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Board of Governors of the Federal Reserve System



Letter of Transmittal

BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
Washington, D.C., May 15, 1981

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 Sixty-Seventh Annual Report of the Board of Governors
of the Federal Reserve System.
This report covers operations of the Board during calendar year 1980.

Sincerely,
Paul A. Volcker, Chairman




Contents
Part 1 Monetary Policy and the
U.S. Economy in 1980
3
4
6
7
8
9
10

INTRODUCTION
THE ECONOMY IN 1980
Household sector
Business sector
Government sector
Labor market developments
Prices

13 MONETARY POLICY AND FINANCIAL MARKETS
14 Monetary aggregates and interest rates
20 Aggregate flows of funds
24
25
26
27

INTERNATIONAL DEVELOPMENTS
Current-account balance
Capital transactions
Operations in foreign currencies

30
30
46

MONETARY POLICY REPORTS TO CONGRESS
Report on February 19, 1980
Report on July 22, 1980




Part 2 Records, Operations,
and Organization
v BOA.RH OI c .<)\ E R N O R S

65

>

87
M

167
167
169
176
183
187
191

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. • i.

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Introduction
Truth in Lending
Equal Credit Opportunity
Federal Trade Commission Act
Home Mortgage Disclosure
IMPLLMFNTATION O l THE
MONETARY CONTROI ACT' OF 1980

195 LEGISLATIVE RECOMMENDATIONS
195 Amendments to the Financial Institutions Regulatory and
Interest Rate Control Act of 1978
195 Financial transactions with affiliates
196 Expansion of Class C directors
196 Authority for bank holding companies to acquire banks across
state lines in emergency and failing-bank situations
197 Amendments to the International Banking Act
198 LITIGATION
198 Bank holding companies—Antitrust action
—Review of Board actions
202 Other litigation involving challenges to Board procedures and regulations




209
209
215
215
215
215
216
216
216
217
217
218

LEGISLATION ENACTED
Depository institutions deregulation and monetary control
Federal Trade Commission improvements
Silver futures market
Increase in debt ceiling
Small business regulatory flexibility
Management of the public debt
Bretton Woods Agreements
Housing and community development and home mortgage disclosure
Sunset of credit control
Paperwork reduction
Farm credit

219 BANKING SUPERVISION AND REGULATION
219 Supervision for safety and soundness
222 Regulation of U.S. banking structure
228 Supervision and regulation of foreign banking
operations in the United States
230 Enforcement of other laws and regulations
234 REGULATORY IMPROVEMENT PROJECT
234 Accomplishments in 1980
235 Work in progress
236
236
237
237
238
238
239
239

FEDERAL RESERVE BANKS
Developments in payments mechanism
Examination
Earnings and expenses
Federal Reserve Bank premises
Holdings of loans and securities
Loan guarantees for defense production
Volume and cost of operations

240
240

BOARD OF GOVERNORS
Financial statements

246
248

STATISTICAL TABLES
1. Detailed statement of condition of all Federal Reserve Banks combined,
December 31, 1980
2. Statement of condition of each Federal Reserve Bank, December 31, 1980
and 1979




252
255
256
258
262
264
265
266
266
267
267
270
272
273
274
278
280
282

STATISTICAL TABLES—Continued
3. Federal Reserve Bank holdings of U.S. government and federal agency
securities, December 31, 1978-80
4. Federal Reserve Bank holdings of special short-term Treasury certificates
purchased directly from the United States, 1972-80
5. Open market transactions of the Federal Reserve System, 1980
6. Earnings and expenses of Federal Reserve Banks during 1980
7. Earnings and expenses of Federal Reserve Banks, 1914-80
8. Bank premises of Federal Reserve Banks and branches, December 31, 1980
9. Volume of operations in principal departments of Federal Reserve Banks,
1977-80
10. Principal operations of Federal Reserve Banks—Expense, ratio of expense
for each operation to total expenses, and average number of employees,
1977-80
11. Number and salaries of officers and employees of Federal Reserve Banks,
December 31, 1980
12. Federal Reserve Bank interest rates, December 31, 1980
13. Member bank reserve requirements
14. Maximum interest rates payable on time and savings deposits
15. Margin requirements
16. Principal assets and liabilities, and number of insured commercial banks, by
class of bank, December 31, 1979 and 1978
17. Member bank reserves, Federal Reserve Bank credit, and related items:
Year-end, 1918-80, and month-end, 1980
18. Changes in number of banking offices in the United States, 1980
19. Number of par banking offices, December 31, 1980
20. Mergers, consolidations, acquisitions of assets or assumptions of liabilities
approved by the Board of Governors, 1980

289

MAP OF FEDERAL RESERVE SYSTEM—DISTRICTS

292
294
295
296
297

FEDERAL RESERVE DIRECTORIES AND MEETINGS
Board of Governors of the Federal Reserve System
Federal Open Market Committee
Federal Advisory Council
Consumer Advisory Council
Federal Reserve Banks and branches

319

INDEX




Part 1
Monetary Policy and
the U.S. Economy in 1980




Introduction
The U.S. economy in 1980 experienced wide swings in output and
employment and a continued high
rate of inflation. An exceptionally
sharp but unusually short recession in
the first half of the year was followed
by a rebound during the second half.
On balance over the year, the gross
national product was little changed in
real terms, after a slight increase in
1979. Payroll employment fell with
the contraction in production in the
first half and despite a subsequent increase was only slightly higher at
year-end than at the end of 1979; the
unemployment rate rose sharply
through May and then changed little.
Large increases in prices of energy
in the first half of 1980 and of food in
the second half contributed substantially to inflationary pressures.
However, beyond these special factors, continuing poor productivity
performance and rapidly rising compensation combined to maintain an
underlying trend of unit labor
costs—a key element in pricing—of
more than 9 percent per year. At
year-end, continued strong wage
demands were in prospect and a
renewed surge in prices of energy and
foods seemed likely.
Progress toward price stability and
reduced inflationary expectations remains a fundamental precondition
for sustained and balanced economic
growth. Consequently, throughout
1980 monetary policy concentrated
on holding growth of money and
credit to rates consistent with a damping of inflationary pressures. The
Federal Reserve's actions clearly did
impose considerable restraint on the
aggregate demand for goods and ser


vices, even though the growth rates of
the monetary aggregates over the four
quarters of 1980 were generally near
or somewhat above the upper ends of
the ranges established by the Federal
Open Market Committee early in the
year.
Over the course of 1980, the
growth of money and credit fluctuated widely, responding to sudden,
sharp changes in economic conditions, to the application of selective
credit restraints in the spring, and to
variations in public expectations
about inflation. Interest rates also
showed large swings. They moved to
record levels in the first quarter when
pressures on credit markets associated with Federal Reserve efforts to
prevent excessive monetary expansion
were combined with heightened fears
of accelerating inflation. They then
fell sharply in the spring as a steep
decline in economic activity and the
imposition of the credit restraint program cut into the demand for money
and credit. Over the second half of
the year, interest rates again trended
upward as the System attempted to
moderate monetary expansion in the
face of a surprisingly swift economic
recovery and continued brisk inflation. The change in operating procedures that occurred in October
1979, which shifted the day-to-day
focus of System open market operations from the federal funds rate to
reserves, may have contributed to a
prompter response of market interest
rates to emerging shortfalls or overshoots in monetary expansion;
however, the large swings in rates last
year primarily reflected the unstable
economic environment.

The Economy in 1980
Economic activity fluctuated markedly over the four quarters of 1980 but
on balance exhibited no growth over
the year. At the same time, inflationary pressures remained intense,
with most broad measures of prices
and wages rising at least as fast as in
1979.l Real gross national product
(GNP) grew moderately in the first
quarter and then plummeted at an annual rate of 10 percent in the second
quarter—the largest one-quarter
decrease in the postwar period. The
downturn bottomed out quickly,
however, and a brisk rebound over
the second half brought output to
about the level of late 1979.
Monetary and fiscal policies in
1980 continued to be directed toward
damping inflationary pressures. During 1979 and into the opening months
of 1980, private demands for goods
and services nevertheless remained
relatively buoyant in the face of high
nominal interest rates as the public remained skeptical about the prospect
for containing inflation. This attitude, coupled with a sharp hike in
the price of imported oil and concern
that increased defense spending
would result in wider budget deficits,
contributed to a heightening of inflationary expectations and substantial
speculation in commodity markets in
the early part of 1980. Against this
backdrop, President Carter announced a multifaceted anti-inflation
program on March 14. The President
authorized use of the extraordinary
1. Unless otherwise indicated, annual figures
represent changes from the fourth quarter of
1979 to the fourth quarter of 1980.



powers of the Credit Control Act of
1969, and the Board of Governors
responded with a set of temporary
measures to restrain the growth of
credit.
Although the weakening was not
fully apparent at the time, activity in
the consumer and housing sectors had
already turned down by early 1980.
The falloff in these demands reflected
primarily the high cost of credit and a
longer-term deterioration in growth
of real disposable income and household financial positions. The decline
probably was exacerbated by the curtailment of lending and the change in
borrowing attitudes that accompanied the special credit restraint program. After credit conditions eased
early in the summer and the special
credit restraints were lifted, personal
consumption expenditures and housing starts generally reattained the
levels of early 1980.
In the business sector, real outlays
for fixed capital fell substantially
over the year, largely in response to
the weakness in final sales and reduced capacity utilization rates. As in
most of the preceding economic expansion, businesses continued to
maintain tight control over inventories. Still, the severity of the decline
in final sales in the second quarter led
to some involuntary accumulation
and forced subsequent liquidations
during the second half.
The foreign sector provided support to the economy in 1980. Real exports of goods and services rose,
reflecting in part the continuing effects of the depreciation of the dollar

The Economy in 1980

Indicators of Economic Performance
Ratio

Percentage change, Q4 to Q4

in

1.7
Inventory-sales ratio
1.6
1.5

Real final sales

Millions of units
Index, 1967=100

Housing starts

160
Total industrial production

Unemployment rate

10

Blue collar

Percentage change

Index, 1973 Ql=100
Auto sales

15

12

1974

1976

1978

1980

All data are seasonally adjusted at annual rates.
The industrial production index (monthly data) is
Federal Reserve data; the unemployment rate
(monthly data) and the change in nonfarm unit labor
costs are U.S. Department of Labor data; auto sales
are from the Motor Vehicle Manufacturers Association. All other data are from the U.S. Department of
Commerce.




1974

1976

1978

1980

Real GNP and real final sales are in terms of 1972
dollars.
The inventory-sales ratio is based on real (1972
dollars) manufacturing and total trade sales and inventories.
GBP prices are measured by the fixed-weight price
index for gross domestic business product (1972
weights).

The Economy in 1980
in 1911-IS. The volume of imports of
goods and services declined after the
tirst quarter in response to the
weakening in domestic activity. Oil
imports in particular were down
sharply as consumption was reduced
by the rising price of petroleum and
weakness in economic activity.
In spite of the slower growth of
overall activity in 1979 and the reduction in aggregate demand during the
first half of 1980, inflationary
pressures remained strong last year.
Month-to-month movements in
prices often were dominated by
developments in food and energy
markets and in costs of homeownership. But, more fundamentally, the
key determinants of underlying inflationary trends worsened. A further
decline in productivity, together with
continued rapid rates of wage increase, pushed up unit labor costs,
thus adding to price pressures. In addition, the effects of sharp hikes in
the price of imported crude oil since
1978 spilled over to other goods
and services. The fixed-weight price
index for gross domestic business
product, a broad measure of inflation, rose about 93A percent over the
year, slightly more than in 1979,
while increases in consumer and producer prices, at 12Vi and 12 percent
respectively, were a little lower than
in the previous year.

in previous years had made American
households increasingly vulnerable to
income and financial shocks. Around
1977, households began to save a
distinctly smaller fraction of
disposable income than previously
and to borrow heavily to finance their
outlays, thereby pushing debt
burdens to historically high levels.
Moreover, growth of real disposable
income turned sluggish in early 1979
and income prospects became less optimistic, while sharp increases in the
prices of food and energy began to
cut into the discretionary portions of
family budgets.
Reflecting these developments,
consumer spending in real terms fell
at a AVi percent annual rate over the
first half of 1980. As in past recessions, outlays for more discretionary
purchases were particularly affected.
Purchases of new cars tumbled to an
annual rate ofl3A million units in the
second quarter, 2 million below the
pace in the fourth quarter of 1979, as
demand for larger-size domestic
models plunged. Sales of furniture
and appliances also fell sharply, in
part as a result of the drop in home
Income, Consumption, and Saving
Percentage change, Q4 to Q4
Real consumption

JEL

Household Sector
Spending by the household sector
weakened considerably in early 1980.
The sharpness of the curtailment
probably was related mainly to the
tightening of credit conditions and
the impact of the credit restraint program on consumer attitudes. However, other factors also played a role.
In particular, a progressive deterioraDigitizedtion of household financial positions
for FRASER


Real disposable income
Percent
Saving rate

1974

1976

1980

Based on U.S. Department of Commerce data, seasonally adjusted at annual rates. Real consumption
and real disposable income are in terms of 1972
dollars.

sales. Moreover, efforts to conserve
on energy usage held down real outlays for nondurable goods and services, which were about unchanged
over the first half.
Early in the summer, an easing of
general credit conditions and the termination of the special restraint
measures helped to foster a revival of
consumer outlays, and spending in
real terms rose at an annual rate of 6
percent over the second half. Income
prospects and consumer confidence
also improved, and households were
able to rebuild savings somewhat as
well.
Sales of domestic autos picked up
from the depressed second-quarter
level, although steep price increases
on 1981 models and higher financing
costs apparently deterred buyers in
the autumn. For the year as a whole,
sales of domestic autos totaled 6.6
million units, the lowest level in 20
years; sales of foreign cars averaged
2.4 million, about the same as in
1979, and accounted for a record onefourth of the total sold.
Real residential construction expenditures fell 13 percent over the
year, after a decline of 6 percent during 1979. Movements in housing activity within the year were heavily influenced by the course of mortgage
interest rates. Total private housing
starts dropped from an already reduced pace of 1.6 million units in the
fourth quarter of 1979 to 1.1 million
units in the second quarter of 1980 as
the average interest rate on new mortgage commitments rose to more than
16 percent. Starts recovered with the
abrupt easing of credit conditions
early in the summer. By September,
they had approached their late 1979
level, and they remained at that level
through the fall despite the return of
mortgage rates to the range of 14 to
Digitized15 percent. For the year as a whole,
for FRASER


The Economy in 1980
starts totaled 1.3 million units, the
lowest since 1975.
In contrast to previous cyclical
downturns, the weakening of housing
activity in 1980 was most evident in
the single-family sector. Although
demographic trends remained favorable, the increased cost of home purchase associated with higher house
prices and the rapid rise in mortgage
interest rates cut deeply into demand
for new homes. Single-family starts
fell to 850,000 units in 1980, compared with 1.2 million in 1979. The
rise in home prices slowed substantially relative to 1978 and 1979; even
so, the average monthly payment on a
new home continued to increase
faster than household income. These
higher debt-service costs constrained
the ability of many homebuyers to
qualify for traditional mortgages and
contributed to the widening use of innovative financial instruments, such
as graduated-payment and variablerate mortgages.
In the multifamily sector, starts
totaled 440,000 units, compared with
550,000 units in 1979. This sector was
apparently more resilient because of a
sustained demand for condominium
units as well as the presence of the
section 8 subsidy program administered by the Department of
Housing and Urban Development,
which supported around 100,000
rental units. New building activity
weakened significantly in the private
rental market as rent increases
generally continued to lag behind
rises in energy costs and other
operating expenses.
Business Sector
Business fixed investment fell 4 percent in real terms during 1980, after
several years of strong advances. The
weakness in capital spending can be

8

The Economy in 1980

linked to the emergence of a sizable
margin of unutilized plant and equipment as a result of the slow growth of
final sales over 1979 and their contraction in early 1980. In addition, the
business sector came under increasing
financial pressure in 1980. Long-term
interest rates were historically high,
corporate operating profits fell well
below year-earlier levels, and balance-sheet positions continued to
deteriorate.
The decline in real outlays was
sharpest in the construction area.
Spending on nonresidential structures
fell 6 percent over the year, after an
average rise of about 11 percent in the
previous two years. Cutbacks were
especially severe in the industrial
building category, while increases in
petroleum drilling provided some offset. Business purchases of new equipment fell 4 percent in real terms over
the year, led by declines in purchases
of trucks and cars. On an industry
basis, capital spending gains slowed
markedly in most of the cyclically
sensitive manufacturing groups, particularly nonelectrical machinery,
stone, clay, and glass, and rubber;
outlays by motor vehicle manufacturers, however, were boosted by
retooling for the new small cars.
Energy and high-technology industries generally continued to exhibit considerable strength in 1980.
According to currently available indicators, business fixed investment is
likely to remain sluggish in 1981,
especially outside the defense and
energy-related sectors. Although
orders and contracts for plant and
equipment in real terms rose during
the second half of 1980, in the fourth
quarter they still were below yearearlier levels. Longer-term commitments outside the petroleum industry, such as capital appropria


tions, also were running below yearearlier levels. In addition, surveys of
plans for plant and equipment spending taken toward the end of 1980 and
in early 1981 suggested little if any advance in real outlays for calendar year
1981.
In general, firms attempted to keep
inventories lean in 1980 as they adjusted to wide swings in final sales
against a backdrop of high carrying
costs. Total business inventories in
constant dollars were about unchanged over the first half of the
year. However, the sharp drop in
final sales pushed inventory-to-sales
ratios up sharply, and by May the
ratio for manufacturing and trade
had nearly reached the peak attained
in the 1973-75 cycle. Subsequently,
real stocks were liquidated as final
sales picked up and adjustments to
production helped reduce overhangs.
Government Sector
Real purchases of goods and services
at all levels of government increased
about \Vi percent over 1980, about
the same as for each of the previous
two years. In 1980, however, growth
was concentrated in federal purchases, particularly for national
defense. Purchases by state and local
governments remained unchanged,
on balance, over the year.
The budget deficit for the federal
government on a national income accounts basis rose from about $25
billion in the fourth quarter of 1979
to around $70 billion in the final
quarter of 1980. The widening of the
deficit largely reflected the automatic
stabilizers of the budget. Growth of
tax receipts, at about IW2 percent,
was roughly the same as in 1979, but
much of the advance in 1980 stemmed
from the imposition of the windfall
profits tax on oil company revenues.

