reserve System, and certain trust-company subsidiaries of
bank holding companies. These examinations review the trust functions
to ensure that they are conducted in
accordance with applicable fiduciary
principles and with the laws and regulations. During the year, the Board
examined 285 such institutions.
Municipal Securities Dealers
and Clearing Agents
Under the Securities Acts Amendments of 1975, the Board is responsible for supervising state member
banks and bank holding companies
that act as municipal securities dealers or as clearing agencies. In 1983,
the Board examined 38 of the 54 state
member banks registered with the
Board that deal in municipal securities for their trading accounts.
A clearing agency acts as a custodian of securities for the settlement of
securities transactions by bookkeeping entries. The three agencies regis-
tered with the Board were examined
in 1983.
Transfer Agents
System examiners conduct separate
reviews of state member banks and
bank holding companies that act as
transfer agents. Transfer agents
countersign and monitor the issuance
of securities, register the transfer of
securities, and exchange or convert
securities. During 1983, the Board examined 119 such banks and bank
holding companies.
Improvements to Examinations
and Inspections
During the year, the Federal Reserve
took a number of steps to enhance its
examination and inspection programs.
New Examination Report
for Commercial Banks
Nineteen-eighty-three was the first
year in which the Federal Reserve's
new format for the examination report for commercial banks was used.
The new format reflects changing
banking practices particularly with
respect to funding and the management of assets and liabilities; it also
stresses the evaluation of management policies, procedures, and internal systems and controls.
Each examination report makes extensive use of data from reports of
condition and income filed by state
member banks and from the uniform
bank performance report, as well as
information obtained directly from
the bank under examination. The
report balances the presentation of
these data with written analyses of
important aspects of the bank's management, loan quality, and financial
condition. Besides asset quality, capital, and liquidity, the report emphasizes the analysis of interest rate sensi-
Banking Supervision and Regulation 181
tivity and off-balance-sheet items of
banks. Because the report makes extensive use of readily available data,
it has permitted more efficient examinations and has given examiners
more time to review problem areas
requiring supervisory attention. Experience indicates that the new format
has strengthened the examiner's
evaluation of the bank's financial
condition and has improved the
presentation of findings to bank management and supervisory officials.
Supervisory Reporting
Requirements
Under the auspices of the Federal
Financial Institutions Examination
Council (FFIEC), the Federal Reserve
continued to participate with the
other banking agencies in revising the
commercial bank reports of condition
and income.2 Such reports are filed
quarterly and are available to bank
depositors, customers, and the general public. The revisions yield information necessary for supervisory and
regulatory purposes, improve the information available to the public, and
update the reports to reflect changing
bank and accounting practices and
new deposit instruments.
In 1983, for the first time, banks
filed certain quarterly schedules developed by the FFIEC to complement
and strengthen the supervisory process. One such schedule, Repricing
Opportunities for Selected Balance
Sheet Categories, assists examiners in
analyzing the interest rate sensitivity
of banks' earning assets and interest2. The Federal Financial Institutions Examination Council comprises the Comptroller of
the Currency, the Federal Deposit Insurance
Corporation, the Federal Home Loan Bank
Board, the National Credit Union Administration, and the Board of Governors of the
Federal Reserve System.
bearing liabilities, and in assessing the
effect of interest rate changes on a
bank's condition. Another schedule,
Commitments and Contingencies,
helps examiners weigh the impact that
off-balance-sheet items—such as loan
commitments, foreign exchange contracts, interest rate futures contracts,
and letters of credit—may have on a
bank's financial condition.
During 1983, banks also began to
file a quarterly report on past-due,
nonaccrual, and renegotiated "troubled" loans and leases. This schedule
reveals the quality of a bank's loan
portfolio and, together with other
data collected though the examination process, helps supervisors monitor the condition of commercial banks.
In addition, revisions to the report of
condition implemented in 1983 require banks to report quarterly the
amount of deposits they have acquired through money brokers.
In developing reporting requirements, the banking agencies have attempted to minimize the disruption
and burden that such requirements
can impose on banking organizations. For example, in 1983, the agencies took steps to alleviate the burden
on small banks in particular by permitting them to report certain information in a way that is consistent with
their own bookkeeping systems, rather
than in a set format that might be
more costly. Public availability of reports of condition and income has
helped to make bank customers and
investors more knowledgeable about a
bank's financial condition and, in so
doing, has served to reinforce the selfdiscipline of the marketplace.
Amendments to
Capital-Adequacy Guidelines
In June 1983, the Federal Reserve, in
conjunction with the Office of the
Comptroller of the Currency (OCC),
182 Banking Supervision and Regulation
made two amendments to the capitaladequacy guidelines, which were originally implemented in December 1981.
These guidelines are used in examining and supervising well-managed national banks and state banks that are
members of the Federal Reserve System, and bank holding companies.3
The first amendment established explicit guidelines on capital ratios for
17 large multinational organizations
for the first time.4 The most important effect of the action was to require multinationals to have a ratio of
primary capital to total assets of at
least 5 percent. At year-end 1983, the
primary-capital ratios of almost all of
the multinationals were above the
minimum.
The second amendment expanded
the definition of secondary capital
3. Institutions that are under special supervision and those that have been in operation
for less than two years are not included in the
program.
4. The 17 multinational organizations, with
lead banks in parentheses, are the following:
BankAmerica Corporation (Bank of America,
NT&SA); Bank of Boston Corporation (The
First National Bank of Boston); Bankers Trust
New York Corporation (Bankers Trust Company); Chase Manhattan Corporation (Chase
Manhattan Bank, N.A.); Chemical New York
Corporation (Chemical Bank); Citicorp (Citibank, N.A.); Continental Illinois Corporation
(Continental Illinois National Bank and Trust
Company of Chicago); Crocker National Corporation (Crocker National Bank); First Chicago Corporation (The First National Bank of
Chicago); First Interstate Bancorp (First Interstate Bank of California); Irving Bank Corporation (Irving Trust Company); Manufacturers
Hanover Corporation (Manufacturers Hanover
Trust Company); Marine Midland Banks, Inc.
(Marine Midland Bank, N.A.); Mellon National Corporation (Mellon Bank, N.A.); J.P.
Morgan & Co., Incorporated (Morgan Guaranty Trust Company of New York); Security
Pacific Corporation (Security Pacific National
Bank); and Wells Fargo & Company (Wells
Fargo Bank, N.A.).
used in evaluating the capital adequacy of consolidated bank holding companies to include unsecured, longterm debt issued by the parent company and its nonbank affiliates. Before,
the only form of long-term debt counted as secondary capital was qualifying subordinated notes and debentures
issued by bank affiliates of the holding company.
Coordination of Examinations
of Large Banks and
Their Parent Holding Companies
Beginning in 1983, the Federal Deposit Insurance Corporation joined
the Federal Reserve and the OCC in a
program that calls for coordinated
examination of bank holding companies and their lead-bank subsidiaries.
Under the program, bank holding
companies with more than $1 billion
in consolidated assets and their lead
national or state nonmember bank
subsidiaries are examined every year
concurrently by the Federal Reserve
and the OCC when a lead national
bank is involved, and by the Federal
Reserve and the FDIC when the lead
bank is a state nonmember bank. The
program has helped to strengthen
cooperation among the federal banking agencies, eliminate duplication,
and reduce the burden of multiple examinations on commercial banks and
their parent companies.
Funds Transfer Activities
In light of the substantial growth in
terms of transaction volume, dollar
volume, and number of participants,
the FFIEC's Task Force on Supervision adopted the Funds Transfer Activities Uniform Examination Procedures Manual. The manual strengthens and standardizes objectives for
examinations and the procedures for
reviewing the transfer activity of the
five major wholesale payments sys-
Banking Supervision and Regulation 183
terns used by depository institutions.
The examination procedures have two
sections: the first covers operations
and internal controls; the second addresses controls related to overdrafts,
advances against uncollected deposits, and settlement risk. Examiners of
the agencies responsible for supervising participating depository institutions use uniform procedures.
Supervision of
International Lending
In 1983, major efforts were made to
deal with the problems of international debt, which had begun to
worsen in the second half of 1982.
During the year, a number of countries instituted economic adjustment
measures, generally as part of programs designed by the International
Monetary Fund to restore their international creditworthiness and improve their debt-service capability.
Where borrowing countries adopted
suitable adjustment programs, banks
cooperated in the adjustment process
by renegotiating existing loans and in
many cases by providing new money.
The progress of these efforts was
monitored by the Federal Reserve
through its supervisory and reporting
procedures. In cooperation with the
other federal bank regulatory agencies, the Federal Reserve also conducted a major review of these procedures to improve supervisory policies.
This included development of new examination categories to better identify the element of country risk in international lending.
In November, the Congress passed
the International Lending Supervision Act of 1983, which contained
several measures designed to enhance
supervision in this area. Most of these
measures were based on proposals
sent to the Congress in April by the
Federal Reserve and the other federal
bank regulatory agencies. Under the
act banks must (1) establish specific
reserves against loans to countries
with protracted debt-service problems; (2) amortize most fees on international loans over the life of the loan
instead of taking them into income
immediately; (3) report more frequently on country exposure and disclose to the public large exposures to
individual countries; and (4) meet
minimum capital standards. Furthermore, the agencies must take country
exposure into consideration in assessing the adequacy of a bank's capital
and reserves. Final regulations implementing the laws will be adopted in
the first half of 1984. Although the
draft regulations were issued for comment in 1983 and had not become
final, the Federal Reserve advised
banks that reserves against loans to
countries with longstanding debtservice problems should be established for financial statements for
year-end 1983.
Surveillance and
Monitoring Program
The Federal Reserve System monitors
the financial condition of member
banks quarterly and that of large
bank holding companies semiannually. This computerized function aids
the examination process by identifying changes in the financial condition
of banking organizations between examinations. If major deterioration
seems to have occurred, the examination schedule is accelerated. Conversely, if the bank has had a good
examination rating and surveillance
confirms that it has remained sound,
the examination schedule may be
lengthened and thus resources may be
allocated to organizations warranting
closer supervision.
184 Banking Supervision and Regulation
During 1983, the Reserve Banks
were given a means to retrieve from
the Federal Reserve Board's computer a display of the Uniform Bank
and Bank Holding Company Performance Reports, which are used extensively in the supervisory and examination functions. This capability
affords easier and broader access to
these reports and greatly reduces the
paper flow among the bank regulatory agencies and the Reserve Banks.
Also, bank surveillance was extended
from two screening periods to four
because data from quarterly income
statements became available for the
spring and fall quarters for small
banks that previously filed only semiannual data as of June 30 and December 31. The availability of new data
reported in 1983 has yielded several
refinements to the surveillance screens
and performance reports.
Enforcement Actions and
Civil Money Penalties
Under the Financial Institutions Supervisory Act of 1966, the Board of
Governors has the authority to enter
into written agreements with, or issue
cease-and-desist orders against, state
member banks, bank holding companies, and persons associated with such
organizations that engage in unsafe
or unsound practices or that violate
applicable laws or regulations. The
Board may also assess civil money
penalties for violations of a ceaseand-desist order, of the Bank Holding Company Act, or of certain provisions of the Federal Reserve Act.
In 1983, the Reserve Banks recommended and the Board's staff initiated 83 enforcement actions, most
dealing with unsafe or unsound banking practices; 50 were completed by
year-end. The Board issued 36 cease
and-desist orders and entered into 33
written agreements: 15 involved
banks; 36, bank holding companies
or their subsidiaries; 11, individuals
participating in the affairs of the
financial institutions; 1, an Edge act
corporation; 1, an Agreement corporation; and 5, bank management or
consulting firms. The Board also
issued 4 temporary cease-and-desist
orders against 3 banks and 1 bank
holding company.
Also, the Board assessed and collected five civil money penalties totaling $60,000 and collected the remaining $242,000 of a civil money penalty
assessed in 1981. Of these six penalties, two were paid by bank holding
companies, two by individuals, and
one each by a foreign bank and one
of its subsidiaries.
The Board made available to the
public a description of all formal
supervisory actions completed during
the year and the reasons for them.
This action was taken to achieve the
fullest public disclosure of information consistent with confidentiality.
Staff Training
System training continued to emphasize analytical and supervisory themes
common to the four areas of supervision and regulation—examinations,
inspections, applications, and surveillance—and to stress the interdependence among these areas. During 1983,
the Federal Reserve conducted nineteen schools, ten of which offered
core banking courses—three introductory, four intermediate, and three
advanced. Other programs included
two schools dealing with credit analysis, one with bank holding company
applications, four with consumer
compliance examinations (two introductory and two advanced), one with
Banking Supervision and Regulation 185
financial analysis for senior examiners, and one with trust activities.
In addition to the two sessions of the
credit analysis school held in Washington, regional sessions were conducted at seven Reserve Banks for
178 students.
Courses in specialized areas, including trust, international banking, electronic data processing, activities of
municipal securities dealers, management, and instructor training were
conducted by the FFIEC.
In 1983, 514 Federal Reserve employees completed System training
programs and 267 completed FFIEC
courses. As in previous years, staff
members from state banking departments and several foreign central
banks attended the System schools.
Regulation of the
U.S. Banking Structure
The Board of Governors administers
the Bank Holding Company Act, the
Bank Merger Act, and the Change in
Bank Control Act for state member
banks and bank holding companies.
In doing so, the Federal Reserve acts
on a variety of proposals that directly
or indirectly affect U.S. banking
structure at the local, regional, and
national levels. The Board also has
primary responsibility for regulating
the international operations of domestic banking organizations and the
U.S. operations of foreign banks that
engage in banking in the United
States, either directly through a
branch or agency or indirectly through
a subsidiary commercial lending company. In addition, the Board has
established regulations for the interstate banking activities of these foreign banks and for foreign banks that
control a U.S. subsidiary commercial
bank.
Bank Holding Company Act
By law, a company must obtain the
Board's approval to form a bank
holding company by securing control
of one or more banks. Moreover,
once formed, a bank holding company must receive the Board's approval before acquiring additional
banks or nonbanking companies.
In reviewing an application filed by
a bank holding company, the Board
considers the convenience and needs
of the community, the applicant's
financial and managerial resources,
the prospects of both the applicant
and the firm to be acquired, and the
competitive effects of the proposal.
In 1983, the Board—and, under
delegated authority, the Federal Reserve Banks, the Director of the
Board's Division of Banking Supervision and Regulation, and the Board's
Office of the Secretary—acted on
2,542 bank holding company applications. The System approved 992 proposals to organize holding companies
and denied 6; approved 442 bank acquisitions by existing bank holding
companies and denied 14; and approved 1,019 requests to acquire nonbank companies that are closely related to banking. Data on holding
company decisions are shown in the
accompanying table.
Bank Merger Act
The Bank Merger Act requires that all
proposed bank mergers receive the
prior approval of the appropriate
federal bank regulatory agency. If the
bank surviving the merger is a state
member bank, the Federal Reserve
has primary jurisdiction.
Before approving a bank merger,
the Federal Reserve considers the
community's convenience and needs,
186 Banking Supervision and Regulation
Bank Holding Company Decisions by the Federal Reserve,
Domestic Applications, 1983
Proposal
Direct action
by the
Board of
Governors
Approved
Denied
Formation of holding
company
Retention of bank.
Acquisition
Bank
Nonbank
Merger of holding
company
Acquisition of bank
service corporation
Other
69
14
15
300
Approved
Denied
1
Total
Division Director1
6
90
123
Delegated authority
Office of
the
Secretary
Federal
Reserve Banks
Approved Approved Permitted
4
....
44
4
308
89
4
....
919
4
19
39
3
23
998
4
803
3
13
21
Total
5
....
5
13
5
56
1,344
803
456
1,019
2,542
1. This heading refers to the Director of the Division of Banking Supervision and Regulation.
the financial and managerial resources
and prospects of the existing and proposed institutions, and the competitive effects of the proposal. The Board
must also consider the views of certain other agencies on the competitive
factors involved in the transaction.
During 1983, the Federal Reserve
approved 69 merger applications: 8
were approved by the Board, 5 by the
Secretary of the Board under delegated authority, and 56 by the
Reserve Banks under delegated authority. As required by law, each
merger is described in table 17 in the
Statistical Tables section of this
REPORT.
When the Comptroller of the Currency (OCC) or the Federal Deposit
Insurance Corporation (FDIC) has
jurisdiction over a merger, the Board
is asked to comment on the,competitive factors to assure comparable enforcement of the antimonopoly provisions of the act. On behalf of the
Board, the Reserve Banks submitted
777 reports on competitive factors to
the OCC and the FDIC in 1983. The
Board and those agencies have adopted standard terminology for assessing
competitive factors in bank merger
cases to assure consistency in administering the Bank Merger Act.
Change in Bank Control Act
The Change in Bank Control Act of
1978 gave the federal banking agencies the authority to disapprove
changes in the control of banks and
bank holding companies. The Federal
Reserve is the agency responsible for
changes in the control of state member banks and bank holding companies. Factors to be considered in
determining whether a transfer of
control should be denied include the
financial condition, competence, experience, and integrity of the acquiring person, and the effect on competition.
In 1983, 161 changes in ownership
of the stock of state member banks
and holding companies were reported; all but 4 were processed by the Reserve Banks. There was only 1 denial.
Banking Supervision and Regulation 187
International Activities of
U.S. Banking Organizations
The Board has three principal statutory responsibilities in supervising the
international operations of U.S.
banking organizations: to approve
the establishment of foreign branches
of member banks and regulate the
scope of their activities; to charter
and regulate Edge corporations and
their investments; and to authorize
and regulate overseas investments by
member banks, Edge corporations,
and bank holding companies.
Foreign Branches
of Member Banks
Under provisions of the Federal Reserve Act and Regulation K, member
banks may establish branches in foreign countries subject, in most cases,
to the Board's prior approval. In
reviewing proposed foreign branches,
the Board considers the requirements
of the governing statute, the condition of the bank, and the bank's experience in international business. In
1983, the Board approved the opening of 13 foreign branches.
By the end of 1983, 163 member
banks were operating 890 branches in
foreign countries and overseas areas
of the United States. One hundred
thirty-one national banks were operating 759 of these branches, while 32
state member banks were operating
the remaining 131 branches.
International Banking Facilities
Effective December 3, 1981, the
Board amended its Regulations D and
Q to permit the establishment of international banking facilities (IBFs)
in the United States. Subject to conditions specified by the Board, IBFs
may be established by U.S. depository institutions, by Edge and Agreement corporations, and by U.S.
branches and agencies of foreign
banks.
An IBF is essentially a set of asset
and liability accounts that is segregated from other accounts of the
establishing office. In general, deposits from and credit extended to
foreign residents or other IBFs can be
booked at these facilities free from
domestic reserve requirements and interest rate limitations. By the end of
1983, 496 IBFs had been established.
Edge and Agreement Corporations
Under sections 25 and 25(a) of the
Federal Reserve Act, Edge and Agreement corporations may engage in international banking and foreign financial transactions. These corporations, which are usually subsidiaries
of member banks, provide their owner organizations with additional powers in two areas: (1) they may conduct
a deposit and loan business in states
other than that of the parent, provided that the business is strictly related
to international transactions; and (2)
they have broader powers to make
foreign investments than member
banks do because they can invest in
foreign financial organizations, such
as finance companies and leasing
companies, as well as in foreign
banks. In 1983, the Board approved
the establishment of seven Edge corporations. The Board requires each
Edge corporation that is engaged in
banking to maintain a ratio of equity
to risk assets of at least 7 percent. At
midyear, half of the banking corporations had ratios that were more than
twice this minimum.
Foreign Investments
Under authority of the Federal Reserve Act and the Bank Holding
Company Act, in 1983 the Board authorized 86 foreign investments by
member banks, Edge and Agreement
188 Banking Supervision and Regulation
corporations, and bank holding companies. In most cases, the applicant
requested permission to increase an
existing investment.
Export Trading Companies
In 1982, the Bank Export Services
Act amended section 4 of the Bank
Holding Company Act to permit
bank holding companies, their subsidiary Edge or Agreement corporations, and bankers' banks to invest in
export trading companies subject to
certain limitations and after Board
review. The purpose was to allow effective participation by bank holding
companies in the financing and development of export trading companies. On June 2, 1983, the Board
adopted regulations to achieve the
objectives set forth in the law: to
facilitate the export of goods and
services produced in the United States
and to minimize potential adverse effects on the subsidiary banks of the
bank holding companies involved. In
1983, the Board acted affirmatively
on the 18 notifications received for
the establishment of export trading
companies.
Delegation of Applications
In exercising its responsibility to formulate policies and procedures in the
applications area, the Board has delegated certain regulatory functions—
including the authority to approve,
but not to deny, certain types of applications—to the Reserve Banks, to
the Board's Division of Banking
Supervision and Regulation, and to
the Board's Office of the Secretary.
In September 1979, the Board issued revised rules that delegated additional authority to the Reserve Banks
to approve applications for bank
holding companies and bank mergers.
In 1978, the last full year before expanded delegation, only 78 percent of
applications were processed by the
Reserve Banks; during 1980, the first
full year under expanded delegation,
the ratio rose to 89 percent. This
percentage was maintained in 1983.
In 1982, the Board delegated to the
Reserve Banks authority to approve
domestic branches of Edge corporations and foreign "shell" branches of
member banks. In addition, the
Board reduced from 60 to 45 days the
notification period for foreign investments by U.S. banking organizations. On December 20, 1983, the
Board delegated authority to the
Reserve Banks to expedite the processing of those notifications to
establish export trading companies
that appeared to raise no major
policy issue. The benefits that were
expected from broadened delegation
continue to be achieved: routine cases
have been removed from the Board's
agenda to allow more efficient use of
staff of both the Board and the
Reserve Banks.
Timely Processing
of Applications
The number of applications by holding companies increased by 6 percent
in 1983 from 1982, up from 2,401 to
2,542. The System acted on 94 percent of the applications in 1983 within
90 days after the filing of a complete
application.
In 1983, 68 of the 69 applications
for bank mergers were processed
within 90 days; the application that
took longer involved a competitive
issue. The System also prepared 777
reports on the competitive factors of
proposed mergers for the other two
banking agencies; all but a few were
completed within 30 days. Of the 161
Banking Supervision and Regulation 189
change-of-control notices, 137 were
handled within 60 days.
The System also measures its performance in processing international
applications against a 90-day standard. During 1983, the Federal Reserve
acted on 179 international applications, 94 percent of which were decided in 90 days or less.
During 1983, the System made
several changes to the applications
process that will reduce significantly
the burden on applicants and make
more efficient use of the staff at the
Board and Reserve Banks. Regulation Y was revised to shorten the time
that the System will take to process
bank holding company applications.5
The processing time has been reduced
from 90 to 60 days for applications
acted on by the Board and from 45 to
30 days for applications acted on
under delegated authority by the
Reserve Banks, the Director of the
Division of Banking Supervision and
Regulation, or the Secretary of the
Board. The System revised the procedures for applications and implemented the revised processing schedule on January 1, 1984.
In conjunction with the shortened
processing schedules, the System
revised the application forms for
bank acquisitions by bank holding
companies to cut approximately in
half the amount of information required. Forms for nonbank proposals
of holding companies are now being
similarly revised to reduce the burden
on applicants and to conform with
the revised Regulation Y.
5. See the section "Regulatory Simplification" in this REPORT for a further discussion of
the comprehensive revision of Regulation Y
and other comments on the topic.
Board Policy Decisions
and Developments
in Bank-Related Activities
During 1983, the Board added retail
discount brokerage to the list in Regulation Y of activities permissible for
bank holding companies. The Board
also approved by order the expansion
of two activities previously approved
for holding companies: acting as a
futures commission merchant for nonaffiliated persons in the execution
and clearance of options on financial
futures and the underlying financial
instruments, and the sale of general
insurance by a bank holding company
with consolidated assets of $50 million or less.
The Board approved, by order for
banks, the establishment of two bank
service corporations which, pursuant
to the Bank Service Corporation Act,
are allowed to engage in any activity
that the Board has determined, by
regulation, to be permissible for a
bank holding company. The activities
approved by the Board for the bank
service corporations were giving real
estate investment advice, and underwriting credit life, accident, and
health insurance. Certain restrictions
apply to these activities and are outlined either in Regulation Y or in the
related Board order. These restrictions are intended to ensure that such
activities are conducted in a manner
consistent with the public interest.
During 1983, the Board adopted a
comprehensive revision to Regulation
Y, which was to take effect on February 6, 1984. Under certain conditions
bank holding companies will be allowed to acquire small companies that
are engaged in a number of nonbanking activities simply by filing a notice at
least 15 days in advance. They may
now also file a one-time notice to engage on a nationwide basis in non-
190 Banking Supervision and Regulation
banking activities listed in Regulation
Y. These changes will significantly reduce the burden on both applicants
and the Federal Reserve without materially affecting the public interest.
Activities in addition to retail discount brokerage added to the approved list in Regulation Y included:
issuing money orders, real estate
equity financing, underwriting and
dealing in government obligations
and certain money market obligations, providing foreign exchange advisory and transactional services, and
acting as a futures commission merchant. These activities were previously permitted only by Board order.
The Board also expanded its definition of a bank and clarified and included in the regulation its definition
of demand deposits and commercial
loans.
Public Notice
of Board Decisions
Each action by the Board on a case
involving a bank holding company,
bank merger, change in control, or
international banking proposal is effected by an order or announcement.
Orders set forth the essential facts of
the application, the basis for the decision, and the decision. Announcements state merely the action taken
by the Federal Reserve. All orders
and announcements are released immediately to the public and are reported in the Board's weekly H.2 statistical release, "Actions of the
Board; applications and reports,"
and in the monthly Federal Reserve
Bulletin. Actions taken by the Reserve Banks are also reported in the
H.2 statistical release and in the
Bulletin. Announcements of applications and notices received by the
System but not yet acted on are also
made in the H.2 release.
Enforcement of Other
Laws and Regulations
The preceding sections discussed the
Board's activities in carrying out its
statutory responsibilities for the supervision of bank safety and soundness and the regulation of banking
structure. This section describes the
enforcement of other laws, rules, and
regulations.
Financial Disclosure
by State Member Banks
The Board's Regulation F deals with
the disclosure requirements for state
member banks that have securities
registered under the Securities Exchange Act of 1934. Fifty-four state
member banks, most of which are of
small or medium size, were registered
with the Board under this regulation.
These institutions must file certain
materials, such as financial reports
and proxy statements, that are of interest to investors. The Board's staff
reviews these filings for compliance
with the regulation.
The disclosure rules under Regulation F are substantially similar to
those issued by the Securities and Exchange Commission (SEC).
Loans to Executive Officers
Under section 22(g) of the Federal
Reserve Act, each state member bank
must include with each quarterly report of condition a report of all extensions of credit made by the bank to its
executive officers since the date of the
bank's previous report of condition.
The accompanying table summarizes
these data for the last quarter of 1982
and the first three quarters of 1983.
In 1982, the Garn-St Germain Depository Institutions Act (Garn-St
Germain act) authorized the Board to
revise reporting and disclosure re-
Banking Supervision and Regulation 191
Number
Amount (dollars)
Range of
interest rates
charged
(percent)
697
748
1,051
977
4,466,043
5,454,385
7,502,565
9,629,452
6-21
6-21
7-23
6-21
Total loans to executive officers
Period
October 1-December 31, 1982
January 1-March 31,1983
April 1-June 30,1983 .. .•
July 1-September 30,1983
quirements concerning loans to executive officers and principal shareholders of a state member bank and
the related interests of such persons
from the state member bank and its
correspondent banks. In 1983, the
Board amended Regulation O in accordance with the recommendations
and action of the Federal Financial Institutions Examination Council. The
major effects of the revised requirements were to reduce the regulatory
burden on banks and to provide more
meaningful information on "insider"
loans to both the Federal Reserve System and the public. Also during 1983,
as authorized by the Garn-St Germain act, the Board further amended
Regulation O. These amendments relate to the limitations on loans by a
member bank to its insiders, and the
dollar amount above which such loans
must be approved in advance by the
bank's board of directors.6
Applications by
State Member Banks
The Board's authority over state
member banks covers permission to
open new domestic branches, to make
investments in bank premises that exceed 100 percent of capital stock, and
to add to the capital base from sales
of subordinated debt; it also covers
the waiver of the six months' notice
6. See the section "Record of Policy Actions
of the Board of Governors" in this REPORT for
a further discussion of amendments to Regulation O.
of intention to withdraw from membership in the System. The Federal
Reserve employs the application or
notification process to administer
these statutory provisions.
With few exceptions, these matters
are handled under delegated authority by the Federal Reserve Banks or, in
the case of proposed sales of subordinated debt, by the Director of the
Board's Division of Banking Supervision and Regulation.
Stock Repurchases by
Bank Holding Companies
A bank holding company sometimes
purchases its own shares from its
shareholders. Often such stock repurchases are financed through borrowings, so that the net effect of the
transaction is to increase the debt of
the bank holding company at the very
time that its equity decreases. Because
relatively large repurchases may adversely affect the financial condition
of a bank holding company and its
bank subsidiary, the Board, by regulation, requires holding companies to
give advance notice of repurchases
that retire 10 percent or more of their
consolidated equity capital. Revisions
to Regulation Y, adopted by the
Board during 1983, will allow the
Board to object to stock repurchases
if the holding company that files the
notice fails to meet the standards that
the Board applies in the application
process, including the Board's capital
guidelines.
192 Banking Supervision and Regulation
The Federal Reserve reviewed 148
such notifications during 1983, all but
1 of which were acted on by the
Reserve Banks on the Board's behalf.
Securities Regulation
Under the Securities Exchange Act of
1934, the Board is responsible for
regulating credit used to purchase or
carry securities. In fulfilling its
responsibility under the act, the
Board limits the amount of credit that
may be provided by securities brokers
and dealers (Regulation T), by banks
(Regulation U), and by other lenders
(Regulation G). Regulation X extends
these credit limitations, or margin requirements, to certain borrowers and
certain credit extensions, such as
credit obtained from foreign lenders
by U.S. citizens.
The SEC, the National Association
of Securities Dealers, and the national securities exchanges examine
brokers and dealers for compliance
with Regulation T. The three bank
supervisory agencies examine banks
for compliance with Regulation U,
with the Board being responsible for
state member banks that extend margin stock-secured credit.
The Board, the National Credit
Union Administration, and the Farm
Credit Administration examine other
lenders under their respective jurisdictions for compliance with Regulation G. At the end of 1983, there were
530 such lenders, 302 of which were
subject to the Board's supervision.
During the year, Federal Reserve examiners inspected 121 lenders that
were subject to Regulation G for compliance with the Federal Reserve's
margin requirements (these lenders
are inspected on a biennial basis).
Regulations U and G, in general,
impose credit limitations on banks
and other lenders only for loans
whose purpose is purchasing or carrying publicly held equity securities and
that are secured by such securities.
Regulation T limits the amount of
credit that brokers and dealers may
extend when securities serve as collateral. This collateral must consist of
stocks and bonds traded on national
securities exchanges or certain overthe-counter stocks that the Board
designates as having characteristics
similar to those of stocks listed on national exchanges and of bonds meeting certain requirements. Such stocks
appear on the Board's "List of OTC
Margin Stocks."
The Board published revised lists
of OTC stocks subject to its margin
regulations on February 22, June 20,
and October 17, 1983. The current list
consists of 1,742 stocks. The Board's
Division of Banking Supervision and
Regulation monitors the market activity of all OTC stocks to determine
what stocks to place on this list.
In 1983, all four of the margin regulations were completely revised and
simplified as part of the Board's Regulatory Improvement Project. Under
this program, the Board reviewed
those regulations to update them,
simplify their language, eliminate obsolete or unneeded language or provisions, and lighten the burden of compliance.
Regulation T was shortened by approximately a third. The new regulation, as adopted after consideration
of comments received, included the
following significant revisions:
• Consolidation along functional
lines into seven accounts of the eleven
types brokers and dealers had to
maintain under the old regulation.
The three customer margin accounts
were consolidated into a single
general margin account.
Banking Supervision and Regulation
• Authorization for a clearing
broker to maintain separate margin
accounts for a single person who is introduced by different brokers. Introducing brokers may maintain separate
accounts for the same person if the
accounts are cleared by different
clearing brokers. In addition, separate accounts may also be established for the same person by a
broker and dealer when the broker,
dealer, or a third-party investment
advisor has investment discretion.
• Provisions that permit a clearing
agency to accept as the required deposit any margin securities underlying
options issued by the clearing agency.
• Revision of rules for extending
credit to option specialists, to permit
a "good faith" margin instead of the
25 percent margin on long and short
positions.
• Expansion of the class of brokers
and dealers who may make loans to
other brokers and dealers, as well as
authorization for that class to finance
positions with other brokers and
dealers.
• Authorization of margin credit
on over-the-counter corporate debt
securities with at least $25 million
outstanding at the time of original
issue, rather than at the time of the
extension of the credit.
• Permission to use convertible or
exchangeable securities as a proxy for
the related security when call options
are written in a cash account.
• Special provision for new instruments—options on foreign currency
that are traded on securities exchanges, and options on certificates
of deposit and on stock indexes—
which recent legislation has brought
within the Board's authority to set
margins.
• Establishment of the margin
level of these new instruments as the
193
amount specified by the rules of the
national securities exchange on which
the option is traded, provided that all
such rules have been approved by the
Securities and Exchange Commission.
• Changes in terminology, throughout the regulation, from "maximum
loan value/adjusted debit balance"
to "equity/margin requirement."
Brokers and dealers were permitted
to comply with the new Regulation T
as early as June 20, 1983, but the official effective date was to be March 31,
1984, to give brokers and dealers ample time to program their computer
systems for the changes.
The revised Regulation U became
effective on August 31, 1983. These
significant changes were made:
• Exemption from the requirements of the regulation of bank credit
to a trust for an employee stock
ownership plan qualified under section 401 of the Internal Revenue
Code.
• Consolidation of all provisions
dealing with special-purpose loans to
brokers and dealers into one section
and permission for such credit to be
extended without restriction on the
type or valuation of collateral.
• Elimination of certain filing requirements with respect to loans to
OTC and third market makers and
block positioners.
• Elimination of section 221.3(q),
which regulated loans to certain lenders registered under Regulation G.
The complete revision of Regulation G, which became effective
August 31, 1983, includes the following significant changes:
• A rise in the registration threshold for lenders subject to the regulation to $200,000, and elimination of
registration requirements for those
who arrange but do not extend credit
secured by margin securities.