The Economy in 1980
Increases in personal income taxes
and social insurance contributions
slowed markedly, largely reflecting
the patterns in employment and incomes, and corporate profits tax accruals declined. At the same time,
transfer payments rose substantially
as the surge in joblessness raised outlays for unemployment benefits and
other income security programs; in
addition, social security beneficiaries
received a 14!4 percent cost-of-living
raise in July.
Nonetheless, increased federal purchases also contributed significantly
to the expanded budget deficit, largely as a result of higher defense spending. National defense purchases rose
5 percent in real terms, while nondefense purchases were up about 2
percent. Grants to states and
localities rose 8 percent in nominal
terms, and in real terms probably fell
somewhat. A further phasing-down
of the local public works and public
employment programs accounted for
most of the slowing.
In contrast to the federal sector,
state and local governments were
relatively unaffected by the recession
last year. The growth of total revenues, at 10 percent, was slightly
higher than the advances in the
previous two years. On the spending
side, growth of outlays already had
begun to slow in response to longerterm demographic factors and public
sentiment to limit spending. In 1980,
this trend was reinforced by stringent
financial conditions that led to the
postponement or cancellation of several bond issues early in the year and
contributed to a substantial decline in
construction outlays. Also, employment rose only 125,000, the smallest
gain in three decades, as enrollments
in public service employment programs dropped and many govern


ments allowed attrition to reduce
their payrolls. The sector's operating
budget (total balance net of social insurance funds) was close to balance
for most of the year, as it had been
since early 1979.
Labor Market Developments
Five years of continuous expansion in
employment were interrupted in
1980, as firms responded to the sharp
declines in sales during the first half
by cutting their work forces and
shortening workweeks. Between February and July the number of workers
on payrolls of nonfarm establishments fell 1 lA million. However, the
contraction was short lived and was
followed by a substantial and widely
based recovery in employment in the
second half of 1980.
Much of the early cutback in employment was associated with weak
auto sales and depressed housing activity. By midyear, about one-seventh
of those employed in transportation
equipment and primary and fabricated metals industries had lost their
jobs; about a third of the total hourly
auto workers were on indefinite
layoff. In addition, employment in
contract construction declined by
almost 337,000 between February and
July. Although the ensuing rebound
in consumer demand led to sizable
recalls in these sectors, by year-end
payroll employment in manufacturing and construction had regained
only about one-half of the cumulative
job losses since their peaks. The
economic contraction also spilled
over into private service-producing
industries, holding the employment
gain in that sector to the smallest in
five years.
The contraction of labor demand
in the first half of 1980 led to a jump

10

The Economy in 1980

in the unemployment rate from just
under 6 percent at the end of 1979 to
IVi percent by May, where it remained for the balance of the year.
The biggest increases in unemployment in the spring occurred among
adult men, and reflected the concentration of job losses in blue-collar occupations; by mid-1980 the unemployment rate for adult males was
almost as high as at the trough of the
1973-75 recession. The deterioration
in job opportunities interrupted a
five-year climb in the labor force participation rate. Even the participation
rate for women, which has contributed most significantly to the expansion of the labor force in the postwar
period, edged up only slightly over
the year.
The cyclical deterioration in productivity continued into the first half
of 1980 as rapid declines in output
outpaced adjustments in the work
force. However, the growth in productivity that accompanied the advance in production during the
second half of the year just about offset the earlier losses, and output per
hour in the nonfarm business sector
was about unchanged in 1980, after a
1 percent decline over 1979. The trend
rate of productivity growth apparently continued at the slow pace that has
characterized most of the decade,
compounding the effects of large
wage increases on unit labor costs.
Despite the slack in labor markets,
wage rates accelerated in 1980 as
workers sought to make up for reductions in real wages that had occurred
in the wake of sharp energy price increases in 1979. In the private nonfarm business sector, wage rates—as
measured by the average hourly earnings index—rose at a rate of more
than 9Vi percent over the four



quarters of the year, compared with
an 8 percent increase in 1979. This acceleration was most pronounced in
the manufacturing sector, in which
cost-of-living provisions are most
prevalent, but almost all other major
sectors also posted larger increases.
Hourly compensation, which includes
employer contributions for social insurance and the cost of fringe
benefits, rose 10 percent in 1980,
about Vi percentage point faster than
during 1979.
The acceleration in hourly compensation coupled with the continuing
slump in productivity pushed unit
labor costs for the nonfarm business
sector up more than 10 percent in
1980, compared with 11 percent during 1979. With the rapid price increases in 1980 carrying over into
forthcoming wage negotiations and
with new boosts in payroll taxes and
in the minimum wage, compensation
is likely to increase rapidly in the
coming year.
Prices
Inflationary pressures continued to
permeate the economy in 1980, in
spite of a second year of sluggish
growth in aggregate demand. The
fixed-weight price index for gross
domestic business product rose
slightly more than 9 Vi percent over the
four quarters of 1980, about !4 percentage point faster than in 1979. The
price indexes for consumer and producer finished goods advanced about
12!/2 and 12 percent respectively last
year. Their growth was a little less
than in 1979, although volatile movements in mortgage rates and in home
prices had an especially large impact
on monthly fluctuations in the consumer price index (CPI).

The Economy in 1980
Movements in food and energy
prices affected the course of inflation
in 1980, although pressures in these
two sectors emerged at different times
during the year. In the first half,
retail energy prices rose at an annual
rate of more than 30 percent, while
food prices, which had been decelerating since the beginning of 1979,
slowed even further, to an annual rate
of less than 5 percent. Then in the second half, energy prices rose at a pace
below the inflation rate, while food
prices rose more than 14 percent at an
annual rate.
The surge in energy prices early in
the year resulted from higher prices
of imported crude oil and the progressive decontrol of prices for
domestic crude oil. By the second
quarter, however, prices for most
energy commodities had stabilized, as
inventories rose with weakened demand. These large stocks helped to
cushion the impact of sharp production curtailments by Iraq and Iran
during the autumn and of the continuing phaseout of price controls on
domestic crude oil; by midyear more
than two-thirds of all crude
petroleum supplies were selling at
prices at or near world levels. The indirect passthrough of sharp increases
in the price of imported crude oil
since 1979 was evident in the rapid increases in prices for some intermediate materials early in the year,
particularly for plastics and rubber
products.
Retail food prices accelerated
sharply in the second half of 1980,
resulting in a cumulative increase of
more than 10 percent over the four
quarters of the year. Meat prices increased rapidly in the second half as
pork and poultry production fell off,
in part because of severe drought con


11

ditions in the Midwest and South.
The drought added to the upward
pressures for other farm products as
well. Crop price increases were
especially large, and food prices are
expected to rise rapidly in 1981 as the
effects of these higher crop prices
feed through to the retail level.
While price increases for energy
and to a lesser extent for food exacerbated the overall inflation rate in
1980, the strong labor cost pressures
experienced over the year also sustained an underlying momentum in
price pressures for most sectors. One
measure of this underlying trend, the
fixed-weight price index for personal
consumption expenditures excluding
food and energy, rose more than 9!4
percent over the four quarters of
1980, up from a pace of 7!4 percent
in 1979; part of the acceleration was
due to the passthrough of higher
petroleum costs.
An inflationary psychology was
evident in the flurry of speculative activity early in the year, particularly
for gold and silver. Moreover, speculation spilled over from the precious
metals to several industrial commodities, especially copper. By early
spring, speculation in commodities
markets had subsided in the face of
rapidly rising interest rates and
declining aggregate demand, but it
picked up again as the economy
recovered. Sharp declines for prices
of certain sensitive industrial commodities—particularly steel, aluminum, and lumber and wood products—had a moderating influence on
producer prices in the first half of
1980. The Department of Labor's
measure of spot market prices fell 13
percent from the peak in February to
the trough in June of 1980. In addition, producer prices of crude ma-

12

The Economy in 1980

terials excluding food and energy fell
almost 10 percent during the same
period. With the rebound in activity
in the second half of the year, prices
of industrial commodities regained




most of the earlier losses, and by
year-end, industrial raw materials
prices in the producer price index
were lOVi percent higher than a year
earlier.

13

Monetary Policy and Financial Markets
Monetary policy in 1980 continued to
aim for expansion of money and
credit consistent with progress toward
a reduction in inflationary pressures.
Monthly and quarterly movements in
the money stock were unusually
volatile over the year, in large part
because of the wide swings in aggregate economic activity. Nonetheless, growth rates of the monetary aggregates for the year as a whole were
close to the ranges established by the
Federal Open Market Committee
(FOMC) for 1980.
Credit flows also varied considerably during the year, in response
not only to changing economic activity but also to special policies affecting
credit growth. On balance they declined somewhat from 1979; although
credit demands by governments rose,
both businesses and households reduced their credit usage last year in an
environment of credit costs generally
well above those of 1979.
Interest rates fluctuated over an extraordinarily wide range last year,
reflecting the impact of sharp
movements in economic activity and
in prices on demands for money and
credit, as well as shifting expectations
about the economic and financial
outlook. Early in 1980, short-term
rates rose to new peaks as accelerating growth in money and bank credit
created demands for reserves in excess of the amounts consistent with
the FOMC's targeted ranges for
growth in the aggregates. The movement in short-term rates intensified
pressures on long-term rates that had
accompanied a worsening of inflation
expectations. In March, turbulence in



bond and commodity markets increased, and a special credit restraint
program was initiated to supplement
traditional monetary policy measures.
The imposition of the credit restraint program and the unprecedented contraction in real
economic activity contributed to a
substantial falloff in money and
credit flows in the second quarter. Interest rates plunged from peaks
reached around the end of March, as
the narrow monetary aggregates,
M-l A and M-1B, dropped in the early
spring to below their designated
ranges. In view of unusual factors
reducing the public's demand for
transaction balances and the greater
relative strength in the broader aggregates, M-2 and M-3, the Federal
Reserve decided against pursuing
policies that would quickly return the
narrowly defined monetary aggregates to their ranges for fear of aggravating inflationary pressures. As a
result, M-l A and M-1B remained
below the System's announced targets
for several months, while the broader
aggregates remained within target
ranges in the first half of the year.
With the decline in the cost of
credit to the lowest level in two years
and the phasing-out of the special
credit restraint program in early summer, economic activity began expanding again. As inflationary pressures
also intensified, demands for money
and credit strengthened and interest
rates rose sharply through the second
half of the year; the monetary aggregates expanded above target
ranges, and the provision of nonbor-

14

Monetary Policy

Interest Rates
Percent per annum
Short-term

Long-term

16

State and local government bonds

1974

1976

1978

1980

Monthly averages except for Federal Reserve discount rate and conventional mortgages (based on
quotations for one day each month). Yields: U.S.
Treasury bills, market yields on three-month issues;
prime commercial paper, dealer offering rates; conventional mortgages, rates on first mortgages in
primary markets, unweighted and rounded to nearest
5 basis points, from U.S. Department of Housing and

Urban Development; Aaa utility bonds, weighted
averages of new publicly offered bonds rated Aaa, Aa,
and A by Moody's Investors Service and adjusted to
Aaa basis; U.S. government bonds, market yields adjusted to 20-year constant maturity by U.S. Treasury;
state and local government bonds (20 issues, mixed
quality), Bond Buyer.

rowed reserves fell progressively short
of the requirements of depository institutions. Most interest rates once
again reached record levels in December, and monetary growth slowed in
the final months of the year.

volatility during 1980, as the
destabilizing effects on money demand of sharp quarterly swings in the
pace of economic activity were exacerbated by atypical movements in
the aggregates relative to income and
interest rates during the year.
Although the ranges established for
the aggregates by the FOMC implied
some slowdown in 1980 from the
growth rates recorded in 1979, the
considerable strength that developed
in the second half brought expansion

Monetary Aggregates
and Interest Rates
The monetary aggregates, particularly
the transaction-related measures
M-1A and M-1B, exhibited unusual




Monetary Policy
in the narrow aggregates to near the
pace of a year earlier. Overall growth
in M-1A and M-1B, however, was
maintained well below that of
nominal GNP, as monetary policy
continued to exert a substantially
restrictive influence. Growth in M-2
picked up a bit in 1980, while M-3 increased at about the same pace as in
1979. Bank credit expansion over
1980, also exceptionally volatile, was

15

considerably below the pace of 1979
and, for the year, was near the midpoint of its range.
Long-term interest rates soared to
record levels early in 1980. Inflationary fears were generated by large
increases in major price indexes, by
indications of further increases in the
federal budget deficit, and by unfavorable international political
developments. Borrowing in anticipa-

Reserves and Monetary Aggregates
Based on seasonally adjusted data unless otherwise noted, in percent1
1979
Item

1978

1979

Q4
Member bank reserves
Total
Nonborrowed
Required
Monetary base 3

1980

1980
Ql

Q2

Q3

Q4

2

Concepts of money 4
M-1A
M-1B..
M-2
M-3
Nontransaction components of M-2
Total (M-2 minus M-IB).
Small time deposits
Savings deposits
Money market mutual funds
shares (n.s.a.)
Overnight RPs and overnight
Eurodollar deposits (n.s.a.)
MEMO (change in billions of dollars)
Managed liabilities at commercial banks ..
Large time deposits, gross
Nondeposit funds
Net due to foreign related institutions
Other 5
U.S. government deposits at
commercial banks

6.2
6.3
6.3
9.2

2.6
.3
2.4
7.8

7.1
7.8
6.8

11.6
5.1
10.4
9.3

4.3
3.3
5.1
7.8

.4
7.4
.7
5.2

6.7
12.4
5.8
9.9

16.5
7.2
15.2
11.2

7.4
8.2
8.4
11.3

5.0
7.7
9.0
9.8

5.0
7.3
9.8
9.9

4.5
4.9
7.2
9.1

4.6
5.8
7.3
8.0

-4.4
-2.6
5.6
5.8

11.5
14.6
16.0
13.0

8.1
10.8
9.1
11.6

10.7
7.9
7.9
8.3
15.3
25.8
17.4
23.7
- 4 . 6 - 2 1 . 4 -20.3 -23.3

16.4
1.0
27.8

8.5
16.3
-.9

82.7

75.7

-15.5

9.0 -57.4

135.6

15.4

- 3 . 3 -12.5
6.2 - 4 . 3
-9.5 -8.2
- 8 . 6 -11.5
-.9
3.2

17.0
13.8
3.2
-1.0
4.2

-1.6

-2.3

9.4
8.5
23.1
16.2
- . 5 -11.9
163.9

324.2

90.3

120.0

25.4

17.2

21.8

-33.1

77.8
50.4
27.4
6.9
20.5

57.7
12.4
19.6
22.0
38.1
-9.6
25.1 -23.4
13.0
13.8

10.5
10.7
-.2
0
-.2

11.3
6.3
5.0
-2.3
7.3

-4.0

1.6

3.3

1. Changes are calculated from the average amounts
outstanding in each quarter.
2. Annual rates of change in reserve measures have
been adjusted for regulatory changes in reserve requirements.
3. Consists of total reserves (member bank reserve
balances in the current week plus vault cash held two
weeks earlier), currency in circulation (currency outside the U.S. Treasury, Federal Reserve Banks, and
the vaults of commercial banks), and vault cash of
nonmember banks.
4. M-1A is currency plus private demand deposits net
of deposits due to foreign commercial banks and official institutions. M-1B is M-1A plus other checkable
deposits (negotiable order of withdrawal accounts, accounts subject to automatic transfer service, credit




1.5

.6

151.9

2.9

union share draft balances, and demand deposits at
mutual savings banks). M-2 is M-1B plus overnight
repurchase agreements (RPs) issued by commercial
banks, overnight Eurodollar deposits held by U.S.
nonbank residents at Caribbean branches of U.S.
banks, money market mutual fund shares, and savings
and small time deposits at all depository institutions.
M-3 is M-2 plus large time deposits at all depository institutions and term RPs issued by commercial banks
and savings and loan associations.
5. Consists of borrowings from other than commercial banks through federal funds purchased and
securities sold under repurchase agreements plus loans
sold to affiliates, loans sold under repurchase agreements, and other borrowings. 1980 Q4 estimated.
n.s.a. Not seasonally adjusted.

16

Monetary Policy

tion of further increases in prices and
more stringent conditions in credit
markets spurred the growth of shortand intermediate-term credit in the
early months of the year, and expansion in commercial bank credit was
well in excess of rates consistent with
its annual growth range. Midway
through the first quarter, M-1A and
M-1B also began to accelerate, and
the levels of these aggregates approached the upper ends of their
longer-run ranges. As required
reserves of commercial banks began
to exceed the System's provision of
nonborrowed reserves and as the path
of nonborrowed reserves was reduced
from previously targeted levels in
response to the excessive growth of
money and credit, short-term interest
rates began to rise rapidly. The discount rate was raised 1 percentage
point in mid-February, and shortterm market rates reached record
levels.
In light of these developments, a
broad governmental program designed to curb inflationary forces was
announced on March 14. As part of
this effort, the Federal Reserve initiated a series of extraordinary actions—some taken under the authority of the Credit Control Act of 1969,
which was invoked by a President for
the first time. The act provides that
"Whenever the President determines
that such action is necessary or appropriate for the purpose of preventing or controlling inflation generated
by the extension of credit in an excessive volume, the President may
authorize the Board to regulate and
control any or all extensions of
credit."
The special credit restraint
measures adopted by the Board were
intended to supplement and reinforce



the more general measures of monetary and credit control, and they were
viewed as temporary. A major part of
the program was a request that banking institutions and finance companies voluntarily limit expansion of
their total loans to U.S. borrowers in
1980 to a rate that did not exceed 6 to
9 percent, consistent with the announced growth ranges for money
and credit. No numerical guidelines
for specific types of loans were provided; rather, the institutions were
asked to avoid certain types, such as
loans for speculative or purely financial purposes, but to place no special
restraint on certain others, such as
loans to small businesses, farmers,
homebuilders and homebuyers, and
auto dealers and buyers.
In addition, in order to discourage
lending by commercial banks using
purchased funds, the marginal
reserve requirements on managed
liabilities of large banks, originally
imposed in October 1979, were increased and the reserve-free bases of
these banks were reduced; a similar
requirement for large nonmember
banks was imposed in the form of
special deposit requirements on increases in their managed liabilities.
Also, a surcharge of 3 percentage
points was added to the basic discount rate on frequent borrowings
from Federal Reserve Banks by large
member banks having deposits of
$500 million or more. To restrain expansion of consumer credit, a special
deposit requirement of 15 percent on
increases above base-period levels
was imposed on credit extended
through credit cards, check-credit
overdraft plans, unsecured personal
loans, and secured credit when the proceeds were not used to finance the collatere.l. Finally, money market funds

Monetary Policy

17

M o n e t a r y , Bank Credit, and Reserve Aggregates
Billions of dollars

Billions of dollars
Targeted and actual M-1B

Targeted and actual M l A

400

380

380
360

Targeted and actual M-3
2000

9/2%

1600

1800
1500

Reserve aggregates

Targeted and actual bank credit

40
1200
Required
reserves

36

1100
Nonborrowed reserves
1979

1980

The shaded lines reflect adjustments to the original
ranges for M-1A and M-1B to allow for larger-thananticipated shifts to ATS and related accounts from
existing demand deposits included in M-1A and from
savings deposits and other instruments not included in
M-1B. By allowing for these unanticipated shifts, the
shaded ranges in an economic sense more accurately
represent the intentions underlying the original
targets.




1979

1980

Special borrowings consist of credit provided to
institutions through the discount window to assist
them in dealing with relatively severe and persistent
liquidity problems. Because there is not the same
pressure to repay such borrowing promptly as with
normal adjustment credit, the broader economic impact of special borrowing is similar to that of nonborrowed reserves.

18

Monetary Policy

were directed to put up special deposits equal to 15 percent of the net increases in their assets after March 14.
Reflecting the substantial increase
in the opportunity costs of holding
transaction balances and the onset of
a severe economic downturn, the narrow monetary aggregates contracted
in late March and fell sharply further
in April, to well below the lower end
of their longer-run ranges. Although
growth resumed in May and June, on
average in the second quarter these
aggregates declined to levels substantially below what would have been expected on the basis of the historical
relationship among money, income,
and interest rates. In view of the
reduced pace of credit expansion, the
Federal Reserve on May 22 announced
a partial phaseout of the special credit
restraint measures that had been in
place since March, and on July 2 announced plans to complete the phaseout. (See "Record of Policy Actions of the Board of Governors,"
page 77.)
Partly in recognition of the special
factors acting to slow money growth
and also out of concern to avoid promoting inflationary forces, the provision of nonborrowed reserves in the
second quarter was not designed to
foster a rapid return of M-1A and
M-1B to rates consistent with the
FOMC's longer-run ranges for these
aggregates. Even so, both short- and
long-term interest rates dropped
precipitously as money and credit
demands fell off and signs of economic decline multiplied. The discount rate was reduced a full percentage point in May and again in June.
Although interest rates declined in
the second quarter to their lowest
levels in two years, outflows from
savings deposits accelerated at both
commercial banks and thrift institu


tions. At the same time, shifts into
small-denomination time deposits
rose above the pace of the first
quarter. The bulk of this growth was
in 2 Vi-year, small-saver certificates as
investors sought to lock in their
higher yields. (Effective January 1,
1980, commercial banks and thrift institutions were authorized to offer
time deposits of any size having a
minimum maturity of 2Vi years and a
maximum yield tied to that on
Treasury securities.) Shares of money
market mutual funds (MMMFs) continued to grow at a very rapid, although reduced, rate, and M-2 expanded further in the second quarter,
even though its M-1B component
contracted. Despite the collapse of
demands for bank credit in the second quarter, large banks responded
to the more rapid decline in domestic
interest rates relative to Eurodollar
yields by continuing to issue large-denomination time deposits in volume
and by transferring a substantial proportion of the funds raised to foreign
branches and foreign head offices.
After the unprecedented decline in
the cost of credit during the spring
and the termination of the special
credit restraint program in July,
economic expansion resumed in the
summer—a turnaround that occurred
much sooner and more strongly than
most analysts had anticipated. These
developments, combined with an apparent reversal of the special factors
operating to damp monetary growth
in the second quarter, produced a
substantial boost to M-1A and M-1B,
and both aggregates expanded in the
third quarter at record rates. M-1A
rose above the lower end of its range
by midquarter, and M-1B exceeded
its upper bound by September. M-2
expanded at a 16 percent annual rate
in the third quarter, boosted in large

Monetary Policy
measure by a reversal of the substantial savings outflows of the previous
quarter. The rapid growth in core
deposits enabled banks and thrift institutions to reduce their reliance on
large certificates of deposit, so that
the acceleration in M-3 was somewhat
less than that in M-2.
As demands for total reserves
responded to strengthening monetary
growth during the summer months
and as concerns about inflation intensified in light of the surprising sharpness of the economic recovery, upward pressure on interest rates began
to develop. Short-term rates turned
upward midway through the third
quarter and the discount rate was increased a full percentage point in late
September. By that time, long-term
rates had retraced a considerable part
of their decline during the spring and
early summer months. This process
was extended through most of the
fourth quarter as money continued to
expand at rates above targeted
ranges. Near the end of the year,
many interest rates reached levels exceeding those of the spring. As the
federal funds rate rose rapidly, the
discount rate was increased a full
percentage point in both November
and December, and the System reimposed a surcharge for large banks
that borrow frequently from the discount window.
In response to the higher interest
rates, growth in M-1A and M-1B
slowed from month to month in the
fourth quarter, and these money
stock measures actually declined in
December. Nevertheless, for the
quarter as a whole, growth in these
aggregates was vigorous, bringing annual expansion of M-l A to 5 percent,
about the midpoint of its longer-run
range; growth in M-1B, at 7!4 percent for the year, was VA percentage



19

point above the upper end of its
longer-run range.
The difference between the annual
growth rates of these two aggregates
was considerably greater than the Vi
percentage point that was originally
assumed and that was reflected in the
stated growth ranges. That difference
was based on expectations about the
extent to which growth in automatic
transfer service (ATS) accounts and
negotiable orders of withdrawal
(NOWs) in 1980 would draw funds
from both demand deposits (depressing M-l A) and savings deposits
(boosting M-1B). With the passage in
March of the Depository Institutions
Deregulation and Monetary Control
Act of 1980 (MCA), which provided
for establishment of nationwide
NOW accounts as of December 31,
1980, banks began to promote ATS
accounts more vigorously. As a
result, actual growth in ATS and
NOW accounts was greater than
originally anticipated. Adjusted for
current estimates of actual experience
with transfers into ATS and NOW accounts, growth rates for both M-l A
and M-1B were close to the upper end
of the ranges set at the beginning of
the year.
M-2 growth fell in the fourth
quarter, to a 9 percent annual rate,
as faster growth in small-denomination time deposits was more than
offset by a sharp slowdown in the expansion of savings deposits and overnight Eurodollars and repurchase
agreements (RPs) and by a runoff of
MMMFs. For the year as a whole,
M-2 grew about 10 percent, 1 percentage point above the upper end of the
FOMC's target range. Much of the
growth in the nontransaction component of M-2 in 1980 occurred in those
assets offering market-related yields.
As of December, such assets ac-

20

Monetary Policy

counted for 45 percent of the nontransaction component of M-2, compared with 28 percent a year earlier.
M-3 expansion slowed less than that
of the other aggregates in the fourth
quarter, owing to heavy issuance of
certificates of deposit to fund robust
growth in bank loans. Growth of M-3
for the year, 10 percent, was Vi
percentage point above the upper end
of its longer-run range.
As in the early months of the year,
the strong expansion in bank credit at
year-end reflected in part a diversion
of borrowing from the bond markets
to shorter-term credit sources. In addition, bank credit was made more attractive relative to other short-term
sources of funds by the tendency for
bank lending rates to lag rapidly rising money market rates and by more
aggressive pricing for large business
loans. Nevertheless, growth in bank
credit for the year was well within its
longer-run range.
In the fourth quarter of 1980, the
reserve requirement provisions of the
MCA went into effect. The act imposes federal reserve requirements on
virtually all institutions offering
transaction accounts or nonpersonal time deposits, including U.S.
branches and agencies of foreign
banks. Reserve requirements will
become equal among all institutions
for each type of deposit once the provisions are fully phased in over a
period ending September 1987. This
feature is expected to have major
benefits in terms of promoting equity
among financial institutions and
enhancing the effectiveness of the
FOMC's monetary control techniques. In addition, any depository
institution holding reservable transaction accounts or nonpersonal time
deposits is entitled under the act to
the same access to the discount win


dow as Federal Reserve member
banks. The act further requires a
competitive set of prices to be attached to Federal Reserve services,
such as check clearing and the provision of coin and currency. Access to
these services, which previously had
been supplied without charge to
member banks, will be extended
under the act to all depository institutions as pricing of services is implemented. Finally, the act created
the Depository Institutions Deregulation Committee, and directed it to
develop an orderly phaseout of all interest rate ceilings on time and savings deposits during the six-year
period beginning March 31, 1980.
Aggregate Flows of Funds
Net credit flows to nonfinancial sectors totaled approximately $363 billion in 1980, a decrease of about 8
percent from the previous year. Early
in 1980, credit flows increased as
economic activity remained strong
and demands for credit were augmented by both an acceleration in
prices and an increase in borrowing
by businesses in anticipation of
rumored credit controls. In the
spring, however, credit flows contracted sharply when production and
sales activity weakened, and monetary restraint, supplemented by the
special credit restraint measures
adopted in mid-March, contributed
to tauter credit terms and reduced
availability of funds at many lenders.
The phasing-out of the credit
restraint program, the upswing in
economic activity, and the persistence
of rapid inflation led to a moderate
increase in credit flows in the second
half of 1980.
The Treasury raised a sizable volume of funds in credit markets in 1980

Monetary Policy
to finance the combined deficits of the
federal government and off-budget
agencies. For the year, net Treasury
borrowing amounted to about $79
billion, more than twice the total of
the previous year. The Treasury continued to meet most of its net financing needs by sales of marketable
securities, and Treasury bills accounted for a larger proportion of the
net cash borrowing from the public
than in previous years. Acquisitions
of U.S. government securities by
households dropped, in part because

21

of a contraction in savings bonds
outstanding as market interest rates
soared above yields available on these
instruments. In contrast, commercial
banks and other private nonbank financial institutions increased their net
purchases of Treasury securities.
Net funds raised by state and local
governments rose to about $21 billion
in 1980. The increase reflected in part
a surge in the issuance of tax-exempt
revenue bonds to purchase singlefamily mortgages, as conventional
mortgage rates rose to record levels.

Net Funds Raised and Supplied in Credit and Equity Markets
Billions of dollars

Sector

1978

1979

1980 '

1980P
Ql

Q2

Q3

Q4 P

Net Funds Raised
Total, all sectors
U.S. government
State and local govenment
Foreign
Private domestic nonfinancial
Business
Household
Domestic financial
Private intermediaries
Sponsored credit agencies
Mortgage pool securities

482

483

434

497

253

454

533

54
24
32

37
16
21

79
21
30

62
21
24

67
12
35

99
24
27

89
27
33

291
128
163

321
156
165

234
133
101

303
163
140

119
79
40

231
133

281
155
126

81
40
23
18

36
24
28

71
23
24
23

32
34
21

20
- 16
16
20

72
33
12
28

104
44
36
24

Net Funds Supplied
Total, all sectors .
U.S. government
State and local government .
Foreign

482

483

434

497

253

454

533

20
15
40

23
13
-6

26
20
22

29
18

30
2
47

24
36
22

21
26
27

Private domestic nonfinancial
Business
Household

_ j

51

81
10

52

71

28
10
18

74
8
66

-53
-12
-41

53
20
33

39
25
14

Domestic financial
Private intermediaries
Commercial banking
Thrift institutions
Insurance and pension funds
Other 2

356
305
129
76
84
16

373
308
121
56
90
41

338
285
104
57
98
26

385
315
117
35
103
60

224
179
-2
27
108
46

318
293
129
74
93
-3

423
353
171
94
86
2

26
18
7

29
28

25
23
5

40
21

6
20
20

24
28
-26

32
24
15

Sponsored credit agencies .
Mortgage pool securities ..
Federal Reserve System . . .
1. Seasonally adjusted annual rates.
2. Includes finance companies, money




market

9

funds, real estate investment trusts, open-end investment companies, and security brokers and dealers.
P Preliminary.

22

Monetary Policy

Late in the year offerings of such
securities increased in response to
federal legislation that restricts their
issuance beginning in 1981 before
barring them outright after 1983.
Tax-exempt yields moved broadly in
concert with taxable market interest
rates in 1980, but the net rise in
municipal bond rates over the year
was proportionately greater than that
of taxable yields. The increased supply of tax-exempt securities, together
with reduced demands by casualty insurance companies, contributed also
to the upward pressure on interest
rates for longer-term tax-exempt
obligations in 1980. Commercial
banks increased their net acquisitions
of tax-exempt securities, and issuers
were induced to shorten the average
maturities of their offerings because
banks are less inclined to purchase
longer-term tax-exempt issues.
The household sector reduced its
borrowings sharply in 1980 from the
record amount in the previous year.
High interest rates and reduced credit
availability, prompted in some states
by restrictive usury ceilings, slowed
the growth of installment credit early
in the year. Installment credit then
contracted in the spring by the largest
amount in the postwar period, as further credit-tightening measures by
lenders, a result in part of the special
deposit and other features of the
credit restraint program, curtailed the
supply of credit. At the same time,
the psychological impact of the credit
restraint program was combined with
the moderating effect on consumer
spending of declining real incomes
and worsening employment prospects. Installment credit began expanding again in the second half of
the year, although at a relatively slow
pace that reflected both the continuing low level of auto sales and restricDigitizedtiveFRASER
for terms by lenders.