194 Banking Supervision and Regulation
• Deletion of a provision prohibiting unsecured loans to a broker or
dealer by a lender subject to the regulation. The prohibition in section 8 of
the Securities Exchange Act of 1934,
which prevents anyone except a bank
from lending to a broker or dealer on
the collateral of registered securities,
was retained.
• Liberalization of the "planlender" provision, which covers extensions of credit under employee
stock-option and stock-purchase
plans. The revision will permit companies and their affiliates to finance
employee purchases of company
stock without a specific scheduled
paydown of the loan or a three-year
lockup of the stock, as was formerly
required. The regulation will continue
to permit a company to extend credit
to plan participants in excess of the
current maximum loan value of the
securities.
The completely revised Regulation
X has an effective date of January 23,
1984. The major substantive changes
to the regulation are (1) the exclusion,
with one exception, of purely domestic borrowings, which are already
regulated by margin rules applicable
to lenders; and (2) an increase in the
exemption for margin credit obtained
by U.S. persons residing abroad from
$5,000 to $100,000. Domestic borrowers who willfully cause credit to
be extended in contravention of the
margin rules are not excluded from
the scope of the regulation.
Under section 8 of the Securities
Exchange Act, a broker or dealer may
not borrow from a bank on the collateral of registered securities unless the
bank is either a member of the Federal Reserve System or one that files
an agreement with the Board undertaking to comply with all statutes,
rules, and regulations applicable to
member banks with respect to credit
on securities. Domestic and foreign
nonmember banks must file these
agreements, designated T-l and T-2
respectively, before they can lend to
brokers and dealers on the collateral
of registered securities. During the
year, the Board processed eight T-l
and T-2 agreements.
In 1983, the Securities Regulation
Section of the Board's Division of
Banking Supervision and Regulation
issued numerous interpretations of
the margin regulations. Those that
presented sufficiently important or
novel issues were published in the
Securities Credit Transactions Handbook, which is part of the Federal
Reserve Regulatory Service. These interpretations, published monthly,
serve as a guide to compliance with
the margin regulations. Also, members of the staff served on nationwide
panels explaining the newly revised
Regulation T to brokers and dealers.
Federal Reserve Membership
At the end of 1983, 5,807 banks were
members of the Federal Reserve System, a net increase of 188 from the
previous year. Member banks operated 26,726 branches on December 31,
1983, a net decrease of 227 for the
year.7
Member banks accounted for 38
percent of all commercial banks in
the United States, and for 64 percent
of commercial banking offices. Complete figures on changes in the number of banks and banking offices by
charter classes will be presented in the
April 1984 issue of the Federal Reserve Bulletin.
7. The 1982 figure of 26,953 branches included 1,818 automatic teller machine (ATM)
branches, which are no longer included in
branch counts.
195
Regulatory Simplification
Action that the Board of Governors
took in 1983 to comply with the Financial Regulation Simplification Act of
1980 is reported here, as required by
section 805 of that act. This report also
discusses the Board's efforts under
the Regulatory Flexibility Act and the
Board's Statement of Policy Regarding Expanded Rulemaking Procedures. These acts and the Board's
policy statement are intended to improve the regulatory process.
Under the Financial Regulation
Simplification Act, each federal financial regulatory agency must assure
that its regulations impose no more
burdens than are necessary, that they
are adopted only after interested persons are heard, and that they are written simply and clearly. The act also
requires each agency periodically to
review how well its regulations meet
these objectives.
rities of 7 to 31 days. The change enables institutions to offer certificates
of deposit with maturities of 7 to 13
days, and one beneficial effect is to
give small institutions, which do not
normally trade in the secondary market, an additional tool in competing
with larger institutions for short-term,
large-denomination deposits.
As part of its efforts to reduce unnecessary burdens in implementing
the Monetary Control Act of 1980,
the Board adopted an amendment
that reduces the reporting burden for
small institutions with total reserve
liabilities of $2.1 million or less. Last
year's REPORT noted that the Congress had adopted the Board's recommendation that the first $2 million of
a depository institution's reserve liabilities be free of reserve requirements,
thereby exempting almost 25,000 institutions.
Monetary Policy and
Payments System
Reserve Requirements
of Depository Institutions
(Regulation D) and
Interest on Deposits
(Regulation Q)
The Board amended Regulations D
and Q to reduce the minimum maturity of all time deposits to 7 days.
This step was taken in light of actions
by the Depository Institutions Deregulation Committee authorizing money
market deposit accounts and removing the interest rate ceilings on time
deposits of $2,500 or more with matu-
Securities Credit and
Securities Activities
Margin Credit
(Regulations G, T, U, and X)
Last year's REPORT noted some of the
substantive changes that the Board
had made in the first phase of its
comprehensive review of the regulations on margin credit—Regulations
G, T, U, and X. These regulations
govern loans to purchase stocks made
by banks, brokers and dealers, and
other lenders, such as insurance companies, savings and loan associations,
and corporate plan lenders. It was
noted that public comment had been
196 Regulatory Simplification
received on a completely rewritten
Regulation T, and that work was progressing on the redrafting of Regulations G, U, and X.
In 1983, the Board completed the
revision and simplification of all four
margin regulations as part of its Regulatory Improvement Project. The review was designed to update the regulations, simplify their language, eliminate obsolete or unnecessary language
or provisions, and ease the burden
of compliance. The specific changes
made are discussed in the section of
the REPORT, "Banking Supervision
and Regulation."
The changes made in the margin
credit regulations will promote competition between banks and brokers,
afford consumers greater flexibility in
investment decisions, and promote
efficiency in securities markets by
modernizing a regulatory framework
that dates back half a century.
Banking Structure and
Supervision
International Banking
Operations
(Regulation K)
In 1983, the Board adopted regulations implementing the Bank Export
Services Act, which permits bank
holding companies, Edge act and
Agreement corporations, and bankers' banks to invest in export trading
companies. Small business entities
will benefit from the simplicity and
brevity of the proposed regulations,
as well as from the liberal definition
of an export trading company. In
adopting the underlying statute, the
Congress estimated that the law
would create between 320,000 and
640,000 jobs over the next three to
four years.
After gaining experience with several export trading proposals under
the new regulation, the Board simplified its procedures by eliminating the
requirement for certain notifications
and by delegating authority to the Reserve Banks to act on notices of intended investments in export trading
companies.
The Board also liberalized Regulation K by adding the operation of
travel agencies abroad as a permissible activity for U.S. banking organizations. Moreover, the Board plans
to undertake in 1984 a broad review
to determine whether, after five years
of operations under the revised regulation, additional changes are necessary or desirable to enable U.S. international banking firms to compete
effectively with similar foreign-owned
institutions, to foster the participation of regional and smaller banks in
providing international banking services, and to stimulate U.S. exports to
achieve a sound trade position.
Management Official Interlocks
(Regulation L)
As noted in last year's REPORT, the
Board in 1982 issued for public comment proposed amendments to Regulation L, which governs management
interlocks among depository institutions. These proposals were designed
to update and clarify the regulation,
and make technical changes in the
light of the Board's experience with
the regulation. The revisions relax
certain prohibitions on interlocks that
the Board has found to be unnecessary; the changes will especially aid
small institutions facing a disruptive
loss of management due to statutory
provisions. The Board adopted these
proposals in 1983.
Regulatory Simplification 197
Loans to Executive Officers,
Directors, and Principal
Shareholders of Member Banks
(Regulation O)
The Board adopted several amendments to Regulation O, which governs loans to executive officers, directors, and principal shareholders of
member banks. Some of the changes
ease the burden of reporting and disclosing these "insider" loans. The effect of other changes is to increase
substantially the size of generalpurpose loans available to such individuals. In 1982, the Board had
already eliminated, through congressional authorization, the ceiling on
loans to officers and directors for
home mortgages or to an executive
officer for the education of his or her
children.
Bank Holding Companies and
Change in Bank Control
(Regulation Y)
Last year's REPORT noted that staff
work was continuing on a complete
revision of Regulation Y, which governs acquisitions and activities by
bank holding companies and changes
in bank control. This year, the Board
proposed a revision for comment and
subsequently adopted it. The primary
purposes of the revision are (1) to
reduce the number of required applications, (2) to simplify the procedures
for filing applications, and (3) to expedite the processing of all applications. These changes should reduce
regulatory burdens significantly,
while reducing the administrative
costs of the statute. One provision,
for example, is expected to eliminate
the more than 500 applications per
year for new offices. Moreover, the
substantial reduction of processing
time for required applications will
prevent costly delays for regulated
companies and will create new business opportunities for them in dealing
with nonregulated entities that are
unwilling to delay. Revisions of the
forms will reduce costs for the industry by eliminating requests for information that is available to the Board
through other sources. Finally, the
Board will propose a list of new activities for public comment in early
1984, which would permit bank holding companies to engage in a wide
variety of additional businesses. This
comprehensive review of Regulation
Y, the first such study in 12 years, has
given the public an opportunity to
comment on all aspects of the Board's
administration of the regulation, including the definition of "bank,"
which is especially important in the
light of rapid changes in the financial
marketplace.
As a related matter, the Board delegated expanded authority to the
Reserve Banks to act on applications
for bank mergers, an action that
should expedite such applications.
Consumer and Community
Affairs
Equal Credit Opportunity
(Regulation B)
The Board announced that it intends
to review Regulation B to update its
substance and simplify its language,
and asked for preliminary comments
on the issues to be addressed. The
Board has also been conducting costbenefit studies that involve Regulation B. After consideration of the
preliminary comments and the staff's
analysis, proposed changes in the regulation will be published for comment.
198 Regulatory Simplification
Consumer Leasing
(Regulation M)
In April 1983, the Board sent recommendations to the Congress for a simplified version of the Consumer Leasing Act, which the Board administers
through Regulation M. The Board's
proposals would reduce the number
and complexity of the disclosures required, thereby lessening the burden
of compliance on creditors and highlighting important information for
consumers. Congressional hearings
have been held, and the Board has
been accepting public comment on its
proposals.
199
Federal Reserve Banks
Developments in the
Payments Mechanism
and in the Pricing of
Federal Reserve Services
During 1983, the Federal Reserve essentially completed the pricing of services provided by the Federal Reserve
Banks to depository institutions, as
required by the Monetary Control Act
of 1980. The Board had determined
in 1980 that a transition period would
help both the Banks and depository
institutions make the change from
free to priced services. With the exception of float, all services covered by
the act were priced by the end of 1982.
The Board adopted methods to eliminate or price major components of
Federal Reserve float by mid-1983,
and requested comment on proposals
to deal with the remaining float. Final
action on the proposals is expected
early in 1984.
Both the private sector and the
Reserve Banks have accommodated
to the change to priced Federal Reserve services. As the accompanying
chart shows, the volume of wire
transfers of funds, a principal payment service, has trended upward,
but at a slower pace in each year since
the introduction of fees in January
1981. In 1983, average daily volume
rose less than one-half the trend
growth rate in evidence before pricing, partly because alternatives for
the service became more attractive.
When fees for the check service
were first imposed in August 1981,
the average daily number of checks
collected declined significantly at first,
as local clearing arrangements expanded to provide more efficient alternatives and private firms sought to offer
more cost-effective services. Check
volume at Reserve Banks began to
grow again in 1982, though at a rate
much slower than the trend rate before pricing, and it has begun to approach the levels experienced in mid1981 (see the chart).
Throughout the transition period,
the System took steps to improve the
efficiency of the nation's payments
mechanism while working toward recovering costs, two objectives of the
act. In 1983, the Federal Reserve
Banks introduced further operational
improvements, cost control measures,
and adjustments to the services offered. These are all discussed below.
Commercial Check Collection
The total number of commercial
checks cleared by Federal Reserve
Banks increased 2 percent in 1983.
The moderate increase reflects on
balance the economic recovery, the
continued adjustment of depository
institutions to the pricing of this Federal Reserve service, and their response
to a new program to accelerate the
collection of checks. Starting in February 1983, depository institutions
have been able to deposit checks at
Federal Reserve offices later in the
day, and Reserve Banks have provided
later presentment of checks to payor
institutions located in Federal Reserve
cities. The later deposit deadlines and
presentment times expedite the collection of checks, and thus improve
200 Federal Reserve Banks
Index of Volume for Selected
Priced Services
Initial volume=100
Wire transfer
checks drawn on certain non-city
pay or institutions. The Board will
consider comments early in 1984.
Wire Transfer of Funds and
Net Settlement
The number of wire transfers of funds
120 grew 7 percent in 1983, and averaged
3.2 million per month. Expansion of
electronic access through the deployment of terminals at smaller deposi100 tory institutions continued during the
year. By year-end, more than 4,000
institutions could enjoy lower service
fees through on-line access to the
1981
1982
1983
funds transfer service and other services.
After review of projected costs,
funds availability to depositors. The
volumes, and revenues for 1983, the
program has achieved its objective of
accelerating collection: city items, Board determined that fees for the
totaling approximately $2 billion, are wire transfer and net settlement servnow collected one day faster than they ices that were established in the last
revision, in April 1982, should be
formerly were.
Along with the program to accel- retained. Total costs for the year,
erate check collection, the Reserve including the private sector adjustBanks revised fee schedules for check ment, amounted to $65.3 million, and
services in February 1983. In mid- revenues were $67.2 million.
1983, depository institutions began
absorbing the cost of some types of
check float through changes in credit- Automated Clearinghouse
ing procedures for deposits. Further Service
adjustments to fees were made in The volume of transactions processed
December 1983 to recover the remain- by the Federal Reserve's automated
ing value of check float that had been clearinghouse (ACH) grew 26 percent
included in the costs of the check col- during 1983. Commercial transactions
lection service since October 1, 1983. grew 48 percent, substantially faster
Including the value of float and the than government transactions, which
private sector adjustment (discussed rose 15 percent. This trend seems likely
below), total costs for the check serv- to continue, especially in light of the
ice in 1983 were $438.1 million, and success of the expanded night cycle
service and enhancements proposed
total revenues were $436.7 million.
In 1983, the Federal Reserve pur- for the ACH service for 1984.
The schedules of funds availability,
sued other measures to improve the
check collection system. In May, the deposit options, and the flexibility of
Board published for comment a pro- the existing ACH service were reposal to accelerate the collection of viewed in 1983. In each area, the re
Federal Reserve Banks 201
view identified potential improvements
in service that might benefit depository
institutions. In September, the Board
requested public comment on a number of service enhancements and on a
proposed restructuring of ACH fees.
In accordance with the Board's incentive pricing policy for the ACH service, the proposed schedule is designed
to recover 60 percent of commercial
ACH costs, including the private sector adjustment, plus the value of projected ACH float due to delayed interregional transmission. The Board
will consider comments on the fee
schedule early in 1984.
Total costs for the commercial ACH
service, including the private sector adjustment, were $15.2 million in 1983;
total revenues were $7.7 million. After
an adjustment to costs for the Board's
incentive pricing policy, revenues exceeded costs by $0.6 million.
Coin and Currency Services
When the cash transportation service
was initially priced in 1982, a temporary support program was adopted to
ease the burden of adjustment to fullcost pricing for institutions in remote
areas. The level of support was reduced for 1983, and it was eliminated
on December 31, 1983, except for
locations outside the contiguous 48
states. During 1983, two Reserve Districts and one office in a third District
ceased contracting directly for transportation of currency and coin and
instead assisted depository institutions in making arrangements at lower
cost. At least one other Reserve office
is expected to adopt such a role during 1984.
Total costs for the cash transportation service, including the private sector adjustment, were $28.5 million in
1983, and total revenues were $27.1
million. After an adjustment to costs
for the Board's interim support program, revenues exceeded costs by $0.2
million.
The coin wrapping service was offered by five Reserve Districts in
1983, three more than in 1982. In addition, special cash packaging and acceptance of late orders for cash were
provided on a trial basis. These services will be reviewed in 1984. In 1983,
revenues for the coin wrapping service
equaled full costs of $1.6 million, including the private sector adjustment.
Securities Services
The revised fee schedule for bookentry securities services became effective April 28, 1983. A per issue fee for
account maintenance was added, and
other fees were raised.
During 1983, the volume in the safekeeping service for definitive securities continued to decline, but the
volume in the noncash collection service increased. Costs of both services
continued to exceed revenue. The fee
schedules for these services were revised, effective October 27, 1983. In
September, three Federal Reserve Districts introduced a mixed deposit and
fine-sort program on a trial basis.
The pilot program was expanded subsequently to five Districts.
Total costs for the book-entry securities service, including the private
sector adjustment, were $20.5 million
in 1983, and total revenues were $21.8
million. For the definitive safekeeping and noncash collection services,
total costs were $23.5 million, and
total revenues were $19.1 million.
For the full year 1984, the System
will include the value of float in the
costs of the book-entry service. The
value of float will be included in the
202 Federal Reserve Banks
costs of the noncash collection service
beginning May 1, 1984.
Float
During 1983, the Federal Reserve
took a number of steps to deal with
float. In July, the System changed the
crediting procedures for deposits of
interterritory checks. Under the new
program, institutions can choose between two crediting options and
among several methods for paying for
float associated with interterritory
checks. The Board also decided to incorporate the value of holdover check
float into the cost base for the check
service in several stages, and full recovery of all such float began on October 1, 1983. On May 4, the Board
instituted a program for reducing
return-item float, and announced
that the value of other check float
would be incorporated into check
service costs on October 1. In September, the Board requested comment
on a proposal to deal with midweek
closing and nonstandard holiday
float; it will consider comments early
in 1984.
The System developed cost-effective
methods to reduce or price float in
services other than check collection,
as discussed above for the ACH and
securities services. The Board expects
to announce in 1984 plans to eliminate
or price all Federal Reserve float.
Administrative Matters
On October 13, 1983, the Board published for comment proposed changes
to the procedure for calculating the
private sector adjustment factor
(PSAF) for 1984. The PSAF is used
to impute the "taxes that would have
been paid and a return on capital that
would have been provided had the
[Federal Reserve's priced] services
been furnished by a private business
firm." The proposal includes direct
determination of assets allocated to
priced services and expansion from 12
to 25 of the sample of large bank
holding companies used in determining the PSAF. The Board also requested comment on an alternative
method for setting the income tax
rate used in calculating the PSAF.
Finally, the Board requested comment on an adjusted rate applied to
clearing balances that reflects the net
value of the balances to depository institutions. Aggregate excess clearing
balances are expected to decline in
1984 because Reserve Banks are developing a new service that will allow
depository institutions to invest their
excess balances more readily.
Financial Performance
The Monetary Control Act directs the
Federal Reserve, over the long run, to
set fees that are based on (1) all direct
and indirect costs of providing services, and (2) an imputed cost (represented by the PSAF) that accounts
for the taxes paid and the return on
capital earned by a private firm.
For 1983, total revenue at Reserve
Banks from all services was $581.1
million, and total cost was $592.7
million. These figures include the income and expenses related to clearing
balances, the private sector adjustment, and the value of priced float.
With allowances for temporary support programs for the ACH and cash
transportation services, the Banks
had a net revenue of -$1.9 million.
Enhancements to the services offered, improved operations, and better cost control resulted in marked
gains for the System's performance in
1983. For the year, the Reserve Banks
received 99.7 percent of costs in reve-
Federal Reserve Banks 203
nues for priced services, compared
with 84.3 percent in 1982. As the accompanying chart shows, revenue as
a percent of cost increased for every
service offered, and the commercial
ACH and book-entry securities services showed dramatic improvement.
Table 9, in the statistical tables section of this REPORT, presents revenues
and expenses by major category of
service.
Examination
The Board's Division of Federal Reserve Bank Operations examined the
12 Federal Reserve Banks and their 25
branches during 1983, as required by
section 21 of the Federal Reserve Act.
In conjunction with the examination of the Federal Reserve Bank of
New York, the Board's examiners
audited the accounts and holdings
related to the Federal Reserve System
Open Market Account and the foreign
currency operations conducted by
that Bank in accordance with policies
formulated by the Federal Open Market Committee; the Committee received copies of these reports. The
procedures that the Board's examiners followed were appraised by a private firm of certified public accountants, pursuant to the policy of annual
reviews.
Income and Expenses
The accompanying table summarizes
the income, expenses, and distribution of net earnings of the Federal
Reserve Banks for 1983 and 1982.
Current income, at $16,068 million,
was $449 million lower in 1983 than
in 1982. Income from the System's
holdings of U.S. government obliga-
Recoverv of Costs for Priced Services of Federal Reserve Banks
Commercial check collection
t
Wire transfer and net settlement
Commercial ACH
Definitive safekeeping and
noncash collection
Book - entry securities
Cash services
Total
Percent 0
20
In accordance with System policy, revenue is shown as
a percent of part of full automated clearinghouse
costs; the portion was 40 percent in 1983 and 20 per-
100
cent in 1982. The cost of cash services is adjusted for
a temporary support program that subsidized remotely located depository institutions in 1983 and 1982.
204 Federal Reserve Banks
Income, Expenses, and Distribution of Net Earnings
of Federal Reserve Banks, 1983 and 19821
Thousands of dollars
Item
1983
1982
Current income
Current expenses
Operating expenses2
Earning credits granted
Current net income
Net deduction from current net income
Assessments by the Board of Governors
For expenditures of Board
For cost of Federal Reserve currency2
Net income before payments to U.S. Treasury
Dividends paid
Payments to U.S. Treasury (interest on Federal Reserve notes).,
Transferred to surplus
16,068,362
1,023,678
951,919
71,759
15,044,684
400,366
223,686
71,551
152,135
14,420,631
85,152
14,228,816
106,663
16,517,385
926,034
897,773
28,261
15,591,351
68,833
160,254
61,813
98,441
15,362,264
79,352
15,204,591
78,320
1. Details may not add to totals because of rounding.
2. Assessments by the Board for the cost of Federal
Reserve currency, heretofore included in operating ex-
tions and of assets denominated in
foreign currencies was lower, by $343
million and $159 million respectively.
The decline in income was due to the
lower rates of interest paid on those
holdings. Fee income from priced
services amounted to $496 million,
$109 million more than in 1982.
Operating expenses totaled $1,024
million in 1983, including $72 million
of earnings credits granted to depository institutions that use these credits
to pay for priced services. Assessments by the Board of Governors
were $72 million for its expenditures
and $152 million for the cost of Federal Reserve currency.
Deductions from current net income
totaled $400 million in 1983, principally because of an unrealized loss of
$456 million on assets denominated in
foreign currencies that were revalued
at market exchange rates. That loss
was offset partially by a $21 million
gain on sales of U.S. government
obligations.
Statutory dividends paid to member banks totaled $85 million, $6
million more than in 1982. This rise
reflected an increase in the capital
and surplus of member banks and a
penses, are now identified as a separate item. Accordingly, the operating expenses item for 1982 and for
earlier years, shown in table 8, has been restated.
consequent increase in the paid-in
capital stock of the Reserve Banks.
Payments to the U.S. Treasury as
interest on Federal Reserve notes
totaled $14,229 million for the year,
compared with $15,205 million in
1982. This sum consists of all net income after dividends and the amount
necessary to bring surplus to the level
of paid-in capital.
A detailed statement of the income
and expenses of each Federal Reserve
Bank for 1983 is shown in table 7 and
a condensed historical statement appears in table 8, in the Statistical
Tables section of this REPORT. A
detailed statement of assessments and
expenditures of the Board of Governors appears in the Financial Statements section of the REPORT, which
follows.
Federal Reserve
Bank Premises
During 1983, the Federal Reserve
Bank of San Francisco moved to its
new quarters and sold the vacated
buildings and properties; and the
Board of Governors authorized construction of a new building for the
Federal Reserve Banks 205
Jacksonville Branch of the Federal
Reserve Bank of Atlanta.
Table 6, in the Statistical Tables
section of this REPORT, shows the cost
and book values of premises owned
or occupied by the Federal Reserve
Banks and branches, and of real
estate acquired for future bankinghouse purposes.
Holdings of Securities and Loans
The accompanying table presents holdings, earnings, and average interest
rates on securities and loans of the
Federal Reserve Banks during the past
three years.
Average daily holdings of securities
and loans during 1983 amounted to
$152,526 million, an increase of
$11,558 million over 1982. Holdings
of U.S. government securities increased $11,657 million, loans decreased $9 million, and acceptances
decreased $90 million.
From 1982 to 1983, the average
rate of interest on all types of holdings declined: on U.S. government
securities, from 11.08 to 10.00 percent; on loans, from 11.49 to 9.05
percent; and on acceptances, from
12.08 to 10.17 percent.
Volume of Operations
Table 10, in the Statistical Tables section of this REPORT, shows the volume
of operations in the principal departments of the Federal Reserve Banks
for the years 1980-83.
Securities and Loans of Federal Reserve Banks, 1981-83
Millions of dollars except as noted
Item and year
Average daily holdings2
1981
.
1982
1983
Total
U.S.
government
securities'
Loans
Acceptances
132,238
140,968
152,526
130,754
139,772
151,429
1,363
1,047
1,038
121
149
59
Earnings
1981
1982
1983
14,757r
15,631r
15,250
14,551
15,493r
15,150
Average interest rate (percent)
1981
...
1982
1983
11.16r
11.09r
10.00
11.13
11.08r
10.00
1. Includes federal agency obligations.
2. Based on holdings at opening of business.
r Revised.
187r
1201"
94
13.72r
11.49r
9.05
19
18
6
15.70
12.08
10.17
206
Board of Governors
Financial Statements
The financial statements of the Board
for the year 1983 were examined by
Price Waterhouse, independent public
accountants.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Governors of the
Federal Reserve System
We have examined the balance sheet of the Board of Governors of the Federal
Reserve System as of December 31, 1983, and the related statements of revenues and
expenses and changes in financial position for the year then ended. Our examination
was made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing procedures as we
considered necessary in the circumstances. The financial statements of the Board of
Governors of the Federal Reserve System for the year ended December 31, 1982, were
examined by other independent accountants, whose report dated February 18, 1983,
expressed an unqualified opinion on those statements.
In our opinion, the financial statements examined by us present fairly the financial
position of the Board of Governors of the Federal Reserve System at December 31,
1983, and the results of its operations and the changes in its financial position for the
year then ended, in conformity with generally accepted accounting principles applied on
a basis consistent with that of the preceding year.
Washington, D.C.,
February 22, 1984
Financial Statements 207
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
BALANCE SHEETS
As of December 31
ASSETS
1983
1982
$ 5,842,333
1,124,235
$ 4,613,805
582,012
266,428
167,695
7,400,691
257,495
22,592
5,475,904
1,301,314
61,212,084
9,083,750
6,845,572
78,442,720
$85,843,411
61,056,512
8,636,512
6,845,572
77,839,910
$83,315,814
$ 3,182,826
1,586,436
3,358,022
304,811
8,432,095
$ 3,353,351
1,466,018
3,074,671
1,025,000
8,919,040
OPERATING FUND
Cash
Receivables and advances (Note 1)
Stockroom and cafeteria inventories at lower of cost
(first-in, first-out) or market
Noncurrent assets
Total operating fund
PROPERTY FUND, at cost (Note 1)
Land and improvements
Buildings
Furniture and equipment
Computer equipment
Total property fund
Total assets
1,301,314
LIABILITIES AND FUND BALANCES
OPERATING FUND
Liabilities
Accounts payable
Accrued payroll and related taxes
Accrued annual leave
Other liabilities
Commitments and contingencies (Notes 2 and 3)
Fund balance (Note 1)
Balance, beginning of year
Revenues over (under) expenses
Balance, end of year
Total operating fund
(3,443,136)
2,411,732
(1,031,404)
7,400,691
821,816
(4,264,952)
(3,443,136)
5,475,904
77,839,910
732,392
(129,582)
78,442,720
$85,843,411
76,067,343
1,808,096
(35,529)
77,839,910
$83,315,814
PROPERTY FUND (Note 1)
Fund balance
Balance, beginning of year
Additions—at cost
Disposals—at cost
Total property fund
Total liabilities and fund balances
The accompanying notes are an integral part of these statements.
208 Financial Statements
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
STATEMENTS OF REVENUES AND EXPENSES
For the years ended December 31
1983
1982
BOARD OPERATING REVENUES (Note 1)
Assessments levied on Federal Reserve Banks for
Board operating expenses
Other
Sale of publications
Miscellaneous
Total other revenues
Total operating revenues
$ 71,551,000
$ 71,551,000
$61,813,400
1,110,591
454,383
1,564,974
73,115,974
1,103,340
409,930
1,513,270
63,326,670
47,069,895
7,662,084
1,900,557
2,022,552
1,576,019
1,289,483
1,554,318
1,266,092
1,169,404
856,768
715,588
520,812
296,192
278,526
702,823
408,991
398,395
732,392
70,420,891
44,110,097
7,613,490
1,765,093
1,625,785
1,556,785
1,268,450
1,327,555
1,038,630
982,601
920,350
696,557
476,168
397,948
248,943
489,807
335,717
555,610
1,802,331
67,211,917
FUNDED BOARD OPERATING EXPENSES (Note 1)
Salaries
Retirement and insurance contributions (Note 2) . .
Travel
Contractual services
Printing and binding
Heat, light and power
Equipment, office space and other rentals (Note 3)
Telephone and telegraph
Repairs and maintenance
Postage
Stationery, office and other supplies
Cafeteria operations, net
Professional fees
Books and subscriptions
Subsidies and contributions (Note 4)
Tuition, registration and membership fees
Other (Note 5)
Property additions (Note 1)
Total funded operating expenses
BOARD OPERATING REVENUES OVER (UNDER)
FUNDED OPERATING EXPENSES
2,695,083
283,351
Unfunded Accrued Annual Leave .
BOARD OPERATING REVENUES OVER (UNDER)
TOTAL OPERATING EXPENSES
2,411,732
(3,885,247)
379,705
(4,264,952)
ISSUANCE AND REDEMPTION OF FEDERAL RESERVE NOTES ON
BEHALF OF FEDERAL RESERVE BANKS (Note 6)
Expenditures for issuance and redemption of
Federal Reserve notes
Less assessments levied on Federal Reserve Banks
for currency issuance and redemption
REVENUES OVER (UNDER) EXPENSES
128,215,054
128,215,054
0
$
85,766,269
85,766,269
0
2,411,732
The accompanying notes are an integral part of these statements.
$(4,264,952)
Financial Statements 209
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
STATEMENTS OF CHANGES IN FINANCIAL POSITION
For the years ended December 31
1983
1982
SOURCES OF CASH
Board operating revenues
Assessments levied on Federal Reserve Banks for currency
issuance and redemption
Decrease in deferred publication costs
Increase in accrued payroll and related taxes
Increase in accrued annual leave liability
Total sources
$ 73,115,974
$ 63,326,670
128,215,054
120,418
283,351
201,734,797
85,766,269
334,562
93,552
379,705
149,900,758
70,420,891
283,351
67,211,917
379,705
128,215,054
542,223
8,933
145,103
170,525
720,189
200,506,269
85,766,269
(52,520)
17,455
22,592
(868,504)
(1,025,000)
151,451,914
INCREASE (DECREASE) IN CASH
1,228,528
(1,551,156)
CASH BALANCE, beginning of year
4,613,805
6,164,961
$ 5,842,333
$ 4,613,805
USES OF CASH
Funded Board operating expenses
Unfunded accrued annual leave expense
Expenditures for issuance and redemption
of Federal Reserve notes
Increase (decrease) in receivables
Increase in inventories
Increase in noncurrent assets
Decrease (increase) in accounts payable
Decrease (increase) in other liabilities
Total uses
CASH BALANCE, end of year
The accompanying notes are an integral part of these statements.
210 Financial Statements
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1983 AND 1982
(1) SIGNIFICANT ACCOUNTING POLICIES
In preparing its financial statements, the Board of
Governors of the Federal Reserve System (the Board)
has applied accounting principles which, in management's opinion, best reflect its financial position and
results of operations. These accounting principles include certain principles which are generally accepted
for organizations in the private sector and also certain
principles which are generally accepted for federal
government agencies. A summary of significant accounting policies is shown below.
Board Operating Revenues and Expenses—Assessments made on the Federal Reserve Banks for Board
operating expenses are calculated based upon expected
cash needs. These assessments, other operating
revenues, and operating expenses are recorded on the
accrual basis of accounting.
Receivables and Advances—The Board coordinates
various special projects on behalf of the Federal
Reserve System. Costs incurred by the Board are reimbursed upon completion of the project or as provided
under the terms of related agreements.
Property—The Board does not charge depreciation
as an operating expense. Property additions are
charged to expense in the Operating Fund in the year
of acquisition; recoveries on the disposal of property
are recorded as a reduction of expense in the Operating Fund in the year of disposition. When property is
acquired or sold, the property asset accounts and the
fund balance in the Property Fund are increased or
decreased at cost.
(2) RETIREMENT PLANS
There are two major retirement plans for employees
of the Board. Approximately 84 percent of the employees are covered by the Federal Reserve Board
Plan. Substantially all new members of the staff who
do not come directly from a position in the federal
government are covered by the Board Plan. The second plan, the Civil Service Retirement Plan, covers all
new employees who come directly from the federal
government service. Employee contributions are the
same percentage of salary under both plans, and benefits are similar, being based upon the Civil Service
Plan.
Under the Civil Service Plan, the Board's contributions directly match employee payroll deductions.
Under the Board Plan, the Board's contributions for
active employees are actuarially determined and are
funded in the current period. Costs associated with annual cost-of-living adjustments (COLA) for retirees
are actuarially determined. One-half of the cost of the
COLA supplement is funded by a lump sum payment
at the time the supplement is granted. The remaining
one-half of the cost of each supplement is funded over
fifteen years and is reflected in the normal contributions to the Board Plan. The lump sum payments for
the 1983 and 1982 amendments to retirees' benefits
amounted to $875,000 and $1,850,000, respectively.
Additionally, employees of the Board may participate in the Federal Reserve System's Thrift Plan.
Under the Thrift Plan, members may contribute up to
a fixed percentage of their salary. Board contributions
are based upon a fixed percentage of each member's
basic contribution. Effective January 1, 1983, the
Thrift Plan was expanded to include a Deferred Compensation Account. This new account did not have a
significant impact on the Board's 1983 Thrift Plan
contributions.
Board contributions to the retirement plans and the
Thrift Plan totaled approximately $5,517,000 in 1983
and $6,384,000 in 1982.
As of January 1, 1983 and 1982 (the dates of the
most recent actuarial reviews), the accumulated plan
benefits for the Federal Reserve Board Plan, including
those arising from COLA supplements, were as follows:
As of January 1
1983
Actuarial present value
of accumulated
plan benefits
Vested
$51,237,000
Nonvested
3,118,000
$54,355,000
1982
$44,679,000
2,550,000
$47,229,000
The assumed rate of return used in determining the
present value of accumulated plan benefits was 9.5
percent in 1983 and 10 percent in 1982.
As of January 1, 1983 and 1982, net assets available
for plan benefits exceeded the actuarial present value
of accumulated plan benefits.
(3) COMMITMENTS AND CONTINGENCIES
The Board leases office and computer equipment
and office and storage space under leases which may
generally be terminated within one year. At December 31, 1983, fixed future rental commitments were
approximately $1,350,000 for 1984.
The Board has been named as a defendant in various litigation involving challenges to, or appeals from,
actions or proposed actions of the Board pursuant to
statutory requirement or authorization. Such lawsuits
generally seek injunctive or declaratory relief against
the Board rather than monetary awards. It is the opinion of Board counsel that lawsuits involving monetary
awards do not represent a material liability to the
Board.
The Board is self-insured with regard to (1) a group
term life and accident insurance plan for Board officers and (2) losses of its building and equipment
from fire or other casualties. Coverage for other customarily insured risks, such as workers' compensation
and comprehensive general liability, is carried by the
Board.
(4) FEDERAL FINANCIAL INSTITUTIONS
EXAMINATION COUNCIL
The Board is one of the five member agencies of the
Federal Financial Institutions Examination Council
(the Council). During 1983 and 1982, the Board paid
$87,600 and $175,000, respectively, in assessments for
Financial Statements 211
operating expenses of the Council. These amounts are
included in subsidies and contributions for 1983 and
1982.
The Board serves as custodian for the Council's
cash account. (This cash is not reflected in the accompanying financial statements.) It also processes accounting transactions, including payroll for most of
the Council employees, and performs other administrative services for which the Board is reimbursed by
the Council.
The Board is not reimbursed for the costs of personnel who serve on the Council and on the various task
forces and committees of the Council. The costs associated with these contributed services are included in
the accompanying financial statements.
(5) FEDERAL RESERVE REGULATORY SERVICE
The Board began the publication and sale of the
Federal Reserve Regulatory Service in 1981. This
monthly looseleaf service contains Board regulations,
interpretations, staff rulings and other regulatory
materials. The development costs incurred during
1979 and 1980 were fully amortized against subscription revenues realized in 1981 and 1982. Included in
other expenses for 1982 is $334,562 in amortization of
deferred publication costs from prior years.
(6) ISSUANCE AND REDEMPTION OF FEDERAL
RESERVE NOTES ON BEHALF OF
FEDERAL RESERVE BANKS
The Board records assessments and expenditures for
the issuance and redemption of Federal Reserve notes
on behalf of the Federal Reserve Banks. These assessments and expenditures are separately reported in the
Statements of Revenues and Expenses because they
are not Board operating transactions.
In 1983 the Board changed from the cash basis of
accounting to the accrual basis of accounting for these
assessments and expenditures. The accrual methodology produced results which were not materially different from those produced using the cash basis of accounting in 1982 and had no effect on revenues over
expenses in 1983.
(7)
RECLASSIFICATIONS
Certain 1982 amounts have been reclassified to conform with presentations in the 1983 financial statements. These reclassifications have no effect on
previously reported 1982 revenues under expenses.
Statistical Tables
214
Tables
1. Detailed Statement of Condition of All Federal Reserve Banks Combined,
December 31, 1983
Thousands of dollars
ASSETS
Gold certificate account
Special drawing rights certificate account
Coin
Loans and securities
Loans to depository institutions
Acceptances held under repurchase agreement
Federal agency obligations
Bought outright
Held under repurchase agreement
U.S. government securities
Bought outright
Bills
Notes
Bonds
Total bought outright
Held under repurchase agreement
11,121,029
4,618,000
416,055
917,588
418,160
8,645,048
207,700
65,810,550
63,933,846
20,813,727
150,558,123
1,384,200
Total U.S. government securities
151,942,323
Total loans and securities
162,130,819
Cash items in process of collection
Transititems
10,099,574
Other cash items
1,464,758
Total cash items in process of collection
11,564,333
Bank premises
Land
Buildings (including vaults)
Building machinery and equipment
Construction account
Total bank premises
348,755
132,954
131,209
612,958
Less depreciation allowance
152,984
90,077
459,934
Bank premises, net
Other assets
Furniture and equipment
Less depreciation
Total furniture and equipment, net
Denominated in foreign currencies'
Interest accrued
Premium on securities
Due from Federal Deposit Insurance Corporation
Overdrafts
Prepaid expenses
Suspense account
Real estate acquired for banking-house purposes
All other
Total other assets
Total assets
550,011
342,656
125,143
217,514
3,688,213
2,554,425
438,624
806,667
194,778
35,108
62,743
15,186
161,608
8,174,867
198,575,114
Tables
215
1.—Continued
LIABILITIES
Federal Reserve notes
Outstanding (issued to Federal Reserve Banks)
Less held by Federal Reserve Banks
178,874,587
21,776,037
Total Federal Reserve notes, net
157,098,550
Deposits
Depository institutions
U.S. Treasury—general account
Foreign-official accounts
Other deposits
Collected funds due to other Federal Reserve Banks
Officers' and certified checks
International organizations
All other2
21,445,601
3,660,843
190,816
0
32,000
319,759
477,100
Total other deposits
Deferred availability cash items
828,860
9,958,175
Other liabilities
Exchange-translation account
Unearned discount
Discount on securities
Sundry items payable
Suspense account
All other
0
474
2,392,5%
31,721
26,165
13,089
Total other liabilities
2,464,045
Total liabilities
195,646,889
CAPITAL ACCOUNTS
Capital paidin
Surplus
Other capital accounts3
Total liabilities and capital accounts
1. Of this amount, $1,543.4 million was invested in
securities issued by foreign governments, and the balance was invested with foreign central banks and the
Bank for International Settlements.
2. In closing out the other capital accounts at yearend, the Reserve Bank earnings that are payable to the
Treasury are included in this account pending payment.
1,464,112
1,464,112
0
198,575,114
3. During the year, this item includes undistributed
net income, which is closed out on Dec. 31; see table 7
in the Statistical Tables section of this REPORT.
NOTE. Amounts in boldface type indicate items in
the Board's weekly statement of condition of the Federal Reserve Banks.
216
Tables
2. Statement of Condition of Each Federal Reserve Bank, December 31, 1983 and 1982
Millions of dollars
Total
Item
Boston
1982
1983
1982
11,121
4,618
415
11,148
4,618
438
927
241
20
570
241
26
918
0
717
0
14
0
15
0
418
1,480
8,645
208
8,937
588
406
0
413
0
U.S. government securities
Bought outright1
Held under repurchase agreements
150,558
1,384
135,607
3,705
7,062
0
6,265
0
Total loans and securities
162,131
151,034
7,482
6,693
11,562
547
13,000
549
405
96
345
97
3,687
4,494
5,764
95
153
150
144
+ 702
+ 101
10,121
8,367
1983
ASSETS
Gold certificate account
Special drawing rights certificate account.
Coin
Loans
To depository institutions.
Other
Acceptances held under repurchase agreements .
Federal agency obligations
Bought outright
Held under repurchase agreements
Cash items in process of collection
Bank premises
Other assets
Denominated in foreign currencies 2 .
Allother
Interdistrict Settlement Account
0
198,575
Total assets
3,577
0
190,128
LIABILITIES
157,097
141,990
8,961
7,191
21,446
3,661
191
831
26,489
5,033
328
2,484
614
0
4
19
676
0
5
25
26,129
34,334
637
706
9,957
2,462
8,814
2,272
333
110
306
94
195,645
187,410
10,041
8,297
1,465
1,465
0
1,359
1,359
0
40
40
0
35
35
0
198,575
190,128
10,121
8,367
Federal Reserve notes outstanding (issued to Bank)
LESS: Held by Bank4
Federal Reserve notes, net5
178,875
21,778
157,097
159,979
17,989
141,990
10,082
1,121
8,961
8,050
859
7,191
Collateral for Federal Reserve notes6
Gold certificate account
Special drawing rights certificate account.
Other eligible assets
U.S. government and agency securities . . .
11,121
4,618
0
141,358
11,148
4,618
107
126,717
Total collateral
157,097
141,990
Federal Reserve notes
Deposits
Depository institutions
U.S. Treasury—General account.
Foreign—Official accounts
Other
Total deposits .
Deferred-availability cash items
Other liabilities and accrued dividends3
Total liabilities
CAPITAL ACCOUNTS
Capital paid in
Surplus
Other capital accounts.
Total liabilities and capital accounts
FEDERAL RESERVE NOTE STATEMENT
end of table.
For notes see
Tables 217
2.—Continued
Cleveland
Philadelphi,i
New York
1983
1982
1983
Richmonc
1982
1983
1982
1983
1982
3,058
1,335
24
3,212
1,335
32
541
225
18
554
225
13
659
302
37
744
302
48
913
408
53
967
408
51
124
0
90
0
158
0
101
0
29
0
19
0
200
0
108
0
418
1,480
0
0
0
0
0
0
2,831
208
2,811
588
288
0
298
0
512
0
590
0
718
0
758
0
49,294
1,384
42,656
3,705
5,023
0
4,519
0
8,920
0
8,950
0
12,502
0
11,506
0
54,259
51,330
5,469
4,918
9,461
9,559
13,420
12,372
1,362
25
1,630
25
374
50
299
51
314
27
497
27
1,806
105
1,723
110
900
1,329
1,436
1,358
162
113
236
107
269
203
432
191
195
270
300
259
+ 448
+ 871
+ 146
+ 364
-694
-1,322
-72
-307
62,740
61,229
7,098
6,767
10,578
10,478
17,098
15,883
49,474
44,812
5,856
5,560
8,831
8,823
13,762
12,411
6,228
3,661
77
513
8,882
5,033
170
587
732
0
7
13
816
0
9
21
1,094
0
11
23
1,051
0
16
41
1,214
0
8
40
1,322
0
11
65
0,479
14,672
752
846
1,128
1,108
1,262
1,398
1,215
858
485
596
268
80
173
68
275
142
215
134
1,730
196
1,478
452
62,026
60,565
6,956
6,647
10,376
10,280
16,950
15,739
357
357
0
332
332
0
71
71
0
60
60
0
101
101
0
99
99
0
74
74
0
72
72
0
62,740
61,229
7,098
6,767
10,578
10,478
17,098
15,883
52,817
3,343
49,474
47,896
3,084
44,812
8,163
2,307
5,856
7,546
1,986
5,560
9,721
890
8,831
9,463
640
8,823
15,565
1,803
13,762
13,708
1,297
12,411
218 Tables
2. Statement of Condition of Each Federal Reserve Bank,
December 31, 1983 and 1982—Continued
Millions of dollars
Atlanta
Item
1983
Chicago
1982
1983
1982
1,504
646
24
1,476
646
26
95
0
83
0
ASSETS
Gold certificate account
Special drawing rights certificate account
Coin
Loans
To depository institutions
Other
371
161
42
402
161
44
10
0
Acceptances held under repurchase agreements
Federal agency obligations
Bought outright
Held under repurchase agreements
210
0
227
0
1,191
0
1,268
0
U.S. government securities
Bought outright1
Held under repurchase agreements
3,651
0
3,452
0
20,748
0
19,246
0
Total loans and securities
3,871
3,687
22,034
20,597
Cash items in process of collection
Bank premises
Other assets
Denominated in foreign currencies2
All other
1,210
34
1,664
34
1,054
20
923
19
295
100
438
117
502
813
4347
+ 35
-278
6,119
6,269
Federal Reserve notes
Deposits
Depository institutions
U.S. Treasury—General account
Foreign—Official accounts
Other
3,156
3,295
22,425
20,612
1,559
0
12
7
1,647
0
16
31
2,341
0
21
97
2,854
0
30
114
Total deposits
1,578
1,694
2,459
2,998
Deferred-availability cash items
1,074
67
1,007
55
822
329
508
288
5,875
6,051
26,035
24,406
Interdistrict Settlement Account
Total assets
544
+ 91
26,419
-158
24,776
LIABILITIES
Other liabilities and accrued dividends
3
Total liabilities
CAPITAL ACCOUNTS
Capital paid in
Surplus
Other capital accounts
122
122
0
109
109
0
192
192
0
185
185
0
6,119
6,269
26,419
24,776
5,746
2,590
3,156
5,522
2,227
3,295
24,572
2,147
22,425
22,048
1,436
20,612
Total liabilities and capital accounts
FEDERAL RESERVE NOTE STATEMENT
Federal Reserve notes outstanding (issued to Bank
LESS: Held by Bank4
,
Federal Reserve notes, net5
1. Includes securities loaned—fully guaranteed by
U.S. government securities pledged with Federal
Reserve Banks—and excludes (if any) securities sold
and scheduled to be bought back under matched saleDigitizedpurchase transactions.
for FRASER
2. Includes U.S. government securities held under
http://fraser.stlouisfed.org/
repurchase agreement against receipt of foreign cur-
Federal Reserve Bank of St. Louis
rencies and foreign currencies warehoused for the
U.S. Treasury. Assets shown in this line are revalued
monthly at market exchange rates.
3. Includes exchange-translation account reflecting
the monthly revaluation at market exchange rates of
foreign-exchange commitments.
4. Beginning September 1980, Federal Reserve
Tables 219
2.—Continued
Minneapolis
St. Louis
1983
1982
Kansas City
1983
1983
1982
San Francisco
Dallas
1982
1983
1982
1983
1982
468
170
22
418
170
25
143
61
20
154
61
19
605
241
46
675
241
44
750
310
28
743
310
32
1,182
518
81
1,233
518
78
93
0
88
0
49
0
9
0
53
0
33
0
70
0
160
0
23
0
3
0
245
0
301
0
106
0
113
0
444
0
422
0
598
0
606
0
1,096
0
1,130
0
4,267
0
4,565
0
1,843
0
1,709
0
7,739
0
6,406
0
10,417
0
9,192
0
19,092
0
17,141
0
4,605
4,954
1,998
1,831
8,236
6,861
11,085
9,958
20,211
18,274
678
16
677
15
1,310
25
170
172
1,366
24
259
165
1,404
16
1,479
106
1,784
104
167
99
688
27
213
62
1,101
18
103
125
-97
469
25
133
84
254
933
375
203
945
438
+ 742
+ 329
-275
-915
+ 873
-1,247
+ 91
609
468
+ 1,274
-702
6,090
7,267
3,262
2,780
9,890
10,580
13,232
13,132
25,928
22,672
4,873
4,630
2,296
1,758
7,589
7,851
9,944
9,317
19,930
15,730
475
0
4
15
477
0
6
1,408
394
0
5
3
414
0
8
22
801
0
7
20
1,224
0
9
36
1,985
0
10
29
2,408
0
14
46
4,009
0
25
52
4,718
0
34
88
494
1,891
402
444
828
1,269
2,024
2,468
4,086
4,840
579
64
603
67
431
31
452
28
1,214
123
1,168
96
885
163
1,024
135
1,131
299
1,395
259
6,010
7,191
3,160
2,682
9,754
10,384
13,016
12,944
25,426
22,224
40
40
0
38
38
0
51
51
0
49
49
0
68
68
0
62
62
0
108
108
0
94
94
0
241
241
0
224
224
0
6,090
7,267
3,262
2,780
9,890
10,508
13,232
13,132
25,928
22,672
5,787
914
4,873
5,440
810
4,630
2,800
504
2,296
2,206
448
1,758
9,810
2,221
7,589
8,974
1,123
7,851
11,763
1,819
9,944
11,047
1,730
9,317
22,049
2,119
19,930
18,079
2,349
15,730
notes held by the Reserve Banks are exempt from the
collateral requirements.
5. Includes Federal Reserve notes held by U.S.
Treasury and by Federal Reserve Banks other than the
issuing Bank.
6. Effective Oct.
Digitizedcollateralized in the12, 1983, Federal Reserve notes are
for FRASER
aggregate rather than by Banks.
7. Includes special investment account at Chicago
of Treasury bills maturing within 90 days.
NOTE. Data for 1983 in tables 1 and 2 may differ
because of rounding or closing adjustments, which are
not included in table 2.
220 Tables
3. Federal Reserve Open Market Transactions, 1983
Jan.
Feb.
Mar.
Apr.
Treasury bills
Gross purchases
Gross sales
Exchange
Redemptions
0
1,983
0
900
1,456
934
0
300
1,259
0
0
0
2,880
0
0
0
Others within 1 year
Gross purchases
Gross sales
Maturity shift
Exchange
Redemptions
0
0
558
-544
0
0
0
4,564
-2,688
0
0
0
1,198
-900
0
0
0
826
0
0
1 to 5 years
Gross purchases
Gross sales
Maturity shift
Exchange
0
0
-553
544
0
0
-4,564
1,599
0
0
-1,198
900
0
0
-684
0
5 to 10 years
Gross purchases
Gross sales
Maturity shift
Exchange
0
0
-5
0
0
0
229
650
oooo
0
0
-142
0
Over 10 years
Gross purchases
Gross sales
Maturity shift
Exchange
oooo
0
0
-229
439
oooo
oooo
Millions of dollars
All maturities
Gross purchases
Gross sales
Redemptions
0
1,983
900
1,456
934
300
1,259
0
0
2,880
0
0
Matched transactions
Gross sales
Gross purchases
59,398
59,043
35,234
38,204
47,892
47,724
37,873
36,205
Repurchase agreements
Gross purchases
Gross sales
6,747
10,451
6,697
6,697
3,526
3,526
7,671
3,984
-6,943
3,192
1,090
4,899
452
1,040
276
276
379
379
340
92
-596
-5
-8
241
-1,480
0
0
704
-9,019
3,187
1,082
5,844
Type of transaction
U.S. GOVERNMENT SECURITIES
Outright transactions (excluding matched transactions)
Net change in U.S. government securities
FEDERAL AGENCY OBLIGATIONS
Outright Transactions
Gross purchases
Gross Sales
Redemptions
Repurchase agreements
Gross purchases
Gross sales
Net change in federal agency obligations
BANKERS ACCEPTANCES
Repurchase agreements, net
Total net change in System Open Market Account.
•Less than $500,000.
NOTE. Sales, redemptions, and negative figures
reduce holdings of the System Open Market Account;
all other figures increase such holdings. Details may
Tables
221
3.—Continued
May
July
June
Aug.
Oct.
Sept.
Nov.
Total
Dec.
516
0
0
0
1,721
0
0
0
666
0
0
0
1,768
289
0
0
3,184
214
0
500
309
0
0
0
1,435
0
0
700
3,695
0
0
0
18,888
3,420
0
2,400
173
0
1,795
-1,842
0
0
0
1,398
-916
87
156
0
1,162
0
0
0
0
2,212
-5,344
0
0
0
902
-753
0
0
0
529
-636
0
155
0
2,828
-2,930
0
0
0
915
0
0
484
0
18,887
-16,553
87
595
0
-41
1,367
0
0
-1,398
916
481
0
-1,121
0
0
0
-2,212
3,130
0
0
-902
753
0
0
-256
636
820
0
-1,689
1,796
0
0
-915
0
1,896
0
-15,533
11,641
326
0
-1,754
300
0
0
0
0
215
0
-41
0
0
0
516
1,300
0
0
0
0
0
0
-273
0
349
0
-980
700
0
0
0
0
890
0
-2,450
2,950
108
0
0
175
0
0
0
0
124
0
0
0
0
0
-516
914
0
0
0
0
0
0
0
0
151
0
-159
434
0
0
0
0
383
0
-904
1,962
1,719
0
0
1,721
0
87
1,642
0
0
1,768
289
0
3,184
214
500
309
0
0
2,909
0
700
3,695
0
0
22,540
3,420
2,487
43,404
45,001
50,086
47,783
40,934
43,037
45,989
44,480
48,193
47,667
53,751
53,367
56,858
57,991
58,979
56,404
578,591
576,908
0
3,687
7,891
6,730
7,816
8,978
2,263
0
37,211
30,223
19,247
28,499
3,257
3,257
3,644
2,260
105,971
108,291
-371
493
2,583
2,234
8,933
-9,326
3,342
2,504
12,631
0
0
0
0
17
ooo
0
0
138
0
0
5
0
0
6
0
0
84
0
0
2
0
0
292
0
248
678
463
558
773
189
0
2,871
2,510
1,960
2,510
497
497
634
426
8,833
9,213
-248
198
-225
51
356
-557
-84
206
-672
-704
203
-203
209
913
-1,122
0
418
-1,062
-1,322
893
2,155
2,493
10,203
-11,005
3,258
3,128
10,897
222 Tables
4. Federal Reserve Bank Holdings of U.S. Government and
Federal Agency Securities, December 31, 1981-83
Millions of dollars
Increase or
decrease ( - )
December 31
Description
1983
1. Includes securities held under repurchase agreements.
2. Excludes securities sold under matched agreements, and securities held under repurchase agreements.
1981
1983
1982
139,312
4,3%
31,088
40,057
35,102
12,095
16,574
130,954
3,935
25,190
37,417
36,025
11,752
16,634
12,630
-1,696
7,160
5,418
-1,081
1,390
1,440
8,358
461
5,898
2,640
-923
343
-60
65,811
63,934
20,814
1,384
Federal agency obligations—Total
1-15 days
16-90 days
91 days to 1 year
1-5 years
5-10 years
Over 10 years
Held outright
Banks for Cooperatives
Export-Import Bank
Federal Farm Credit Banks
Federal Home Loan Banks
Federal Home Loan Mortgage Corporation
Federal Intermediate Credit Banks
Federal Land Banks
Farmers Home Administration
Federal National Mortgage Association
Government National Mortgage Association—PCs
U.S. Postal Service
Washington Metropolitan Area Transit Authority
General Services Administration
Held under RPs
1982
151,942
2,700
38,248
45,475
34,021
13,485
18,014
U.S. government securities—Total
1-15 days'
16-90days
91 days to 1 year
1-5 years
5-10 years
Over 10 years
Held outright2
Treasury bills
Treasury notes
Treasury bonds
Held under RPs
54,426
62,626
18,556
3,704
49,359
59,978
18,401
3,216
11,385
1,308
2,258
-2,320
5,067
2,648
155
488
8,853
386
597
1,937
4,196
1,333
403
9,525
730
564
1,954
4,780
979
518
9,394
530
631
1,443
5,256
962
573
-672
-344
33
-17
-584
354
-115
131
200
-67
511
-476
17
-55
21
0
2,420
2,272
5
50
350
147
3,144
67
37
117
14
208
21
0
2,174
2,494
5
50
613
147
3,198
67
37
117
14
588
21
16
1,960
2,500
5
59
840
163
3,312
83
37
117
14
269
0
0
246
-222
0
0
-263
0
-54
0
0
0
0
-380
0
-16
214
-6
0
-9
-227
-16
-114
-16
0
0
0
319
NOTE. Details may not add to totals because of
rounding.
5. Number and Salaries of Officers and Employees of
Federal Reserve Banks, December 31, 1983
President
Federal Reserve
Bank (including
branches)
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
Digitized San Francisco
for FRASER
Annual
salary
(dollars)
126,000
164,600
102,200
104,100
110,100
108,000
132,800
108,000
108,000
103,100
101,700
138,500
http://fraser.stlouisfed.org/
Total
1,407,100
Federal Reserve Bank of St. Louis
Total
Employees
Other officers
Number
Number
Annual
salaries
(dollars)
Fulltime
Parttime
Annual
salaries
(dollars)
Number
Annual
salaries
(dollars)
49
155
43
52
71
62
81
44
37
54
49
89
2,690,200
9,944,900
2,281,600
2,483,500
3,553,700
3,217,150
4,181,800
2,265,380
1,852,800
2,764,100
2,442,000
4,717,329
1,222
3,920
1,032
1,231
1,770
1,950
2,883
1,162
1,049
1,514
1,352
2,089
189
76
69
57
128
48
144
99
3
42
24
74
27,710,080
89,653,242
20,980,805
23,981,985
31,365,680
36,060,303
56,819,219
22,086,288
20,325,245
28,496,511
26,350,178
45,278,902
1,461
4,152
1,145
1,341
1,970
2,061
3,109
1,306
1,090
1,611
1,426
2,253
30,526,280
99,762,742
23,364,605
26,569,585
35,029,480
39,385,453
61,133,819
24,459,668
22,286,045
31,363,711
28,893,878
50,134,731
786
42,394,459
21,174
953
429,108,438
22,925
472,909,997
Tables 223
6. Bank Premises of Federal Reserve Banks and Branches, December 31, 1983
Dollars
Federal
Reserve
Bank
or branch
Costs
Land
Buildings
(including
vaults) '
21,984,026
27,840
79,883,850
89,202
NEW YORK
Annex
Buffalo
3,436,277
477,863
887,844
11,866,934
1,136,219
2,714,938
PHILADELPHIA
1,876,601
BOSTON .
Annex..
Building machinery and
equipment
Total 2
5,425,128 107,293,005
44,538
161,580
Net
book
value
Other
real
estate 3
95,903,202
141,284
21,427,695
745,855
1,955,684
36,730,906
2,359,936
5,558,466
21,422,003
908,097
3,062,621
52,376,087
5,331,020
59,583,708
49,971,600
11,926,825
23,063,449
9,912,111
4,268,592
15,567,437
7,586,991
63,989,256
4,239,263
35,901,664
1,212,390
CLEVELAND
Cincinnati . . . .
Pittsburgh
1,074,281
2,003,999
1,658,376
6,182,682
13,537,723
5,186,135
4,669,862
7,521,727
3,067,600
RICHMOND
Annex
Baltimore
Charlotte . . . .
3,912,575
522,733
3,880,302
347,071
55,692,101
3,725,466
32,901,277
1,116,899
14,314,313
3,616,991
946,943
73,918,988
7,865,190
36,781,579
2,410,914
ATLANTA .
Birmingham.
Jacksonville.
Annex
Miami
Nashville . . .
New Orleans
1,202,255
2,361,070
164,004
107,925
3,607,531
592,342
3,087,693
7,093,025
1,905,770
1,706,794
76,236
11,853,644
1,474,678
2,754,272
3,558,580
1,046,244
778,381
15,843
2,134,409
1,175,891
1,476,257
11,853,861
5,313,084
2,649,179
200,003
17,595,584
3,242,912
7,318,222
6,663,964
3,612,914
839,902
154,302
16,411,138
1,510,254
4,993,768
CHICAGO .
Annex
Detroit
4,511,942
53,066
797,734
15,364,652
302,249
3,429,670
12,068,149
136,878
2,004,896
31,944,743
492,193
6,232,301
16,217,244
443,273
3,411,722
ST. LOUIS
Little Rock.
Louisville . .
Memphis . .
700,378
1,148,492
700,075
1,135,623
6,161,656
2,067,898
2,945,455
4,216,382
3,870,028
1,023,475
1,131,238
2,126,755
10,732,062
4,239,865
4,776,768
7,478,760
4,815,069
2,904,397
2,480,281
5,355,294
MINNEAPOLIS.
Helena
1,394,384
289,619
26,664,805
104,184
7,692,189
61,906
35,751,378
455,709
25,963,650
336,861
KANSAS CITY.
Denver
Oklahoma City .
Omaha
1,338,737
2,997,746
646,386
1,030,226
10,557,450
3,453,303
2,395,121
1,550,902
7,544,533
2,457,850
817,215
19,440,719
8,908,898
4,758,848
3,398,342
13,835,183
6,075,513
3,374,796
1,814,471
DALLAS . . .
El Paso
Houston . . . .
San Antonio
3,729,268
262,477
2,049,064
448,596
5,095,599
1,131,610
2,582,938
2,226,761
3,737,706
393,301
791,229
570,846
12,562,573
1,787,388
5,423,231
3,246,204
9,217,317
1,528,026
4,699,387
2,753,233
Seattle
12,024,102
644,238
207,381
480,222
274,772
86,465,796
4,429,418
1,681,372
1,972,068
1,890,966
2,468,917
649,432
1,048,304
1,388,582
98,489,898
7,542,573
2,538,184
3,500,594
3,554,319
95,954,885
4,170,931
1,865,994
2,433,513
1,996,657
Total
90,077,134 479,964,186
1,224,363
SAN FRANCISCO...
Los Angeles
Portland
Salt Lake City
1. Includes expenditures for construction at some
offices pending allocation to appropriate accounts.
2. Excludes charge-offs of $17,698,968 before 1952.
3. Includes acquisitions for banking-house purposes,
1,717,342
132,953,731 702,995,051 550,008,341
1,675,944
166,845
951,793
283,753
5,555,451
"479,076
4,848,691
15,185,914
and Bank premises formerly occupied and being held
pending sale.
NOTE. Details may not add to totals due to rounding.
224 Tables
7. Income and Expenses of Federal Reserve Banks, 1983
Dollars
Item
Total
Boston
New York
Philadelphia
Cleveland
CURRENT INCOME
Loans
Acceptances
U.S. government securities ..
Foreign currencies
Priced services
Allother
1,536,753
132,865,618
0
6,002,058
15,150,174,988 703,948,643
7,118,674
273,795,191
496,248,128 27,183,964
316,890
9,276,134
35,493,027
6,002,058
4,949,240,503
66,806,027
80,390,885
3,408,563
4,912,031
0
502,849,580
12,046,989
17,332,387
242,571
2,378,047
0
924,706,072
19,987,049
30,342,356
286,732
Total
16,068,362,117
740,104,924
5,141,341,063
537,383,558
977,700,256
499,601,810
CURRENT EXPENSES
Salaries and other personnel expenses
Retirement and other
benefits
Fees
Travel
Postage and other
shipping costs
Communications
Materials and supplies
Building expenses
Taxes on real estate
Property depreciation
Utilities
Rent
Other
Equipment
Rentals
Depreciation
Repairs and
maintenance
Cost of earnings credits
All other
Shared costs, net'
Recoveries
Expenses capitalized2
Total 3
Reimbursements
Net expenses
For notes see end of table
30,903,530
107,308,332
24,637,342
27,530,530
141,205,741
12,111,411
16,407,036
8,933,801
832,422
790,390
27,851,445
1,170,056
2,179,756
7,329,265
504,349
729,994
8,470,436
657,350
1,194,279
97,068,920
20,980,191
38,833,832
4,257,487
1,361,774
1,950,987
12,817,701
4,426,817
7,511,411
4,231,943
1,126,418
2,029,739
6,770,402
1,512,074
2,056,739
19,431,519
18,938,040
21,553,559
11,501,300
10,954,042
3,224,276
2,370,078
1,965,115
505,036
517,171
2,998,552
1,800,952
4,195,366
7,209,322
2,286,769
1,424,521
1,514,777
1,843,426
40,989
885,449
979,638
1,044,304
1,439,614
199,299
513,535
50,254,222
39,710,008
1,893,580
1,716,841
11,348,573
7,331,591
1,411,586
1,777,658
4,121,712
1,612,358
24,738,993
71,759,091
28,336,513
0
-14,643,515
-2,601,833
1,201,338
4,414,448
2,211,079
820,444
-3,632,591
-107,646
4,725,936
6,144,555
4,130,407
1,491,075
-1,549,820
-4,369
1,542,680
4,059,103
1,151,701
1,278,289
-1,340,366
-3,024
826,155
6,514,992
2,019,137
-335,588
-762,771
-163,047
1,100,235,074
-76,556,600
1,023,678,474
66,129,558
-3,715,636
62,413,922
215,374,427
-18,588,582
196,785,845
56,175,838
-4,790,044
51,385,794
66,201,147
-5,407,502
60,793,645
Tables
225
7.—Continued
Richmond
Chicago
Atlanta
St. Louis
Minneapolis Kansas City
Dallas
San Francisco
9,110,990
6,448,728
2,877,162
7,060,631 50,351,114
3,037,194
3,044,091
6,615,850
0
0
0
0
0
0
0
0
1,260,483,680 371,200,019 2,096,979,158 452,105,131 186,219,854 755,652,637 1,036,724,272 1,910,065,439
14,511,145 21,903,615 37,236,146
7,666,265
9,856,627 12,594,579
18,891,868 45,176,207
39,056,539 53,407,686 72,017,605 24,693,958 28,590,949 35,813,697 35,139,599 52,278,503
502,296
733,097
326,068
185,342
108,909
624,058
1,443,111
1,098,497
1,321,002,388 450,121,579 2,213,947,256 487,835,513 227,889,966 811,230,453 1,141,730,911 2,018,074,250
37,091,518
41,646,375
64,524,454
25,436,242
23,642,133
32,990,583
30,217,808
53,672,963
10,946,323
501,525
1,325,130
11,633,939
4,482,379
1,409,851
18,485,203
1,243,514
2,320,397
7,647,576
538,939
730,228
6,155,213
511,391
894,106
9,334,220
523,462
1,373,518
8,445,620
383,440
1,276,888
15,972,700
762,584
2,182,499
8,724,376
1,689,102
3,654,209
9,374,192
2,110,192
3,809,246
12,249,253
2,268,948
4,886,229
6,185,105
811,831
2,446,694
5,119,439
992,639
1,625,048
7,992,043
1,428,822
2,998,155
7,305,459
1,245,370
2,430,214
12,041,520
2,006,204
3,435,161
1,642,856
3,603,387
1,975,577
359,758
1,127,544
1,074,265
988,938
1,874,560
111,942
612,938
2,466,379
807,063
2,217,534
1,830,862
1,729,671
402,701
561,887
1,144,244
306,748
530,781
2,158,213
1,004,955
841,779
77,870
594,114
616,043
1,042,065
1,126,324
61,902
628,325
699,335
791,214
1,301,628
738,506
561,905
1,744,740
3,408,420
1,628,392
59,066
965,840
4,426,664
4,433,750
6,280,908
2,449,702
7,104,648
4,977,365
1,574,016
2,151,038
2,264,308
1,896,474
1,884,147
3,090,392
3,112,469
3,450,760
4,831,611
4,822,079
2,767,553
5,638,623
1,683,929
1,007,004
-3,011,091
-243,776
2,038,594
8,175,346
2,481,548
-2,017,646
-684,284
-179,467
3,351,289
19,049,569
4,486,156
-3,298,031
-1,250,412
-616,918
1,155,240
3,063,683
1,516,799
1,375,023
-593,280
-115,773
934,802
4,049,236
1,541,510
1,154,088
-176,856
-63,619
1,869,074
3,346,181
1,492,778
-639,675
-639,156
-558,895
1,648,894
2,579,199
2,108,515
-2,410,705
-191,689
-439,743
2,677,438
4,724,156
3,512,954
1,575,722
-811,199
-105,556
83,438,1653 97,673,518
-5,125,512 -5,822,014
78,312,653 91,851,504
148,833,173
-9,566,570
139,266,603
56,869,722
-4,042,018
52,827,704
55,216,843
-2,522,503
52,694,340
69,960,307
-4,791,960
65,168,347
65,255,083
-3,699,235
61,555,848
119,107,293
-8,485,024
110,622,269
226 Tables
7. Income and Expenses of Federal Reserve Banks, 1983—Continued
Dollars
Item
Total
Boston
New York
Philadelphia
Cleveland
4,944,555,217
485,997,765
916,906,611
PROFIT AND LOSS
Current net income
Additions to current net
income
Profits on sales of U.S.
government
securities
All other
Total additions
Deductions from current
net income
Losses on foreign currency transactions 4
All other
Total deductions
Net additions to or deductions ( - ) from current net income
Assessments by Board
Board expenditures 5
Cost of Federal Reserve
currency
Net income before payments to U.S.