Household borrowing in mortgage
markets also slowed sharply in 1980,
as many would-be homebuyers were
deterred by both the high cost of
mortgage credit and a stiffening of
nonrate terms by major lenders.
Average interest rates on new commitments for fixed-rate conventional
home mortgages at savings and loan
associations climbed to a record 1614
percent in April. Reduced deposit
flows and shrinking earnings margins
as the costs of funds escalated
damped the lending activity of
depository institutions. The slowing
in mortgage lending was concentrated
in the residential sector early in the
year, but spread to other sectors of
the mortgage market in the spring.
Rising unemployment and declining
real incomes limited the willingness
and ability of households to take on
additional mortgage indebtedness,
while businesses reduced their use of
mortgage credit in association with
cutbacks in commercial construction
activity. Mortgage borrowing picked
up in the late summer and fall in concert with the easing of mortgage interest rates, the improvement of
deposit flows to thrift institutions,
and the spread of innovative mortgage instruments that permit interest
on loans to fluctuate with other
market yields.
Net funds raised by nonfinancial
business fell about 15 percent to $133
billion in 1980. Within the corporate
sector, the gap between capital expenditures and gross internal funds of
nonfinancial firms remained sizable,
but a reduction in financial uses of
funds—including net extensions of
trade credit—lowered overall corporate financing needs. Net funds
raised in markets by these corporations rose in the early months of
1980, when concern about the future
availability of credit apparently en-

Monetary Policy
Financing Pattern of
Nonfinancial Corporations
Billions of dollars
Financing gap

Capital expenditures

Net funds raised in markets

1974

1976

1978

1980

Quarterly data at seasonally adjusted annual rates.

couraged many firms to build up their
liquid asset holdings with borrowed
funds. Borrowing then fell abruptly
in the spring in association with the
contraction in economic activity and
the credit restraint program. Thereafter, credit demands rebounded as
economic activity began expanding
again.
The upward movement of bond
yields early in the year to thenunprecedented levels discouraged major industrial corporations from
publicly offering notes and bonds.
Although funds made available to
corporations through private placements of bonds and mortgages increased somewhat, life insurance
companies (the major lender in
private placements of corporate
securities) sharply curtailed new commitment activity as policy loans and
unexpected deferrals of employer




23

contributions into some pension fund
accounts reduced investable funds of
these institutional investors. On
balance, nonfinancial corporations
concentrated their requirements on
shorter-term sources of funds in the
first quarter, especially bank loans
and commercial paper issuance.
The pattern of financing by nonfinancial corporations shifted dramatically when interest rates declined rapidly in the spring. Commercial banks discouraged buiness borrowing as they became concerned
about their earnings margins and
meeting the guidelines for loan
growth included in the special credit
restraint program. Adjustments in
the bank prime lending rate lagged
downward movements in market interest rates; the relatively high cost of
bank credit coupled with a reduction
of short-term indebtedness by many
businesses resulted in an overall contraction in business loans at commercial banks in the second quarter.
Although issuance of nonfinancial
commercial paper continued, total
short- and intermediate-term credit
showed virtually no growth, as a
record amount of notes and bonds
was publicly offered.
Businesses again relied heavily on
external sources of funds in the late
summer and fall, and the composition of the borrowing shifted back
toward commercial banks as mortgage and bond yields again climbed to
new highs. A large number of nonfinancial corporations postponed
issues that were scheduled to be
publicly offered, while other companies shortened the maturities of
their issues. Stock prices remained at
high levels, however, while new
equity offerings continued at a fast
pace and the volume of convertible
debt offerings by lower-rated industrial firms rose to a new high.

24

International Developments
Economic developments in major
foreign industrial countries in 1980
were characterized by slack demand,
high inflation rates, and major imbalances in international accounts.
Inflation was seen as the critical
economic problem, and policy was
directed primarily to restoring price
stability. By midyear many countries
had made some progress against inflation, having absorbed part of the
effects of the earlier sharp increases
in oil prices, but the firm monetary
and other policies necessary to
achieve this result, together with the
loss of real income resulting from
higher energy costs, had a pervasive
depressing effect on activity. Even
though world demand for oil was
sharply reduced in the year, the
current-account surplus of the
Organization of Petroleum Exporting
Countries (OPEC) soared as oil prices
Gross National Product
1970=100
United States

125

115

1976

1978

1980

Foreign is multilaterally weighted average of 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. Department of Commerce.




rose, and the aggregate deficit of nonOPEC countries was correspondingly
increased. A major exception was the
United States, which registered essentially a balanced current account in
1980.
Foreign exchange markets were
greatly influenced during the year by
swings in U.S. interest rates—against
a background of relatively stable
rates in other industrial countries—and by contrasting developments in the current accounts of
various countries. The path of the
weighted-average dollar exchange
value was close to that for the differential in short-term interest rates: a
sharp appreciation in March and
early April followed by an equally
sharp drop as U.S. interest rates fell
relative to rates abroad; a period of
stability through the summer; and a
sharp rise from October through midDecember. For the year as a whole,
December to December, the weightedaverage dollar appreciated about 5 Vi
percent. The dollar appreciated
against continental European currencies, especially against the German
mark as that country's currentaccount deficit widened. However,
the U.K. pound rose against the
dollar and other currencies on the
strength of an oil-supported currentaccount surplus and tight monetary
policy, and the Japanese yen moved
irregularly upward as that country
registered relatively strong economic
growth, a moderate inflation rate,
and a reduced current-account deficit
after midyear.
Foreign monetary authorities sold
substantial amounts of dollars in the
early months of the year, when their

International Developments
Weighted-Average Exchange Value and
Interest Rate Differential
Percent per annum

March 1973=100

Weighted-average
exchange value
90

86

82
•

Dec.
79

Mar.

i

June
1980

i

Sept.

Dec.

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
three-month U.S. CDs minus the weighted-average
foreign three-month interest rate for other G-10 countries plus Switzerland using 1972-76 total trade
weights.

currencies came under selling pressure, and they also sold dollars,
though in smaller amounts, toward
the end of the year. U.S. authorities
bought foreign currencies, primarily
German marks, in substantial quantities at times when the dollar was in
strong demand and, for the first time,
accumulated sizable balances of
foreign currency. This accumulation
exceeded somewhat the outstanding
foreign currency obligations of the
U.S. government.

In the first half of the year the U.S.
current account registered a deficit on
the order of $10 billion (annual rate),
but a sharp turn toward surplus occurred around midyear and was
maintained, although at a significantly
reduced rate, for the remainder of the
year. Most of the change resulted
Digitizedfrom a drop in the trade deficit,
for FRASER


25

reflecting several factors. A major
element was a reduction in the value
of oil purchased as the volume imported in the latter half of the year
was down 20 percent from the first
half. The price of imported oil doubled from the first quarter of 1979 to
the first quarter of 1980, and increased a further 15 percent by the fourth
quarter. Whereas the value of other
imports rose somewhat for the year,
there was some decline in volume as
the U.S. economy slowed. On the export side, agricultural exports were
well maintained, rising considerably
in value compared with 1979 despite
the limitations on sales to Russia.
Other exports rose substantially in
terms of both volume and price, but
slackening demand in major markets
brought some reduction in export
volumes as the year progressed.
Net U.S. receipts from income
on investments were unchanged in
1980, in contrast to a major increase
in 1979. Earnings of U.S. direct
foreign investments were restrained
by weaker economic conditions
abroad and a leveling off of the
growth in petroleum industry profits,
U.S. Balances on Trade and
Current Account
Billions of dollars

20

40
1976

1978

1980

Data are from the U.S. Department of Commerce
and are seasonally adjusted at annual rates.

26

International Developments

while earnings of foreign direct investments in the United States rose
substantially. Net income receipts
from other private investments were
raised by higher interest rates.
Capital Transactions
Several major shifts occurred in U.S.
international capital flows in 1980,
contrasting sharply with developments in 1979. Recorded net outflows

of private capital were exceptionally
large, notably in the second and third
quarters, when flows through banking channels expanded rapidly. At the
same time, however, large inflows
through nonbanking channels apparently were not caught by the
reporting system and were therefore
contained in the enlarged statistical
discrepancy. The increased net outflow through banking channels after
the first quarter probably reflected

U.S. International Transactions
Billions of dollars
Quarter
Year
1979

Transactions
1979
Current account
Merchandise trade balance . .
Exports
Imports
Investment income (net) 3 . . .
Other services
Unilateral transfers, private
and government
Private capital flows, net
U.S. bank-reported capital, net
(outflow, - )
U.S. net purchase ( - ) of foreign
securities
Foreign net purchase ( + ) of
U.S. Treasury securities
Foreign net purchase ( - ) of other
U.S. securities
U.S. direct investment abroad 3 . . . .
Foreign direct investment in
United States 3
Other corporate capital flows, n e t . .
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
Allocation of special drawing rights
Seasonal adjustment discrepancy...
Statistical discrepancy

1980

-.7
-29.4
182.1
211.5
32.5
1.8

.1
-27.4
221.8
249.1
32.5

-5.7
-5.0
6.8
-4.6
4.8

-39.8
-35.9
-3.2

1980
Ql

-1.7
-9.2
50.2
59.4
8.9
.2

-2.6
-10.8
54.6
65.5
10.1
-.2

-1.6

-1.8

-6.7

6.4

-6.8

6.1

-1.0

Q2

Q3

Q4

-2.4
-7.5
54.6
62.1
6.1

4.5
-2.9
56.1
59.0
8.1

.7
-6.1
56.4
62.5
8.3

-1.5

-2.3

-12.9

-8.5

-12.1

-4.7

-.8

-.4

-.3

.9

.3
-1.3
-24.8
-25.3
-1.2

.9

3.3

2.9
-24.3

2.7
7.4
-20.6

.3
-4.1

2.4
-5.5

-1.2
1.2
-2.9

1.0
-4.1

2.8
-8.2

9.7
-.3

8.2
n.a.

2.6
1.5

1.7
-.8

3.1
1.5

2.4
.9

1.0
n.a.

-14.3

16.2

-1.2

-7.2

7.8

8.0

7.6

-4.9

-13.3

-.7

-2.5
-.3

-5.4

-1.7

-1.5
(4)

-4.7

-.2

-.6

-3.2

.6

-.9

-1.5

-1.2

-.9

-6.5

-3.8

-5.1

1.1
23.8

1. Details may not add to totals because of rounding.
2. Current account seasonally adjusted; other accounts not seasonally adjusted.




1.9
-7.0

Q4

1.2
-.1
7.1

1.2
1.5
2.4
18.7
8.8
35.6
3. Includes reinvested earnings.
4. Less than $50 million.

-1.2
-3.0

-1.4
-4.0
6.9

-1.0
2.7
2.8

SOURCE. U.S. Department of Commerce, Bureau of
Economic Analysis.

International Developments
various actions taken by the Federal
Reserve in connection with the special
credit restraint program, as well as
the steep decline in U.S. interest
rates. However, the positive
statistical discrepancy suggests that
U.S. nonbank borrowers were able to
attract large amounts of foreign
funds directly as U.S. credit demand
remained active and U.S. dollar instruments, such as commercial paper,
remained relatively attractive to foreign investors.
In other private capital flows, there
was a considerable drop in U.S. direct
investment abroad, mainly for the
petroleum industry, and U.S. purchases of foreign securities also
declined. While foreign private purchases of U.S. government securities
fell off as the sale of mark-denominated Treasury issues was completed
early in the year, foreign purchases of
U.S. corporate stocks increased substantially.
Foreign official assets in the United
States rose about $16 billion in 1980,
with large net foreign sales of dollars
for intervention purposes more than
offset by increased placements in the
United States by OPEC and other
countries. U.S. official reserve assets
increased about $9 billion in 1980,
reflecting mainly the foreign currency
purchases detailed below, as well as
increased holdings of special drawing
rights (SDRs).

The dollar's international value went
through several wide swings during
1980, influenced mainly by shifts in
U.S. interest rates. U.S. authorities
made gross purchases and sales of
nearly $19 billion equivalent of



27

foreign currencies, compared with
total transactions of $23 billion
equivalent in 1979. The dollar's
trade-weighted average value was
somewhat more than 5 percent higher
at the end of 1980 than it was at the
end of 1979; but in early April it was
as much as 10 percent higher, and at
its lowest point, in July, it was nearly
2 percent lower than at the beginning
of the year. Net purchases of foreign
currencies for the year amounted to
$8.7 billion equivalent, which were
used primarily to settle all Federal
Reserve obligations arising from
swap drawings and to reconstitute
nearly all the funds raised through
Treasury sales of notes denominated
in foreign currencies in German and
Swiss markets during the last three
years and through sales of SDRs and
drawings on the International Monetary Fund in 1978.
As 1980 began, prospects for the
dollar's value were mixed. The rapid
rise in oil prices in 1979, the political
tensions arising from developments in
Iran, Afghanistan, and elsewhere,
and the unstable conditions in gold
and silver markets all contributed
to market uncertainties. In this environment, the dollar's value showed
some tendency to strengthen, and
U.S. authorities moved to acquire a
net amount of about $1 billion
equivalent in German marks for
repayment of Federal Reserve swap
obligations.
Starting in February, a widening
gap between U.S. and foreign interest
rates, reinforced by the Federal
Reserve's special credit restraints in
mid-March, led to a spectacular rise
in the dollar's value against all major
currencies. U.S. authorities actively
purchased foreign currencies, particularly German marks, and were

28

International Developments

Selected Exchange Rate Indexes

The second quarter was marked by
a sharp and deep decline in the
dollar's value, associated with a fall
in U.S. interest rates relative to those
abroad. These developments took
place against a background of severe
contraction in U.S. economic activity. On a weighted-average basis, the
dollar had given up all its late-winter
gains by the end of May; against
some individual currencies, such as
the pound sterling and the Japanese
yen, the dollar's downward movement was even more pronounced.
U.S. authorities intervened to support the dollar in the amount of nearly $3 billion, net, between early April
and early July, when the dollar's
value showed signs of stabilizing.
Almost all the foreign currency sold
was German marks, but moderate
amounts of Swiss francs and French
francs were also used.
The wide margin by which U.S. interest rates had fallen below representative rates in foreign countries
narrowed quickly as U.S. economic
activity revived. At first, the dollar's
value in terms of most major curren-

1978=100

U.K. pound

120

Weighted-average
dollar

80
1980

1979

Weighted-average dollar is the index of weightedaverage exchange value of the U.S. dollar against the
currencies of other G-10 countries plus Switzerland,
using 1972-76 total trade weights. Other currencies are
bilateral rates against the U.S. dollar.

able to retire completely outstanding
Federal Reserve swap commitments
and to accumulate additional balances against the U.S. Treasury's
debt obligations. In all, an additional
net amount of more than $4 billion
equivalent of foreign currencies was
purchased before the dollar's value
reached a peak in early April.

U.S. Government Purchases and Sales (-) of Foreign Currencies, 1980
Millions of dollars equivalent
Q3

Q4

343
-1,398
28
-187
20
0
0
-100
391
-1,685

1,191
-544
150
-40
0
-5
68
-61
1,409
-649

-167
89
0
0
0
92
0
1,928
-167

6,967
-2,544
429
-271
218
-5
160
-161
7,774
-2,982

171
-1,209
0

643
-268
88
-35
730
-303

3,316
-97
18
0
3,334
-97

5,798
-1,929
135
-46
5,932
-1,975

Qi

Q2

f 3,687
1-435

Currency
Federal Reserve
German marks ..
Swiss francs
Japanese yen
French francs
TOTAL . . .
Treasury
German marks
Swiss francs
TOTAL ..

/

198

I

-1

! °
I
0
/ 4,045
1-481
f 1,669
1-355
r 29
I
0
r 1,698
1-355

1. Details may not add to totals because of separate rounding.




171
-1,220

1,747

Year

International Developments
cies again moved up as market participants envisioned even higher U.S.
interest rates during the recovery.
When U.S. monetary aggregates began to expand at surprisingly high
rates in August and September, however, concerns about U.S. inflation
deepened, limiting further improvement in the dollar's value in spite of
the continuing rise in nominal interest
rates. During this period, the Federal
Reserve purchased enough marks and
French francs to repay by late October its swap obligations to the German and French central banks, and
the U.S. Treasury restored some of
the mark balances it had drawn on
during the spring.
In the final quarter of the year,
another surge in the dollar's value
dominated foreign-exchange markets. U.S. interest rates once again
rose to very high levels—higher in
some cases than during the spring—
and contractionary developments in
some industrial countries led authorities there to lower, or at least not
raise, their interest rates. The Federal
Reserve and Treasury once more ac-




29

tively purchased German marks, acquiring a net amount of nearly $5
billion equivalent. With these purchases, the United States ended the
year with balances that more than
covered its outstanding foreign currency obligations.
The Federal Reserve's position at
year-end included holdings of foreign
currencies valued at $5.1 billion, at
then-current exchange rates. These
were primarily marks, Swiss francs,
and yen. Of the total, the System
owned $2.1 billion equivalent; funds
held for the account of the U.S.
Treasury amounted to $3.0 billion
equivalent. No System swap drawings
were outstanding. (At the end of
1979, the System owned foreign currencies valued at $0.3 billion and held
$2.2 billion equivalent for the
Treasury; System swap obligations
then came to $3.2 billion.) The
System had a net gain of $96 million
on its foreign exchange operations in
1980, of which $25 million was net
realized gain and the balance
reflected various book-value adjustments.