Treasury
Dividends paid
Payments to U.S. Treasury
(interest on Federal
Reserve notes)
Transferred to surplus
Surplus, January 1
Surplus, December 31
15,044,683,644 677,691,002
20,985,052
35,829,894
56,814,946
974,625
1,485
976,110
6,693,696
20,850
6,714,546
699,610
2,179
701,788
1,336,302
14,243
1,350,545
456,297,385
883,484
457,180,869
11,863,733
4,838
11,868,571
111,336,562
116,615
111,453,177
20,077,085
12,783
20,089,868
33,309,709
45,472
33,355,181
-400,365,922 -10,892,461
-104,738,631
-19,388,080
-32,004,636
71,551,000
1,861,700
17,513,200
3,214,900
5,187,600
152,135,488
8,203,654
41,636,586
8,308,678
8,472,971
14,420,631,234 656,733,187
85,151,835
2,284,502
4,780,666,800
20,884,084
455,086,107
4,024,901
871,241,404
6,018,003
14,228,816,297 649,638,935
106,663,100
4,809,750
1,357,449,200
34,953,200
1,464,112,300
39,762,950
4,733,958,866
25,823,850
331,612,700
357,436,550
439,879,006
11,182,200
59,790,650
70,972,850
863,002,352
2,221,050
99,146,300
101,367,350
1. Includes distribution of costs for projects performed by one Bank for the benefit of one or more
other Banks.
2. This item includes expenses for labor and
materials temporarily capitalized and charged to activities when the products are consumed.
3. The total expense for Richmond has been adjusted to exclude $5,905,795, which was allocated to
the expenses of other Federal Reserve Banks for
operation of the Federal Reserve Communications
System.
4. This item consists of unrealized net losses related
to revaluation of assets denominated in foreign currencies to market exchange rates.
5. For additional details, see the last three pages of
the section "Board of Governors, Financial Statements" in this REPORT.
NOTE. Details may not add to totals because of
rounding.
Tables
227
7.—Continued
Richmond
Atlanta
Chicago
St. Louis
Minneapolis Kansas City
Dallas
San Francisco
1,242,689,736 358,270,074 2,074,680,653 435,007,810 175,195,626 746,062,106 1,080,175,063 1,907,451,981
1,767,545
16,030
1,783,575
525,429
4,204
529,633
2,948,568
0
2,948,568
668,104
26,283
694,387
24,183,761
61,785
24,245,546
36,503,791
101,695
36,605,485
62,056,444
102,895
62,159,339
12,776,327
56,609
12,832,936
1,021,335
55,362
1,076,697
1,432,608
11,138
1,443,746
2,655,418
35,676,261
38,331,680
16,426,706 20,989,680
2,271
110,767
16,428,977 21,100,446
31,484,519
136,790
31,621,309
75,289,068
130,965
75,420,033
261,812
1,858
263,671
-22,461,971 -36,075,852 -59,210,771 -12,138,548 -16,165,306 -20,023,749 -30,177,563 -37,088,354
3,728,000
5,772,600
9,692,700
1,996,900
2,560,200
3,264,500
5,024,200
11,734,500
11,850,262
6,037,702
21,140,229
5,514,625
3,125,473
9,875,675
11,827,012
16,142,621
1,204,649,503 310,383,920 1,984,636,953 415,357,737 153,344,646 712,898,182 1,033,146,288 1,842,486,506
4,336,297
6,865,126 11,399,351
2,344,760
2,983,463
3,901,708
6,160,847 13,948,793
1,197,695,756 290,842,695 1,966,025,853 410,970,627 148,823,984 703,007,024 1,013,593,438 1,811,377,762
2,617,450 12,676,100
7,211,750
2,042,350
1,537,200
5,989,450 13,392,000 17,159,950
71,546,600 108,864,850 184,673,250 38,079,650 48,984,200 61,908,450 94,257,600 223,631,750
74,164,050 121,540,950 191,885,000 40,122,000 50,521,400 67,897,900 107,649,600 240,791,700
228 Tables
8. Income and Expenses of Federal Reserve Banks, 1914-83
Dollars
Period, or Federal
Reserve Bank
Current
income
Operating
expenses'
Net additions
or
deductions ( - )
Assessments by
Board of Governors
Board
expenditures
Federal Reserve
currency costs •
All Banks
1914-15..
1916
1917
1918
1919
2,173,252
5,217,998
16,128,339
67,584,417
102,380,583
2,018,282
2,081,722
4,921,932
10,576,892
18,744,815
5,875
-193,001
-1,386,545
-3,908,574
-4,673,446
302,304
192,277
237,795
382,641
594,818
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
181,296,711
122,865,866
50,498,699
50,708,566
38,340,449
41,800,706
47,599,595
43,024,484
64,052,860
70,955,496
27,548,505
33,722,409
28,836,504
29,061,539
27,767,886
26,818,664
24,914,037
24,894,487
25,401,233
25,810,067
-3,743,907
-6,314,7%
-4,441,914
-8,233,107
-6,191,143
-4,823,477
-3,637,668
-2,457,792
-5,026,029
-4,861,642
709,525
741,436
722,545
702,634
663,240
709,499
721,724
779,116
697,677
781,644
1,714,421
1,844,840
805,900
3,099,402
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
36,424,044
29,701,279
50,018,817
49,487,318
48,902,813
42,751,959
37,900,639
41,233,135
36,261,428
38,500,665
25,357,611
24,842,964
24,456,755
25,917,847
26,843,653
28,694,965
26,016,338
25,294,835
25,556,949
25,668,907
-93,136
311,451
-1,413,192
-12,307,074
-4,430,008
-1,736,758
485,817
-1,631,274
2,232,134
2,389,555
809,585
718,554
728,810
800,160
,372,022
,405,898
,679,566
,748,380
,724,924
,621,464
2,175,530
1,479,146
1,105,816
2,504,830
1,025,721
1,476,580
2,178,119
1,757,399
1,629,735
1,356,484
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
43,537,805
41,380,095
52,662,704
69,305,715
104,391,829
142,209,546
150,385,033
158,655,566
304,160,818
316,536,930
25,950,946
28,535,547
32,051,226
35,793,816
39,659,4%
41,666,453
50,493,246
58,191,428
64,280,271
67,930,860
11,487,697
720,636
-1,568,208
23,768,282
3,221,880
-830,007
-625,991
1,973,001
-34,317,947
-12,122,274
,704,011
,839,541
,746,326
2,415,630
2,2%,357
2,340,509
2,259,784
2,639,667
3,243,670
3,242,500
1,510,520
2,588,062
4,826,492
5,336,118
7,220,068
4,710,309
4,482,077
4,561,880
5,186,247
6,304,316
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
275,838,994
394,656,072
456,060,260
513,037,237
438,486,040
412,487,931
595,649,092
763,347,530
742,068,150
886,226,116
69,822,227
83,792,676
92,051,063
98,493,153
99,068,436
101,158,921
110,239,520
117,931,908
125,831,215
131,848,023
36,294,117
-2,127,889
1,583,988
-1,058,993
-133,641
-265,456
-23,436
-7,140,914
124,175
98,247,253
3,433,700
4,095,497
4,121,602
4,099,800
4,174,600
4,194,100
5,339,800
7,507,900
5,917,200
6,470,600
7,315,844
7,580,913
8,521,426
10,922,067
6,489,895
4,707,002
5,603,176
6,374,195
5,973,240
6,384,083
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1,103,385,257
941,648,170
1,048,508,335
1,151,120,060
1,343,747,303
1,559,484,027
1,908,499,896
2,190,403,752
2,764,445,943
3,373,360,559
139,893,564
148,253,719
161,451,206
169,637,656
171,511,018
172,110,934
178,212,045
190,561,166
207,677,768
237,827,579
13,874,702
3,481,628
-55,779
614,835
725,948
1,021,614
9%,230
2,093,876
8,519,9%
-557,553
6,533,700
6,265,100
6,654,900
7,572,800
8,655,200
8,576,3%
9,021,600
10,769,5%
14,198,198
15,020,084
7,455,011
6,755,756
8,030,028
10,062,901
17,229,671
23,602,856
20,167,481
18,790,084
20,474,404
22,125,657
For notes see end of table.
Tables
229
8.—Continued
Payments to U.S. Treasury
Dividends
paid
217,463
1,742,775
6,804,186
5,540,684
5,011,832
5,654,018
6,119,673
6,307,035
6,552,717
6,682,496
6,915,958
7,329,169
7,754,539
8,458,463
9,583,911
Franchise
tax
Under
section 13b
Interest on
Federal Reserve
notes
Transferred
to surplus
(section 13b)
1,134,234
48,334,341
70,651,778
1,134,234
2,703,894
82,916,014
15,993,086
-659,904
2,545,513
-3,077,962
2,473,808
8,464,426
5,044,119
21,078,899
22,535,597
60,724,742
59,974,466
10,850,605
3,613,056
113,646
59,300
818,150
249,591
2,584,659
4,283,231
10,268,598
10,029,760
9,282,244
8,874,262
8,781,661
8,504,974
7,829,581
7,940,966
8,019,137
8,110,462
17,308
2,011,4i8
8,214,971
8,429,936
8,669,076
8,911,342
9,500,126
10,182,851
10,962,160
11,523,047
11,919,809
12,329,373
Transferred
to surplus
(section 7)
297,667
227,448
176,625
119,524
24,579
-60,323
27,695
102,880
67,304
-419,140
-425,653
82,152
141,465
197,672
244,726
326,717
247,659
67,054
35,605
-54,456
-4,333
49,602
135,003
201,150
262,133
27,708
86,772
75,233,818
166,690,356
193,145,837
-2,297,724
-7,057,694
11,020,582
-916,855
6,510,071
607,422
352,524
2,616,352
1,862,433
4,533,977
17,617,358
570,513
3,554,101
40,237,362
48,409,795
81,969,625
81,467,013
8,366,350
18,522,518
21,461,770
13,082,992
13,864,750
14,681,788
15,558,377
16,442,236
17,711,937
18,904,897
20,080,527
21,197,452
22,721,687
196,628,858
254,873,588
291,934,634
342,567,985
276,289,457
251,740,721
401,555,581
542,708,405
524,058,650
910,649,768
21,849,490
28,320,759
46,333,735
40,336,862
35,887,775
32,709,794
53,982,682
61,603,682
59,214,569
-93,600,791
23,948,225
25,569,541
27,412,241
28,912,019
30,781,548
32,351,602
33,696,336
35,027,312
36,959,336
39,236,599
896,816,359
687,393,382
799,365,981
879,685,219
1,582,118,614
1,296,810,053
1,649,455,164
1,907,498,270
2,463,628,983
3,019,160,638
42,613,100
70,892,300
45,538,200
55,864,300
-465,822,800
27,053,800
18,943,500
29,851,200
30,027,250
39,432,450
230 Tables
8. Income and Expenses of Federal Reserve Banks, 1914-83—Continued
Dollars
Period, or Federal
Reserve Bank
Current
income
Net additions
or
deductions ( - )
Operating
expenses'
Assessments by
Board of Governors
Board
expenditures
Federal Reserve
currency costs1
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
3,877,218,444
3,723,369,921
3,792,334,523
5,016,769,328
6,280,090,965
6,257,936,784
6,623,220,383
6,891,317,498
8,455,390,401
10,310,148,406
276,571,876
319,608,270
347,917,112
416,879,377
476,234,586
514,358,633
558,128,811
568,851,419
592,557,841
625,168,261
11,441,829
94,266,075
-49,615,790
-80,653,488
-78,487,237
-202,369,615
7,310,500
-177,033,463
-633,123,486
-151,148,220
21,227,800
32,634,002
35,234,499
44,411,700
41,116,600
33,577,201
41,827,700
47,366,100
53,321,700
50,529,700
23,573,710
24,942,528
31,454,740
33,826,299
30,190,288
37,130,081
48,819,453
55,008,163
60,059,365
68,391,270
1980
1981
1982
1983
12,802,319,335
15,508,349,653
16,517,385,129
16,068,362,117
718,032,836
814,190,392
926,033,957
1,023,678,474
-115,385,855
-372,879,185
-68,833,150
-400,365,922
62,230,800
63,162,700
61,813,400
71,551,000
73,124,423
82,924,013
98,441,027
152,135,488
147,685,709,771
12,001,908,729
-2,145,034,886
847,903,508
1,115,466,550
6,959,299,512
40,182,917,501
6,923,765,117
11,125,309,061
11,361,899,515
6,420,773,185
22,748,603,310
5,549,361,124
2,897,711,721
6,417,145,196
7,898,839,932
19,200,084,599
812,716,592
2,505,494,145
636,733,549
845,045,162
934,179,581
974,718,339
1,583,429,222
667,293,830
512,698,153
742,577,670
641,819,838
1,145,202,646
-76,058,745
-500,655,778
-94,309,948
-182,513,817
-126,027,983
-158,983,028
-345,458,455
-75,776,994
-64,649,400
-95,232,227
-134,857,672
-290,510,840
32,954,686
222,523,986
42,058,918
72,273,990
44,021,476
58,736,660
124,048,072
27,412,772
23,980,815
35,687,009
48,240,273
115,964,851
63,679,783
226,982,118
63,557,812
72,496,580
110,583,452
91,296,529
156,784,773
48,472,913
22,587,213
57,562,838
64,785,541
136,676,998
147,685,709,771
12,001,908,729
-2,145,034,886
847,903,508
1,115,466,550
Total, 1914-83
Aggregate for each
Bank, 1914-83
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total
1. Assessments by the Board for the cost of Federal
Reserve currency, heretofore included in operating expenses, is now identified as a separate item. Accordingly, the operating expenses item for 1982 and for
earlier years has been restated.
2. The $1,592,784,499 transferred to surplus was
reduced by direct charges of $500,000 for charge-off
on Bank premises (1927), $139,299,557 for contribu-
tions to capital of the Federal Deposit Insurance
Corporation (1934), and $3,657 net upon elimination
of sec. 13b surplus (1958); and was increased by
$11,131,013 transferred from reserves for contingencies (1945), leaving a balance of $1,464,112,298 on
Dec. 31, 1983.
NOTE. Details may not add to totals because of
rounding.
Tables
231
8.—Continued
Payments to U.S. Treasury
Dividends
paid
Franchise
tax
Under
section 13b
Interest on
Federal Reserve
notes
Transferred
to surplus
(section 13b)
Transferred
to surplus
(section 7)
41,136,551
43,488,074
46,183,719
49,139,682
52,579,643
54,609,555
57,351,487
60,182,278
63,280,312
67,193,615
3,493,570,636
3,356,559,873
3,231,267,663
4,340,680,482
5,549,999,411
5,382,064,098
5,870,463,382
5,937,148,425
7,005,779,497
9,278,576,140
32,579,700
40,403,250
50,661,000
51,178,300
51,483,200
33,827,600
53,940,050
45,727,650
47,268,200
69,141,200
70,354,516
74,573,806
79,352,304
85,151,835
11,706,369,955
14,023,722,907
15,204,590,947
14,228,816,297
56,820,950
76,896,650
78,320,350
106,633,100
1,611,678,033
149,138,300
2,188,893
128,219,610,033
-3,657
1,592,784,4992
71,918,981
446,830,155
90,880,855
143,128,592
79,858,764
100,087,946
225,701,798
52,941,901
42,987,872
66,179,796
86,901,684
204,259,689
7,111,395
68,006,262
5,558,901
4,842,447
6,200,189
8,950,561
25,313,526
2,755,629
5,202,900
6,939,100
560,049
7,697,341
280,843
369,116
722,406
82,930
172,493
79,264
151,045
7,464
55,615
64,213
102,083
101,421
5,844,585,300
35,817,796,232
5,904,348,996
9,690,334,307
9,980,883,235
4,901,107,877
20,080,490,983
4,629,484,510
2,171,086,268
5,340,873,166
6,809,590,374
17,049,028,786
135,411
-433,412
290,661
-9,906
-71,517
5,491
11,682
-26,515
64,874
-8,674
55,337
-17,089
49,857,775
394,693,121
85,303,072
114,601,143
80,043,858
126,807,490
207,213,754
45,241,628
54,398,613
72,037,850
111,927,078
250,659,117
1,611,678,033
149,138,300
2,188,893
128,219,610,033
-3,657
1,592,784,4992
232 Tables
9. Revenue and Expense of Priced Services at Federal Reserve Banks, 1983 and 1982
Millions of dollars
Service
Total
Commercial
check
collection
Item
Wire
transfer
and net
settlement
1983
1982
1983
1982
1983
1982
Revenue3
Expense3
Net revenue
Private sector adjustment4
Net revenue after private sector adjustment..
581.1
533.6
47.5
59.1
-11.6
421.6
456.8
-35.3
55.7
-90.9
436.7
393.6
43.1
44.5
-1.4
308.5
324.7
-16.2
40.7
-56.9
67.2
57.1
10.1
8.2
1.9
53.7
51.4
2.3
7.7
-5.4
MEMO: Net revenue after private sector
adjustment, with allowance for ACH and
cash transportation programs !»2
-1.9
-78.8
1. The Board established an incentive pricing program for the commercial automated clearinghouse
service that provides for fee structures designed to
recover an increasing share of expenses over a period
of several years. Revenue for the commercial ACH
service was expected to represent approximately 40
percent and 20 percent of expenses plus the private
sector adjustment for 1983 and 1982 respectively.
2. The Board adopted a transitional support program, which was concluded at the end of 1983, for the
cash transportation service, and anticipated that ex-
penses plus the private sector adjustment would exceed revenue during the program.
3. Total System revenue for 1983 and 1982 respectively comprises $496.2 million and $386.7 million of
income from fees for services, and $84.9 million and
$34.8 million of income related to clearing balances
established by depository institutions. Total System
expenses include $71.8 million and $28.3 million of
earnings credits granted to depository institutions on
clearing balances. Data for 1982 have been restated to
distribute the income and cost of clearing balances
Tables
233
9.—Continued
Service
Definitive
safekeeping
and noncash
collection
Commercial
ACH 1
Bookentry
securities
Cash
transportation 2
Coin
wrapping
1983
1982
1983
1982
1983
1982
1983
1982
1983
1982
7.7
14.5
-6.8
.7
-7.5
1.4
9.7
-8.3
1.5
-9.8
19.1
20.8
-1.7
2.7
-4.4
15.8
21.4
-5.6
2.9
-8.5
21.8
18.0
3.8
2.5
1.3
14.5
17.1
-2.6
2.6
-5.2
27.1
28.3
-1.2
.2
-1.4
26.4
31.3
-4.9
.2
-5.1
1.6
1.4
.2
.2
.0
1.3
1.2
.1
.1
.0
.2
-1.9
.6
-
.9
across services to present data consistent with those
for 1983.
Check collection expense includes float costs. Expenses attributable to check collection include the
value of holdover check float (1) in excess of 1 percent
of the total dollar value of checks processed during the
period from Feb. 24 to June 30, 1983, (2) in excess of
one-half of 1 percent of the total value of checks processed and of interterritory check float billed directly
to institutions for July 1 to Sept. 30, 1983, and (3) all
check float since Oct. 1, 1983.
4. This adjustment is an imputed cost intended to
reflect the taxes that would have been paid and the
return on capital that would have been provided had a
private firm furnished the services.
NOTE. Revenue and expenses of priced services offered by the Federal Reserve Banks are derived from
the income and expense data shown in table 7. Expenses for priced services are based primarily on the
Federal Reserve Planning and Control System, which
provides for the allocation of expenses to the principal
areas of operation of the Banks.
234 Tables
10. Volume of Operations in Principal Departments of
Federal Reserve Banks, 1980-83
Operation
1983
1982
1981
1980
Millions of pieces
O
Loans
Currency received and counted
Currency verified and destroyed
Coin received and counted
Checks handled
U.S. government checks
Postal money orders
All other 2
Issues, redemptions, and exchanges of
U.S. government securities
Transfers of funds 3
Food stamps redeemed
()
'
11,464
4,403
17,712
()
'
10,679
4,147
16,859
10,277
3,510
17,023
()
'
9,432
3,197
17,700
612
115
15,900
655
126
15,178r
683
126
15,880
705
117
15,721
168
62
2,684
156
58
2,565
188
54
2,625
301
43
2,541
Loans
Currency received and counted
Currency verified and destroyed
Coin received and counted
Checks handled
U.S. government checks
Postal money orders
All other
Issues, redemptions, and exchanges of
U.S. government securities
Transfers of funds
Food stamps redeemed
214,190
141,684
36,224
2,795
184,997
128,8O3r
31,258
2,714
236,532
117,901
24,912
3,184
267,957
104,333
20,183
2,703
552,493
7,854
10,694,906
628,639
6,645
8,722,369
611,403
6,030
9,454,638
598,569
6,164
9,365,649
51,352,275
143,177,719
10,861
26,550,780
121,239,371
9,869
12,728,458
93,968,246
9,547
10,326,013
78,594,862
9,268
Amounts (millions of dollars)
1. Number handled (in thousands): 1983, 22; 1982,
24; 1981, 36; and 1980, 25.
2. The 1982 and 1983 volumes reflect the number of
other checks handled, whether individually or in presorted bundles. Before 1982, however, the number of
items in pre-sorted bundles was not reported; therefore, the 1980 and 1981 volumes include pre-sorted
bundles counted as one item.
The 1983 and 1982 figures include 1.25 million and
0.9 million checks respectively that were handled by
more than one Reserve Bank. Comparable data are
not available for years before 1982.
3. Includes the volume processed at both sending
and receiving offices of Federal Reserve Banks. The
number of priced wire transfers in 1983 was 38 million.
r Revised.
Tables 235
11. Federal Reserve Bank Interest Rates, December 31, 1983
Percent per annum
Loans to depository institutions
Federal Reserve
Bank
Boston . . .
New York.
Short-term
adjustment credit
and seasonal
credit1
Extended credit2
First 60 days
of borrowing
After 150
days
9Vi
8*4
Next 90 days
of borrowing
10 Yi
V
9!/2
V
\0Vl
Philadelphia
Cleveland...
Richmond
Atlanta...
Chicago .
St. Louis.
Minneapolis.
Kansas City .
Dallas
San Francisco
1. Rates applied to short-term advances for the purpose of meeting temporary funding requirements and
to longer-term advances made to smaller institutions
for the purpose of meeting seasonally recurring needs
for funds. See sections 201.3(a) and 201.3(b)(l) of
Regulation A.
V
8»/2
2. Applicable to advances when exceptional circumstances or practices involve only a particular depository institution and to advances when an institution
is under sustained liquidity pressures. See section
201.3(b)(2) of Regulation A.
236 Tables
12. Reserve Requirements of Depository Institutions
Percent of deposits
Through July 13, 1966
Net demand deposits 2
Effective date 1
Central reserve
city banks
Reserve city
banks
13
191/2
10
15
HVi
20
17/2
1917—June 21
1936—Aug. 16
1937—Mar. 1
May 1
1938—Apr. 16
1941—Nov. 1
1942—Aug. 20
Sept. 14
Oct. 3
1948_Feb. 27
June 11
Sept. 24,16 . . .
1949—May 5,1
June 30, July 1.
Aug. 1
11,16....
18
25
Sept. 1
1951—Jan. 11,16 . . . .
25, Feb. 1 .
1953—July 9 , 1
1954_j U ne 2 4 , 1 6 . . . .
July 29, Aug. 1
1958—Feb. 27, Mar. 1
Mar. 20, Apr. 1
Apr. 17
24
I960—Sept. 1
Nov. 24
Dec. 1
1962—July 28
Oct. 25, Nov. 1
3
22 /A
26
223/4
26
24
22
20
22
24
26
24
20
22
21
20
19/2
19
18/2
18
19
20
19
23/2
23
22/2
22
23
24
22
21
20
19/2
19
18/2
18
17/2
18
17/2
17
Country
banks
Time deposits
(all classes
of banks)
7
3
10/2
12/4
14
12
14
4/2
5/4
6
5
6
16
15
14
13
12
7/2
7
6
13
14
13
12
11/2
11
16/2
12
1/2
o
July 14, 1966, through Nov. 8, 1972 (deposit intervals in millions of dollars)
Time deposits4
(all classes of banks)
Net demand
deposits2
Effective date1
Reserve
city banks
0-5
1966-July 14,21 .
Sept. 8,11 .
1967-Mar.2
16....
1968-Jan. 11,18 .
1969-Apr. 17 . . . .
1970-Oct. 1
Over 5
0-5
5
Other
time
Savings
0-5
Over 5
16/2
12
3/2
17
17/2
12
12/2
3/2
3
16/2
17
Over 5
5
1. Reserves required during the period from inception of the Federal Reserve System until June 20,
1917, were not strictly comparable with later requirements; they were based on aggregate amounts of deposits, and reserve balances with the Reserve Banks
were increased in stages.
When two dates are shown, the first applies to the
change at central reserve or reserve city banks and the
second to the change at country banks.
2. Demand deposits subject to reserve requirements, beginning Aug. 23, 1935, were total demand
deposits minus cash items in process of collection and
demand balances due from domestic banks (also
Digitizedminus war loan and Series E bond accounts during the
for FRASER
period Apr. 13, 1943—June 30, 1947).
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Country
banks
3
12/2
13
All required reserves were held on deposit with
Federal Reserve Banks from June 21, 1917, until late
1959. Since then, member banks were allowed to
count vault cash as reserves, as follows: country banks
—in excess of 4 and 2/2 percent of net demand
deposits effective Dec. 1, 1959, and Aug. 25, 1960,
respectively; central reserve city and reserve city banks
—in excess of 2 and 1 percent effective Dec. 3, 1959,
and Sept. 1, 1960, respectively. All institutions were
allowed to count all vault cash as reserves effective
Nov. 24, 1960.
In graduated requirement schedules, each deposit
interval applies to that part of the deposits of each
bank.
Beginning Oct. 16, 1969, Regulation M required
Tables 237
12.—Continued
Nov. 9, 1972, through Nov. 12, 1980 (deposit intervals in millions of dollars)
Time and savings deposits4
Net demand deposits2'6
Time7
Effective date
(\ <
*
0-2
2-10
10
8
1972-Nov. 9
16
1973-July 19
1974-Dec. 12
1975-Feb. 13
Oct. 30
1976-Jan.8..
Dec. 30
10 Vi
7A
»
10
9!/2
7
10100
100-
400
400
Savings
12
WAl
13
13 Vi
17!/2
nvi
12
IP/4
13
123/4
Over 5, by
maturity
0-5, by
maturityi
35
Over
30179
days
180 4 yrs.
days
or
to
more
4 yrs.
30179
days
35
180 4 yrs.
days
or
to
more
4 yrs.
55
18
6
17»/2
I6V2
3
1W
3
9
I
3
3
I9
2!/2 9
16!4
Beginning Nov. 13, 1980
Type of deposit, and
deposit interval10
Depository institution requirements
after implementation of the
Monetary Control Act"
Percent
Net-transaction
Effective date
3
12
12/29/83
12/29/83
3
0
10/6/83
10/6/83
3
11/13/80
1 li
accounts* '
$0-$28.9 million . .
Over $28.9 million
Nonpersonal time deposits1*
By original maturity
Less than Wi
1 Vi years or more
Eurocurrency liabilities
All types
reserves against (a) net balances due from domestic offices to their foreign branches and (b) foreign-branch
loans to U.S. residents; Regulation D imposed a similar requirement against (c) borrowings from foreign
banks by domestic offices of a member bank. Limited
reserve-free base amounts were originally permitted
under Regulation M but were eliminated for (b) effective June 21, 1973, and were lowered in steps for (a)
and (c) until eliminated effective Mar. 4, 1974. Beginning June 21, 1973, loans aggregating $100,000 or less
to any U.S. resident were excluded from computations, as were total loans of a bank to U.S. residents if
not exceeding $1 million. The applicable reserve percentage, which was originally 10 percent, was increased to 20 percent on Jan. 7, 1971; reduced to 8
percent on June 21, 1973, to 4 percent on May 22,
1975, and to zero on Aug. 24, 1978. Effective Dec. 1,
1977, the reserve required against deposits that foreign
branches of U.S. banks use for lending to U.S. residents was reduced to 1 percent, and on Aug. 24, 1978,
it was reduced to zero. For details see Regulation D
and M as described in "Record of Policy Actions of
the Board of Governors," in previous ANNUAL
REPORTS.
3. Authority of the Board of Governors to classify
or reclassify cities as central reserve cities was terminated effective July 28, 1962.
4. Time deposits such as Christmas and vacation
club accounts became subject to the same requireDigitizedments as savings deposits, effective Jan. 5, 1967.
for FRASER
Necoriahle order of withdrawal fNOW^ nrconnts were
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
defined in the Board's Regulation Q as savings deposits beginning Jan. 1, 1974. Effective with the reserve
computation period beginning Nov. 16, 1978, domestic deposits of Edge corporations were subject to the
same reserve requirements as deposits of member
banks.
5. This rate had been established in the earlier structure. It remained the same in the new structure established this date.
6. Effective Nov. 9, 1972, a new criterion was
adopted to designate reserve cities, and on the same
date requirements for reserves against net demand
deposits of member banks were restructured to provide that each member bank maintain reserves related
to the size of its net demand deposits. The new reserve
city designations were as follows: A bank having net
demand deposits of more than $400 million was considered to have the character of business of a reserve
city bank, and the presence of the head office of such
a bank constituted designation of that place as a
reserve city. Cities in which there were Federal Reserve
Banks or branches were also reserve cities. Any bank,
wherever located, having net demand deposits of $400
million or less was considered to have the character of
business of banks outside of reserve cities and was permitted to maintain reserves at ratios set for banks not
in reserve cities.
7. Effective Nov. 2, 1978, a supplementary reserve
requirement of 2 percent was added to the existing requirements for time deposits of $100,000 or more and
for rwtnin nthpr liahiiitioc Thic cnnnlomanton, «,
238 Tables
12. Reserve Requirements of Depository Institutions—Continued
Percent of deposits
quirement was eliminated with the maintenance period
beginning July 24, 1980.
From June 21, 1973, through Dec. 11, 1974, member banks, except as noted below, were subject to a
marginal reserve requirement against increases in the
aggregate of the following types of obligations: (a)
outstanding time deposits of $100,000 or more, (b)
outstanding funds obtained by the bank through issuance by a bank's affiliate of obligations subject to the
existing reserve requirements on time deposits, and (c)
beginning July 12, 1973, funds from sales of finance
bills. For the period June 21 through Aug. 29, 1973,
(a) included only single-maturity time deposits. The
requirement applied to balances above a specified
base, but was not applicable to banks having obligations of these types aggregating less than $10 million.
Including the basic requirement (5 percent during the
entire period), requirements were as follows: 8 percent
for (a) and (b) from June 21 through Oct. 3,1973, and
for (c) from July 12 through Oct. 3, 1973; 11 percent
from Oct. 4 through Dec. 26, 1973; and 8 percent
from Dec. 27, 1973 through Sept. 18, 1974. Beginning
Sept. 19, the 8 percent requirement applied only to
those obligations in (a), (b), and (c) with initial maturities of less than 120 days, and effective Dec. 12, 1974,
the remaining marginal reserve was removed on this
type of obligation issued to mature in less than 4
months. For details, see "Record of Policy Actions of
the Board of Governors" in 1973 and 1974 ANNUAL
REPORTS.
Effective with the reserve maintenance period beginning Oct. 25, 1979, a marginal reserve requirement
of 8 percent was added to managed liabilities in excess
of a base amount. This marginal requirement was increased to 10 percent beginning Apr. 3, 1980, was decreased to 5 percent beginning June 12, 1980, and was
eliminated beginning July 24, 1980. Managed liabilities are defined as large time deposits, Eurodollar
borrowings, repurchase agreements against U.S.
government and federal agency securities, federal
funds borrowings from nonmember institutions, and
certain other obligations. In general, the base for the
marginal reserve requirement was originally the
greater of (a) $100 million or (b) the average amount
of the managed liabilities held by a member bank,
Edge corporation, or family of U.S. branches and
agencies of a foreign bank for the two reserve computation periods ending Sept. 26, 1979. For the computation period beginning Mar. 20, 1980, the base was
lowered by (a) 7 percent or (b) the decrease in an institution's U.S. office gross loans to foreigners and gross
balances due from foreign offices of other institutions
between the base period (Sept. 13-26, 1979) and the
week ending Mar. 12, 1980, whichever was greater.
For the computation period beginning May 29, 1980,
the base was increased 7 Vi percent above the base used
to calculate the marginal reserve in the statement week
of May 14-21, 1980. In addition, beginning Mar. 19,
1980, the base was reduced to the extent that foreign
loans and balances declined.
8. The \6Vi percent requirement applied only for
one week and solely to former reserve city banks. For
other banks, the 13 percent requirement was continued in this deposit interval.
9. The average of reserves on savings and other time
deposits had to be at least 3 percent, the legal minimum at that time.
10. The Garn-St Germain Depository Institutions
Act of 1982 (Public Law 97-320) provides that $2
million of reservable liabilities (transaction accounts,
nonpersonal time deposits, and Eurocurrency liabilities) of each depository institution be subject to a zero
percent reserve
requirement. The Board is to adjust
the amount of reservable liabilities subject to this zero
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
percent reserve requirement each year for the next succeeding calendar year by 80 percent of the percentage
increase in the total reservable liabilities of all depository institutions, measured on an annual basis as of
June 30. No corresponding adjustment is to be made
in the event of a decrease.
Effective Dec. 9, 1982, the amount of the exemption was established at $2.1 million.
Beginning Dec. 15, 1983, for quarterly reporters
and Dec. 29, for weekly reporters, the amount of the
exemption was $2.2 million. In determining the reserve
requirements of a depository institution, the exemption shall apply in the following order: (1) nonpersonal money market deposit accounts (MMDAs)
authorized under 12 CFR section 1204.122; (2) net
negotiable order of withdrawal (NOW) accounts (that
is, NOW accounts less allowable deductions); (3) net
other transaction accounts; and (4) nonpersonal time
deposits or Eurocurrency liabilities starting with those
with the highest reserve ratio. With respect to NOW
accounts and other transaction accounts, the exemption applies only to such accounts that would be subject to a 3 percent reserve requirement.
11. For nonmember banks and thrift institutions
that were not members of the Federal Reserve System
on or after July 1, 1979, a phase-in period ends Sept.
3, 1987. For banks that were members on or after July
1, 1979, but withdrew on or before Mar. 31, 1980, the
phase-in period established by Public Law 97-320
ends on Oct. 24, 1985. For existing member banks the
phase-in period is about three years, depending on
whether their new reserve requirements are greater or
less than the old requirements. All new institutions
will have a two-year phase-in beginning with the date
that they open for business, except for those institutions that have total reservable liabilities of $50 million
or more.
12. Transaction accounts include all deposits on
which the account holder is permitted to make withdrawals by negotiable or transferable instruments,
payment orders of withdrawal, and telephone and preauthorized transfers (in excess of three per month) for
the purpose of making payments to third persons or
others. However, MMDAs and similar accounts offered by institutions not subject to the rules of the Depository Institutions Deregulation Committee (DIDC)
that permit no more than six preauthorized, automatic, or other transfers per month of which no more
than three can be checks—are not transaction accounts (such accounts are savings deposits subject to
time deposit reserve requirements).
13. The Monetary Control Act of 1980 requires that
the initial amount of $25 million of transaction accounts against which the 3 percent reserve requirement
applies be modified annually by 80 percent of the
percentage increase in transaction accounts held by all
depository institutions determined as of June 30 each
year. Effective on the following dates, the amount was
increased accordingly from $25 million: Dec. 31,1981,
to $26 million; Dec. 30, 1982, to $26.3 million; and
Dec. 29, 1983, to $28.9 million.
14. In general, nonpersonal time deposits are time
deposits, including savings deposits, that are not
transaction accounts and in which a beneficial interest
is held by a depositor that is not a natural person. Also
included are certain transferable time deposits held by
natural persons, and certain obligations issued to depository institution offices located outside the United
States. For details, see section 204.2 of Regulation D.
NOTE. Required reserves must be held in the form o?
deposits with Federal Reserve Banks or vault cash.
Nonmembers may maintain reserve balances with a
Federal Reserve Bank indirectly on a pass-through
basis with certain approved institutions.
Tables 239
13. Maximum Interest Rates Payable on Time and Savings Deposits at Federally
Insured Institutions1
Percent per annum
Commercial banks
Savings and loan associations and
mutual savings banks
(thrift institutions)1
In effect
Dec. 31, 1983
In effect
Dec. 31, 1983
Type and maturity of deposit
Percent
Savings
Negotiable order of withdrawal
accounts
Negotiable order of withdrawal
accounts of $2,500 or more2
Money market deposit account3
Effective
date
5%
12/31/80
Effective
date
5 V*
12/31/80
7/1/79
Time accounts by maturity
7-31 days of less than $2,5004 .
7-31 days of $2,500 or more 2 ..
More than 31 days
1. Effective Oct. 1, 1983, restrictions on the maximum rates of interest payable by commercial banks
and thrift institutions on various categories of deposits
were removed. For information regarding previous interest rate ceilings on all categories of accounts, see
earlier issues of the Federal Reserve Bulletin, the
Federal Home Loan Bank Board Journal, the Annual
Report of the Federal Deposit Insurance Corporation,
and the ANNUAL REPORT of the Board of Governors of
the Federal Reserve System.
2. Effective Dec. 1, 1983, IRA/Keogh (H.R. 10)
Plan accounts are not subject to minimum deposit requirements.
3. Effective Dec. 14, 1982, depository institutions
are authorized to offer a new account with a required
initial balance of $2,500 and an average maintenance
balance of $2,500 not subject to interest rate restric-
Percent
7/1/79
1/5/83
12/14/82
1/5/83
12/14/82
9/1/82
1/5/83
10/1/83
5Vi
9/1/82
1/5/83
10/1/83
tions. No minimum maturity period is required for
this account, but depository institutions must reserve
the right to require seven days notice before withdrawals. When the average balance is less than $2,500,
the account is subject to the maximum ceiling rate of
interest for negotiable order of withdrawal accounts;
compliance with the average balance requirement may
be determined over a period of one month. Depository
institutions may not guarantee a rate of interest for
this account for a period longer than one month or
condition the payment of a rate on a requirement that
the funds remain on deposit for longer than one
month.
4. Deposits of less than $2,500 issued to governmental units continue to be subject to an interest rate ceiling of 8 percent.
240 Tables
14. Margin Requirements1
Percent of market value
Effective date
For credit extended under Regulation T (brokers and dealers), U (banks),
G (others than brokers, dealers, or banks), and X (borrowers)
Margin
stocks
1934—Oct. 1
1936—Feb. 1
Apr. 1
1937—Nov. 1
1945_Feb.5
July 5
1946—Jan. 21
1947—Feb. 21
1949-Mar. 3
1951—Jan. 17
1953—Feb. 20
1955-Jan.4
Apr. 23
1958—Jan. 16
Aug. 5
Oct. 16
1960—July 28
1962—July 10
1963—Nov. 6
1968—Mar. 11
June 8
1970—May6
1971—Dec. 6
1972—Nov. 24
1974-Jan.3
1977_jan. 1
Convertible
bonds
Short sales,
T only
Writing options,
T only2
50
60
50
50
50
50
50
(3)
(»)
O
50
50
75
100
75
50
75
50
60
70
50
70
90
70
50
70
70
80
65
55
65
50
50
30
25-45
25-55
55
40
50
75
100
75
50
75
50
60
70
50
70
90
70
50
70
70
80
65
55
65
50
50
1. Regulations T, U, G, and X, adopted by the
Board of Governors pursuant to the Securities Exchange Act of 1934, limit the amount of credit to purchase and carry "margin securities" and "margin
stock" (as defined in the regulations) when such credit
is collateralized by securities. Margin requirements are
the difference between the market value (100 percent)
and the maximum loan value of collateral as pre-
scribed by the Board. Regulation T was adopted effective Oct. 15, 1934; Regulation U, effective May 1,
1936; Regulation G, effective Mar. 11, 1968; and
Regulation X, effective Nov. 1, 1971.
2. The margin is expressed as a percent of the current market value of the stock underlying the option.
3. The requirement was the margin "customarily required" by the brokers and dealers.
Tables 241
15. Principal Assets and Liabilities, and Number of Insured Commercial Banks,
by Class of Bank, June 30, 1983 and 19821
Asset and liability items shown in millions of dollars
Insured commercial banks
Insured
nonmember
banks
Member banks
Item
Total
Total
National
State
June 30, 1983
Loans and investments, total
Loans
Gross
Net
Investments
U.S. Treasury securities
Other2
Cash assets, total
1,535,523
1,116,225
868,227
247,998
419,298
1,146,275
1,114,967
389,247
149,214
240,033
207,225
864,826
842,177
251,397
95,404
155,993
163,449
671,375
653,912
196,851
73,825
123,026
121,948
193,451
188,263
54,546
21,579
32,967
41,501
281,449
272,793
137,849
53,810
84,039
43,777
Deposits, total
Interbank
Other demand
Other time
Total equity capital
1,439,210
61,480
327,463
1,050,268
134,522
1,021,684
57,493
245,413
718,777
97,200
805,103
38,051
185,860
581,192
75,029
216,581
19,442
59,553
137,585
22,171
417,526
3,986
82,049
331,491
37,323
14,497
5,758
4,714
1,044
8,739
Number of banks
June 30, 1982
Loans and investments, total
Loans
Gross
Net
Investments
U.S. Treasury securities.
Other2
Cash assets, total
1,395,835
1,008,940
780,647
228,293
386,894
1,063,385
1,031,985
332,449
102,446
230,004
188,056
795,927
773,816
213,014
62,795
150,219
149,218
613,941
596,948
166,706
48,582
118,124
111,774
181,986
176,868
46,308
14,213
32,095
37,444
267,458
258,169
119,436
39,651
79,785
38,838
Deposits, total
Interbank
Other demand
Other time
Total equity capital..
1,291,822
60,564
307,095
924,163
123,089
916,016
57,201
226,010
632,805
88,495
720,651
37,910
172,171
510,570
68,614
195,365
19,291
53,839
122,235
19,881
375,805
3,363
81,085
291,357
34,594
Number of banks ...
14,413
5,538
4,507
1,031
8,875
1. All insured commercial banks in the United
States.
2. Includes trading accounts for banks with assets
of less than $100 million.
NOTE. Details may not add to totals because of
rounding.
242 Tables
16. Reserves of Depository Institutions, Federal Reserve Bank Credit, and Related
Items—Year-End 1918-83, and Month-End 1983
Millions of dollars
Factors supplying reserve funds
Federal Reserve Bank credit outstanding
U.S. government
securities1
Period
Total
Bought
outright2
Held
All
under Loans Float3 other4
repurchase
agreement
2,498
3,292
2,873
2,707
1,795
1,707
2,687
1,144
618
723
320
3,355
1,563
1,405
,238
,302
2,639
3,373
3,642
3,957
4,212
1,709
1,842
1,958
2,009
2,025
3
57
31
23
643
637
582
1,056
632
63
45
63
24
34
378
384
393
500
405
,459
,381
,655
,809
,583
4,112
4,205
4,092
3,854
3,997
1,977
1,991
2,006
2,012
2,022
686
775
1,851
2,435
2,430
43
42
4
2
0
251
638
235
98
7
21 372
20 378
14 41
15 137
5
21
,373
,853
2,145
2,688
2,463
4,306
4,173
4,226
4,036
8,238
2,027
2,035
2,204
2,303
2,511
2,431
2,430
2,564
2,564
2,484
2,430
2,430
2,564
2,564
2,484
1
0
0
0
0
5
3
10
4
7
12
39
19
17
91
38
28
19
16
11
2,486
2,500
2,612
2,601
2,593
10,125
11,258
12,760
14,512
17,644
2,476
2,532
2,637
2,798
2,963
2,184
2,254
6,189
11,543
18,846
2,184
2,254
6,189
11,543
18,846
0
0
0
0
0
3
3
6
5
80
80
94
471
681
815
10
14
10
4
2,274
2,361
6,679
12,239
19,745
21,995
22,737
22,726
21,938
20,619
3,087
3,247
3,648
4,094
4,131
24,252
23,350
22,559
23,333
18,885
24,262
23,350
22,559
23,333
18,885
0
0
0
0
0
249
163
85
223
78
578
580
535
541
534
2
1
1
1
2
15,091
24,093
23,181
24,097
19,499
20,065
20,529
22,754
24,244
24,427
4,339
4,562
4,562
4,589
4,598
20,778
23,801
24,697
25,916
24,932
53
20,725
23,605 196
24,034 663
25,318 598
24,888
44
67 1,368
19 1,184
156 967
28 935
143 808
3
5
4
2
1
22,216
25,009
25,825
26,880
25,885
22,706
22,695
23,187
22,030
21,713
4,636
4,709
4,812
4,894
4,985
24,785
24,915
24,238
26,347
26,648
24,391 394
24,610 305
23,719 519
26,252
95
26,607
41
108
50
55
64
458
1,585
1,665
1,424
1,296
1,590
29
70
66
49
75
26,507
26,699
25,784
27,755
28,771
21,690
21,949
22,781
20,534
19,456
5,008
5,066
5,146
5,234
5,311
27,384
28,881
30,820
33,593
37,044
26,984 400
30,478 159
28,722 342
33,582
11
36,506 538
33
130
38
63
186
74
1,847
51
2,300
2,903 110
2,600 162
2,606 94
29,338
31,362
33,871
36,418
39,930
17,767
16,889
15,978
15,513
15,388
5,398
5,585
5,567
5,578
5,405
0
0
1,766
2,215
287
234
436
80
536
0
0
0
54
4
375
315
617
228
511
...
...
Gold
stock6
294
575
262
146
273
355
390
239
300
287
234
436
134
540
...
...
Total
Treasury
currency
outstanding7
199
201
119
40
78
27
52
239
300
1930
1931
1932
1933
1934
Other
Federal
Reserve
assets5
Special
drawing
rights
certificate
account
367
312
560
197
488
739
817
1,855
2,437
2,430
last two pages of table.
For notes see
Tables
243
16.—Continued
Factors absorbing reserve funds
Cur
rency
in
circula-
Treasury
cash
holdings8
Deposits, other
than reserves, with
Federal Reserve Banks
Trea-
For-
sury
Member bank
Other
Federal
Reserve
accounts5
eign
Other
Required
clearing
balances
reserves
Other
Federal
Reserve
liabilities
With
and
Federal
capital5 Reserve
Banks
Currency
and
coin10
ExRequired" cess11-12
4,951
5,091
288
385
51
31
96
73
25
28
118
208
0
0
0
0
1.636
,890
0
0
1,585
1,822
51
68
5,325
4,403
4,530
4,757
4,760
218
214
225
213
211
57
96
11
38
51
5
12
3
4
19
18
15
26
19
20
298
285
276
275
258
0
0
0
0
0
0
0
0
0
0
1,781
1,753
1,934
1,898
2,220
0
0
0
0
0
0
1,654
0
1,884
2,161
0
99
0
14
59
4,817
4,808
4,716
4,686
4,578
203
201
208
202
216
16
17
18
23
29
8
46
5
6
6
21
19
21
21
24
272
293
301
348
393
0
0
0
0
0
0
0
0
0
0
2,212
2,194
2,487
2,389
2,355
0
0
0
0
0
2,256
2,250
2,424
2,430
2,428
-44
-56
63
-41
-73
4,603
5,360
5,388
5,519
5,536
211
222
272
284
3,029
19
54
8
3
121
6
79
19
4
20
22
31
24
128
169
375
354
355
360
241
0
0
0
0
0
0
0
0
0
0
2,471
1,961
2,509
2,729
4,096
0
0
0
0
0
2,375
1,994
1,933
1,870
2,282
96
-33
576
859
1,814
5,882
6,543
6,550
6,856
7,598
2,566
2,376
3,619
2,706
2,409
544
244
142
923
634
29
99
172
199
397
226
160
235
242
256
253
261
263
260
251
0
0
0
0
0
0
0
0
0
0
5,587
6,606
7,027
8,724
11,653
0
0
0
0
0
2,743
4,622
5,815
5,519
6,444
2,844
1,984
1,212
3,205
5,209
8,732
11,160
15,410
20,499
25,307
2,213
2,215
2,193
2,303
2,375
368
867
799
579
440
1,133
774
793
1,360
1,204
599
586
485
356
394
284
291
256
339
402
0
0
0
0
0
0
0
0
0
0
14,026
12,450
13,117
12,886
14,373
0
0
0
0
0
7,411
9,365
11,129
11,650
12,748
6,615
3,085
1,988
1,236
1,625
28,515
28,952
28,868
28,224
27,600
2,287
2.272
1,336
1,325
1,312
977
393
870
1,123
821
862
508
392
642
767
446
314
569
547
750
495
607
563
590
106
0
0
0
0
0
0
0
0
0
0
15,915
16,139
17,899
20,479
16,568
0
0
0
0
0
14,457
15,577
16,400
19,277
15,550
1,458
562
1,499
1,202
1,018
27,741
29,206
30,433
30,781
30,509
1,293
1,270
1,270
761
7%
668
247
389
346
563
895
526
550
423
490
565
363
455
493
441
714
746
111
839
907
0
0
0
0
0
0
0
0
0
0
17,681
20,056
19,950
20,160
18,876
0
0
0
0
0
16,509
19,667
20,520
19,397
18,618
1,172
389
-570
763
258
31,158
31,790
31,834
32,193
32,591
767
775
761
683
391
394
441
481
358
504
402
322
356
272
345
554
426
246
391
694
925
901
998
1,122
841
0
0
0
0
0
0
0
0
0
0
19,005
19,059
19,034
18,504
18,174
0
0
0
0
310
18,903
19,089
19,091
18,574
18,619
102
-30
-57
-70
-135
32,869
33,918
35,338
37,692
39,619
377
422
380
361
612
485
465
597
880
820
217
279
247
171
229
533
320
393
291
321
941
1,044
1,007
1,065
1,036
0
0
0
0
0
0
0
0
0
0
17,081
17,387
17,454
17,049
18,086
2,544
2,544
3,262
4,099
4,151
18,988
18,988
20,071
20,677
21,663
637
96
645
All
574
244 Tables
16. Reserves of Depository Institutions, Federal Reserve Bank Credit, and Related
Items—Year-End 1918-83, and Month-End 1983—Continued
Millions of dollars
Factors supplying reserve funds
Federal Reserve Bank credit outstanding
Gold
stock6
Special
drawing
rights
certificate
account
Treasury
currency
outstanding7
U.S. government
securities1
Period
Total
Bought
outright2
1965
1966
1967 . . . .
1968 . . . .
1969
40,768
44,316
49,150
52,937
57,154
40,478
43,655
48,980
52,937
57,1542
1970 . . . .
1971
1972
1973 . . . .
1974 . . . .
62,142
70,804
71,230
80,495
85,714
1975
1976
1977 . . . .
1978
1979
1980
1981
1982
1983
Held
All
under Loans Float3 other4
repurchase
agreement
Other
Federal
Reserve
assets5
Total
290
661
170
0
0
137
173
141
186
183
2,248
2,495
2,576
3,443
3,440
187
193
164
58
64
0
0
0
0
2,743
43,340
47,177
52,031
56,624
64,584
13,733
13,159
11,982
10,367
10,367
0
0
0
0
0
5,575
6,317
6,784
6,795
6,852
62,142
69,481
71,119
80,395
84,760
0
1,323
111
100
954
335
39
1,981
1,258
299
4,261
4,343
3,974
3,099
2,001
57
261
106
68
999
1,123
1,068
1,260
1,152
3,195
67,918
76,515
78,551
86,072
92,208
10,732
10,132
10,410
11,567
11,652
400
400
400
400
400
7,147
7,710
8,313
8,716
9,253
94,124
104,093
111,274
118,591
126,167
92,789
100,062
108,922
117,374
124,507
1,335
4,031
2,352
1,217
1,660
211
25
265
1,174
1,454
3,688 1,126
2,601
991
3,810 954
6,432 587
6,767
704
3,312
3,182
2,442
4,543
5,613
102,461
110,892
118,745
131,327
140,705
11,599
11,598
11,718
11,671
11,172
500
1,200
1,250
1,300
1,800
10,218
10,810
11,331
11,831
13,083
....
....
....
....
130,592
140,348
148,837
160,795
128,038
136,863
144,544
159,203
2,554
3,485
4,293
1,592
1,809
1,601
717
918
4,467
776
1,762
195
2,735 1,480
1,563
418
8,739
9,230
9,890
8,766
146,383
153,136
63,659
172,460
11,160
11,151
11,148
11,121
2,518
3,318
4,618
4,618
13,427
13,687
13,786
13,786
1983
Jan. ..
Feb. . .
Mar...
Apr...
May..
June..
July . .
Aug...
Sept. .
Oct. . .
Nov...
Dec. . .
141,296
144,484
145,566
150,706
150,088
150,778
153,135
155,421
164,711
154,827
158,086
160,795
141,296
144,484
145,566
146,772
150,088
149,401
153,135
152,968
155,908
154,827
158,086
159,203
0
0
0
3,934
0
1,377
0
2,453
9,803
0
0
1,592
354
1,006
0
1,155 -2,664
0
2,808
486
0
848-1,124
704
1,260
850
0
3,610
1,020
203
1,113
1,066
0
3,633
979 209
1,625
- 6 0 1,122
387
750
0
1,059
898
0
918
1,563
418
9,881
10,961
9,187
10,732
8,630
8,426
8,579
7,536
8,357
9,303
8,438
8,766
152,537
153,936
158,047
161,866
160,828
164,037
163,893
167,778
175,755
165,267
168,481
172,460
11,144
11,139
11,138
11,135
11,132
11,131
11,131
11,128
11,128
11,126
11,123
11,121
4,618
4,618
4,618
4,618
4,618
4,618
4,618
4,618
4,618
4,618
4,618
4,618
13,786
13,786
13,786
13,786
13,786
13,786
13,786
13,786
13,786
13,786
13,786
13,786
1. Beginning Dec. 1, 1966, these securities include
federal agency obligations held under repurchase
agreements and beginning Sept. 29, 1971, federal
agency issues bought outright.
2. Includes, beginning 1969, securities loaned—
fully guaranteed by U.S. government securities pledged
with Federal Reserve Banks—and excludes (if any)
securities sold and scheduled to be bought back under
matched sale-purchase transactions.
3. Beginning with 1960, figures reflect a minor
change in concept; see Federal Reserve Bulletin, vol.
47 (February 1961), p. 164.
4. Data consist principally of acceptances and, until
Aug. 21, 1959, industrial loans, authority for which
expired on that date.
5. Before Apr. 16, 1969, this category includes the
total of Federal Reserve capital paid in, surplus, other
capital accounts, and other liabilities and accrued dividends less the sum of bank premises and other assets,
Digitizedand FRASER
for was reported as "Other Federal Reserve ac-
counts"; thereafter, "Other Federal Reserve assets"
and "Other Federal Reserve liabilities and capital" are
shown separately.
6. Before Jan. 30, 1934, data include gold held in
Federal Reserve Banks in circulation.
7. These figures include currency and coin (other
than gold) issued directly by the Treasury. The largest
components are fractional and dollar coins. For details see the regular table, "Currency and Coin in Circulation," in the Treasury Bulletin.
8. This category consists of the coin and paper currency held by the Treasury, as well as any gold in excess of the gold certificates issued to the Reserve Bank.
9. Beginning November 1979, includes reserves or
member banks, Edge Act corporations, and U.S. agencies and branches of foreign banks. Beginning Nov. 13,
1980, includes reserves of all depository institutions.
10. Between Dec. 1, 1959, and Nov. 23, 1960, part
of the amount was allowed as reserves; thereafter all
was allowed.
Tables
245
16.—Continued
Factors absorbing reserve funds
Currency
in
circula-
Treasury
cash
holdings8
tion
Deposits, other
than reserves, with
Federal Reserve Banks
Treasury
For-
Member bank
reserves'
Other
Federal
Reserve
liaWith
bilities
Federal
and
5
capital Reserve
Banks
Currency
and
coin10
Other
Other
Federal
Reserve
accounts 5
Required
clearing
balances
211
-147
-773
-1,353
0
0
0
0
0
0
0
0
0
0
0
18,447
19,779
21,092
21,818
22,085
4,163
4,310
4,631
4,921
5,187
22,848
24,321
25,905
27,439
28,173
30,033
-460
32,496
1,035
32,044
9812
35,268 -1,360
37,011 -3,798
eign
ExRequired" cess11'12
42,056
44,663
47,226
50,961
53,950
760
1,176
1,344
695
596
668
416
1,123
703
1,312
150
174
135
216
134
355
588
563
747
807
57,903
61,068
66,516
72,497
79,743
431
460
345
317
185
1,156
2,020
1,855
2,542
2,113
148
294
325
251
418
1,233
999
840
1,41913
1.27513
0
0
0
0
0
0
0
0
0
0
1,986
2,131
2,143
2,669
2,935
24,150
27,788
25,647
27,060
25,843
5,423
5,743
6,216
6,781
7,370
86,547
93,717
103,811
114,645
125,600
483
460
392
240
494
7,285
10,393
7,114
4,196
4,075
353
352
379
368
429
1,090
1,357
1,187
1,256
1,412
0
0
0
0
0
0
0
0
0
0
2,968
3,063
3,292
4,275
4,957
26,052
25,158
26,870
31,152
29,792
8,036
8,628
9,421
10,538
11,429
35,197
35,461
37,615
42,694
44,217
136,829
144,774
154,908
170,005
441
443
429
463
3,062
4,301
5,033
3,661
411
505
328
191
617
781
1,033
845
0
0
0
0
0
117
436
1,013
4,671
5,261
4,990
5,394
27,456
25,111
26,053
20,413
13,654
15,576
16,666
17,821
40,558
675
42,145 -1,442
41,391
1,328
39,179
-945
150,511
151,872
154,307
155,307
158,634
160,419
159,973
161,122
161,046
162,515
166,682
170,005
448
465
498
524
532
533
495
490
468
478
475
463
2,627
2,856
3,572
6,015
4,372
8,764
3,815
4,189
16,557
4,841
2,896
3,661
366
352
425
322
445
279
369
248
297
339
360
191
603
486
535
796
679
470
566
465
438
749
610
845
0
0
0
0
0
0
0
0
0
0
0
0
478
535
601
641
711
775
830
845
911
956
983
1,013
4,850
4,988
4,834
5,253
5,144
5,111
5,178
5,112
5,800
5,691
5,432
5,394
22,201
21,924
22,816
22,547
19,847
17,220
22,201
24,839
19,769
19,227
20,569
20,413
17,195
16,064
16,148
16,686
16,455
16,799
17,040
16,880
17,482
17,512
17,707
17,821
40,484
39,308
37,296
38,935
37,743
38,069
38,454
38,353
37,534
37,827
38,198
39,179
11. These figures are estimated through 1958. Before
1929, they were available only on call dates (in 1920
and 1922, the call dates were Dec. 29). Beginning
Sept. 12, 1968, the amount is based on close-of-business figures for the reserve period 2 weeks previous to
the report date.
12. Beginning with the week ending Nov. 15, 1972,
figures include $450 million of reserve deficiencies on
which Federal Reserve Banks are allowed to waive
penalties for a transition period in connection with
bank adaptation to Regulation J as amended, effective
Nov. 9, 1972. Allowable deficiencies (beginning with
first statement week of quarter) included are (in millions): 1973—Ql, $279; Q2, $172; Q3, $112; Q4, $84;
and 1974—Ql, $67, and Q2, $58. The transition period ended after the second quarter of 1974.
13. Beginning July 1973, this item includes certain
deposits of domestic nonmember banks and foreignowned banking institutions held with member banks
and redeposited in full with Federal Reserve Banks in
-238
-232
-182
-700
-901
-1.103 1 4
-1,535
-1,265
-893
-2,835
-1,088
-1,320
1,668
298
-1,441
-4,050
787
3,366
-283
-1,088
78
-945
connection with voluntary participation by nonmember institutions in the Federal Reserve System's program of credit restraint.
As of Dec. 12, 1974, the amount of voluntary nonmember bank and foreign-agency and branch deposits
at Federal Reserve Banks that are associated with marginal reserves are no longer reported. However, two
amounts are reported: (1) deposits voluntarily held as reserves by agencies and branches of foreign banks operating in the United States, and (2) Eurodollar liabilities.
14. Beginning with the week ending Nov. 19, 1975,
figures are adjusted to include waivers of penalties for
reserve deficiencies, in accordance with change in
Board policy that became effective Nov. 19, 1975.
NOTE. For a description of figures and discussion of
their significance, see "Member Bank Reserves and
Related Items." Section 10 of Banking and Monetary
Statistics, 1941-1970 (Board of Governors of the Federal Reserve System, Sept. 1, 1976), pp. 507-23.
246 Tables
17. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities
Approved by the Board of Governors, 1983
United Counties Trust Company, Elizabeth,
New Jersey, to merge with Kenilworth State
Bank, Kenilworth, New Jersey
SUMMARY REPORT BY THE ATTORNEY GENERAL
(12/30/82)
The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
BANK (1/18/83)
United Counties Trust Company (Applicant),
with assets of $738 million, proposes to merge
Kenilworth State Bank (Bank), with assets of
$57 million.
The relevant market in the proposal is the
Greater Newark market, in which Applicant
ranks sixth among thirty-seven commercial
banking organizations, with 5.1 percent of
market deposits. The proposed merger would
not alter Applicant's rank in the market;
however, the continuing bank would hold 5.7
percent of market deposits. The merger would
not have a significant effect on competition.
Both Applicant and Bank are in satisfactory
condition, and the condition of the resulting
bank would be satisfactory. Convenience and
needs considerations are consistent with approval.
1st Source Bank, South Bend, Indiana, to
merge with The First National Bank of Mishawaka, Mishawaka, Indiana
SUMMARY REPORT BY THE ATTORNEY GENERAL
(2/4/83)
The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE BOARD OF GOVER-
NORS (3/25/83)
1st Source Bank (Applicant), with assets of
$520 million, proposes to merge The First National Bank of Mishawaka (Bank), with assets
of $143 million. Applicant has concurrently applied for membership in the Federal Reserve
System.
Applicant and Bank compete in the ElkhartNiles-South Bend banking market, in which
Applicant ranks first among twenty-one commercial banking organizations and controls
15.5 percent of market deposits. Upon consummation of the proposed merger, Applicant
would control 20.3 percent of total deposits in
this market, which has a relatively low level of
concentration. The Board concludes that the
proposed merger would not have a significant
effect on existing or potential competition.
With respect to convenience and needs factors, Applicant plans to provide at the offices
now operated by Bank several new or enhanced
services such as credit cards, cash management,
and a wide array of trust services, as well as expansion of Bank's lending activities.
The financial and managerial resources of
Applicant, its parent, and Bank are regarded
as generally satisfactory and their prospects appear favorable. As a result, the banking factors
are consistent with approval.
First Virginia Bank, Falls Church, Virginia, to
merge with Farmers and Merchants State Bank,
Fredericksburg, Virginia
SUMMARY REPORT BY THE ATTORNEY GENERAL
(2/18/83)
The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
BANK (3/30/83)
First Virginia Bank (Applicant), with assets of
$869 million, proposes to merge Farmers and
Merchants State Bank (Bank), with assets of
$82 million. Applicant is a subsidiary of First
Virginia Bank, Inc., Falls Church (FVB),
which is the sixth largest commercial banking
organization in Virginia, holding 7.4 percent of
the deposits in the state.
The relevant market in the proposal is the
Fredericksburg area market, in which FVB
ranks sixth among eleven commercial banking
organizations, with 5.1 percent of deposits in
the market. If the proposed merger is consummated, FVB would rank first, with 29.4 percent
of market deposits. If the deposits of thrift institutions were added to those of commercial
banks, FVB would rank second following the
merger, with 17.4 percent of the area's combined deposits. The proposed transaction would
eliminate some competition between Bank and
FVB, however, because several large banking
organizations are represented in the Fredericksburg market and because thrift institutions
provide a noticeable amount of competition to
commercial banks, overall the merger would
not have substantially adverse effects on competition.
With respect to convenience and needs, Applicant would offer customers of Bank lower
interest rates on several kinds of loans and
higher interest rates on some deposit accounts.
The financial condition of Applicant, its
parent, and Bank is generally satisfactory,
Tables 247
17.—Continued
and the condition of the resulting bank would
be satisfactory.
The Bank of West Point, West Point, Virginia,
to merge with First Settlers Bank, Hayes,
Virginia
SUMMARY REPORT BY THE ATTORNEY GENERAL
(4/8/83)
The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
BANK (4/29/83)
The Bank of West Point (Applicant), with
assets of $62 million, proposes to merge First
Settlers Bank (Bank), with assets of $13
million.
The relevant market in this proposal is the
Newport News-Hampton banking market, in
which Bank holds the smallest share of deposits
held by fourteen banks and Applicant is not
represented. The proposal would not have a
significant effect on competition.
With respect to convenience and needs, Applicant plans to provide extended-term auto
loans at the offices now operated by Bank and
to replace the trailer branch at Gloucester with
a building.
The financial condition of Applicant and
Bank is generally satisfactory, and the condition of the resulting bank would be satisfactory.
Hempstead Bank, Hempstead, New York, to
merge with Nassau Trust Company, Glen
Cove, New York
SUMMARY REPORT BY THE ATTORNEY GENERAL
(4/29/83)
The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE SECRETARY OF THE
BOARD OF GOVERNORS (6/1/83)
Hempstead Bank (Applicant), with assets of
$324 million, proposes to merge Nassau Trust
Company (Bank), with assets of $190 million.
Applicant is a subsidiary of Norstar Bancorp,
Inc. (Norstar), Albany, New York.
The relevant market in the proposal is the
Metropolitan New York area, in which Norstar
holds 0.4 percent of market deposits. After the
merger, Norstar would still hold less than 1
percent. Clearly, the merger would not have a
significant effect on competition.
Both Applicant and Bank are in generally
satisfactory condition, and the condition of the
resulting bank would be satisfactory. Convenience and needs considerations are also consistent with approval.
Western Bank, Sioux Falls, South Dakota, to
acquire certain assets and assume substantially
all of the liabilities of Community Bank, Hartford, South Dakota
SUMMARY REPORT BY THE ATTORNEY GENERAL
No report received. Requests for reports on the
competitive factors were dispensed with, as
authorized by the Bank Merger Act, to permit
the Reserve Bank to act immediately to safeguard depositors of Community Bank.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
BANK (6/18/83)
Western Bank (Applicant), with assets of $115
million, proposes to acquire Community Bank
(Bank), with assets of $32 million.
In view of the financial condition of Bank,
the Acting Director of the Division of Banking
and Finance for the State of South Dakota has
recommended immediate action by the Federal
Reserve System to prevent the probable failure
of Bank.
Bank One of Mansfield, Mansfield, Ohio, to
merge with The Peoples Bank, Mount Gilead,
Ohio
SUMMARY REPORT BY THE ATTORNEY GENERAL
(6/10/83)
The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
BANK (7/8/83)
Bank One of Mansfield (Applicant), with
assets of $187 million, proposes to merge The
Peoples Bank (Bank), with assets of $58 million. Applicant is a subsidiary of Bane One Corporation, Columbus, which is the third largest
commercial banking organization in Ohio,
holding 11.4 percent of deposits in the state.
Applicant is not represented in the Mount
Gilead banking market, but of the two banks
operating offices there, Bank holds the larger
share (78.4 percent) of market deposits. The
proposal would have no significant effect on
competition.
Both Applicant and Bank are in satisfactory
condition, and the condition of the resulting
bank would be satisfactory. Applicant plans to
expand banking hours at the offices now oper-
248
Tables
17. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities
Approved by the Board of Governors, 1983
ated by Bank and to install automatic teller machines at some of them. The proposal would
have a positive effect on the convenience and
needs of the Mount Gilead banking market.