30

Monetary Policy Reports to Congress
Given below are reports submitted to
the Congress by the Federal Reserve
on February 19, 1980, and on July 22,
1980, pursuant to the Full Employment and Balanced Growth Act of
1978.

contribution the monetary and fiscal
authorities can make is to impart a
sense of long-range stability in policy
and in the economic environment. In
present circumstances, that requires
an approach that provides assurance
that the momentum of inflation will
be arrested. Inflation not only repReport on February 19, 1980
resents an imminent threat to the susFederal Reserve Policy
tainability of the current business exand the Outlook for 1980
pansion but also lies at the heart of
many of the longer-range problems of
The Objectives of
the economy, such as the inadequacy
Monetary Policy in 1980
Frequently in the past the decisions of business capital formation, and the
about stabilization policy seemed related declines in the productivity
—perhaps sometimes misleadingly— and real earnings of American workto come down to a choice of how ers, and the vulnerability of the dollar
strongly to encourage recovery or to in foreign exchange markets.
retard expansion. Decisionmakers
Monetary policy clearly has a maface a much more complicated set of jor role to play in the restoration of
circumstances today. For some time price stability. Regardless of the
now, most forecasters have suggested source of the initial impetus, inflation
that the economy is on the verge of can be sustained over the long run
recession, but the recession has not only if the resulting higher level of
appeared. Over the same period infla- dollar expenditures is accommodated
tion has continued apace. The out- through monetary expansion. The
look for the economy remains Federal Reserve is determined not to
obscured by major uncertainties, provide that sustenance but will
ranging from the possible economic adhere instead to a course, in 1980
effects of current international ten- and beyond, aimed at wringing the insions and the prospects for world oil flation out of the economy over time.
prices and supplies to the attitudes of
If recessionary tendencies should
investors around the world toward develop during 1980—as many exthe dollar and the threat that inflation pect—the steady anti-inflationary
may bring increasing distortions of policy stance represented by continutraditional spending and savings pat- ing restraint on growth in the supply
terns. It is not within the powers of of money and credit would be consistmonetary and fiscal policy to resolve ent with an easing of conditions in
all of these uncertainties and to en- financial markets, as demands for
sure a fully satisfactory economic money and credit weaken. That
performance.
would provide support for economic
Nonetheless, the appropriate direc- activity and would help assure the
tion for policy is clear. The greatest avoidance of a cumulating, deepening



Monetary Policy Reports
downswing. If, on the other hand, inflationary pressures mount, a policy
of restrained growth in money and
credit would lead to greater tautness
in financial markets, thereby damping the expansion of aggregate demand. In any event, prospects for
dealing with the inflation problem
without serious economic disruption
will be materially enhanced if other
elements of government also exhibit a
firm anti-inflationary commitment
and if workers and management recognize that a moderation of their
wage demands and pricing policies is
in their own long-range interests as
well as those of the nation as a whole.
The Growth of Money and
Credit in 1980
At its meeting earlier this month, the
Federal Open Market Committee
(FOMC) established ranges of growth
for the monetary aggregates that it
believed, in light of the prospects for
fiscal policy and for private demands,
would impose appropriate restraint
on inflationary forces in 1980. Measured from the fourth quarter of 1979
to the fourth quarter of 1980, the
ranges are: for M-1A, 3Yi to 6 percent; for M-1B, 4 to 6!/z percent; for
M-2, 6 to 9 percent; and for M-3, 61/2
to 9*/2 percent. These ranges are
based on the newly adopted definitions of the monetary aggregates; a
description of this redefinition appeared in the FEDERAL RESERVE
BULLETIN, volume 66 (February 1980)
pages 97-114. The FOMC also projected that bank credit would expand
between 6 and 9 percent during the
current year.
The FOMC's ranges indicate the
Federal Reserve's intention to seek an
appreciable slowing of monetary expansion from the rates observed in
1979, and thus to move toward non


31

inflationary rates of growth. The
deceleration is especially marked in
the case of the narrower aggregates.
The midpoint of the range for M-l A,
for instance, is 43A percent; in 1979,
M-l A increased 5l/i percent. The difference between these two figures actually understates the degree of
deceleration in economic terms,
however, since the adjustment of the
public to the introduction of automatic transfer service (ATS) and New
York State negotiable order of
withdrawal (NOW) accounts probably reduced the growth of M-l A last
year by roughly 1 VA percentage points
as funds were transferred out of existing demand deposits to such accounts. In setting the range for 1980,
the FOMC assumed, in the context of
present law, that the public's adjustment process is about completed and
that any shifting from demand
deposits to ATS and NOW accounts
will have little further impact on
M-1A this year. Of course, if NOW
accounts were authorized on a nationwide basis, some downward adjustment of the present M-l A range
might be needed in order to take account of the accelerated shift out of
conventional demand deposits that
might result.
The range for M-1B—which includes checkable interest-bearing
deposits in addition to currency and
demand deposits—also implies a
substantial slowing; the midpoint of
the range, at 5*4 percent, is well
below the actual 7.3 percent expansion in 1979. Of course, because ATS
and NOW accounts are included in
M-1B, the expansion in 1979 was
enlarged by one-time transfers from
regular savings deposits and probably
other assets to the newly offered
transaction accounts—the reverse of
the experience with M-l A. For sim-

32

Monetary Policy Reports

ilar reasons, enactment of nationwide
NOW account legislation would be
expected to raise the growth of this
money stock measure this year, and
the present range would have to be
reconsidered in that light.
M-2 likely would not be affected
importantly by NOW account legislation, since it encompasses the major
categories of assets that are close
substitutes for NOW accounts. Besides M-1B, M-2 includes savings and
small-denomination time deposits at
commercial banks and thrift institutions, plus certain other highly liquid
instruments—namely, money market
mutual fund shares, overnight repurchase agreements (RPs), and overnight Eurodollar deposits at Caribbean branches of U.S. banks. The
recently introduced 2!/2-year certificate, which has no specified
minimum denomination and carries a
ceiling rate close to that on Treasury
notes, should serve to bolster growth
of small time deposits. Six-month
money market certificates likely also
will remain popular. Nonetheless, absent a steep decline in market interest
rates, the total of interest-bearing
deposits subject to federal rate ceilings probably will continue in the
months ahead to grow slowly by
historical standards. However,
growth of M-2 should be buoyed in
1980 as in 1979 by sizable flows into
the money market funds. On balance,
the prospect is that M-2 this year will
grow at a rate somewhat below the increase of 8.8 percent in 1979.
The final monetary measure, M-3,
includes, in addition to M-2, largedenomination time deposits of
$100,000 or more and term (more
than one-day) RPs at banks and thrift
institutions. It is thus a very broad aggregate, encompassing most of the
liabilities of the depositary institu


tions plus money market mutual
funds. Given the moderation of
demands for credit—especially at
commercial banks—anticipated for
the current year, M-3 appears likely
to grow less than the 9.5 percent increase recorded in 1979.
It should be emphasized that,
although we view these new monetary
definitions as better measures of
financial behavior today than the old
definitions, the institutional framework is changing rapidly, and this implies an inevitable uncertainty about
the behavior of any monetary aggregate. Furthermore, the Committee
recognizes that other aspects of financing and economic developments
will require careful monitoring in the
process of policy determination and
implementation. The ranges specified
for the monetary aggregates appear
adequate to the Committee to provide
the necessary degree of flexibility.
The Outlook for the Economy
in 1980
It is never an easy matter to project
the course of the economy, but the
current circumstances pose exceptional difficulties for forecasters.
Aside from the uncertainties associated with international political tensions, we find ourselves in an
economic environment characterized
by historically high rates of interest
and inflation, so that past experience
may provide only a limited guide to
prospective behavior. In order,
though, to give the Congress an indication of the Federal Reserve's
views about the outlook for the
economy, the Board of Governors
has assembled, in the accompanying
table, ranges that encompass the
judgements of its individual numbers
about the most likely outcomes for
several key variables.

Monetary Policy Reports
The Board members' projections,
it must be emphasized, rest on certain
important assumptions. It is, for example, assumed that, although the
cost of imported oil may rise moderately further over the course of this
year, there will not be a repetition of
the 1979 price runup and fuel supplies
will not be disrupted. It is also assumed that overall federal spending in
1980 will generally be in line with the
administration's current forecast and
that there will be no federal tax cut.
Range
Item

Actual
1979

Projected
1980

9.9

IVi to 11

.8
9.0

—IVi to Vi
9 to 11

Change from fourth
quarter to fourth
quarter, percent
Nominal gross national
product
Real gross national
product
Implicit price deflator..
A verage level in fourth
quarter
Employment (millions)
Unemployment rate
(percent)
Annual rate of change
in fourth quarter,
percent
Consumer price index. .

97.7

97 to 983/4

5.9

63/4 to 8

13.2

8% to 12

As can be seen, even with these
common assumptions, the range of
probable outcomes is relatively wide.
Even so, there is recognition that,
while considered less likely, the actual
outcomes could fall outside of the indicated ranges. Such is the nature of
the uncertainties in the economic
outlook at present.
Most members of the Board believe
that a downturn in activity is likely
sometime in 1980. Production cutbacks in the auto sector and a drop in
residential construction activity
already have occurred; meanwhile, a



33

rising oil import bill continues to act
as a drag on aggregate demand. With
these depressants on employment and
income growth, consumer spending is
expected to slacken in the months
ahead.
It is likely that the tighter consumer
and mortgage credit conditions now
existing and the already high debt
obligations of households will encourage some recovery in the abnormally low personal saving rate in
coming quarters. The weakening of
consumer demand would also tend to
damp plant and equipment spending
as softer markets tend to deter
businesses from outlays that would
add to excess productive capacity.
Net exports might rise somewhat,
however, owing to the impact on import volume of the weakness in
domestic spending and production.
In the labor markets, employment
may be flat this year and could well
decline somewhat in the goodsproducing sectors. At the same time,
the growth of the labor force probably will slow, reflecting in part the
reduced growth of the working-age
population but also the usual cyclical
response to slack demand for workers. The unemployment rate, which
turned upward last month, is likely to
remain in an uptrend over the remainder of the year.
Even in such an economic environment, progress in reducing inflation
will be delayed. Indeed, in the first
quarter, the rise of the consumer
price index could accelerate, owing in
large measure to the latest round of
oil price increases and to the lagged
impact on the index of the rise in
mortgage rates last fall. Throughout
the coming year, wage demands will
reflect efforts of workers to catch up
with past inflation, and pressures on
unit labor costs may be intensified by

34

Monetary Policy Reports

cyclical weakness in productivity.
Energy prices probably will continue
to rise rapidly, as recent increases in
prices by the Organization of Petroleum Exporting Countries (OPEC)
are passed through to consumers and
as domestic gas and oil markets are
gradually freed from controls.
Should aggregate demand prove
relatively strong, as some think possible, inflationary pressures across the
economy could prove more persistent. For example, it must be recognized that any substantial increase in
defense spending beyond what
already is contemplated in the administration's budget could significantly alter the economic outlook.
The lag between authorization and
actual federal outlay may be quite
long in the case of military hardware,
but expectational impacts on employment, production, and private spending can emerge fairly quickly.

The Administration's Short-Term
Economic Goals and
the Relationship of the
Federal Reserve's Monetary
Objectives to those Goals
According to the President's Economic Report, which was submitted
to the Congress last month, the following short-term goals were laid out
for the economy:
Item

1980

1981

Change from fourth quarter
to fourth quarter,
percent
Real gross national product ..
Consumer prices
Real disposable income
Productivity

-1.0
10.7
.5
-.3

2.8
8.7
1.1
1.3

A verage level in
fourth quarter
Employment (millions)
Unemployment rate (percent)

97.8
7.5

99.7
7.3




These goals, the Economic Report indicates, should be viewed as forecasts
rather than as indications of the administration's desires. The administration expects a mild recession,
not lasting much past the middle of
1980. A recovery then begins and carries through 1981. The consumer
price index rises much less rapidly this
year than in 1979 (when it increased
13.3 percent), largely in reflection of
an expected slowing in the rise of
energy prices and of home purchase
and financing costs. A broad price
measure less affected by these special
factors, the implicit GNP deflator, is
projected to rise 9 percent in 1980, the
same as in 1979, and to slow to only
8.6 percent in 1981.
There is no apparant incompatibility between the Federal Reserve's 1980
monetary growth ranges and the
economic forecast of the administration for 1980. The administration has
projected a rise in nominal GNP of
about 8 percent; this figure is well
within the capacity of the FOMC's
monetary ranges to finance.
With regard to the more distant
future, the pattern of developments
that appears likely this year would
seem to be consistent with the
resumption of moderate expansion in
economic activity in 1981. However,
the chances of sustaining an advance
over time would be greatly enhanced,
in an environment of continued
monetary restraint, if there were
greater progress in reducing inflationary pressures than is suggested by
the administration's price forecast.
Such progress would depend on,
among other things, continued fiscal
prudence, moderate wage and price
behavior by labor and business, an
improved productivity performance,
and maintenance of a strong dollar in
exchange markets.

Monetary Policy Reports

A Review of Recent
Economic and
Financial Developments
Overview of Developments in 1979
One year ago the Federal Reserve
reported to the Congress, as required
by the Full Employment and Balanced Growth Act, its objectives for
1979. The Board indicated that, in
light of growing pressures on resource
availability, a moderation in the rate
of economic expansion was essential
if inflationary forces were to be contained. The pace of price advance had
already accelerated over the preceding year, and it was recognized that if
this tendency toward faster inflation
were not reversed, the progress that
had been achieved by the November 1,
1978, program to bolster the dollar
on foreign exchange markets would
be jeopardized and the dangers of
serious economic disruption would be
heightened. Consequently, at its
February meeting, the Federal Open
Market Committee had set growth
ranges for the major monetary aggregates that would be consistent with
reasonable restraint of demands for
goods and services in the economy.
The first half of 1979 saw a number
of unanticipated, negative developments. Economic activity was
depressed by inclement weather, by
labor disputes, and by gasoline shortages. More critically, foreign oil producers posted drastic price increases,
giving added impetus to inflation and
draining income from the U.S. economy. In this environment, the Board
reported in July that there appeared a
significant threat of a mild recession
in the months ahead. It also noted
that there was little hope of a nearterm slowing of inflation. Under
these circumstances, the FOMC reaffirmed the previous ranges for



35

monetary aggregates at its July
meeting.
Aggregate demand actually proved
stronger than generally expected in
the second half of 1979, largely
because consumers displayed a surprising willingness to spend, reducing
their rate of saving to an extraordinarily low level. Real gross national
product rose moderately, and the
overall unemployment rate remained
stable. Inflation, as measured by the
implicit GNP deflator, did not abate,
but neither did it accelerate, as labor
costs and food prices behaved somewhat more favorably than anticipated.
Taking 1979 as a whole, monetary
expansion was broadly consistent
with the FOMC's objectives—with
the major money stock measures falling close to or within the upper halves
of the Committee's announced
ranges. Meanwhile, real GNP growth
was somewhat less rapid and inflation
somewhat more rapid than might
have been expected last February.
Energy supply and price developments provide much of the explanation for this adverse mix of output and inflation; they also represent
a major peril to the satisfactory performance of the economy in 1980. Indeed, more secure energy supplies
and control of inflation are necessary
conditions for the longer-range progress of our economy and must remain
priority matters for public policy
until they are achieved.
Economic Activity in 1979
Economic activity registered only a
small gain last year, following almost
four years of brisk expansion. Real
gross national product increased
about 1 percent over the four quarters
of 1979; industrial production rose a
bit early in the year but then edged

36

Monetary Policy Reports

off, finishing the year just marginally
above the December 1978 level. Two
fundamental factors exerted a pervasive damping influence on aggregate private demand: a near
doubling of the average cost of imported oil, which drained income to
foreign producers and exacerbated
underlying inflationary pressures,
and a posture of increasing restraint
by monetary and fiscal policy to contain those pressures and to prevent a
worsening of long-range price trends.
While these factors were tending to
moderate growth of output and expenditure throughout the past year,
quarterly movements in activity were
importantly influenced by a series of
unexpected shocks. In the winter
months, unusually severe weather in
many parts of the nation depressed
activity in several sectors. In the
spring, real GNP declined appreciably in response to strikes that
disrupted production and transportation and to shortages of gasoline. As
the strikes ended and gasoline lines
disappeared in the summer, activity
snapped back smartly, especially in
the retail sector where auto sales were
boosted by price incentives offered by
dealers and manufacturers in an effort to cut back inventories. Real
GNP growth slowed again in the final
months of the year, as the special
elements of strength in the third
quarter dissipated and the basic
restraining influences in the economy
dominated.
Among the major sectors of the
economy, the greatest weakness during 1979 was in residential construction and consumer durable goods.
This pattern is typical of periods
when aggregate activity levels off,
particularly when there is a tightening
of financial markets, as there was last
year. In 1979, however, the softness



of spending on consumer durable
goods was exacerbated by the effects
of gasoline price and supply developments on the demand for automobiles. Consumer spending on
other items proved quite robust, and
total personal consumption expenditures rose even though real disposable
income was virtually flat. Business
fixed investment, which normally lags
cyclical turning points, posted a small
real gain in 1979; at the same time,
perhaps because an economic slowdown was widely anticipated, firms
maintained a tight rein on stocks, and
despite the problems of the auto sector, inventory accumulation was
reduced over the year. Government
outlays were flat in 1979, reflecting at
least in part public sentiment for
restraint on taxes and spending. The
one major area of strength was the international trade sector; in constantdollar terms, the net export balance
grew substantially as a result of the
relatively faster expansion of foreign
economies and the continuing effects
on exports and imports of past exchange rate changes.
Personal consumption expenditures. Real consumer outlays grew
Wi percent during 1979, compared
with AVi percent during 1978.
Underlying the weakness in consumer
spending was a still sharper deceleration in real disposable income, which
rose only XA percent during 1979 after
a rise of 414 percent in the preceding
year. Growth of nominal income
slowed significantly, and household
buying power was further eroded by
accelerating inflation and by the rise
in tax burdens related to higher social
security taxes and to the interaction
of inflation and a progressive income
tax.
All of the advance in real consumer
spending occurred in the second half

Monetary Policy Reports
of the year when the saving propensities of households fell to historically
low levels. The personal saving rate in
the fourth quarter was about 3 lA percent—1 percentage point less than the
previous post-Korean-War record
low. The rise in consumer spending
after midyear was to some extent a rebound from the weak second quarter,
when gasoline shortages had
disrupted normal spending patterns
and cut demand for large fuelinefficient cars. In response to falling
sales and excessive inventories,
domestic automobile producers instituted major sales promotion campaigns in the third quarter and again
near the end of the year. As a result,
sales were boosted noticeably; indeed, the higher selling rates may well
have involved some ''borrowing"
from future periods.
Consumer sentiment, as measured
by opinion surveys, began to deterioriate in 1978 and worsened in
1979, reaching levels that in the past
have been associated with recessionary periods. Previous experience
with these surveys suggests that there
should have been a cyclical downturn
in consumer spending. That such a
decline did not occur appears at least
partly attributable to the strength of
inflationary expectations, which encouraged a buy-in-advance mentality.
In the latter part of the year, however, consumers began to exhibit less
eagerness to purchase durable goods
in anticipation of future price increases and to show greater concern
about high interest rates and lessened
credit availability. Given the already
reduced liquidity of the household
sector associated with further heavy
borrowing in 1979, a turn toward
somewhat more cautious spending
patterns would not be at all surprising.