United Virginia Bank, Richmond, Virginia, to
merge with Bankers Trust Company, Rocky
Mount, Virginia
SUMMARY REPORT BY THE ATTORNEY GENERAL
(6/3/83)
The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE SECRETARY OF THE
BOARD OF GOVERNORS (7/12/83)
United Virginia Bank (Applicant), with assets
of $5 billion, proposes to merge Bankers Trust
Company (Bank), with assets of $60 million.
Applicant is a subsidiary of United Virginia
Bankshares Incorporated, Richmond (UVB),
which ranks first among banking organizations
in Virginia, with about 14.4 percent of deposits
in the state.
The relevant market in this proposal is the
Roanoke Ranally Metro Area, as defined by
Rand McNally Commercial Atlas, in which
Applicant ranks sixth among fourteen commercial banks, with 4.7 percent of market
deposits. If the proposed merger took place,
Applicant would continue to rank sixth in the
market and would increase its share of market
deposits to 8.4 percent. The proposal would
have no significant effect on competition.
Applicant plans to improve the services at
Bank's current offices by substantially increasing the lending limit at these offices and by offering new or enhanced services such as investment advisory services; more mortgage and
construction lending; leasing; automated clearinghouse services; and automatic teller machines. The proposal would have a positive effect on the convenience and needs of customers
of Bank.
The financial and managerial resources of
Applicant are satisfactory, and the banking
factors are consistent with approval.
United Virginia Bank, Richmond, Virginia, to
merge with State Bank of Keysville, Keysviile,
Virginia
SUMMARY REPORT BY THE ATTORNEY GENERAL
(7/15/83)
The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE SECRETARY OF THE
BOARD OF GOVERNORS (8/11/83)
United Virginia Bank (Applicant), with assets
of $5 billion, proposes to merge State Bank of
Keysville (Bank), with assets of $23 million.
Applicant is a subsidiary of United Virginia
Bankshares, Incorporated, Richmond (UVB),
which ranks first among banking organizations
in Virginia, with about 14.4 percent of deposits
in the state.
The closest offices of the participating banks
are 45 miles apart, and there is no meaningful
competition between them. Bank ranks fourth
among six banks in the market, which is approximated by the counties of Charlotte,
Lunenberg, and Prince Edward, and Bank
holds 8.8 percent of market deposits. The proposed merger would not have a significant effect on competition.
With respect to convenience and needs,
following the proposed merger Applicant
would substantially raise the lending limit at
the office currently operated by Bank. Other
new or enhanced services to be offered include
investment advisory services and more lending
for mortgages, construction, and leasing.
Applicant and its parent company are considered to be in satisfactory financial condition, and the proposed merger would not alter
that condition.
Valley Bank and Trust Company, Salt Lake
City, Utah, to acquire the assets and assume
the liabilities of the Brigham City Branch of
Bank of Utah, Ogden, Utah
SUMMARY REPORT BY THE ATTORNEY GENERAL
(9/9/83)
The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
BANK (10/3/83)
Valley Bank and Trust Company (Applicant),
with assets of $469 million, proposes to acquire
the Brigham City Branch (Branch) of Bank of
Utah (Bank). Branch has $3 million in deposits.
The relevant market in this proposal is the
Box Elder County market, in which Bank
ranks fifth among six competitors, with 2.3
percent of market deposits. Because Applicant
is not now represented in this market, the proposal would have no significant effect on competition.
The proposal would not alter the generally
satisfactory condition of Applicant, and it
Tables 249
17.—Continued
would allow continued operation of an office
that Bank intended to close if a buyer could not
be found. Thus the proposal would have a
positive effect on the convenience and needs of
the area immediately surrounding Branch.
market, with 8.8 percent of market deposits.
Because five of Bank's branches are in this
market, following the proposed acquisition,
the continuing bank would rank third, with
11.6 percent of market deposits.
Two branches of Bank are in the Greene
County market, in which Applicant is not
represented. These branches together rank first
First Virginia Bank-Colonial, Richmond, Virginia, to acquire the assets and assume the among six commercial banking organizations,
deposit liabilities of the Azalea Mall Branch of with 26.7 percent of market deposits. The proposed acquisition would have no significant efVirginia National Bank, Norfolk, Virginia
fect on competition.
SUMMARY REPORT BY THE ATTORNEY GENERAL
Consummation of the proposal would not
(9/16/83)
The proposed transaction would not be signifi- alter the satisfactory condition of Applicant.
With respect to convenience and needs, Applicantly adverse to competition.
cant plans to reduce rates for consumer installBASIS FOR APPROVAL BY THE FEDERAL RESERVE ment loans, as well as to lower service charges
BANK (10/12/83)
on transaction accounts at the seven branches
First Virginia Bank-Colonial (Applicant), with following effectuation of the instant proposal.
assets of $102 million, proposes to acquire the
Azalea Mall Branch of Virginia National Bank
(Branch). Branch has $8 million in deposits.
Central Fidelity Bank, Norfolk, Virginia, to
Applicant ranks eighth among fifteen banks merge with Rappahannock Bank, Fredericksin the Richmond Metro Area market, with 2.0 burg, Virginia
percent of market deposits. If the proposed acquisition is consummated, the continuing bank SUMMARY REPORT BY THE ATTORNEY GENERAL
would not alter its market rank; however, its (9/23/83)
share of market deposits would rise to 2.2 per- The proposed transaction would not be significent. The proposal would have no significant cantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
competitive effects.
The proposal would not alter the satisfactory BANK (10/25/83)
condition of Applicant. With respect to con- Central Fidelity Bank (Applicant), with assets
venience and needs, Applicant plans to extend of $497 million, proposes to merge with Rapbanking hours at Branch on Saturday morn- pahannock Bank, which will be the successor
to Rappahannock Savings and Loan Associaings.
tion (Bank), with deposits of $33 million. Applicant is a subsidiary of Central Fidelity
The Schenectady Trust Company, Schenec- Banks, Inc., Richmond, which ranks seventh
tady, New York, to acquire certain assets and among banking organizations in Virginia, with
assume certain liabilities of seven branches of about 7.8 percent of deposits in the state.
The closest offices of a banking subsidiary of
The Bank of New York, New York, New York
Applicant to Fredericksburg are 35 miles disSUMMARY REPORT BY THE ATTORNEY GENERAL tant. Applicant is not represented in the Fred(9/30/83)
ericksburg market, where Bank ranks fifth
The proposed transaction would not be signifi- among banks and thrift institutions, with 4.9
cantly adverse to competition.
percent of market deposits. The proposed
BASIS FOR APPROVAL BY THE FEDERAL RESERVE transaction would have no significant effect on
competition.
BANK (10/18/83)
The Schenectady Trust Company (Applicant),
The proposal would improve services at
with assets of $342 million, proposes to acquire Bank's two offices. One new service Applicant
seven branches of The Bank of New York will offer is transaction deposit accounts. Con(Bank). The branches have $95 million in venience and needs factors lend weight to approval.
deposits.
Applicant ranks fourth among twenty comThe banking factors are consistent with apmercial banking organizations in the Albany proval.
250 Tables
17. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities
Approved by the Board of Governors, 1983
The Peoples Bank and Trust Company, Selma,
Alabama, to merge with The Bank of Greenville, Greenville, Alabama
SUMMARY REPORT BY THE ATTORNEY GENERAL
(10/6/83)
The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
BANK (10/26/83)
The Peoples Bank and Trust Company (Applicant), with assets of $123 million, proposes to
merge The Bank of Greenville (Bank), with
assets of $55 million.
The relevant market in this proposal is the
Greenville market, in which Bank ranks second
among three banks, with 35.2 percent of the
area's commercial bank deposits. Applicant is
not represented in the Greenville market. The
proposal would not have a significant effect on
competition.
With respect to convenience and needs, following the proposed merger a higher lending
limit would be available to customers of the offices now operated by Bank.
The financial condition of Applicant is generally satisfactory, and banking factors are
consistent with approval.
ty of seminars for persons aged 60 or older.
The other helps individuals organize their financial affairs at difficult times such as
divorce, death, or retirement. Convenience and
needs factors are consistent with approval.
The financial and managerial resources of
Applicant and its parent are regarded as generally satisfactory and their prospects appear
favorable. As a result, the banking factors are
consistent with approval.
Bank of Virginia, Richmond, Virginia, to ac-
quire the assets and assume the liability to pay
deposits in the Court House Branch, Virginia
Beach, and the Great Bridge Branch, Chesapeake, of First & Merchants National Bank,
Richmond, Virginia
SUMMARY REPORT BY THE ATTORNEY GENERAL
(10/14/83)
The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
BANK (11/7/83)
Bank of Virginia (Applicant), with assets of $3
billion, proposes to acquire the Court House
Branch and Great Bridge Branch of First &
Merchants National Bank.1 Together the branches have deposits of $37 million.
Bank of Virginia, Richmond, Virginia, to acThe relevant market in the proposal is the
quire the assets and assume the liabilities of the Norfolk market, in which Applicant ranks
Beaufont Mall Branch, Chesterfield County, fourth among seventeen banks, with 8.2 perof Virginia National Bank, Norfolk, Virginia
cent of market deposits. The proposed acquisiSUMMARY REPORT BY THE ATTORNEY GENERAL tions would not alter Applicant's rank in the
market; however, the continuing bank would
(10/14/83)
The proposed transaction would not be signifi- hold 9.8 percent of market deposits. The acquisitions would not have a significant effect on
cantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE competition.
With respect to convenience and needs, ApBANK (11/7/83)
Bank of Virginia (Applicant), with assets of $3 plicant proposes to offer two new services to
billion, proposes to acquire the Beaufont Mall customers of the branches to be acquired. One
Branch (Branch) of Virginia National Bank. is regularly scheduled group travel, social activities, and a variety of seminars for persons
Branch has $5 million in deposits.
The relevant market in this proposal is the aged 60 or older. The other helps individuals
Richmond market, in which Applicant ranks organize theirfinancialaffairs at difficult times
third among fifteen banks, with 18.8 percent of such as divorce, death, or retirement. Convenmarket deposits. Acquisition of Branch by Ap- ience and needs factors are consistent with applicant would add 0.2 percent to its share of proval.
market deposits and would not have a significant effect on competition.
With respect to convenience and needs, Applicant proposes to offer two new services to
1. On January 3, 1984, First & Merchants National
customers of Branch. One is regularly schedBank and Virginia National Bank merged to form
uled group travel, social activities, and a varieSovran Bank, National Association.
Tables 251
17.—Continued
Flagship Bank of Tampa, Tampa, Florida, to
acquire certain assets and assume certain deposit liabilities of Sun Bank/Hillsborough,
Tampa, Florida
SUMMARY REPORT BY THE ATTORNEY GENERAL
(10/14/83)
The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
BANK (11/16/83)
Flagship Bank of Tampa (Applicant), with
assets of $363 million, proposes to acquire
Sun Bank/Hillsborough (Bank), with assets
of $184 million; three offices of Bank will be
sold to another institution. Also, Sun City Center Bank, with assets of $64 million, will be
merged into Bank before Applicant acquires
Bank.
The relevant market in the proposal is the
Tampa market, where following consummation the continuing bank would rank third
among commercial banking organizations,
with 13 percent of market deposits. Sixteen
savings and loan associations hold market deposits of $1.3 billion. There would be no significant effect on competition as a result of
these proposals.
The financial condition of Applicant and
Bank is generally satisfactory, and the condition of the resulting bank would be satisfactory. Further, the convenience and needs factors are consistent with approval.
Everly State Bank, Everly, Iowa, to merge with
Peterson State Bank, Peterson, Iowa
SUMMARY REPORT BY THE ATTORNEY GENERAL
(10/21/83)
The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
BANK (11/21/83)
Everly State Bank (Applicant), a proposed
state member bank, with assets of $17 million,
proposes to merge Peterson State Bank, with
assets of $10 million.
In the relevant market in the proposal, Applicant ranks fourth among ten commercial
banks, with 6.9 percent of the area's commercial bank deposits. The proposed merger would
not alter Applicant's rank in the market; however, the continuing bank would hold 10.9 percent of market deposits. The proposed merger
would not have a significant effect on competition.
Both Applicant and Bank are in satisfactory
condition, and the condition of the resulting
bank would be satisfactory. Convenience and
needs considerations are consistent with approval.
Northwestern Bank of Commerce, Duluth,
Minnesota, to merge with North Shore State
Bank, Duluth, Minnesota
SUMMARY REPORT BY THE ATTORNEY GENERAL
(10/14/83)
The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
BANK (11/29/83)
Northwestern Bank of Commerce (Applicant),
with assets of $37 million, proposes to merge
with North Shore State Bank (Bank), with
assets of $17 million.
The relevant market is approximated by the
Minnesota counties of Carlton and Lake and
the southern one-third of St. Louis County, as
well as the Wisconsin County of Douglas. Applicant ranks fifth among seventeen banking
organizations, with 3.7 percent of market deposits. If the proposed merger is consummated, Applicant would not alter its rank in
the market but would then control 5.5 percent
of market deposits. The proposal would have
no significant effect on competition.
The banking factors and convenience and
needs considerations are consistent with approval.
First Georgia Bank, Atlanta, Georgia, to acquire the assets and assume the liabilities of
Capital City Bank, Hapeville, Georgia
SUMMARY REPORT BY THE ATTORNEY GENERAL
(10/14/83)
The proposed transaction would not have a significantly adverse effect on competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
BANK (11/29/83)
First Georgia Bank (Applicant), with assets of
$282 million, proposes to acquire the assets and
assume the liabilities of Capital City Bank,
with assets of $28 million. Applicant is a subsidiary of First Railroad & Banking Company
of Georgia, Augusta, Georgia (First Railroad).
The relevant market in this proposal is the
Atlanta Metro area, in which First Railroad
252 Tables
17. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities
Approved by the Board of Governors, 1983
ranks sixth among twenty-seven banking organizations, with 2.7 percent of the area's commercial bank deposits. The proposed transaction would not alter First Railroad's rank in the
market and would not substantially increase its
share of market deposits. The proposal would
have no significant effect on competition.
The financial condition of First Railroad,
Applicant, and Bank is generally satisfactory,
and the condition of the resulting bank would
be satisfactory.
Applicant is a subsidiary of First Virginia
Banks, Inc., Falls Church (FVB), which is the
sixth largest commercial banking organization
in Virginia, with 7.9 percent of deposits at
banking offices in the state. FVB controls the
smallest share (1.6 percent) of deposits held by
six banking organizations in the Williamsburg
market. If the proposed acquisition is consummated, FVB would not alter its market rank;
however, its share of market deposits would
rise to 3.7 percent. The proposal would have no
significant competitive effects.
The satisfactory condition of FVB would not
The Merrill Trust Company, Bangor, Maine,
to acquire the assets and assume the deposit be altered by the acquisition. Convenience and
liabilities of the Boothbay Harbor Branch of needs factors are consistent with approval.
Canal Bank and Trust Company, Portland,
Maine
The Merchants Bank, Kansas City, Missouri,
SUMMARY REPORT BY THE ATTORNEY GENERAL
to merge with Broadway National Bank, Kan(11/18/83)
sas City, Missouri; The Metropolitan Bank,
The proposed transaction would not be signifi- Kansas City, Missouri; and The University
cantly adverse to competition.
Bank, Kansas City, Missouri
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
BANK (11/29/83)
The Merrill Trust Company (Applicant), with
assets of $411 million, proposes to acquire the
Boothbay Harbor Branch of Canal Bank and
Trust Company (Branch). Branch has $6
million in deposits.
Branch is in the Boothbay Harbor banking
market, where it ranks second among three
commercial banking organizations, with 23.4
percent of market deposits. Because Applicant
is not now represented in this market, the proposal would have no significant effect on competition.
Applicant proposes to expand commercial,
real estate, consumer, and municipal lending at
Branch. Convenience and needs factors and financial factors are consistent with approval.
SUMMARY REPORT BY THE ATTORNEY GENERAL
(11/4/83)
The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
BANK (12/1/83)
The Merchants Bank (Applicant), with assets
of $94 million, proposes to merge Broadway
National Bank (Broadway Bank), with assets
of $69 million; The Metropolitan Bank, with
assets of $62 million; and The University Bank,
with assets of $57 million.
The condition of the banks participating in
this proposal is generally satisfactory. Financial factors and convenience and needs factors
are consistent with approval.
All of the banks involved are members of a
chain of affiliated organizations, and they are
First Virginia Bank of the Peninsula, Grafton, situated in the Kansas City Ranally Metro
Virginia, to acquire the assets and assume the Area, as defined by the Rand McNally Comdeposit liabilities of the Williamsburg Branch mercial Atlas. Consummation of the mergers
would have no significant effect on competiof Virginia National Bank, Norfolk, Virginia
tion.
SUMMARY REPORT BY THE ATTORNEY GENERAL
No report received.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
BANK (11/29/83)
First Virginia Bank of the Peninsula (Applicant), a newly organized bank, proposes to acquire the Williamsburg office (Branch) of
Virginia National Bank. Deposits at Branch
amount to $3 million.
First Virginia Bank-Eastern Shore, Onancock,
Virginia, to merge with The Peoples Trust
Bank, Exmore, Virginia
SUMMARY REPORT BY THE ATTORNEY GENERAL
(11/4/83)
The proposed transaction would not be significantly adverse to competition.
Tables 253
17.—Continued
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
BANK (12/6/83)
First Virginia Bank-Eastern Shore (Applicant),
with assets of $32 million, proposes to merge
The Peoples Trust Bank (Bank), with assets of
$26 million.
The relevant market in the proposal includes
Accomack and Northampton Counties in Virginia, as well as the southern portion of Worcester County, Maryland, in which Applicant
ranks fourth among thirteen banks, with 8.4
percent of market deposits. Following the proposed merger, the continuing bank would rank
third in the market, with 15.1 percent of market deposits. The proposed merger would have
no significant effect on competition.
Applicant and its parent are considered to be
in satisfactory financial condition, and the proposed merger would not alter that condition.
Applicant plans to pay higher interest rates on
certain time deposits at Bank's office and to
provide a wider variety of loan services. This
proposal would have a positive effect on the
convenience and needs of the area immediately
surrounding Bank.
Davenport Bank and Trust Company, Davenport, Iowa, to acquire the assets and assume
the liabilities of Security State Trust and Savings Bank, Bettendorf, Iowa
United National Bank, Sioux Falls, South
Dakota
SUMMARY REPORT BY THE ATTORNEY GENERAL
No report received.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
BANK (12/9/83)
Farmers State Bank of Irene (Applicant), a
proposed state member bank, with assets of
$15 million, proposes to acquire the Viborg
Branch of United National Bank, Sioux Falls,
South Dakota (Branch). Branch has $12 million in deposits.
Applicant and Branch are situated about ten
miles apart in the Sioux Falls market, where
Applicant ranks seventeenth among thirty
banking organizations, with 0.4 percent of
market deposits. If the proposed acquisition is
consummated, the continuing bank would rank
ninth in the market, with 0.8 percent of market
deposits. Principals of Applicant also own control of one other bank in the relevant market.
The continuing bank would hold about 1 percent of market deposits. The proposed acquisition would have no significant effect on competition.
The financial condition of Applicant is generally satisfactory, and the condition of the
resulting bank would be consistent with approval. Convenience and needs considerations
are also consistent with approval.
SUMMARY REPORT BY THE ATTORNEY GENERAL
(12/12/83)
The proposed transaction would not be significantly adverse to competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
SouthTrust Bank of Marion County, Hamilton, Alabama to acquire certain assets and
assume substantially all of the liabilities of
Bank of Hackleburg, Hackleburg, Alabama
BANK (12/9/83)
SUMMARY REPORT BY THE ATTORNEY GENERAL
Davenport Bank and Trust Company (Applicant), with assets of $685 million, proposes to
merge Security State Trust and Savings Bank
(Bank), with assets of $28 million.
In view of the financial condition of Bank,
the Iowa Superintendent of Banking has recommended expeditious action by the Federal
Reserve System to prevent the failure of Bank.
Thus the Chicago Federal Reserve Bank requested that reports about competitive factors
be furnished within ten days. The convenience
and needs factors, as well as the competitive
factors, are consistent with approval.
No report received. Requests for reports on the
competitive factors were dispensed with, as
authorized by the Bank Merger Act, to permit
the Reserve Bank to act immediately to safeguard depositors of Bank of Hackleburg.
Farmers State Bank of Irene, Irene, South
Dakota, to acquire the assets and assume the
deposit liabilities of the Viborg Branch of
BASIS FOR APPROVAL BY THE FEDERAL RESERVE
BANK (12/13/83)
SouthTrust Bank of Marion County (Applicant), with assets of $58 million, proposes to
acquire certain assets and assume substantially
all of the liabilities of Bank of Hackleburg
(Bank), with assets of $7 million.
In view of the financial condition of Bank,
the Alabama Superintendent of Banks has recommended immediate action by the Federal
Reserve System to prevent the probable failure
of Bank.
254 Tables
17. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities
Approved by the Board of Governors, 1983
Bank has experienced financial problems
that have reduced its competitiveness. The financial and managerial resources and prospects of the proposed organization would benefit the operations at the office now occupied by
Bank without diminishing Applicant's prospects, and Bank's customers would be served
by a stronger organization.
Mergers Approved Involving Wholly Owned
Subsidiaries of the Same Bank Holding Company
The following transactions involve banks that
are subsidiaries of the same bank holding com-
pany. In each case, the Summary Report by the
Attorney General indicates that the transaction
would not have a significantly adverse effect on
competition because the proposed merger is
essentially a corporate reorganization. The
Board of Governors, the Federal Reserve
Bank, or the Secretary of the Board of Governors, whichever approved the application, determined that the competitive effects of the
proposed transaction, the financial and managerial resources, and the prospects of the
banks concerned, as well as the convenience
and needs of the community to be served, were
consistent with approval.
Name of bank, type of transaction,
and other banks involved1
United Jersey Bank, Hackensack, New Jersey
Merger
United Jersey Bank/North, Montvale, New Jersey
The Wakeman Bank Company, Wakeman, Ohio
Merger
The Erie County Bank, Vermilion, Ohio
Bank of Virginia, Richmond, Virginia
Merger
The Bank of Vienna, Vienna, Virginia
Assets
(millions
of dollars)
Date of
approval by
Board or
Reserve Bank
2,186
1-18-83
114
21
75
3,474
3-10-83
25
Citizens Bank, Sheboygan, Wisconsin
Merger
Citizens Bank of Manitowoc, Manitowoc, Wisconsin .
293
Citizens Bank, Sheboygan, Wisconsin
Merger
Citizens South Side Bank, Sheboygan, Wisconsin
293
Valley Bank and Trust Company, Salt Lake City, Utah
Merger
Utah Valley Bank, Orem, Utah
469
Citizens Bank, Sheboygan, Wisconsin
Merger
Citizens North Side Bank, Sheboygan, Wisconsin
293
Hempstead Bank, Hempstead, New York
Merger
Island State Bank, Patchogue, New York
Peninsula National Bank, Cedarhurst, New York
324
Security Bank of Monroe, Monroe, Michigan
Merger
Security Bank-Monroe County, Newport, Michigan . .
1-18-83
4-11-83
7
4-11-83
18
4-18-83
10
4-27-83
35
5-13-83
108
111
178
26
8-8-83
Tables 255
17.—Continued
Assets
(millions
of dollars)
Name of bank, type of transaction,
and other banks involved1
497
Central Fidelity Bank, Norfolk, Virginia
Merger
Central Fidelity Bank, National Association,
Richmond, Virginia
Date of
approval by
Board or
Reserve Bank
10-7-83
1,075
Trust Company Bank, Atlanta, Georgia
Merger
Bank of Woodstock, Woodstock, Georgia
Peachtree Bank and Trust Company, Chamblee, Georgia
2,811
14
212
497
Central Fidelity Bank, Norfolk, Virginia
Merger
Central Fidelity Bank, National Association,
Lynchburg, Virginia
10-20-83
11-10-83
1,006
First Virginia Bank of the Peninsula, Grafton, Virginia
Merger
Four offices of First Virginia Bank of Tidewater,
Norfolk, Virginia
(2)
First Virginia Bank-Central, Charlottesville, Virginia
Merger
First Virginia Bank of Orange, Orange, Virginia
28
11-29-83
14
11-29-83
12
1. Each proposed transaction was to be effected
under the charter of the first-named bank. The table
is in chronological order of approval.
2. This is a newly organized bank, not in operation.
Mergers Approved Involving a Nonoperating
Institution with an Existing Bank
The following transactions have no significant
effect on competition; they merely facilitate the
acquisition of the voting shares of a bank (or
banks) by a holding company. In such cases,
the Summary Report by the Attorney General
indicates that the transaction will merely combine an existing bank with a nonoperating institution; in consequence, and without regard to
the acquisition of the surviving bank by the
holding company, the merger would have no
effect on competition. The Board of Governors, the Federal Reserve Bank, or the Secretary of the Board of Governors, whichever approved the application, determined that the
proposal would, in itself, have no adverse competitive effects, and that the financial and convenience and needs factors were consistent with
approval.
Name of bank, type of transaction,
and other banks involved1
Am-Ba-Co, Inc., Lake Wales, Florida
Merger
American Bank of Lake Wales, Lake Wales, Florida
The Allegheny Bank, Lewisburg, West Virginia
Merger
Greenbrier Valley Bank, Lewisburg, West Virginia
Assets
(millions
of dollars)
(2)
Date of
approval by
Board or
Reserve Bank
1-14-83
27
O
39
1-17-83
256 Tables
17. Mergers, Consolidations, Acquisitions of Assets or Assumptions of Liabilities
Approved by the Board of Governors, 1983
Name of bank, type of transaction,
and other banks involved1
C.C. State Bank, Celina, Ohio
Merger
The Citizens Commercial Bank & Trust Company, Celina, Ohio
The Bristol Bank, Bristol, New Hampshire
Merger
First BNH Acquisition Bank, Manchester, New Hampshire
New Peoples Bank of Greensburg, Greensburg, Kentucky
Merger
The Peoples Bank & Trust Company, Greensburg, Kentucky...
Planters Bank & Trust Company, Hopkinsville, Kentucky
Merger
The Big Friendly Bank Corporation, Hopkinsville, Kentucky...
Heritage Interim Bank, Norfolk, Virginia
Merger
Heritage Bank & Trust, Norfolk, Virginia
Ottawa County Banking Company, Genoa, Ohio
Merger
The Genoa Banking Company, Genoa, Ohio
WB Financial Corp., Wayne, Michigan
Merger
Wayne Bank, Wayne, Michigan
Assets
(millions
of dollars)
o
18
37
153
5-20-83
5-31-83
26
(2)
6-23-83
29
(2)
7-12-83
64
Forest Bank, Forest, Virginia
Merger
The Community Bank of Forest, Forest, Virginia
(2)
8-10-83
(2)
8-11-83
7
5,452
9-7-83
(2)
Bank of the Commonwealth, Detroit, Michigan
Merger
BOC State Bank, Detroit Michigan
880
Commonwealth State Bank, Detroit, Michigan
Merger
Bank of the Commonwealth, Detroit, Michigan
(2)
4-15-83
5-2-83
93
PBS State Bank, Port Byron, Illinois
Merger
Port Byron State Bank, Port Byron, Illinois
3-28-83
107
The State Bank and Trust Company, Defiance, Ohio
Merger
Defiance Interim Bank, Defiance, Ohio
Comerica Bank-Detroit, Detroit, Michigan
Merger
Commonwealth State Bank, Detroit, Michigan
Date of
approval by
Board or
Reserve Bank
9-7-83
(2)
9-7-83
880
(2)
23
9-15-83
Tables 257
17.—Continued
Assets
(millions
of dollars)
Name of bank, type of transaction,
and other banks involved1
Farmers Interim Bank, Lancaster, Pennsylvania
Merger
The Farmers Trust Company of Lebanon, Lebanon,
Pennsylvania
American Bank of Bloomington, Bloomington, Illinois
Merger
American State Bank, Bloomington, Illinois
First Citizens Interim Bank, Oneonta, Alabama.
Merger
The Citizens Bank, Oneonta, Alabama
10-31-83
56
(2)
11-10-83
40
(2)
11-14-83
1,823
Northwest Interim Bank, Tallahassee, Florida
Merger
Citizens Commercial Bank of Tallahassee, Tallahassee, Florida...
(2)
Marine Interim Bank, Antigo, Wisconsin
Merger
The Fidelity Savings Bank of Antigo, Wisconsin,
Antigo, Wisconsin
(2)
The Bank of St. Albans, St. Albans, West Virginia
Merger
Kanalban Bank Co., St. Albans, West Virginia
102
Oberlin Interim Bank, Oberlin, Ohio
Merger
The Oberlin Savings Bank Company, Oberlin, Ohio
(2)
11-30-83
12
11-30-83
51
12-12-83
O
12-14-83
58
Valley Community Bank, McMinnville, Oregon
Merger
Valley Community Interim Bank, McMinnville, Oregon.
11-3-83
90
(2)
1700 Bank, Jenkintown, Pennsylvania
Merger
Industrial Valley Bank and Trust Company, Philadelphia,
Pennsylvania
1. Each proposed transaction was to be effected
under the charter of thefirst-namedbank. The table is
in chronological order of approval.
Date of
approval by
Board or
Reserve Bank
8
12-17-83
2. This is a newly organized bank, not in operation.
259
The Federal Reserve System
Boundaries of Federal Reserve Districts
and their Branch Territories
o
HAWAII
©
Legend
o
®
•
•
Boundaries of Federal Reserve Districts
Boundaries of Federal Reserve Branch Territories
Board of Governors of the Federal Reserve System
Federal Reserve Bank Cities
Federal Reserve Branch Cities
Federal Reserve Bank Facilities
Federal Reserve
Directories and Meetings
262 Directories and Meetings
Board of Governors of the Federal Reserve System
December 31, 1983
PAUL A. VOLCKER of New Jersey, Chairman1
PRESTON MARTIN of California, Vice Chairman1
NANCY H. TEETERS of Indiana
Term expires
January 31,1992
January 31,1996
January 31,1984
J. CHARLES PARTEE of Virginia
January 31, 1986
HENRY C. WALLICH of Connecticut
EMMETT J. RICE of New York
January 31,1988
January 31,1990
LYLE E. GRAMLEY of Missouri
January 31, 1994
OFFICE OF BOARD MEMBERS
JOSEPH R. COYNE, Assistant to the Board
DONALD J. WINN, Assistant to the Board
OFFICE OF STAFF DIRECTOR
FOR FEDERAL RESERVE BANK
ACTIVITIES
STEVEN M. ROBERTS, Assistant to the
THEODORE E. ALLISON, Staff Director
Chairman
FRANK O'BRIEN, JR., Deputy Assistant
to the Board
JOSEPH W. DANIELS, SR., Adviser,
Equal Employment
Programs
Opportunity
ANTHONY F. COLE, Special Assistant to
the Board
WILLIAM R. JONES, Special Assistant to
the Board
NAOMI P. SALUS, Special Assistant to the
Board
OFFICE OF STAFF DIRECTOR
FOR MONETARY AND
FINANCIAL POLICY
STEPHEN H. AXILROD, Staff Director
DONALD L. KOHN, Deputy Staff
Director
STANLEY J. SIGEL, Assistant to the Board
NORMAND R.V. BERNARD, Special
Assistant to the Board
OFFICE OF THE SECRETARY
WILLIAM W. WILES, Secretary
BARBARA R. LOWREY, Associate Secretary
JAMES MCAFEE, Associate Secretary
LEGAL DIVISION
MICHAEL BRADFIELD, General Counsel
J. VIRGIL MATTINGLY, JR., Associate
General Counsel
GILBERT T. SCHWARTZ, Associate General
Counsel
RICHARD M. ASHTON, Assistant General
Counsel
NANCY P. JACKLIN, Assistant General
Counsel
OFFICE OF STAFF DIRECTOR
FOR MANAGEMENT
S. DAVID FROST, Staff Director
STEPHEN R. MALPHRUS, Assistant Staff
Director
EDWARD T. MULRENIN, Assistant Staff
Director
1. The designations as Chairman and Vice Chairman expire on August 6, 1987, and March 30, 1986,
respectively, unless the services of these members of
the Board shall have terminated sooner.
MARYELLEN A. BROWN, Assistant to the
General Counsel
DIVISION OF RESEARCH
AND STATISTICS
JAMES L. KICHLINE, Director
EDWARD C. ETTIN, Deputy Director
MICHAEL J. PRELL, Deputy Director
JOSEPH S. ZEISEL, Deputy Director
Directories and Meetings 263
DIVISION OF RESEARCH
AND STATISTICS—Continued
DIVISION OF BANKING
SUPERVISION AND REGULATION
JARED J. ENZLER, Associate Director
JOHN E. RYAN, Director
ELEANOR J. STOCKWELL, Associate
WILLIAM TAYLOR, Deputy Director
FREDERICK R. DAHL, Associate Director
Director
DAVID E. LINDSEY, Deputy Associate
Director
FREDERICK M. STRUBLE, Deputy
Associate Director
HELMUT F. WENDEL, Deputy Associate
Director
MARTHA BETHEA, Assistant Director
ROBERT M. FISHER, Assistant Director
SUSAN J. LEPPER, Assistant Director
THOMAS D. SIMPSON, Assistant Director
LAWRENCE SLIFMAN, Assistant Director
STEPHEN P. TAYLOR, Assistant Director
PETER A. TINSLEY, Assistant Director
LEVON H. GARABEDIAN, Assistant
Director (Administration)
DIVISION OF INTERNATIONAL
FINANCE
EDWIN M. TRUMAN, Director
ROBERT F. GEMMILL, Senior Associate
Director
CHARLES J. SIEGMAN, Senior Associate
Director
LARRY J. PROMISEL, Associate Director
DALE W. HENDERSON, Deputy Associate
Director
SAMUEL PIZER, Staff Adviser
RALPH W. SMITH, JR., Assistant Director
DON E. KLINE, Associate Director
JACK M. EGERTSON, Assistant Director
ROBERT A. JACOBSEN, Assistant Director
ROBERT S. PLOTKIN, Assistant Director
THOMAS A. SIDMAN, Assistant Director
SIDNEY M. SUSSAN, Assistant Director
SAMUEL H. TALLEY, Assistant Director
LAURA M. HOMER, Securities Credit
Officer
DIVISION OF CONSUMER
AND COMMUNITY AFFAIRS
GRIFFITH L. GARWOOD, Director
JERAULD C. KLUCKMAN, Associate
Director
GLENN E. LONEY, Assistant Director
DOLORES S. SMITH, Assistant Director
DIVISION OF PERSONNEL
DAVID L. SHANNON, Director
JOHN R. WEIS, Assistant Director
CHARLES W. WOOD, Assistant Director
DIVISION OF SUPPORT SERVICES
DONALD E. ANDERSON, Director
ROBERT E. FRAZIER, Associate Director
WALTER W. KREIMANN, Associate
Director
DIVISION OF FEDERAL RESERVE
BANK OPERATIONS
CLYDE H. FARNSWORTH, JR., Director
ELLIOTT C. MCENTEE, Associate Director
DAVID L. ROBINSON, Associate Director
OFFICE OF THE CONTROLLER
GEORGE E. LIVINGSTON, Controller
BRENT L. BOWEN, Assistant Controller
C. WILLIAM SCHLEICHER, JR., Associate
Director
WALTER ALTHAUSEN, Assistant Director
CHARLES W. BENNETT, Assistant Director
ANNE M. DEBEER, Assistant Director
JACK DENNIS, JR., Assistant Director
EARL G. HAMILTON, Assistant Director
JOHN F. SOBALA, Assistant Director2
DIVISION OF DATA PROCESSING
CHARLES L. HAMPTON, Director
BRUCE M. BEARDSLEY, Deputy Director
GLENN L. CUMMINS, Assistant Director
NEAL H. HILLERMAN, Assistant Director
RICHARD J. MANASSERI,
Assistant
Director
WILLIAM C. SCHNEIDER, JR., Assistant
Director
ROBERT J. ZEMEL, Assistant Director
2. On loan from the Federal Reserve Bank of New
York.