37

Residential construction. Expenditures for residential construction, in
constant dollars, fell about 8 percent
in 1979; given the magnitude of the
rise in interest rates over 1978 and
1979, this is a modest decline by
historical standards. The demand for
housing was sustained by underlying
demographic trends—including substantial population migration and
rapid household formation—and by
the growing interest in homes as an
investment and as an inflation hedge.
The combined effects of rising house
prices and mortgage interest rates
caused the monthly carrying costs of
homeownership to climb steeply, but
buyers were willing to allocate an increasing share of their income to
housing. At the same time, the potentially disruptive effects of rising
market interest rates on mortgage
credit availability were considerably
ameliorated by such institutional
developments as the improved ability
of thrift institutions to compete for
lendable funds, most notably through
issuance of six-month money market
certificates, and the increasing use of
mortgage-related securities.
Private housing starts averaged 1.8
million, at an annual rate, during the
first three quarters of 1979, down
from the pace of 2.1 million in the latter part of 1978. Starts fell to about a
1.5-million rate in November and
December, however, when the terms
and availability of construction and
mortgage credit tightened dramatically in response to the October 6 monetary actions by the Federal Reserve.
Home sales also fell in the closing
months of the year, and prices gave
some sign of leveling off. In contrast
to the 1973 housing downturn, builders are not saddled with outsized inventories of unsold units, and rental
vacancy rates generally are very low.

38

Monetary Policy Reports

Over the course of 1979, singlefamily starts fell almost a third from
the very high level of the preceding
year. Starts of multifamily units
declined only 10 percent. An increase
in starts of multifamily units built for
sales as condominiums or cooperatives was more than offset by a
decline in unsubsidized rental units.
Building under the section 8 rental
subsidy program of the U.S. Department of Housing and Urban Development accounted for one-quarter of all
multifamily units, about the same
proportion as in 1978.

Business spending.

Spending

policies of businesses were generally
cautious last year as firms, anticipating some slowing of sales, attempted
to avoid creating excess capacity or
accumulating unwanted inventories.
Real business fixed investment rose
only VA percent during 1979 compared with 10!/2 percent in the previous year. As has been common in
the advanced stages of economic expansions, spending increases were
concentrated in structures, for which
there is a long lag between the formulation of plans and the completion of
new facilities; earlier in the expansion, capital spending had been dominated by shorter-lived producers'
durable equipment such as trucks and
fleet autos. Most of the advance in
nonresidential structures during 1979
was for commercial and industrial
buildings. Investment in equipment
was little changed over the year, with
gains in machinery and aircraft offsetting declines in motor vehicles.
Given the continuing need for new
capital to improve productivity, and
thereby to alleviate inflationary pressures and to support rising living
standards, the level of business fixed
investment last year left much to be
desired. After allowance for replace


ment requirements, the net addition
to the nation's capital stock was
small. At the end of 1979, the ratio of
the stock of business fixed capital to
the size of the labor force differed little from the 1975 level; in contrast,
the capital-labor ratio increased at an
average annual rate of 2.7 percent
over the decade of the 1960s, when
productivity and real income per
capita grew rapidly.
Businesses generally attempted to
maintain lean inventories last year.
Total inventory investment in constant dollars did accelerate during the
first half of the year, however, reflecting primarily an inventory imbalance for large domestic automobiles. After midyear, however, auto
makers combined production cutbacks with price incentives to bring
stock back into line with sales. Outside of the automobile industry, businesses generally succeeded in controlling inventory positions throughout
1979. This goal became especially important toward the end of the year
when short-term interest rates rose
substantially, increasing inventory
carrying costs. By year-end, the real
stock-sales ratio for manufacturing
and trade was in the normal range,
suggesting an absence of the kind of
inventory imbalances that frequently
have aggravated recessionary tendencies in the past.
Government sector. Government
outlays for goods and services were
about unchanged during 1979 following a moderate rise during the previous year. Public sentiment for
spending restraint continued to affect
decisionmaking by all levels of government; federal fiscal policy was additionally influenced by the need to
avoid any aggravation of inflationary
forces in the economy.
Real federal purchases grew about

Monetary Policy Reports
1 percent during 1979, as higher
defense spending more than offset
slower growth of outlays in the strategic petroleum reserve and farm price
support programs. Total federal expenditures—including transfers—
recorded a faster rate of growth in
1979 than in 1978, owing in part to a
large midyear cost-of-living increase
for social security recipients and to
higher interest payments on the
public debt. However, inflationinduced increases in nominal incomes
and previously legislated increases in
social security taxes resulted in a sizable rise in federal tax collections,
and as a result, the federal budget
deficit—on a national income accounts basis—declined considerably
over the year. The high employment
budget surplus, an indicator of the
thrust of discretionary fiscal policy,
increased, signaling greater restraint
on aggregate demand.
At the state and local level, real
purchases of goods and services declined marginally during 1979 following a sizable increase a year earlier.
Construction spending was particularly depressed following federal cutbacks in grants for local public works
and public employment programs.
Moreover, states and localities also
attempted to limit spending by holding down employment growth; the increase in employment during 1979
was about the same as in the previous
year but was considerably less than
the average annual gains recorded
earlier in the decade. Despite this
slowdown in the pace of spending,
the fiscal position of states and localities deteriorated in 1979 as revenue
growth fell far short of the gains
posted in the previous year. Tax cuts
by many governmental units and
lower car sales and gasoline consumption limited the growth of income and



39

sales tax revenues. As a result, states
and localities showed their first operating deficit (budget position net of
social insurance funds) in three years.
International trade and payments.
Net exports of goods and services
were the only major sector that
turned in as strong a performance in
1979 as in 1978. On a GNP basis, real
net exports increased about $8 billion
last year. The U.S. merchandise trade
deficit, although swollen by an $18
billion increase in the cost of imported oil, was $29 billion in 1979, $5
billion less than in 1978.
The volume of exports continued
to expand rapidly during the past
year. Agricultural exports jumped to
record rates in the second half as
drought in the Soviet Union and
Eastern Europe boosted sales. More
importantly, the volume of nonagricultural exports rose about 12 percent
in 1979; U.S. producers benefited
from an improved competitive position brought about by the depreciation of the dollar in 1977 and 1978
and from relatively robust economic
growth abroad.
In contrast, U.S. import demand
was damped by the sluggish performance of domestic income and industrial production. Imports other than
oil rose only marginally in volume
terms in 1979, although foreign auto
producers captured a record share of
the U.S. market as consumer preferences shifted toward fuel-efficient
cars. At the same time, the volume of
oil imports was virtually unchanged
from the 1978 level, with reduced
consumption offsetting the impact of
a rebuilding of inventories. World oil
prices, after remaining flat for two
years, jumped sharply. The average
cost per barrel of imported oil in
December 1979 was 87 percent above
the level at the end of 1978. By the

40

Monetary Policy Reports

fourth quarter, U.S. oil imports were
at an annual rate of $75 billion, compared with a $43 billion rate a year
earlier.
The current account, which was in
deficit by about $14 billion in each of
the two previous years, was roughly
in balance in 1979. Net receipts from
service transactions, continuing their
rapid growth of recent years, offset
the merchandise trade deficit. The net
return on foreign direct investment
was especially strong, reflecting continued economic expansion abroad,
the favorable effects of the 1977-78
depreciation on the dollar value of
foreign profits, and the surge in overseas earnings of U.S. oil companies.
Total earnings on U.S. direct investments abroad were on the order of
$37 billion; perhaps half of these
earnings were reinvested abroad and
therefore recorded also as an outflow
of U.S. private capital. Earnings of
foreign direct investments in the
United States also rose, but they are
on a much smaller scale.

finished consumer goods were up
about \2Vi percent over the course of
last year.
Rapid increases in energy prices,
particularly for petroleum products,
dominated inflation developments
during the year. Imported oil priced
under long-term contracts rose steadily, from an official OPEC contract
price of $12.91 per barrel in
December 1978 to prices ranging
from $24 to $30 per barrel one year
later. Moreover, the stockpiling of
petroleum by some countries and production cutbacks in Iran resulted in
spot market prices that were considerably above official OPEC levels. At
the same time, in the U.S. market the
producer price index for crude oil was
up about 50 percent during 1979,
reflecting both price increases for
domestic uncontrolled oil and the
initiation of the administration's
decontrol program on June 1.
The large increases experienced in
petroleum prices had significant
direct and indirect effects. Retail
gasoline prices rose more than 50 perPrices, Wages, and Productivity
cent, and fuel oil prices advanced
In 1979, prices advanced at histori- almost 60 percent despite some softcally high rates, primarily as a result ening in demand that was attributable
of pressures from energy and labor both to conservation and to mild
costs. The fixed-weight price index weather late in the year. In addition,
for gross domestic business product, rising energy costs led to faster price
a broad measure of aggregate prices, increases for a number of other conrose about 10 percent during 1979, a sumer goods, including transportapace more than 1 lA percentage points tion services and residential rents. At
above the previous year's rate of in- the producer level, prices of goods
crease. Other price measures increased such as industrial chemicals and plaseven more: the fixed-weight price tics also reflected the steep runup in
index for personal consumption ex- energy costs.
penditures (PCE) rose 10% percent
In contrast to energy prices, food
while the consumer price index (CPI) prices increased less sharply in 1979
increased 13!4 percent. The differ- than in 1978. Over the four quarters,
ences between these two indicators consumer food prices rose 10!4 perreflected mainly alternative con- cent, following an WA percent inceptual treatments of homeownership crease in 1978. Although beef recosts. At the producer level, prices of mained in relatively short supply dur-




Monetary Policy Reports
ing 1979, the greater availability of
other meats and poultry contributed
to some deceleration of food prices
during the summer.
Inflationary pressures persisted in
sectors outside energy and food.
Prices of consumer goods excluding
food and energy accelerated during
1979: the PCE fixed-weight price
subindex for such items rose IVA percent in 1979 compared with 7 percent
the previous year, and the corresponding CPI subindex rose at an
even faster rate. Prices of capital
equipment and nonresidential structures rose at a faster pace in 1979 than
in 1978. Price movements in commodity markets were quite volatile
throughout the year and reflected
considerable speculative activity
related in part to international
political and military tensions.
Wage increases in the nonfarm
business sector moderated very slightly to 8 percent in 1979, compared
with 8!/2 percent the year before.
Compensation per hour, which includes fringe benefits and employer
contributions for social insurance as
well as wages, rose almost 9 percent,
just a shade less than in 1978. The administration's voluntary pay standard
probably restrained the advance in
compensation somewhat in the face
of accelerated price inflation; however, sectors in which cost-of-living
protection is prevalent, such as manufacturing, generally experienced the
largest gains even though demand for
labor in those sectors was relatively
weak.
Labor productivity—that is, output per hour worked—declined 2XA
percent in the nonfarm business sector. As a result, despite the slowing of
compensation, the rise in unit labor
costs accelerated sharply, from 8 percent in 1978 to WVi percent in 1979.



41

The poor performance of productivity reflected in part the continuation
of the weak trend of recent years,
associated with sluggish growth of the
capital stock, changes in the composition of the labor force, and other
long-range factors. In addition, however, there was a cyclical element in
the drop in productivity; there is normally a tendency for output per hour
to drop when economic expansion
decelerates, as employers initially are
loath to lay off trained workers for
what might prove a short period of
slack.
Many workers saw their wage gains
outstripped by price increases during
1979. The lack of progress in real
wages is not surprising, given the
drop in productivity and the adverse
terms-of-trade impact of the surge in
foreign oil prices. Nonetheless,
American workers have become accustomed to an upward trend in their
purchasing power, and there are likely to be strong catchup demands this
year. The administration's 1980 wage
standards take this fact into account,
permitting somewhat bigger wage
hikes for those workers who experienced relatively small gains in 1979
Labor Markets
The demand for labor remained quite
strong in 1979, despite the sluggishness of output growth. Firms experiencing gains in sales added to their
payrolls, while those encountering
dips in the demand for their products
evidently tended to retain their workers—with the negative consequences
for productivity and unit labor costs
noted in the preceding section. Over
the year as a whole, the number of
workers on the payrolls of nonfarm
establishments increased 2.1 million,
less than in 1978, but nonetheless a
sizable gain.

42

Monetary Policy Reports

The major area of greatest strength
in hiring was the service sector, in
which employment rose fairly steadily
throughout the year. Manufacturing
payrolls, in contrast, declined slightly
in the second half of 1979. This weakness was concentrated among durable
goods producers, especially in the
motor vehicles and steel industries.
By the end of the year, about 130,000
auto workers were on indefinite
layoff.
The strength of labor demand in
the service sector may help to explain
the large increase in the number of
women in the labor force last year.
Many of the occupational groups in
the service sector traditionally have
had high proportions of female workers. Adult women have accounted for
a large percentage of labor force
growth in the past several years, and
this pattern continued in 1979, when
they accounted for two-thirds of the
expansion both in the labor force and
in total employment.
The overall labor force participation rate grew less rapidly in 1979 so
that the smaller increase in employment was still sufficient to hold the
unemployment rate almost constant
throughout the year, at about 5.8 percent. This is a level that, given the
composition of the work force and
other characteristics of the labor
market, most analysts agree is today
consistent with relatively tight labor
supplies. Certainly, the proportion of
the population employed remained at
an all-time high during 1979, and
many employers continued to report
difficulty in finding well qualified
workers. Some statistical indicators
of labor market tautness did, however, begin to move in the direction of
greater ease as the year progressed;
for example, the share of the labor
force on layoff, the unemployment



rate for males 25 and over, and the
blue-collar jobless rate all increased a
bit after the first quarter. In January
1980, when the unemployment rate
rose from 5.9 to 6.2 percent, the increase largely reflected layoffs of
adult male, blue-collar workers.
There were no significant changes
over the past year in the structure of
unemployment. The jobless rates for
nonwhites, for teenagers, and for
black teenagers have not improved
relative to those for other major
population groups. This January, the
nonwhite unemployment rate was
113A percent, teenage unemployment
was 16!4 percent, and black teenage
unemployment was 34lA percent. The
unemployment rate among nonwhites
has remained about twice the level for
whites, and teenage unemployment
continues to be about three times the
rate for adults.
Domestic Financial Markets
Interest rates. Market rates of interest rose substantially during 1979,
surpassing the previous highs recorded in 1974. As in that earlier year,
sharply accelerated inflation created
strong demands for money and credit
and correspondingly intense upward
pressures on interest rates. These
pressures were most evident in the
second half of the year, when the
Federal Reserve had to adopt an increasingly restrictive posture in order
to keep the monetary aggregates
within the ranges set earlier and
reported to the Congress. On October
6, the System took certain actions
aimed at providing greater assurance
that its monetary objectives would be
achieved. A fundamental change was
made in the System's operating procedures, shifting the day-to-day focus
of open market operations from the
federal funds rate to the growth of

Monetary Policy Reports
member bank reserves.1 At the same
time, the discount rate was raised 1
percentage point to 12 percent, and
an 8 percent marginal reserve requirement was applied to certain managed
liabilities of commercial banks.2
Over the course of 1979, interest
rates on short-dated money market
instruments such as Treasury bills,
large certificates of deposit (CDs),
and commercial paper generally rose
2Vi to 3 percentage points. In longterm debt markets, taxable bond
yields increased 1 Vi to 2 percentage
points, and interest rates on conventional home mortgage loans increased
about 2Vi percentage points. Shortterm rates have fluctuated around
their year-end levels during the past
several weeks, but bond yields have
risen to new highs, apparently at least
in part a reflection of concerns about
the consequences of a possible stepup
in defense spending on the federal
budget and on inflation.
Monetary aggregates. The major
monetary aggregates grew more slowly in 1979 than they had in 1978.3 The
1. Appendix B describes the new operating
procedures [not included in this REPORT].
2. The marginal reserve requirement applies
to increases, above a base level, in the total
managed liabilities of member banks, Edge
corporations, and U.S. agencies and branches
of foreign banks. These liabilities include large
time deposits ($100,000 and over with maturities of less than a year), Eurodollar borrowings, repurchase agreements against U.S. government and agency securities, and federal
funds borrowings from nonmember institutions. (Federal funds borrowings from member
banks, Edge corporations, and agencies and
branches are exempt to avoid double counting
for reserve requirements, and a deduction is
permitted against RPs for U.S. government
and agency securities held in trading accounts.)
3. The discussion in this section is cast in
terms of the former definitions of the monetary
aggregates since those were the basis for decisions during 1979.



43

deceleration was particularly marked
in the case of M-l. The FOMC last
February established a range of Wi
to AVi percent for growth of M-l
(currency and demand deposits) in
the year ending with the fourth
quarter of 1979; this compared with
an increase of 714 percent in the
preceding year. As the Board indicated to the Congress in its initial
report under the Humphrey-Hawkins
Act, it was estimated that growth in
M-l during 1979 might be reduced as
much as 3 percentage points by the
shifting of funds from existing demand deposits to newly authorized
ATS accounts across the nation and
NOW accounts in New York State.
This meant that the observed growth
rate of M-l might understate by 3
percentage points its expansion in
terms of actual economic impact.
In its midyear report, the Board
stated that the FOMC had reaffirmed
the range of 1 Vi to 4Vi percent, with
the understanding that this range
would be adjusted upward to the extent that the impact of ATS-NOW account shifts fell short of the original
estimate of 3 percentage points. With
inflows to ATS and NOW accounts
falling off sharply, the FOMC employed an adjusted M-l range of 3 to
6 percent during the remainder of the
year based on an expected ATS-NOW
effect of around 1 Vi percent.
In any event, M-l increased 5.5
percent during 1979, and the estimated depressing effect of ATSNOW accounts amounted to about
1 VA percentage points. The aggregate
was approaching the upper bound of
its range in the late summer, but its
growth moderated in the closing
months of the year. This slower
growth has continued into 1980.
M-2, which includes, in addition to
M-l, bank time and savings deposits

44

Monetary Policy Reports

other than large negotiable CDs, increased 8.3 percent between the
fourth quarters of 1978 and 1979.
This is slightly above the FOMC's
range of 5 to 8 percent, established
last February and reaffirmed in July.
Expansion of the interest-bearing
component was strong, as smalldenomination time deposits grew at a
very brisk pace, offsetting a contraction in passbook savings accounts.
Six-month money market certificates
(MMCs) accounted for all of the
growth in small time and savings accounts; inflows were especially strong
after March, when the federal regulatory agencies eliminated (for periods
when the six-month Treasury bill rate
exceeds 9 percent) the interest differential of lA percentage point that
had previously given thrift institutions a competitive advantage in the
MMC market. These actions were
taken partly to reduce cost pressures
on thrift institutions and partly to
help moderate the flow of funds to
depository institutions so as to restrain inflationary pressures.
M-3, which is M-2 plus deposits at
thrift institutions, rose 8.1 percent in
1979, within the FOMC's range of 6
to 9 percent. Deposits at savings and
loan associations, mutual savings
banks, and credit unions expanded
IVA percent, down from about \0Vi
percent in 1978 but still well above
rates recorded in previous periods of
high market interest rates. The key to
the sustained growth of thrift institution deposits—particularly for savings and loans and mutual savings
banks—was the MMC; however,
there was also a sizable increase in
large-denomination time deposits
outstanding at savings and loans.
Credit flows. Because market interest rates rose further relative to the
returns on fixed-interest-ceiling time



and savings deposits at commercial
banks and thrift institutions, a large
volume of funds was placed instead in
market debt instruments and in
mutual funds or investment trusts
during 1979. Money market mutual
funds registered spectacular growth,
their total assets increasing from $10
billion to $45 billion. (A record surge
since year-end has boosted their total
assets above the $55 billion mark.)
However, the depository institutions,
confronted with heavy credit demands, were able to obtain the lendable funds they desired through the
issuance of ceiling-free liabilities such
as large CDs, RPs, federal funds, and
Eurodollar borrowings and, in the
case of savings and loan associations,
through borrowing from Federal
Home Loan Banks. Consequently,
depository institutions continued to
account for a large proportion of
credit provided to nonfinancial sectors of the economy, in contrast to
the pattern observed at other times
when market interest rates have been
high. Commercial bank credit increased 12.2 percent over the year
ending in the fourth quarter of 1979
—compared with the FOMC's projection of IVi to \0Vi percent—despite a
leveling off in the fall.
The total volume of funds raised by
domestic nonfinancial sectors of the
economy in 1979 was about the same
as in 1978. Reduced borrowing by
governmental units approximately
offset an increase in takings by business firms. Aggregate credit expansion was greatest in the first three
quarters of the year, as the tightening
of financial markets that accompanied the System's October actions
contributed to a steep drop in borrowing by households and businesses
in the fourth quarter.
The credit needs of the U.S. Trea-

Monetary Policy Reports
sury declined markedly in 1979 owing
to the reduction in the federal budget
deficit. The operating budgets of
state and local governments meanwhile moved in the opposite direction, from surplus to deficit, but their
net borrowing, too, diminished. Although the tax-exempt market was
used much more extensively as a
source of funds for residential mortgage finance, restrictive Internal
Revenue Service regulations brought
a virtual cessation of the advance
refunding activity that had swelled
state and local government bond issuance in the previous year.
The strong demand for housing,
both as shelter and as an investment,
and an evident desire to maintain past
spending levels in the face of declining real disposable income kept borrowing by the household sector at an
historically high level during 1979.
Over the first three quarters, debt expansion exceeded income growth,
and loan repayments as a percent of
disposable income moved to a new
high. By the latter part of 1979, signs
had begun to emerge—in data on
loan delinquencies and bankruptcies
—that families were encountering
some difficulty in meeting their financial obligations.
The heavy debt burdens may have
combined with the higher level of interest rates to damp use of household
credit in the fourth quarter. In addition, however, credit availability became a significant factor as institutions tightened credit standards or
curtailed lending in response to
greater uncertainty about financial
prospects and reduced earnings margins. Credit supplies were most
severely constrained in those parts of
the country with low usury ceilings;
the year-end federal legislation providing a three-month override of state



45

usury ceilings may provide some
relief for borrowers in such areas.
Borrowing by nonfinancial business firms increased substantially in
1979, as the growth of outlays for inventories and fixed capital outstripped the advance in internal funds
generated. This "financing gap" was
particularly large during the first
three quarters of the year; in the
fourth quarter the gap narrowed
somewhat with the slowing of inventory accumulation.
Increases in business loans at banks
and in net issuance of commercial
paper accounted for most of the
growth in borrowing by nonfinancial
enterprises. Mortgage loans rose
somewhat, reflecting the strength of
commercial construction, but corporate bond issuance remained around
the moderate 1978 level as companies
were reluctant to incur long-term
debts at historically high interest
rates. The relatively heavy reliance on
shorter-term borrowings was reflected
in a further deterioration of traditional measures of balance-sheet
strength. Flow of funds account estimates for nonfinancial corporations
indicate that the aggregate ratio of
short-term debt to total debt has
reached a record high and that the
ratio of liquid assets to current liabilities has reached a low level seen before only in 1974. Perhaps partly for
this reason, the dropoff in business
borrowing in the fourth quarter was
concentrated in the short-term area.
Foreign Exchange Markets
and the Dollar
The dollar was quite strong on foreign exchange markets in the first five
months of 1979, following the tightening of U.S. money market conditions
and the announcement by the Treasury and the Federal Reserve of a dol-

46

Monetary Policy Reports

lar support program on November 1,
1978. The dollar rose more than 5
percent on a trade-weighted average
basis, gaining 5 Vi percent against the
mark, IVi percent against the Swiss
franc, and 14 Vi percent against the
yen between the end of December and
the end of May. During this period,
U.S. and foreign monetary authorities entered the markets to moderate
exchange rate movements, reversing
in the process a large portion of their
1978 intervention purchases of dollars. By the end of May the Federal
Reserve had repaid all its outstanding
swap debts to other central banks, the
Treasury had reconstituted all of the
balances it had raised through the
issuance of notes denominated in
foreign currencies, and the Federal
Reserve and the Treasury both completed repayment of their pre-1971
Swiss franc indebtedness.
In early summer, however, the
dollar weakened, mainly in response
to the failure of U.S. inflation to
moderate and to the absence of a concerted U.S. program to solve its
energy problem. The dollar's weakness intensified in early June and continued into September, despite a
series of increases in the Federal
Reserve's discount rate, a gradual rise
in the federal funds rate, and renewed
heavy exchange-market intervention
in support of the dollar.
By early October the dollar had
retraced all of its rebound of earlier in
the year, and selling pressures were
mounting rapidly amidst accelerating
price rises in gold and other commodities and other signs of a worsening in
expectations of inflation. In these circumstances, the Federal Reserve's announcement on October 6 of a series
of anti-inflation measures—described
in the preceding section—was accompanied by a sharp advance of the




dollar on exchange markets. By midNovember, the dollar had risen about
4 percent on a weighted-average basis
from its early October lows. Foreign
monetary authorities subsequently
tightened their policies to deal with
similar inflationary pressures abroad,
and the dollar lost strength. From
mid-November through the end of
the year the dollar drifted lower in
thin markets unsettled by developments associated with the taking of
American hostages in Iran. At yearend, the dollar stood close to its early
October lows on a weighted-average
basis. The dollar has been relatively
stable in recent weeks, with trading
rather light in an environment of
heightened international political
uncertainties.
Report on July 22, 1980
The Outlook for the Economy
and Monetary Policy Objectives
The Outlook for the Economy
The economy moved into recession in
the first half of this year. A cyclical
downturn had been widely anticipated for some time, but the decline
in spending, output, and employment, once under way, has been
steeper than most analysts had foreseen. The second-quarter decrease in
real gross national product, at an annual rate of about 9 percent according to the Commerce Department's
preliminary estimate, was considerably sharper than in the initial
quarters of other post-war recessions.
The slump in activity has been most
pronounced in the housing and auto
industries—the latter sector being adversely affected by structural problems as well as by general cyclical
pressures. But the decline has not
been limited to these sectors. Retail
sales excluding autos have dropped

Monetary Policy Reports
considerably since January, and
business outlays for equipment and
new construction also have fallen.
The very sharp curtailment of
spending on houses and consumer
goods and services in the current
downturn probably is attributable in
large part to the cumulative effect of
inflation on consumers' financial
well-being. Real disposable personal
income was virtually flat in 1979 and
has declined appreciably this year.
Earlier, consumers had reduced their
rate of saving in the face of shortfalls
in real income in an effort to maintain consumption standards and in
anticipation of inflation. This was
accomplished by further rapid growth
in installment and mortgage credit in
the late stages of the recent expansion, but with the result that debt
service burdens— which already were
at high levels historically—continued
to climb. Sharply higher interest rates
and generally more stringent credit
terms in late 1979 and early 1980
acted as additional deterrents to
spending, encouraging households in
their efforts to reduce debt and to
rebuild savings.
The falloff in final sales has caused
businessmen to spend more cautiously. This tendency has been reinforced
by financial factors as well. The liquidity position of businesses had
deteriorated appreciably during the
expansion, particularly in the latter
stages when there was a surge in
short-term borrowing; many firms
now are making strong efforts to
restructure balance sheets.
The unexpected rapidity of the current downturn thus far has led analysts to reassess their view of the prospects for economic activity in the
period ahead. Significant disagreement has arisen with regard to
whether recovery will be prompt and



47

strong, with the recent relaxation of
credit market conditions encouraging
a resumption of normal spending patterns, or whether the cyclical adjustment will be prolonged and the subsequent upturn possibly sluggish. The
experience of the past year or so has
demonstrated the hazards of forecasting, and the uncertainties at the
present time clearly are substantial.
Much will depend, for example, on
the perceptions of businessmen about
the longer-range prospects for demand and the attractiveness of investment, the response of consumers
to the 1981-model-year automobiles,
and the strength of the rebound in
housing that may develop in the wake
of the recent easing in mortgage
market conditions.
There are signs that the contraction
in some sectors may be nearing an
end, but these are far from conclusive. Retail sales in June turned up
slightly after four months of sharp
decline; in the first ten days of July
auto sales were at the strongest pace
in three months. Housing starts and
sales of new homes strengthened in
the most recent months for which
data are available.
In reflection of the prevailing uncertainties, there is a considerable
range of views among the members of
the Federal Open Market Committee
(FOMC) regarding the movement of
major economic variables over the remainder of the year. Most of the
members believe that the recession
probably will persist into the fourth
quarter, with a cumulative net drop in
real gross national product less than
that in the downslide of 1973-75. Although the decline should slow in the
months ahead, employment may be
cut back further, and the unemployment rate could rise beyond 8 Vi percent by year-end. The increasing slack

48

Monetary Policy Reports

in labor markets and in industrial
capacity utilization should at the
same time help to moderate inflationary pressures.
The accompanying table presents
ranges for key economic variables
that generally encompass the judgments of the individual FOMC
members about the probable performance of the economy this year
and in 1981.
Projected

Actual
Item

1980

1979
Change from fourth
quarter to
fourth quarter,
percent
Nominal GNP
RealGNP
Implicit GNP
deflator
A verage level in
fourth quarter,
percent
Unemployment
rate

9.9
1.0

1981

5to7!/2
8!/2toll'/2
- 5 to —21/2 Vi to 3

8.9

9 to 10

73/4 to 9!/2

5.9
8'/2to9'/4
8to9'/4
The outlook for 1981 is especially
uncertain at the current time.
Economic and financial developments over the next six months
should lay the groundwork for the
recovery anticipated in 1981. But, in
addition, any actions taken in the
fiscal arena would have an impact on
the path of recovery. The projections
presented in the table, which do not
assume a tax cut in the next year, indicate a turnaround in economic activity—although there is a considerable range of views concerning
the potential strength of the recovery.
On balance, the forecast is for a
moderate rebound in real GNP, accompanied by some further slackening in the pace of inflation.
Unemployment, however, is likely to
remain high throughout the year.
Should there be a tax cut in 1981,




the impact on economic performance
will, of course, depend on its timing
and composition. There is a distinct
—and very troubling—possibility
that a poorly designed tax reduction,
or one not coupled with adequate
restraint on the expenditure side,
might give rise to added inflationary
and financial pressures that would in
time dissipate the beneficial shortterm effects on the fiscal stimulus. Any
indication that the Congress and the
administration were moving away
from a commitment to rigorous fiscal
discipline would run the risk of reinvigorating the inflationary expectations that have played such a major
role in the economy's difficulties. The
Committee thus feels it important
that the question of a tax cut be approached cautiously; if a tax cut
ultimately is enacted, it should be
carefully structured to enhance the
productive potential of our economy
and to yield the greatest relief from
cost and price pressures over the
longer run.
Monetary Policy Objectives
The task for monetary policy—and
for stabilization policy generally—in
the current circumstances obviously is
a difficult one. Recession naturally
summons forth calls for stimulus to
aggregate demand. The prevailing
high level of unemployment and the
exceptional weakness apparent in
particular industries and sectors of
our economy certainly must be given
careful consideration in the formulation of public policy. But caution
must be exercised in the application
of any broad countercyclical stimulus, especially in the present environment of persistent inflationary
pressures. Indeed, there is no clearer
lesson from the experience of the past
decade and a half than that excessive

Monetary Policy Reports
stimulus is detrimental to the objective of achieving and sustaining noninflationary, balanced growth.
A primary and continuing goal of
monetary policy must be to curb the
accelerating inflationary cycle. It now
appears that some progress is beginning to be made in that direction.
Price increases have slowed considerably from the pace of early in the
year, in part reflecting some relief in
the food and energy sectors, but also
as a result of the drop in demand
pressures. In addition, recent attitudinal surveys point to a reduction
in inflationary expectations. The continuation of this trend in expectations
will result in a greatly improved
economic and financial environment,
one more conducive to long-term
growth. We already have witnessed
one benefit of an easing of inflationary fears: a substantial decline in
long-term interest rates from their
highs earlier this year and a revitalization of the bond markets. The Federal Reserve's pursuit of a policy of
monetary restraint—evidenced this
year by a moderation of money
growth—has been an important factor in this turn in expectations; a sustained commitment to the attainment
of non-inflationary rates of money
and credit growth is essential if this
progress is to be extended.
Despite the improvement that has
occurred, however, inflationary
forces are far from subdued. The past
years have left a legacy of adverse
cost trends that will not be reversed
quickly. Moreover, more extreme inflationary expectations easily could
be reignited. In establishing its plans
for growth in the monetary aggregates, the Federal Reserve will
continue to place high priority on
reducing inflation, believing that this
is essential to fostering a sound and



49

sustained recovery. Over the long
term, a reduction in the underlying
rate of inflation is essential for a
strong U.S. economy, for encouraging the saving we will need to finance
adequate capital investment, and for
maintaining the position of the dollar
in international markets.
But it is clear also that if inflation is
to be restrained without undue disruption of economic activity we cannot rely solely on monetary policies.
For example, fiscal discipline is essential to ensure that excessive pressure is
not placed on the financial and real
resources of the economy. The structure of our tax system should be examined with an eye to the incentives it
provides for productivity-expanding
research and capital formation. And
the full range of governmental
policies should be reviewed to ensure
that they do not add needlessly to
costs and do not stunt innovation and
competition.
Money and Credit Growth
in 1980 and 1981
In February the Federal Reserve
reported to the Congress ranges of
growth for the monetary aggregates
in 1980 that it believed to be consistent with the continuing objective of
reducing inflationary pressures over
time while providing for sustainable
growth in the nation's production of
goods and services. These ranges anticipated a substantial deceleration in
monetary growth in 1980 from the
pace of the preceding year. Measured
from the fourth quarter of 1979 to the
fourth quarter of 1980, the following
ranges were adopted: for M-1A, V/i
to 6 percent; for M-1B, 4 to 6Vi percent; for M-2, 6 to 9 percent; and for
M-3, 6V2 to 9Vi percent. The associated range for bank credit expansion was 6 to 9 percent.