264 Directories and Meetings
Federal Open Market Committee
December 31, 1983
Members
PAUL A. VOLCKER, Chairman, Board of Governors
ANTHONY M. SOLOMON, Vice Chairman, elected by Federal Reserve Bank of New
York
LYLE E. GRAMLEY, Board of Governors
ROGER GUFFEY, elected by Federal Reserve Banks of Minneapolis, Kansas City, and
San Francisco
SILAS KEEHN, elected by Federal Reserve Banks of Chicago and Cleveland
PRESTON MARTIN, Board of Governors
FRANK E. MORRIS, elected by Federal Reserve Banks of Boston, Philadelphia, and
Richmond
J. CHARLES PARTEE, Board of Governors
EMMETT J. RICE, Board of Governors
THEODORE H. ROBERTS, elected by Federal Reserve Banks of Atlanta, St. Louis, and
Dallas
NANCY H. TEETERS, Board of Governors
HENRY C. WALLICH, Board of Governors
Officers
STEPHEN H. AXILROD,
Staff Director and Secretary
NORMAND R.V. BERNARD,
Assistant Secretary
NANCY M. STEELE,
Deputy Assistant Secretary
MICHAEL BRADFIELD,
General Counsel
JAMES H. OLTMAN,
Deputy General Counsel
JAMES L. KICHLINE,
Economist
EDWIN M. TRUMAN,
Economist (International)
ANATOL BALBACH,
RICHARD G. DAVIS,
Associate Economist
THOMAS E. DAVIS,
Associate Economist
ROBERT EISENMENGER,
Associate Economist
EDWARD C. ETTIN,
Associate Economist
MICHAEL J. PRELL,
Associate Economist
KARL A. SCHELD,
Associate Economist
CHARLES J. SIEGMAN,
Associate Economist
JOSEPH S. ZEISEL,
Associate Economist
Associate Economist
PETER D. STERNLIGHT, Manager for Domestic Operations,
System Open Market Account
SAM Y. CROSS, Manager for Foreign Operations,
System Open Market Account
During 1983, the Federal Open Market
Committee held eight regularly scheduled
meetings. (See "Record of Policy Actions
of the Federal Open Market Committee"
in this REPORT.)
Directories and Meetings 265
Federal Advisory Council
December 31, 1983
Members
District No. 1—WILLIAM S. EDGERLY, Chairman of the Board and President, State
Street Bank and Trust Company, Boston, Massachusetts
District No. 2—LEWIS T. PRESTON, Chairman of the Board and Chief Executive Officer, Morgan Guaranty Trust Company of New York, New York, New York
District No. 3—JOHN H. WALTHER, Chairman of the Board, New Jersey National Corporation and New Jersey National Bank, Trenton, New Jersey
District No. 4—JOHN G. MCCOY, Vice Chairman and Chief Executive Officer, Bane
One Corporation, Columbus, Ohio
District No. 5—VINCENT C. BURKE, JR., Chairman of the Executive Committee and
Director, Riggs National Corporation, and Director, The Riggs National Bank of
Washington, D.C., Washington, D.C.
District No. 6—PHILIP F. SEARLE, Chairman and Chief Executive Officer, Flagship
Banks, Inc., Miami, Florida
District No. 7—ROGER E. ANDERSON, Chairman and Chief Executive Officer, Continental Illinois National Bank and Trust Company of Chicago, Chicago, Illinois
District No. 8—RONALD TERRY, Chairman, First Tennessee Bank, N.A., Memphis,
Tennessee
District No. 9—E. PETER GILLETTE, JR., Vice Chairman, Norwest Corporation, and
Chairman, Norwest Bank Minneapolis, N.A., Minneapolis, Minnesota
District No. 10—N. BERNE HART, President, Chairman of the Board and Chief Executive Officer, United Banks of Colorado, Inc., Denver, Colorado
District No. 11—T.C. FROST, JR., Chairman, Cullen/Frost Bankers, Inc., San Antonio,
Texas
District No. 12—JOSEPH J. PINOLA, Chairman and Chief Executive Officer, First Interstate Bancorporation, Los Angeles, California
Officers
RONALD TERRY, President
WILLIAM S. EDGERLY, Vice President
HERBERT V. PROCHNOW, Secretary
WILLIAM J. KORSVIK, Associate Secretary
Directors
T.C. FROST, JR.
JOHN G. MCCOY
JOHN H. WALTHER
Meetings of the Federal Advisory Council
were held on February 3-4, May 5-6,
September 8-9, and November 3-4,
1983. The Board of Governors met with
the council on February 4, May 6, September 9, and November 4, 1983. The
council, which is composed of 12 repre-
sentatives of the banking industry, one
from each Federal Reserve District, is required by law to meet in Washington at
least four times a year and is authorized
by the Federal Reserve Act to consult and
advise the Board on all matters within the
jurisdiction of the Board.
266 Directories and Meetings
Consumer Advisory Council
December 31, 1983
Members
ARTHUR F. BOUTON,
Little Rock, Arkansas
JAMES G. BOYLE,
Austin, Texas
GERALD R. CHRISTENSEN,
Salt Lake City, Utah
THOMAS L. CLARK, JR.,
New York, New York
JEAN A. CROCKETT,
Philadelphia, Pennsylvania
JOSEPH N. CUGINI,
Westerly, Rhode Island
SUSAN PIERSON DEWITT,
Chicago, Illinois
MEREDITH FERNSTROM,
New York, New York
ALLEN J. FISHBEIN,
Washington, D.C.
E.C.A. FORSBERG, SR.,
Atlanta, Georgia
LUTHER R. GATLING,
New York, New York
RICHARD F. HALLIBURTON,
Kansas City, Missouri
CHARLES C. HOLT,
Austin, Texas
GEORGE S. IRVIN,
Denver, Colorado
HARRY N. JACKSON,
Officers
Minneapolis, Minnesota
KENNETH V. LARKIN,
San Francisco, California
TIMOTHY D. MARRINAN,
Minneapolis, Minnesota
STANLEY L. MULARZ,
Chicago, Illinois
WILLIAM J. O'CONNOR, JR.,
Buffalo, New York
WlLLARD P . OGBURN,
Boston, Massachusetts
ELVA QUUANO,
San Antonio, Texas
JANET J. RATHE,
Portland, Oregon
JANET M. SCACCIOTTI,
Providence, Rhode Island
GLENDA G. SLOANE,
Washington, D.C.
HENRY J. SOMMER,
Philadelphia, Pennsylvania
NANCY Z. SPILLMAN,
Los Angeles, California
WINNIE F. TAYLOR,
Gainesville, Florida
MICHAEL M. VAN BUSKIRK,
Columbus, Ohio
CLINTON WARNE,
Cleveland, Ohio
FREDERICK T. WEIMER,
Chicago, Illinois
SUSAN PIERSON DEWITT, Chairman
WILLIAM J. O'CONNOR, JR., Vice Chairman
Meetings of the Consumer Advisory
Council with members of the Board of
Governors were held on March 16-17,
July 20-21, and October 26-27, 1983.
The council is composed of representatives of the financial industry, and of con-
sumer and community interests, as well as
academics. It was established pursuant to
the 1976 amendments to the Equal Credit
Opportunity Act to advise the Board on
matters related to consumer financial
services.
Directories and Meetings 267
Thrift Institutions Advisory Council
December 31, 1983
Members
HARRY W. ALBRIGHT, Chairman, Dime Savings Bank of New York, New York,
New York
JAMES A. ALIBER, Chairman and Chief Executive Officer; First Federal of Michigan,
Detroit, Michigan
GENE R. ARTEMENKO, President, United Airlines Employees' Credit Union, Chicago,
Illinois
THOMAS R. BOMAR, President, AmeriFirst Federal Savings and Loan Association,
Miami, Florida
JOHN R. EPPINGER, President and Chief Executive Officer, Mainline Federal Savings
and Loan Association, Villanova, Pennsylvania
MARY A. GRIGSBY, Chairman and Chief Executive Officer, United Savings of Texas,
Houston, Texas
NORMAN M. JONES, President, Metropolitan Federal Savings and Loan Association,
Fargo, North Dakota
ROBERT R. MASTERTON, President, The One Maine Savings Bank, Portland, Maine
JAMES F. MONTGOMERY, Chairman of the Board, Great Western Financial Corporation,
Beverly Hills, California
FRED A. PARKER, President, Heritage Federal Savings and Loan Association, Monroe,
North Carolina
Officers
HARRY W. ALBRIGHT, President
The members of the Thrift Institutions
Advisory Council met with the Board of
Governors on March 22, June 7, September 22, and November 29, 1983. The
Council, which is composed of representatives from credit unions, savings and
THOMAS R. BOMAR, Vice President
loan associations, and savings banks, consuits with and advises the Board on issues
pertaining to the thrift industry and on
various other matters within the Board's
jurisdiction,
268 Directories and Meetings
Officers of Federal Reserve Banks, Branches, and Offices
December 31, 1983'
BANK,
branch, or office
Chairman2
Deputy Chairman
President
Vice President
First Vice President in charge of branch
BOSTON3
Robert P. Henderson
Thomas I.
Atkins
Frank E. Morris
James A.
Mclntosh
NEW YORK3
John Brademas
Gertrude G.
Michelson
M. Jane Dickman
Anthony M. Solomon
Thomas M.
Timlen
Buffalo .
PHILADELPHIA . . . . Robert M. Landis
Nevius M.
Curtis
CLEVELAND3
Cincinnati
Pittsburgh
RICHMOND3
John T. Keane
Edward G. Boehne
Richard L.
Smoot
Karen N. Horn
J.L. Jackson
William H.
William H.
Knoell
Hendricks
Clifford R. Meyer
Milton G. Hulme, Jr.
Baltimore
Steven Muller
William S.
Lee III
Edward H. Covell
Charlotte
Robert P. Black
Jimmie R.
Monhollon
Henry Ponder
Culpeper
Robert D. McTeer,
Jr. 4
Albert D.
Tinkelenberg 4
John G. Stoides *
5
ATLANTA
Birmingham
Jacksonville
Miami .
Nashville
New Orleans
Atlanta
CHICAGO
Detroit
ST. LOUIS
Little Rock
Louisville
Memphis
MINNEAPOLIS
Robert E. Showalter 4
Harold J. Swart4
William A. Fickling, Robert P.
Jr.
Forrestal
John H.
(Temporarily
Weitnauer, Jr.
vacant)
Samuel R. Hill, Jr.
Joan W. Stein
Eugene E. Cohen
Robert C.H. Mathews
Jr.
Roosevelt Steptoe
John Sagan
Stanton R. Cook
Russell G. Mawby
Silas Keehn
Daniel M. Doyle
W.L. Hadley Griffin
Mary P. Holt
Richard V, Warner
William C.
Ballard, Jr.
G. Rives Neblett
E. Gerald Corrigan
Thomas E. Gainor
James D. Hawkins
Delmar Harrison
Theodore H. Roberts
Joseph P. Garbarini
William G. Phillips
John B. Davis,
Jr.
Fred R. Herr
Charles D. East
Patrick K. Barron
Jeffrey J. Wells
William C. Conrad 4
John F. Breen
James E. Conrad
Paul I. Black, Jr.
Directories and Meetings 269
BANK,
branch, or office
Helena
Chairman2
Deputy Chairman
President
Vice President
First Vice President in charge of branch
Robert F. McNellis
Gene J. Etchart
KANSAS CITY.
Paul H. Henson
Doris M. Drury
Denver
Oklahoma City .
Omaha
James E. Nielson
Christine H. Anthony
Robert G. Lueder
DALLAS
Gerald D. Hines
John V. James
El Paso
Houston
San Antonio
Chester J. Kesey
Paul N. Howell
Carlos A. Zuniga
SAN FRANCISCO.
Caroline L.
Ahmanson
Alan C. Furth
Bruce M. Schwaegler
John C. Hampton
Wendell J. Ashton
John W. Ellis
Roger Guffey
Henry R.
Czerwinski
Los Angeles ..
Portland
Salt Lake City
Seattle
1. A current list of these officers appears each
month in the Federal Reserve Bulletin.
2. The Chairman of a Federal Reserve Bank, by
statute, also serves as Federal Reserve Agent.
3. Additional offices of these Banks are located at
Lewistown, Maine; Windsor Locks, Connecticut;
Cranford, New Jersey; Jericho, New York; Utica at
Conference of Chairmen
The chairmen of the Federal Reserve
Banks are organized into a Conference of
Chairmen that meets to consider matters
of common interest and to consult with
and advise the Board of Governors. Such
meetings, attended also by the deputy
chairmen, were held in Washington on
June 2-3 and December 1-2, 1983.
The Executive Committee of the Conference of Chairmen during 1983 comprised Robert P. Henderson, Chairman,
William G. Phillips, Vice Chairman, and
Steven Muller, member.
On December 2, 1983, William G.
Phillips was elected chairman of the conference and of its Executive Committee to
serve for the succeeding year; William H.
Knoell was elected vice chairman of the
Wayne W. Martin 4
William G. Evans
Robert D. Hamilton
Robert H. Boykin
William H.
Wallace
Joel L. Koonce, Jr.
J.Z. Rowe 4
Thomas H.
Robertson
John J. Balles
Richard T.
Griffith
Richard C. Dunn 4
Angelo S. Carella
A. Grant Holman
Gerald R. Kelly 4
Orishkany, New York; Columbus, Ohio; Columbia,
South Carolina; Charleston, West Virginia; Des
Moines, Iowa; Indianapolis, Indiana; and Milwaukee,
Wisconsin.
4. This officer is a Senior Vice President.
5. Culpeper Communications and Records Center
is a facility.
conference and a member of the Executive
Committee; and Stanton R. Cook was
elected as the other member of the Executive Committee.
Conference of Presidents
The presidents of the Federal Reserve
Banks are organized into a Conference of
Presidents that meets periodically to consider matters of common interest and to
consult with and advise the Board of Governors. On September 15, 1982, Anthony
M. Solomon, President of the Federal
Reserve Bank of New York, was elected
Chairman, and William F. Ford, President of the Federal Reserve Bank of
Atlanta, was elected Vice Chairman for
1983. Bradley K. Sabel of the Federal
Reserve Bank of New York was appointed
270 Directories and Meetings
Secretary, and William B. Estes of the
Federal Reserve Bank of Atlanta was appointed Assistant Secretary. On September 16, 1983, E. Gerald Corrigan, President of the Federal Reserve Bank of
Minneapolis, was elected Vice Chairman,
replacing Mr. Ford on October 1, 1983,
and Kathleen J. Balkman of the Federal
Reserve Bank of Minneapolis replaced
Mr. Estes as Assistant Secretary.
Conference of
First Vice Presidents
The Conference of First Vice Presidents of
the Federal Reserve Banks was organized
in 1969 to meet periodically for the consideration of operational and other
matters. On October 8, 1982, Thomas M.
Timlen, First Vice President of the
Federal Reserve Bank of New York, was
elected Chairman, and Robert P. Forrestal, First Vice President of the Federal
Reserve Bank of Atlanta, was elected Vice
Chairman for 1983. Bradley K. Sabel of
the Federal Reserve Bank of New York
was appointed Secretary, and William B.
Estes of the Federal Reserve Bank of
Atlanta was appointed Assistant Secretary. On September 26, 1983, Thomas E.
Gainor, First Vice President of the
Federal Reserve Bank of Minneapolis,
was elected Vice Chairman, replacing Mr.
Forrestal on October 1, 1983, and
Kathleen J. Balkman of the Federal
Reserve Bank of Minneapolis was elected
Assistant Secretary, replacing Mr. Estes.
Directors
Class A and Class B directors are elected
by the member banks of a Federal Reserve
District. Class C directors are appointed
by the Board of Governors of the Federal
Reserve System. One term in each class of
directors expires each year. Directors are
chosen without discrimination as to race,
creed, color, sex, or national origin.
The Class A directors are chosen as
representatives of member banks and, as a
matter of practice, are active officers of
member banks. Class B and Class C directors represent the public and are selected
with due, but not exclusive, consideration
to the interests of agriculture, commerce,
industry, services, labor, and consumers.
Class B and Class C directors may not be
officers, directors, or employees of any
bank, nor may Class C directors be stockholders of any bank. Annually, the Board
of Governors designates one Class C
director of each Reserve Bank to serve as
chairman of the Bank and one to serve as
deputy chairman.
Branches of Federal Reserve Banks
have either five or seven directors, of
whom a majority are appointed by the
board of directors of the parent Federal
Reserve Bank. The others are appointed
by the Board of Governors of the Federal
Reserve System. The chairmen of branch
boards are selected from among directors
appointed by the Board of Governors.
A list of the current directors appears in
the March issue of the Federal Reserve
Bulletin each year.
District 1—BOSTON
Class A
Henry S. Woodbridge, Jr. .Chairman of the Board and Chief Executive
Officer, Rhode Island Hospital Trust
National Bank, Providence, Rhode Island ..
James Stokes Hatch
President and Chief Executive Officer, The
Canaan National Bank, Canaan,
Connecticut
William W. Treat
President, Bank Meridian, N.A., Hampton,
New Hampshire
Term
expires
Dec. 31
1983
1984
1985
Directories and Meetings 271
Term
expires
Dec. 31
Class B
Joseph A. Baute
Chairman and Chief Executive Officer,
Markem Corporation, Keene, New
Hampshire
GeorgeN. Hatsopoulos .. .Chairman of the Board and President,
Thermo Electron Corporation, Waltham,
Massachusetts
,
Matina S. Horner
President, Radcliffe College, Cambridge,
Massachusetts
Class C
Michael J. Harrington
Robert P. Henderson
Thomas I. Atkins
Harrington Company, Peabody,
Massachusetts
Vice Chairman of the Board of Directors,
Greylock Management Corporation,
Boston, Massachusetts
General Counsel, National Association for
the Advancement of Colored People,
Brooklyn, New York
1983
1984
1985
1983
1984
1985
District 2—NEW YORK
Class A
Peter D. Kiernan
Robert A. Rough
Alfred Brittain
Chairman and President, Norstar Bancorp,
Inc., Albany, New York
President, The National Bank of Sussex
County, Branchville, New Jersey
Chairman of the Board, Bankers Trust
Company, New York, New York
1983
1984
1985
Class B
John R. Opel
Chairman and Chief Executive Officer,
International Business Machines
Corporation, Armonk, New York
Edward L. Hennessy, Jr. . .Chairman of the Board, Allied Chemical
Corporation, Morristown, New Jersey
William S. Cook
President and Chief Executive Officer,
Union Pacific Corporation, New York,
New York
Class C
Clifton R. Wharton, Jr. .. .Chancellor, State University of New York
System, Albany, New York
Gertrude G. Michelson
Senior Vice President, R.H. Macy & Company, Inc., New York, New York
John Brademas
President, New York University, New York,
New York
1983
1984
1985
1983
1984
1985
BUFFALO BRANCH
Appointed by Federal Reserve Bank
Carl F. Ulmer
President, The Evans National Bank of
Angola, Angola, New York
1983
272 Directories and Meetings
Edward W. Duffy
Frederick G. Ray
Donald I. Wickham
Chairman of the Executive Committee,
Marine Midland Bank, N.A., Buffalo,
New York
Chairman of the Board, Rochester
Community Savings Bank, Rochester,
New York
President, Tri-Way Farms, Inc., Stanley,
New York
Appointed by Board of Governors
John R. Burwell
President, Rollins Container Corporation,
Rochester, New York
George L. Wessel
President, Buffalo AFL/CIO Council,
Buffalo, New York
M. Jane Dickman
Partner, c/o Touche Ross & Co., Buffalo,
New York
Term
expires
Dec. 31
1984
1985
1985
1983
1984
1985
District 3—PHILADELPHIA
Class A
Roger S. Hillas
Chairman and President, Provident National
Bank, Philadelphia, Pennsylvania
Douglas Eugene Johnson .. Chairman and President, Ocean County
National Bank, Point Pleasant Beach,
New Jersey
JoAnne Brinzey
Cashier and Chief Executive Officer, The
First National Bank at Gallitzin, Gallitzin,
Pennsylvania
Class B
Harry A. Jensen
Richard P. Hauser
Eberhard Faber IV
Class C
Robert M. Landis
George E. Bartol III
Nevius M. Curtis
President and Chief Executive Officer,
Armstrong World Industries, Inc.,
Lancaster, Pennsylvania
Chairman and Chief Executive Officer,
John Wanamaker, Philadelphia,
Pennsylvania
Chairman of the Board and Chief Executive
Officer, Eberhard Faber, Inc.,
Wilkes-Barre, Pennsylvania
Partner, Dechert, Price & Rhoads,
Philadelphia, Pennsylvania
Chairman of the Board, Hunt Manufacturing Company, Philadelphia, Pennsylvania..
.President and Chief Executive Officer,
Delmarva Power & Light Company,
Wilmington, Delaware
1983
1984
1985
1983
1984
1985
1983
1984
1985
Directories and Meetings 273
District 4—CLEVELAND
Class A
J. David Barnes
Raymond D. Campbell
William A. Stroud
Class B
E. Mandell de Windt
Richard D. Hannan
John W. Kessler
Class C
William H. Knoell
J.L. Jackson
John D. Anderson
Chairman of the Board, Mellon Bank,
N.A., Pittsburgh, Pennsylvania
President and Chief Executive Officer,
Independent State Bank of Ohio,
Columbus, Ohio
President, First-Knox National Bank,
Mount Vernon, Ohio
Chairman of the Board, Eaton Corporation,
Cleveland, Ohio
Chairman of the Board and President,
Mercury Instruments, Inc., Cincinnati,
Ohio
President, John W. Kessler Company,
Columbus, Ohio
President and Chief Executive Officer,
Cyclops Corporation, Pittsburgh,
Pennsylvania
President and Chief Operating Officer,
Diamond Shamrock Corporation, Dallas,
Texas
Senior Partner, The Andersons,
Maumee, Ohio
Term
expires
Dec. 31
1983
1984
1985
1983
1984
1985
1983
1984
1985
CINCINNATI BRANCH
Appointed by Federal Reserve Bank
O.T. Dorton
President, Citizens National Bank,
Paintsville, Kentucky
Richard J. Fitton
President and Chief Executive Officer,
First National Bank of Southwestern Ohio,
Hamilton, Ohio
Sherrill Cleland
President, Marietta College,
Marietta, Ohio
Clement L. Buenger
President, The Fifth Third Bank,
Cincinnati, Ohio
Appointed by Board of Governors
Clifford R. Meyer
President and Chief Operating Officer,
Cincinnati Milacron Inc., Cincinnati,
Ohio
Don Ross
Owner, Dunreath Farm, Lexington,
Kentucky
Sister Grace Marie Hiltz .. .President, Sisters of Charity Health Care
Systems, Inc., Cincinnati, Ohio
1983
1984
1984
1985
1983
1984
1985
274 Directories and Meetings
PITTSBURGH BRANCH
Appointed by Federal Reserve Bank
Ernest L. Lake
President, The National Bank of North
East, North East, Pennsylvania
Robert C. Milsom
President, Pittsburgh National Bank,
Pittsburgh, Pennsylvania
James S. Pasman, Jr
Vice Chairman, Aluminum Company of
America, Pittsburgh Pennsylvania
A. Dean Heasley
President and Chief Executive Officer,
Century National Bank & Trust Co.,
Rochester, Pennsylvania
Appointed by Board of Governors
Milton G. Hulme, Jr
President and Chief Executive Officer,
Mine Safety Appliances Company,
Pittsburgh, Pennsylvania
Vacant
Robert S. Kaplan
Dean, Graduate School of Industrial
Administration, Carnegie-Mellon University, Pittsburgh, Pennsylvania
Term
expires
Dec. 31
1983
1984
1984
1985
1983
1985
District 5—RICHMOND
Class A
J. Banks Scarborough
Joseph A. Jennings
Willard H. Derrick
Class B
Leon A. Dunn, Jr
Paul G. Miller
Chairman and President, Pee Dee State
Bank, Timmonsville, South Carolina
Chairman and Chief Executive Officer,
United Virginia Bankshares Inc. and
United Virginia Bank, Richmond, Virginia .
President and Chief Executive Officer,
Sandy Springs National Bank and Savings
Institution, Sandy Springs, Maryland
Chairman, President, and Chief Executive
Officer, Guardian Corporation and Subsidiaries, Rocky Mount, North Carolina . . .
Chairman of the Board, Commercial
Credit Company, Baltimore, Maryland
1983
1984
1985
1983
1984
Vacant
Class C
Steven Muller
William S. Lee III
Robert A. Georgine
President, The Johns Hopkins University,
Baltimore, Maryland
Chairman of the Board and Chief Executive
Officer, Duke Power Company, Charlotte,
North Carolina
President, Building and Construction Trades
Department, AFL-CIO, Washington, D.C..
1983
1984
1985
Directories and Meetings 275
BALTIMORE BRANCH
Appointed by Federal Reserve Bank
Joseph M. Gough, Jr
President, The First National Bank of
St. Mary's, Leonardtown, Maryland
Pearl C. Brackett
Deputy Manager (retired), Baltimore Regional
Chapter of the American Red Cross,
Baltimore, Maryland
Hugh D. Shires
Senior Vice President (retired), The First
National Bank of Maryland, Cumberland,
Maryland
Howard I. Scaggs
Chairman of the Board, American National
Building and Loan Association, Baltimore,
Maryland
Appointed by Board of Governors
Robert L. Tate
Chairman, Tate Industries, Baltimore,
Maryland
Thomas H. Maddux
Executive Vice President and Chief Operating
Officer, Easco Corporation, Baltimore,
Maryland
Edward H. Covell
President, The Covell Company, Easton,
Maryland
Term
expires
Dec. 31
1983
1984
1985
1985
1983
1984
1985
CHARLOTTE BRANCH
Appointed by Federal Reserve Bank
Nicholas W. Mitchell
Chairman of the Board, Piedmont
Federal Savings and Loan Association,
Winston-Salem, North Carolina
Hugh M. Chapman
Chairman of the Board and Chief
Executive Officer, The Citizens &
Southern National Bank of South
Carolina, Columbia, South Carolina
John G. Medlin, Jr
President, Wachovia Bank and Trust
Company, N.A., Winston-Salem,
North Carolina
J. Donald Collier
President, First National Bank in
Orangeburg, Orangeburg,
South Carolina
Appointed by Board of Governors
Wallace J. Jorgenson
President, Jefferson-Pilot Broadcasting
Co., Charlotte, North Carolina
Henry Ponder
President, Benedict College,
Columbia, South Carolina
G. Alex Bernhardt
President, Bernhardt Industries,
Lenoir, North Carolina
1983
1984
1985
1985
1983
1984
1985
276 Directories and Meetings
Term
expires
Dec. 31
District 6—ATLANTA
Class A
Hugh M. Willson
Guy W. Botts
Dan B. Andrews
Class B
Harold B. Blach, Jr
Horatio C. Thompson
Bernard F. Sliger
President, Citizens National Bank,
Athens, Tennessee
Chairman of the Board, Barnett Banks of
Florida, Inc., Jacksonville, Florida
President, First National Bank,
Dickson, Tennessee
President, Blach's Inc., Birmingham,
Alabama
President, Horatio Thompson Investment,
Inc., Baton Rouge, Louisiana
President, Florida State University,
Tallahassee, Florida
Class C
William A. Fickling, Jr. . . . Chairman and Chief Executive, Charter
Medical Corporation, Macon, Georgia
Jane C. Cousins
President and Chief Executive Officer,
Merrill Lynch Realty/Cousins,
Miami, Florida
John H. Weitnauer, Jr
Chairman and Chief Executive Officer,
Richway, Atlanta, Georgia
1983
1984
1985
1983
1984
1985
1983
1984
1985
BIRMINGHAM BRANCH
Appointed by Federal Reserve Bank
Henry A. Leslie
President and Chief Executive Officer,
Union Bank and Trust Company,
Montgomery, Alabama
William M. Schroeder
Chairman and President, Central State Bank,
Calera, Alabama
Grady Gillam
Chairman, The American National Bank,
Gadsden, Alabama
G. Mack Dove
President, AAA Cooper Transportation Co.,
Dothan, Alabama
Appointed by Board of Governors
Samuel R. Hill, Jr
President, University of Alabama in
Birmingham, Birmingham, Alabama
Louis J. Willie
Executive Vice President, Booker T.
Washington Insurance Co., Birmingham,
Alabama
Martha A. Mclnnis
Executive Vice President, EnviroSouth, Inc.,
Montgomery, Alabama
1983
1984
1985
1985
1983
1984
1985
Directories and Meetings 277
JACKSONVILLE BRANCH
Appointed by Federal Reserve Bank
Gordon W. Campbell
Vice Chairman, NCNB National Bank of
Florida, Tampa, Florida
Lewis A. Doman
President, The Citizens and Peoples National
Bank, Pensacola, Florida
E.F. Keen, Jr
Vice Chairman and President, Ellis Banking
Corporation, Bradenton, Florida
George C. Boone, Jr
President and Chief Executive Officer,
Security First Federal Savings and Loan
Association, Daytona Beach, Florida
Appointed by Board of Governors
Joan W. Stein
Chairman, Regency Square Properties, Inc.,
Jacksonville, Florida
Jerome P. Keuper
President, Florida Institute of Technology,
Melbourne, Florida
E. William Nash, Jr
President, South Central Operations, The
Prudential Insurance Company,
Jacksonville, Florida
Term
expires
Dec. 31
1983
1984
1985
1985
1983
1984
1985
MIAMI BRANCH
Appointed by Federal Reserve Bank
Daniel S. Goodrum
Senior Executive Vice President, Sun Banks
of Florida, Inc., Ft. Lauderdale, Florida ...
E. Llwyd Ecclestone, J r . . . . President and Chief Executive Officer,
National Investment Co., West Palm Beach,
Florida
Stephen G. Zahorian
President, Barnett Bank of Lee County,
N.A., Fort Myers, Florida
D.S. Hudson, Jr
Chairman, First National Bank and Trust
Company of Stuart, Stuart, Florida
Appointed by Board of Governors
Eugene E. Cohen
Chief Financial Officer and Treasurer,
Howard Hughes Medical Institute,
Coconut Grove, Florida
Roy Vandegrift, Jr
President, Roy Van, Inc.,
Pahokee, Florida
Sue McCourt Cobb . . .
Attorney, Greenberg, Traurig, Askew,
Hoffman, Lipoff, Quentel, and Wolff,
P.A., Miami, Florida
1983
1984
1984
1985
1983
1984
1985
NASHVILLE BRANCH
Appointed by Federal Reserve Bank
James F. Smith, Jr
Chairman and Chief Executive Officer,
First American National Bank of Knoxville,
Knoxville, Tennessee
1983
278 Directories and Meetings
Michael T. Christian
Owen G. Shell, Jr
Samuel H. Howard
President and Chief Executive Officer,
Commerce Union Bank of Greeneville,
Greeneville, Tennessee
President and Chief Executive Officer,
First American National Bank of Nashville,
Nashville, Tennessee
Vice President and Treasurer, Hospital
Corporation of America, Nashville,
Tennessee
Appointed by Board of Governors
Robert C.H. Mathews, Jr. .Managing General Partner, R.C. Mathews,
Nashville, Tennessee
C. Warren Neel
Dean, College of Business Administration,
The University of Tennessee, Knoxville,
Tennessee
Condon S. Bush
President, Bush Brothers & Company,
Dandridge, Tennessee
Term
expires
Dec. 31
1984
1985
1985
1983
1984
1985
NEW ORLEANS BRANCH
Appointed by Federal Reserve Bank
Paul W. McMullan
Chairman and Chief Executive Officer,
First Mississippi National Bank,
Hattiesburg, Mississippi
Jerry W. Brents
President and Chief Executive Officer,
First National Bank, Lafayette, Louisiana ..
Philip K. Livingston
President and Chief Executive Officer,
Citizens National Bank, Hammond,
Louisiana
Tom Burkett Scott, Jr
President and Chief Executive Officer,
Unifirst Federal Savings and Loan
Association, Jackson, Mississippi
Appointed by Board of Governors
Leslie B. Lampton
President, Ergon, Inc., Jackson, Mississippi ..
Roosevelt Steptoe
Professor of Economics, Southern University,
Baton Rouge, Louisiana
Sharon A. Perlis
Attorney, Metairie, Louisiana
1983
1984
1985
1985
1983
1984
1985
District 7—CHICAGO
Class A
Ollie Jay Tomson
Charles M. Bliss
Patrick E. McNarny
President, The Citizens National Bank of
Charles City, Charles City, Iowa
Chairman of the Board and Chief Executive
Officer, Harris Trust and Savings Bank,
Chicago, Illinois
President, First National Bank of Logansport,
Logansport, Indiana
1983
1984
1985
Directories and Meetings 279
Class B
Leon T. Kendall
Dennis W. Hunt
Mary Garst
Class C
John Sagan
Edward F. Brabec
Stanton R. Cook
Term
expires
Dec. 31
Chairman of the Board and Chief Executive
Officer, Mortgage Guaranty Insurance
Corp., Milwaukee, Wisconsin
President, Hunt Truck Lines, Inc.,
Rockwell City, Iowa
Manager of Cattle Division, Garst Company,
Coon Rapids, Iowa
Vice President-Treasurer, Ford Motor
Company, Dearborn, Michigan
Business Manager, Chicago Journeymen
Plumbers, Local Union 130, U.A.,
Chicago, Illinois
President, Tribune Company,
Chicago, Illinois
1983
1984
1985
1983
1984
1985
DETROIT BRANCH
Appointed by Federal Reserve Bank
Lawrence A. Johns
President, Isabella Bank and Trust,
Mount Pleasant, Michigan
James H. Duncan
Chairman and Chief Executive Officer,
First American Bank Corporation,
Kalamazoo, Michigan
Thomas R. Ricketts
Chairman and President, Standard Federal
Savings and Loan Association,
Troy, Michigan
Charles T. Fisher III
Chairman and President, National Bank of
Detroit, Detroit, Michigan
Appointed by Board of Governors
Karl D. Gregory
Professor, School of Economics and
Management, Oakland University,
Rochester, Michigan
Robert E. Brewer
Executive Vice President Finance, K Mart
Corporation, Troy, Michigan
Russell G. Mawby
President and Trustee, W. K. Kellogg
Foundation, Battle Creek, Michigan
1983
1984
1984
1985
1983
1984
1985
District 8—ST. LOUIS
Class A
Clarence C. Barksdale
George M. Ryrie
Donald L. Hunt
Chairman and Chief Executive Officer,
Centerre Bank National Association,
St. Louis, Missouri
President, First National Bank & Trust Co.,
Alton, Illinois
President, First National Bank of Marissa,
Marissa, Illinois
1983
1984
1985
280 Directories and Meetings
Class B
Frank A. Jones, Jr
Jesse M. Shaver
Robert J. Sweeney
Class C
W.L. Hadley Griffin
Mary P. Holt
Robert L. Virgil, Jr
Term
expires
Dec. 31
President, Dietz Forge Company,
Memphis, Tennessee
Consultant, Allis-Chalmers Corporation,
Louisville, Kentucky
President and Chief Operating Officer,
Murphy Oil Corporation, El Dorado,
Arkansas
Chairman of the Board, Brown Group, Inc.,
St. Louis, Missouri
President, Clothes Horse, Little Rock,
Arkansas
Dean, School of Business, Washington
University, St. Louis, Missouri
1983
1984
1985
1984
1985
1985
LITTLE ROCK BRANCH
Appointed by Federal Reserve Bank
William H. Kennedy, Jr. . .Chairman of the Board, National Bank of
Commerce of Pine Bluff, Pine Bluff,
Arkansas
Gordon E. Parker
Chairman of the Board and President,
The First National Bank of El Dorado,
El Dorado, Arkansas
Wilbur P. Gulley, Jr
Chairman of the Board and Chief Executive
Officer, Savers Federal Savings and Loan
Association, Little Rock, Arkansas
D. Eugene Fortson
Chairman and Chief Executive Officer,
Worthen Bank and Trust Company, N.A.,
Little Rock, Arkansas
Appointed by Board of Governors
Richard V. Warner
Group Vice President, Wood Products Group,
Potlatch Corporation, Warren, Arkansas ..
Sheffield Nelson
Chairman of the Board and Chief Executive
Officer, Arkla, Inc., Little Rock, Arkansas.
Shirley J. Pine
Department of Communicative Disorders,
University of Arkansas at Little Rock,
Little Rock, Arkansas
1983
1984
1984
1985
1983
1984
1985
LOUISVILLE BRANCH
Appointed by Federal Reserve Bank
Frank B. Hower, Jr
Chairman of the Board and Chief Executive
Officer, Liberty National Bank and Trust
Company, Louisville, Kentucky
R.I. Kerr, Jr
Chairman of the Board, President, and Chief
Executive Officer, Great Financial Federal,
Louisville, Kentucky
1983
1984
Directories and Meetings 281
John E. Darnell, Jr
Allan S. Hanks
Chairman of the Board, The Owensboro
National Bank, Owensboro, Kentucky
President, Anderson National Bank,
Lawrenceburg, Kentucky
Appointed by Board of Governors
William C. Ballard, Jr
Executive Vice President-Finance and
Administration, Humana, Inc., Louisville,
Kentucky
Sister Eileen M. Egan
President, Spalding College, Louisville,
Kentucky
Henry F. Frigon
President, BATUS, Inc., Louisville,
Kentucky
Term
expires
Dec. 31
1984
1985
1983
1984
1985
MEMPHIS BRANCH
Appointed by Federal Reserve Bank
Wayne W. Pyeatt
President, Memphis Fire Insurance
Company, Memphis, Tennessee
Edgar H. Bailey
Chairman and President, Leader Federal
Savings and Loan Association, Memphis,
Tennessee
WilliamM. Matthews, Jr.. .Chairman of the Board and Chief Executive
Officer, Union Planters National Bank of
Memphis, Memphis, Tennessee
William H. Brandon, Jr. . .President, First National Bank of Phillips
County, Helena, Arkansas
Appointed by Board of Governors
Donald B. Weis
President, Tamak Transportation Corp.,
West Memphis, Arkansas
G. Rives Neblett
Attorney, Neblett, Bobo & Chapman,
Shelby, Mississippi
Patricia W. Shaw
President, Universal Life Insurance
Company, Memphis, Tennessee
1983
1984
1984
1985
1983
1984
1985
District 9—MINNEAPOLIS
Class A
Vern A. Marquardt
Dale W. Fern
Curtis W. Kuehn
Class B
Harold F. Zigmund
President, Commercial National Bank of
L'Anse, L'Anse, Michigan
President and Chairman of the Board,
The First National Bank of Baldwin,
Baldwin, Wisconsin
President, The First National Bank in Sioux
Falls, Sioux Falls, South Dakota
1985
Chairman, Blandin Paper Company,
Grand Rapids, Minnesota
1983
1983
1984
282 Directories and Meetings
William L. Mathers
Richard L. Falconer
President, Mathers Land Co., Inc.,
Miles City, Montana
. .District Manager, Northwestern Bell,
Bismarck, North Dakota
Term
expires
Dec. 31
1984
1985
Class C
JohnB. Davis, Jr
President, Macalester College, St. Paul,
Minnesota
William G. Phillips
Chairman and Chief Executive Officer,
International Multifoods, Minneapolis,
Minnesota
Sister Generose Gervais .. .Administrator, St. Mary's Hospital,
Rochester, Minnesota
1983
1984
1985
HELENA BRANCH
Appointed by Federal Reserve Bank
Roger H. Ulrich
President, The First State Bank of Malta,
Malta, Montana
Harry W. Newlon
President, First National Bank, Bozeman,
Montana
Seabrook Pates
President and Chief Executive Officer,
Midland Implement Co., Inc., Billings,
Montana
Appointed by Board of Governors
Gene J. Etchart
Past President, Hinsdale Livestock
Company, Glasgow, Montana
Ernest B. Corrick
Vice President and General Manager,
Champion International Corporation,
Timberlands-Rocky Mountain Operation,
Missoula, Montana
1983
1984
1984
1983
1984
District 10—KANSAS CITY
Class A
Wayne D. Angell
John D. Woods
Howard K. Loomis
Class B
James G. Harlow, Jr
Duane C. Acker
Charles C. Gates
Chairman of the Board, First State Bank,
Pleasanton, Kansas
Chairman and Chief Executive Officer, The
Omaha National Bank, Omaha, Nebraska..
President, The Peoples Bank, Pratt, Kansas ..
Chairman of the Board and President,
Oklahoma Gas and Electric Co., Oklahoma
City, Oklahoma
President, Kansas State University,
Manhattan, Kansas
President and Chairman of the Board,
Gates Corporation, Denver, Colorado
1983
1984
1985
1983
1984
1985
Directories and Meetings 283
Class C
John F. Anderson
Doris M. Drury
Paul H. Henson
Term
expires
Dec. 31
Consultant to the President, Farmland
Industries, Inc., Liberty, Missouri
Professor of Economics, University of
Denver, Englewood, Colorado
Chairman, United Telecommunications, Inc.,
Kansas City, Missouri
1983
1984
1985
DENVER BRANCH
Appointed by Federal Reserve Bank
Delano E. Scott
Chairman, IntraWest Bank of Steamboat
Springs, N.A., Steamboat Springs, Colorado
Kenneth C. Naramore
Chairman of the Board and Chief Executive
Officer, Stockmen's Bank & Trust
Company, Gillette, Wyoming
Donald D. Hoffman
Chairman and Chief Executive Officer,
Central Bank of Denver, Denver, Colorado.
George S. Jenks
President and Chief Executive Officer,
First New Mexico Bancshare Corporation,
Albuquerque, New Mexico
Appointed by Board of Governors
Ralph F. Cox
Executive Vice President, Atlantic Richfield
Company, Denver, Colorado
James E. Nielson
President and Chief Executive Officer,
JN Incorporated, Cody, Wyoming
Alvin F. Grospiron
Denver, Colorado
1983
1983
1984
1985
1983
1984
1985
OKLAHOMA CITY BRANCH
Appointed by Federal Reserve Bank
William H. Crawford
President and Chief Executive Officer,
First National Bank and Trust Company,
Frederick, Oklahoma
Marcus R. Tower
Vice Chairman of the Board and Chairman
of the Credit Policy Committee, Bank of
Oklahoma, N.A., Tulsa, Oklahoma
William O. Alexander
President and Chief Executive Officer,
Continental Federal Savings & Loan
Association, Oklahoma City, Oklahoma . . .
Appointed by Board of Governors
Christine H. Anthony
Oklahoma City, Oklahoma
Samuel R. Noble
Chairman of the Board, Noble Affiliates,
Inc., Ardmore, Oklahoma
1983
1984
1984
1983
1984
OMAHA BRANCH
Appointed by Federal Reserve Bank
Joseph J. Huckfeldt
Chairman of the Board, Gering National Bank
and Trust Company, Gering, Nebraska
1983
284 Directories and Meetings
William W. Cook, Jr
Donald J. Murphy
President, Beatrice National Bank and Trust
Company, Beatrice, Nebraska
Director, United States National Bank of
Omaha, Omaha, Nebraska
Appointed by Board of Governors
Kenneth Morrison
President, Morrison-Quirk Grain
Corporation, Hastings, Nebraska
Robert G. Lueder
Chairman of the Board, Lueder Construction
Company, Omaha, Nebraska
Term
expires
Dec. 31
1983
1984
1983
1984
District 11—DALLAS
Class A
Miles D. Wilson
Lewis H. Bond
John P. Gilliam
Class B
Kent Gilbreath
J. Wayland Bennett
Robert Ted Enloe III
Class C
John V. James
Gerald D. Hines
Robert D. Rogers
Chairman of the Board and President,
The First National Bank of Bellville,
Bellville, Texas
Chairman of the Board and Chief Executive
Officer, Texas American Bancshares Inc.,
Fort Worth, Texas
Chairman of the Board and Chief Executive
Officer, First National Bank in Valley Mills,
Valley Mills, Texas
Associate Dean, Hankamer School of
Business, Baylor University, Waco, Texas ..
Professor of Agricultural Finance and
Associate Dean, College of Agricultural
Sciences, Texas Tech University, Lubbock,
Texas
President, Lomas & Nettleton Financial
Corporation, Dallas, Texas
Chairman of the Executive Committee,
Dresser Industries, Inc., Dallas Texas
Owner, Gerald D. Hines Interests,
Houston, Texas
President, Texas Industries, Inc.,
Dallas, Texas
1983
1984
1985
1983
1984
1985
1983
1984
1985
EL PASO BRANCH
Appointed by Federal Reserve Bank
David L. Stone
President, The Portales National Bank,
Portales, New Mexico
Ernest M. Schur
Chairman of the Executive Committee,
InterFirst Bank of Odessa, N.A.,
Odessa, Texas
Gerald W. Thomas
President, New Mexico State University,
Las Cruces, New Mexico
1983
1984
1984
Directories and Meetings 285
Stanley J. Jarmiolowski .. .Chairman of the Board and Chief Executive
Officer, InterFirst Bank in El Paso, N.A.,
El Paso, Texas
Appointed by Board of Governors
Chester J. Kesey
C. J. Kesey, Enterprises, Pecos, Texas
Mary Carmen Saucedo
Associate Superintendent, Central Area,
El Paso Independent School District,
El Paso, Texas
S. Lee Ware, Jr
Ruidoso, New Mexico
Term
expires
Dec. 31
1985
1983
1984
1985
HOUSTON BRANCH
Appointed by Federal Reserve Bank
Raymond L. Britton
Professor of Law, University of Houston,
Houston, Texas
Ralph E. David
Chairman of the Board and Chief Executive
Officer, Freeport, Texas
Thomas B. McDade
Vice Chairman, Texas Commerce Bancshares,
Inc., Houston, Texas
Will E. Wilson
Chairman of the Board and Chief Executive
Officer, First Security Bank of Beaumont,
N.A., Beaumont, Texas
Appointed by Board of Governors
Paul N. Howell
Chairman of the Board, Howell Corporation,
Houston, Texas
George V. Smith, Sr
President, Smith Pipe & Supply, Inc.,
Houston, Texas
Robert T. Sakowitz
Chairman of the Board and President,
Sakowitz Inc., Houston, Texas
1983
1984
1984
1985
1983
1984
1985
SAN ANTONIO BRANCH
Appointed by Federal Reserve Bank
John H. Garner
President and Chief Executive Officer,
Corpus Christi National Bank,
Corpus Christi, Texas
Charles E. Cheever, Jr
Chairman of the Board, Broadway National
Bank, San Antonio, Texas
Joe D. Barbee
President and Chief Executive Officer,
Barbee-Neuhaus Implement Company,
Weslaco, Texas
George Brannies
Chairman of the Board and President, The
Mason National Bank, Mason, Texas
Appointed by Board of Governors
Lawrence L. Crum
Professor of Banking and Finance,
The University of Texas at Austin,
Austin, Texas
Carlos A. Zuniga
Partner, Zuniga Freight Services, Inc.,
Laredo, Texas
1983
1984
1984
1985
1983
1984
286 Directories and Meetings
Robert F. McDermott
Chairman of the Board and President,
United Services Automobile Association,
San Antonio, Texas
Term
expires
Dec. 31
1985
District 12—SAN FRANCISCO
Class A
Ole R. Mettler
Robert A. Young
Spencer F. Eccles
President and Chairman of the Board,
Farmers & Merchants Bank of Central
California, Lodi, California
Chairman of the Board and President,
Northwest National Bank, Vancouver,
Washington
Chairman, President, and Chief Executive
Officer, First Security Corporation,
Salt Lake City, Utah
1983
1984
1985
Class B
J.R. Vaughan
Senior Member, Richards, Watson, Dreyfuss
& Gershon, Los Angeles, California
George H. Weyerhaeuser . .President and Chief Executive Officer,
Weyerhaeuser Company, Tacoma,
Washington
Togo W. Tanaka
Chairman, Gramercy Enterprises, Inc.,
Los Angeles, California
Class C
Fred W. Andrew
Alan C. Furth
Caroline L. Ahmanson
Chairman of the Board, President, and Chief
Executive Officer, Superior Farming
Company, Bakersfield, California
President, Southern Pacific Company,
San Francisco, California
Chairman of the Board, Caroline Leonetti,
Ltd., Hollywood, California
1983
1984
1985
1983
1984
1985
LOS ANGELES BRANCH
Appointed by Federal Reserve Bank
James D. McMahon
President and Chief Executive Officer,
Western United National Bank,
Encino, California
Robert R. Dockson
Chairman and Chief Executive Officer,
California Federal Savings, Los Angeles,
California
Bram Goldsmith
Chairman of the Board, City National Bank,
Beverly Hills, California
William L. Tooley
Managing Partner, Tooley and Company,
Los Angeles, California
Appointed by Board of Governors
Lola M. McAlpin-Grant.. .Attorney, Los Angeles, California
1983
1984
1985
1985
1983
Directories and Meetings 287
Bruce M. Schwaegler
Thomas R. Brown, Jr
President, Bullock's-Bullock's Wilshire,
Los Angeles, California
Chairman and Chief Executive Officer,
Burr-Brown Research Corporation,
Tucson, Arizona
Term
expires
Dec. 31
1984
1985
PORTLAND BRANCH
Appointed by Federal Reserve Bank
William S. Naito
Vice President, Norcrest China Company,
Portland, Oregon
Jack W. Gustavel
President and Chief Executive Officer,
The First National Bank of North Idaho,
Coeur d'Alene, Idaho
John A. Elorriaga
Chairman and Chief Executive Officer,
United States National Bank of Oregon,
Portland, Oregon
HermanC. Bradley, Jr. .. .President and Chief Executive Officer,
Tri-County Banking Company, Junction
City, Oregon
Appointed by Board of Governors
John C. Hampton
President, Willamina Lumber Company,
Portland, Oregon
Carolyn S. Chambers
Executive Vice President and Treasurer,
Liberty Communications, Inc., Eugene,
Oregon
G. Johnny Parks
Northwest Regional Director, International
Longshoremen's & Warehousemen's Union,
Portland, Oregon
1983
1984
1984
1985
1983
1984
1985
SALT LAKE CITY BRANCH
Appointed by Federal Reserve Bank
Albert C. Gianoli
President and Chairman of the Board, The
First National Bank of Ely, Ely, Nevada . . .
Lela M. Ence
Executive Director, University of Utah
Alumni Association, Salt Lake City, Utah ..
John A. Dahlstrom
Chairman of the Board, Tracy-Collins Bank
and Trust Company, Salt Lake City, Utah..
Fred C. Humphreys
President and Chief Executive Officer, The
Idaho First National Bank, Boise, Idaho . . .
Appointed by Board of Governors
J.L. Terteling
President, The Terteling Company, Inc.,
Boise, Idaho
Wendell J. Ashton
Publisher, Deseret News, Salt Lake City,
Utah
David A. Nimkin
Executive Director, Salt Lake Neighborhood
Housing Services, Inc., Salt Lake City,
Utah
1983
1984
1985
1985
1983
1984
1985
288 Directories and Meetings
SEATTLE BRANCH
Appointed by Federal Reserve Bank
Lonnie G. Bailey
Executive Vice President and Chief Operating
Officer, Farmers & Merchants Bank of
Rockford, Spokane, Washington
John N. Nordstrom
Co-Chairman of the Board, Nordstrom, Inc.,
Seattle, Washington
G. Robert Truex, Jr
Chairman, Rainier Bancorporation and
Rainier National Bank, Seattle,
Washington
William W. Philip
Chairman, President, and Chief Executive
Officer, Puget Sound Bancorp, Tacoma,
Washington
Appointed by Board of Governors
Virginia L. Parks
Vice President for Finance, and Treasurer,
Seattle University, Seattle, Washington . . . .
John W. Ellis
.President and Chief Executive Officer,
Puget Sound Power & Light Company,
Bellevue, Washington
Byron I. Mallott
Chairman and Chief Executive Officer,
Sealaksa Corporation, Juneau, Alaska
Term
expires
Dec. 31
1983
1984
1984
1985
1983
1984
1985
NOTE. A complete list of directors who will serve during 1984 is scheduled to appear in the
March 1984 issue of the Federal Reserve Bulletin.
Index
291
Index
Acceptances, bankers (See Bankers acceptances)
Administrative Procedure Act, 173
Assets and liabilities
Banks, by class, 241
Board of Governors, 207
Federal Reserve Banks, 214-19
Balance of payments, review of 1983,
22-27
Bank Export Services Act, 68, 74, 75,
188, 196
Bank holding companies
Capital adequacy guidelines, 74, 182
Control of, changes, 186, 197
Examination, inspection, and regulation, 178-80, 182-84, 185-90
International banking operations,
68, 179, 187, 188
Investments, 68
Legislation, legislative recommendations, 166
Litigation, 170-71
Number and assets, 178
Regulation Y (See Regulations)
Stock repurchases by, 191
Bank Holding Company Act, 169, 174,
184, 185, 187, 188
Bank Merger Act, 185
Bank mergers and consolidations,
185, 190, 197, 246-57
Bank Service Corporation Act, 73,
189
Bankers acceptances
Authority to purchase and enter into
repurchase agreements, 79-80,
102-03
Federal Reserve Banks
Earnings, 205, 224
Holdings, 205, 214, 216, 218
Interpretation, 74, 75
Open market transactions, 220
Repurchase agreements, 214, 216,
218, 220
Reserve requirements, 66
Banking supervision and regulation by
Federal Reserve System, 178-94
Board of Governors (See also Federal
Reserve System)
Consumer Advisory Council, 154,
163, 266
Delegated authority, 185, 188, 191, 197
Financial statements, 206-11
Interpretations (See Interpretations)
Legislative recommendations, 151,
166-69
Litigation, 170-75
Members and officers, 262
Policy actions and statements, 65-78
Publications (See Publications)
Regulations (See Regulations)
Regulatory improvement and simplification, 67, 71, 72, 73, 192,
195-98
Salaries, 208
Training (See Training)
Branch banks
Federal Reserve
Bank premises, 204, 223
Construction costs, legislative
recommendation, 168
Directors, 270-88
Vice presidents in charge, 268
Foreign, of U.S. banking organizations, 179, 187
Foreign banks, 75, 179, 187
Bretton Woods agreement, 176
Capital accounts
Banks, by class, 241
Federal Reserve Banks, 215, 216, 218
Capital adequacy guidelines, 74, 177, 181
Certificates of deposit, 73, 195
Change in Bank Control Act of 1978,
185, 186
Check clearing and collection (See
Transfers of funds)
Commercial banks
Assets and liabilities, 241
Number, by class, 241
Supervision and regulation by Federal
Reserve System, 178-94
Transfers of funds (See Transfers of
funds)
292
Index
Community Reinvestment Act, 150, 154,
162, 163, 164
Condition statement of Federal Reserve
Banks, 214-19
Consumer Advisory Council, 154,
163, 266
Consumer and community affairs,
150-65
Consumer leasing, 151, 154, 163,
167, 198
Credit (See also Loans)
Equal Credit Opportunity (See Equal
Credit Opportunity)
Stocks, 67, 68, 71, 72, 192-94, 195
Truth in Lending (See Truth in
Lending)
Depository Institutions Management
Interlocks Act of 1978, 69
Depository institutions
Interest on deposits (See Interest on
deposits)
Interlocking relationships, 69, 196
Reserve requirements, 65-67, 71,
195, 236
Depository Institutions Deregulation
and Monetary Control Act of 1980,
65, 67, 167, 172, 195, 202
Depository Institutions Deregulation
Committee, 66, 67, 71, 195
Depository Institutions Management
Interlocks Act, 69
Deposits
Banks, by class, 241
Federal Reserve Banks, 215, 216,
218, 243, 245
Interest rates (See Interest on
deposits)
Reserve requirements (See Reserve
requirements)
Directors, Federal Reserve Banks and
branches
Legislative recommendation, 167
List, 270-88
Discount rates at Federal Reserve
Banks (See Interest rates)
Discounts and advances by Federal
Reserve Banks (See Loans)
Dividends, Federal Reserve Banks, 204,
226, 229, 231
Earnings of Federal Reserve Banks (See
Income of Federal Reserve Banks)
Economy in 1983, 5-11
Educational activities, 154, 164, 184
Electronic Fund Transfer Act, 150, 159,
161, 165
Electronic fund transfers (See Transfers
of funds)
Equal Credit Opportunity
Act, 150, 152, 159, 160, 165
Regulation B (See Regulation B)
Examinations and inspections
Bank holding companies, 178, 183
Federal Reserve Banks, 203
Improvements, 154, 180-83
International activities, 179
Specialized, 179
Staff training, 154, 164, 184
State member banks, 178, 179-82,
183-84
Expenses
Board of Governors, 206-11
Federal Reserve Banks, 203, 224,
228, 230
Export trading companies, 68, 69,
188, 196
Federal Advisory Council, 265
Federal agency securities
Authority to purchase and enter into
repurchase agreements, 79-81,
101-03, 141, 148-49
Federal Reserve Bank holdings and
earnings, 205, 214, 216, 218, 222
Federal Reserve open market transactions, 220
Repurchase agreements, 214, 216,
218, 220, 222
Federal Financial Institutions Examination Council, 155, 181, 182, 185, 191
Federal Financing Bank, 80, 102
Federal funds, interpretation, 73
Federal Open Market Committee
Audit, Open Market Account, 203
Continuing authorizations, review, 101
Litigation, 175
Meetings, 79, 264
Members and officers, 264
Policy actions, 79-149
Federal Reserve Act, 79, 167, 168,
174, 184, 187, 190
Federal Reserve Agents, 268-69
Federal Reserve Banks
Assessments for expenses of Board of
Governors, 208, 226, 228, 230
Index 293
Federal Reserve Banks—
Continued
Bank premises, 204, 214, 216, 218,
223
Branches (See Branch banks)
Capital accounts, 215, 216, 218
Chairmen, deputy chairmen, 268, 269
Condition statement, 214-19
Delegated authority, 185, 188, 191, 197
Directors, 167, 270-88
Dividends, 204, 226, 229, 231
Examination or audit, 203
Income and expenses, 203, 224, 228,
230
Interest rates, 76-78, 235
Loans, 214, 216, 218, 224, 242, 244
Officers and employees, number and
salaries, 222
Operations, volume, 234
Presidents and vice presidents, 268,
269, 270
Pricing of services and developments
in payments mechanism, 199-203,
224, 232
Profit and loss, 226
Securities and loans, holdings and
earnings, 205
Training, 154, 164, 184
U.S. government securities (See U.S.
government securities)
Federal Reserve notes
Condition statement data, 214-19
Cost of issuance and redemption, 208
Interest paid to U.S. Treasury, 204,
226, 229, 231
Litigation, 174, 175
Federal Reserve Reform Act of 1977, 167
Federal Reserve System (See also Board
of Governors)
Banking supervision and regulation
by, 178-94
Consumer affairs (See Consumer and
community affairs)
Foreign currency operations (See
Foreign currencies)
Map, Federal Reserve Districts, 259
Membership, 194
Pricing of Federal Reserve services
and developments in payments
mechanism, 199-203, 224, 232
Training (See Training)
Federal Trade Commission Act,
responsibilities under, 150, 155-59
Financial Institutions Regulatory and
Interest Rate Control Act of 1978,
70
Financial Institutions Supervisory Act
of 1966, 172, 184
Financial markets and monetary policy,
12-21
Financial Regulation Simplification Act
of 1980, 195
Float, 202
Foreign banks, 75, 168, 179, 187
Foreign currencies
Authorization and directive for operations, 79, 82-84, 103, 128
Federal Reserve earnings, 224
Review, 101
Freedom of Information Act, 173
Full Employment and Balanced Growth
Act of 1978, 3, 28
Garn-St Germain Depository Institutions
Act of 1982, 67, 69, 70, 73, 152, 190
Glass-Steagall Act, 169, 172, 174
Gold certificate accounts of Reserve
Banks and gold stock, 214, 216,
218, 242, 244
Home mortgage disclosure, 152, 155
Income of Federal Reserve Banks, 203,
224, 228
Individual retirement accounts, 71
Insured commercial banks, assets and
liabilities, 241
Interest on deposits (See also Interest
rates)
Maximum rates payable on time and
savings deposits, table, 239
Regulation Q, 67, 70, 187, 195
Interest rates (See also Interest on
deposits)
Federal Reserve Banks
Changes, 76-78
Table on rates, 235
Interlocking relationships, 69, 196
International Banking Act of 1978, 168
International banking facilities, 187
International banking operations, 68,
179, 187, 196
International developments, review,
22-27
International Lending Supervision Act
of 1983, 177, 183
294 Index
International Monetary Fund, 176, 183
Interpretations, 73, 74, 75, 151, 153, 194
Investments
Bank holding companies, 68, 73
Banks, by class, 241
Federal Reserve Banks, 214, 216, 218
Foreign, by U.S. banking organizations, 187
IRAs (See Individual retirement accounts)
Keogh plan, 71
Labor markets, 9
Leasing, consumer, 151, 154, 163, 167,
198
Legislation (See also specific act)
Enacted, 176-77
Recommended, 166-69
Legislative recommendations
Board of Governors, 151, 166-69
Regulations B, E, and Z, 164
Litigation
Bank holding companies, 170-71
Board procedures and regulations,
challenges, 172-75
Loans (See also Credit)
Banks, by class, 241
Commercial, interpretation, 73
Executive officers of member banks,
69, 190, 197
Federal Reserve Banks
Discounts and advances, 214, 216,
218, 224, 242, 244
Holdings and earnings, 205, 224
Interest rates, 235
Volume, 214, 216, 218, 234, 242,
244
Margin requirements
Securities credit, 67, 71, 72, 192-94,
195
Table, 240
Member banks (See also National
banks)
Assets, liabilities, and capital
accounts, 241
Borrowings from Federal Reserve
Banks (See Loans)
International banking, 179, 187, 196
Loans to executive officers, 69, 190,
197
Member banks—Continued
Number, 241
Reserve requirements (See Reserve
requirements)
Reserves and related items, 242-45
State member banks (See State member banks)
Transfers of funds (See Transfers of
funds)
Mergers and consolidations, 185, 189,
246-57, 197
Monetary Control Act (See Depository
Institutions Deregulation and
Monetary Control Act of 1980)
Monetary policy
Financial markets relative to, 12-21
Reports to Congress, 28-61
Review of 1983, 3-11
Money market deposit accounts, 65, 71
National banks (See also Member
banks)
Assets and liabilities, 241
Capital adequacy guidelines, 74, 182
Foreign branches, 187
Number, 241
Negotiable order of withdrawal accounts, 71, 73
Nonmember depository institutions
Assets and liabilities, 241
Number, 241
Reserve requirements, 65
Over-the-counter stocks, 192, 193
Payments mechanism, developments,
199-203
Policy actions
Board of Governors
Discount rates at Federal Reserve
Banks, 76-78
Regulations (See Regulations)
Statements and other actions, 74-76
Federal Open Market Committee
Authority to effect transactions in
System Open Market Account
Domestic operations, 79-82, 85,
94, 101, 104, 112, 122, 128,
135, 141, 142, 148
Foreign currency operations, 79,
82-84, 103, 128
Review, 101
Index 295
Presidents and vice presidents of Federal Reserve Banks
Conference of Presidents and Conference of First Vice Presidents,
269, 270
List, 268
Salaries of presidents, 222
Prices, 10
Pricing of Federal Reserve services
and developments in payments
mechanism, 199-203, 224, 232
Profit and loss, Federal Reserve Banks,
226
Publications and videotapes
Consumer protection aids, 155
Examination manual, 182
Over-the-counter stocks, 192
Securities Credit Transactions
Handbook, 194
Regulations (See also Regulatory improvement and simplification)
B, Equal Credit Opportunity, 152,
160, 163, 164, 197
C, Home Mortgage Disclosure, 152,
153
D, Reserve Requirements of Depository Institutions, 65-67, 71, 187,
195
E, Electronic Fund Transfers, 154,
161, 164, 165
F, Securities of Member State
Banks, 190
G, Securities Credit by Persons Other
than Banks, Brokers, or Dealers,
67, 192, 193, 195
K, International Banking Operations,
68, 187, 196
L, Management Official Interlocks,
69, 196
M, Consumer Leasing, 154, 198
O, Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks, 69, 191, 197
Q, Interest on Deposits, 67, 70,
187, 195
T, Credit by Brokers and Dealers, 68,
71, 192, 193, 194, 195
U, Credit by Banks for the Purpose
of Purchasing or Carrying Margin
Stocks, 67, 192, 193, 195
Regulations—Continued
X, Borrowers of Securities Credit,
72, 192, 194, 195
Y, Bank Holding Companies and
Change in Bank Control, 72, 189,
191, 197
Z, Truth in Lending, 73, 150, 152,
153, 154, 155, 159, 164-65
Regulatory Flexibility Act, 195
Regulatory improvement and simplification, 67, 71, 72, 73, 192, 195-98
Repurchase agreements
Authority to purchase and to enter
into, 79-81, 102-03
Bankers acceptances, 79-80, 214, 216,
218, 220
Federal agency securities, 79-81, 214,
216, 218, 220
U.S. government securities, 214, 216,
218, 220, 222, 242, 244
Reserve requirements, depository institutions
Changes, 65-67, 71, 195
Table, 236
Reserves and related items, 242-45
Retirement accounts, 71
Salaries
Board of Governors, 208
Federal Reserve Banks, 222
Schools (See Training)
Securities (See also specific types)
Credit, 67, 68, 71, 72, 192-94,
195
Regulation, 192-94
Securities Exchange Act of 1934, 71-72,
190, 192, 194
Special drawing rights, 214, 216, 218,
242, 244
State member banks (See also Member
banks)
Applications by, 191
Assets and liabilities, 241
Capital adequacy guidelines, 74, 182
Consumer complaints against, 155-57
Control of, changes, 186
Examination, 178, 179-82, 183-84
Executive officers, loans to, 69,
190, 197
Financial disclosures, 190
Mergers and consolidations, 185,
246-57
296 Index
State member banks—
Continued
Number, 178, 241
Stock market credit, 67, 68, 71, 72,
192-94, 195
Stock repurchases by bank holding
companies, 191
Supervision and regulation (See Banking
supervision and regulation by Federal Reserve System)
System Open Market Account
Audit, 203
Authority to effect transactions
Domestic operations, 79-82, 85, 94,
101, 104, 112, 122, 128, 135,
141, 142, 148
Foreign currency operations, 79,
82-84, 103, 128
Review, 101
Thrift institutions, 167
Thrift Institutions Advisory Council,
267
Time and savings deposits at federally
insured institutions, interest rates,
239
Trade, 68
Training, 154, 164, 184
Transfers of funds
Check collection, 199, 200
Transfers of fundsContinued
Electronic fund transfers, 154, 161,
182, 200
Federal Reserve operations, volume,
234
Negotiable order of withdrawal accounts, 71, 73
Pricing of Federal Reserve services
and developments in payments
mechanism, 199-203, 224, 232
Truth in Lending
Act, 150, 151, 152, 159, 165
Regulation Z (See Regulation Z)
U.S. balance of payments, review, 22-27
U.S. government securities
Authority to buy, to enter into repurchase agreements, and to lend,
79-81, 101-03, 141, 148-49
Bank holdings, by class of bank, 241
Federal Reserve Banks
Authority to buy directly from U.S.
Treasury, 80-81, 102
Earnings, 205, 224
Holdings, 205, 214, 216, 218, 222,
242, 244
Open market transactions, 220
Repurchase agreements, 214, 216,
218, 220, 222, 242, 244
FRB 1—11,500—0484 C
@FedFRASER