50

Monetary Policy Reports

During the first half of 1980,
growth of the monetary aggregates
slowed considerably from the 1979
pace. The deceleration was particularly marked for the narrower aggregates, M-1A and M-1B, which
grew at rates below the lower limits of
their longer-run ranges—at annual
rates of about Vi and VA percent
respectively from the fourth quarter
of 1979 to the second quarter of 1980.
(M-1A is currency and demand deposits held by the public, while M-1B
includes checkable interest-bearing
deposits as well.) At the same time,
the broader aggregates, M-2 and M-3,
grew at annual rates of 6Vi and 63A
percent respectively, which are
somewhat above the lower limits of
their ranges. In fact, by June, M-2
—which includes money market fund
shares and all deposits except large
certificates of deposit (CDs) at banks
and thrift institutions—was around
the midpoint of its longer-run range,
and M-3 slightly below, while the narrower aggregates were moving back
toward their ranges, following an
unusually sharp drop in early spring.
The contraction in the narrower aggregates during the second quarter
was much greater than would have
been expected on the basis of the
historical relationships among
money, income, and interest rates.
This unusual weakness may have
reflected exceptional efforts by the
public to pare cash balances, such as
have characterized some other periods following a sharp upward adjustment in market interest rates to new
record levels. There may also have
been an impact from the surge in debt
repayments, especially at banks, after
the imposition of the credit control
program in mid-March, with some of
the funds apparently coming out of
cash balances. In light of these special



circumstances affecting the public's
demand for transactions balances,
and given the relative strength of the
broader aggregates and the usual lags
between changes in credit conditions
and growth in the narrower aggregates, the FOMC believed it appropriate to foster a more gradual
return of M-l growth to the ranges
established earlier.
In connection with reservetargeting procedures, System open
market operations supplied a large
volume of nonborrowed reserves over
the course of the second quarter.
Given the weak demand for money
and bank credit, most of the added
nonborrowed reserves were used by
banks to repay borrowings from the
Federal Reserve discount window.
Borrowings fell from a high of $2.8
billion on average in March to
minimal levels recently, and the easing of bank reserve positions was
reflected in a sharp decline in the
federal funds rate. From their peaks
of late March or early April, shortterm interest rates have declined 7 to
9 percentage points and long-term
rates by roughly 2 to 3 percentage
points.
Expansion in the broader aggregates over the first half of the year
reflected the very rapid growth for
much of the time in money market
mutual fund shares, 6-month money
market certificates, and 2Vi-year
small saver certificates, instruments
that pay market rates of interest. Late
in the period, as short-term market
interest rates declined sharply, the
contraction in savings deposits at
banks and other depository institutions halted, and the outstanding
amount of those deposits began to
rise. For part of the period, growth in
M-3 was sustained also by continued
issuance of large time deposits by

Monetary Policy Reports
commercial banks and thrift institutions, which are included in M-3 but
not in M-2; however, large time deposits began to contract in late spring
as credit demands weakened substantially.
Bank credit growth greatly exceeded the FOMC's range in the first
quarter of the year. The second
quarter, however, saw a sharp contraction in this measure, and credit
growth was well below the FOMCspecified range as of mid-year.
Demands for bank loans by households and businesses dropped abruptly in the second quarter, while the
banks—concerned about the possible
erosion of profit margins by high-cost
funds obtained earlier and seeking to
conform to the guidelines of the
March 14 special credit restraint program—pursued relatively tight lending policies. Businesses, meanwhile,
have met a substantial portion of
their credit needs through issuance of
commercial paper (which serves as a
close substitute for bank credit for
many large firms), by borrowing in
bond markets, and by reducing
holdings of liquid assets. Over the
half year, the total of credit advanced
by banks and in the private shortterm money markets rose at an annual rate of around IVi percent.
At its meeting in July, the Federal
Open Market Committee reassessed
the ranges it had adopted for
monetary growth in 1980 and formulated preliminary goals for 1981.
The Committee elected to retain the
previously established ranges for the
aggregates over the remainder of
1980. This decision by the Committee
took into consideration the recent
behavior of the money stock measures as well as emerging economic
conditions. In this regard it was
recognized that, if the public con


51

tinues to economize on cash balances
to an unusual degree in the second
half of the year, growth in the narrower aggregates would likely fall
toward the lower end of the established ranges.
With respect to the broader aggregates, growth in the second half is
likely to place them nearer the midpoints of their respective ranges and,
in the case of M-2, quite possibly in
the upper half of its range. Recent
trends suggest that a continued
substantial expansion in the interestbearing-nontransactions component
of M-2 is likely. In the current cyclical
environment, consumers have begun
to reevaluate their financial positions
and have reduced their borrowing
and adjusted upward their rate of
saving. Thus, if the recent lower level
of interest rates persists, the outlook
is for an augmented flow of funds to
depository institutions along with
continued, though slower, growth in
money market mutual funds.
The Committee also noted that the
recent sharp contraction in bank
credit makes it quite likely that this
measure will fall below the 6 to 9 percent growth range specified in February. A resumption of bank credit expansion during the second half is anticipated, but the strength of that
move will depend to a considerable
extent on patterns of corporate
finance. The desire for balance sheet
restructuring may well continue to
mute business loan demands, although weaker corporate cash flows
and a narrowing of the spread of the
prime rate over commercial paper
rates likely will prompt some borrowing at banks. Mortgage loan demands
also should begin to recover as the
year progresses, and the runoff in
consumer loans is expected to abate.
One factor that contributed to the

52

Monetary Policy Reports

recent weakness in bank lending was
the Board's special credit restraint
program. As announced earlier, the
program is being phased out this
month because there is now no evident need for extraordinary measures
to hold bank lending within reasonable bounds. In removing the special
controls, the Board has emphasized
its intention to continue to maintain
aggregate growth in money and credit
at rates consistent with a reduction in
inflationary pressures.
With regard to monetary policy
over the longer run, the FOMC
reiterates its intent to seek reduced
rates of monetary expansion over
coming years, consistent with a return
to price stability. While there is broad
agreement in the Committee that it is
appropriate to plan for some further
progress in 1981 toward reduction of
the targeted ranges, most members
believe it would be premature at this
time to set forth precise ranges for
each monetary aggregate for next
year, given the uncertainty of the
economic outlook and institutional
changes affecting the relationships
among the aggregates. The extent and
timing of adjustments in the targets
will depend upon an appraisal of the
outlook at the end of the year. The
appropriate money growth in 1981
relative to 1980 of course will depend
to some extent on the outcome in this
year—that is, on exactly where in the
present ranges the various aggregates
fall at year-end.
In addition, the various measures
of money will be affected in 1981 by
shifts in the demand for different
types of financial assets. The introduction of negotiable order of
withdrawal (NOW) accounts on a nationwide basis in January will accelerate the shift from regular demand deposits into interest-earning



transactions balances, thereby depressing M-1A growth next year. On
the other hand, M-IB probably will be
boosted somewhat next year by shifts
from savings deposits and other
interest-bearing assets into NOW accounts. The range for M-1B thus may
have to accommodate a period of abnormal growth as the public adjusts
to the availability of a new instrument. The experience of the past year
and a half with automatic transfer
service (ATS) accounts has indicated
the difficulty of estimating in advance
the public's demand for such balances. Although growth in M-2 and
M-3 will not be affected by NOW account movements, these broader aggregates include other relatively new
financial instruments, the demand for
which is still subject to uncertainty.
The behavior of these instruments in
coming months will aid the FOMC in
determining appropriate growth
ranges for the broader aggregates in
the 1981 period.
The Administration's Short-Term
Economic Goals and the
Relationship of Federal Reserve
Objectives to those Goals
The administration, in association
with its mid-year budget review, has
updated its forecast of the behavior
of major economic variables for 1980
and 1981. The revised figures are
shown in the accompanying table.
These estimates, which the administration has indicated should be
viewed as forecasts rather than as
goals, show a considerably greater
decline in real activity in 1980 than
had been anticipated in the January
Economic Report of the President.
The outlook for growth in nominal
GNP through year-end has been
lowered by a small amount, owing to
a somewhat higher anticipated rate of

Monetary Policy Reports
inflation for the four quarters of
1980. The administration's projections for this year fall within the
ranges expected by the members of
the FOMC.
Item
Change from fourth quarter
to fourth quarter,
percent
Nominal GNP
Real GNP
Implicit price deflator
A verage level in fourth
quarter, percent
Unemployment rate

1980

1981

63/4

12!/2
V/i

—3
10

93/4

8'/2
81/2

The administration has projected a
resumption of output growth next
year that places real GNP near the
upper end of the range encompassed
by the forecasts of the members of
the FOMC. At the same time, the administration's estimates place the rate
of inflation somewhat above the
range of the FOMC members' expectations. (Like the FOMC members'
projections, the administration's
forecast does not include a tax cut
provision for 1981.)
As indicated in the preceding section, the Federal Reserve intends to
set monetary growth ranges for 1981
that will help to restrain inflationary
pressures in the recovery period. As
experience this year illustrates, considerable uncertainty attaches to any
analysis of the relationships over
relatively short periods among
money, interest rates, and nominal
GNP. However, a substantial expansion in demands for goods and services, accompanied by a lack of progress on the inflation front—or worse,
an actual increase in inflation or inflationary expectations—would raise
the possibility of a considerable firming of conditions in financial markets. Large and prolonged federal



53

deficits would increase that risk. This
possibility highlights the urgency of
concerted effort by the public and
private sectors to reduce the rate of
advance of costs and prices and the
need to focus any discussions of fiscal
action on approaches that would
serve to alleviate cost pressures and
bolster productivity.
A Review of Recent Economic
and Financial Developments
Economic Activity
During the First Half of 1980
Economic activity turned down early
this year following almost five years
of expansion. Between January and
June, industrial production fell IVi
percent, unemployment declined
about 1 lA million, and the unemployment rate jumped \Vi percentage
points. Real gross national product is
estimated to have fallen at an annual
rate of 9.1 percent in the second
quarter, with the decline in activity
widespread among major sectors of
the economy. Retail sales have decreased substantially since January,
housing starts have dropped to nearrecord postwar lows, and business
outlays for equipment and new construction have declined. Although
businesses were cautious in building
inventories during the expansion, the
severity of the recent decline in final
sales has led to some involuntary
stock accumulation; as in past cycles,
the resulting efforts to curb inventory
growth have played a significant role
in the weakening of orders and production.
Recent reductions in aggregate demand, coupled with a slower rise of
energy prices, meanwhile have
brought some moderation in the overall pace of inflation. The producer
and consumer price indexes have

54

Monetary Policy Reports

risen at much less rapid rates in the
past few months than they did earlier
in the year. Moreover, there are indications from consumer surveys that
inflationary expectations have been
lowered. Nevertheless, inflation still
possesses a strong momentum, with
unit labor costs continuing on a steep
upward trend.
Personal consumption
expenditures. Personal consumption expenditures fell sharply in real terms during the first half. A number of
adverse trends had characterized
household finances for some time
prior to the beginning of 1980. Real
disposable income had stagnated
after 1978, household liquidity positions had weakened as liabilities increased faster than financial assets
after late 1976, and a near-record
proportion of disposable income had
been committed to the servicing of
debt. Moreover, consumer confidence, as measured by opinion
surveys, had deteriorated to levels last
seen in the 1973-75 recession. In the
light of these trends, a downward adjustment of consumer outlays might
have been expected last year; the fact
that it did not occur appears attributable in part to growing expectations of inflation that fostered a buyin-advance psychology.
Between January and May, retail
sales fell 6V2 percent in nominal terms
and more than 9Vi percent in real
terms—the sharpest four-month drop
in the postwar period. Preliminary
estimates for June, however, indicate
that sales moved up somewhat. As in
past recessions, large decreases in
sales this year have occurred for the
relatively discretionary items of consumer expenditure. Automobile sales
in June averaged only 7.6 million
units at an annual rate, close to the
May pace, which was the slowest



since late 1974. Furniture and appliance sales also are down sharply
this year, in part because of the fall in
housing sales. But weakness in consumer outlays has not been confined
to the durable goods sector. Purchases of nondurables in real terms
also have been falling since late last
year, with sizable declines recorded
for clothing and general merchandise.
Since January, real disposable income has decreased substantially as
employment and hours worked have
fallen and prices have continued upward at a rapid pace; nonetheless, the
retrenchment by consumers has lifted
the saving rate somewhat above the
extraordinarily low level of the fourth
quarter of last year. It still remains
low by historical standards, however,
and uncertainty about job and income prospects may well prompt
households to enlarge precautionary
savings, thereby contributing further
to the weakness in personal consumption expenditures.
Residential construction. Homebuilding activity has experienced a
severe decline. Housing starts, which
averaged nearly VA million units at
an annual rate during the first nine
months of 1979, began to fall sharply
last autumn. By December, starts
were at a Wi-million-unit pace, and
by May they had declined to a rate of
almost 900,000. June saw a pickup in
starts to a 114 million annual rate.
In the single-family sector, starts
dropped 45 percent between the third
quarter of 1979 and the second
quarter of this year. Although demographic factors remained quite
favorable during this period, the demand for such dwellings was curtailed by the increased cost of homeownership associated with higher
house prices and the rapid rise in
mortgage interest rates. The monthly

Monetary Policy Reports
cost of interest and principal on an
average-priced new home financed
with a conventional mortgage rose to
$700 in May—a third higher than six
months earlier and 50 percent above
the same month of 1979. Households
probably were increasingly reluctant
to undertake such heavy financial
obligations, especially as income and
employment conditions weakened
this year.
Home sales have dropped almost
40 percent from the pace of last summer. Although production adjustments have reduced the number of
unsold new single-family dwellings on
the market, these unsold units bulk
larger relative to the recent slower
rate of sales. At the May sales pace,
which was up sharply from April,
there was almost a nine-month supply
of unsold new single-family units on
the market. The pickup in sales in
May is perhaps a sign of some increased interest on the part of
homebuyers, prompted by the recent
easing in financial markets; however,
the still large overhang of unsold
homes is likely to discourage a quick
resumption of building in many localities.
Multifamily housing starts began
declining sharply late last year and in
the second quarter were off about 35
percent from the already-reduced
pace of the third quarter of 1979. The
decline in this sector has been less
severe than in the 1973-75 period, as
low vacancy rates in many areas and
an acceleration in rent increases
beginning in late 1979 have given
builders an incentive to sustain a
significant level of apartment construction in the face of high construction costs and tight financial conditions. In addition, demands for condominiums—a lower-cost alternative
to single-family homeownership—



55

have provided support to multiunit
activity.
Business spending. Business spending on plant and equipment has
slowed in recent months as firms have
sought to avoid expanding capacity at
the onset of a recession. Spending on
nonresidential structures, which accounted for much of the gain in investment during 1979, peaked in
January and declined substantially in
the following months. Business purchases of trucks and automobiles also
have been falling since early this year,
as have outlays for other capital
equipment.
Weakness in capital spending in the
first half of the year—as well as in
forward-looking indicators of investment activity such as surveys, contruction contracts, and equipment
orders—probably reflected businessmen's anticipations that sales may remain sluggish for a while. In addition, corporate cash flows are
diminishing, and with liquidity positions already strained in many instances, there may be a reluctance to
undertake additional projects requiring external financing. Although interest rates have fallen dramatically
from the high levels reached earlier
this year, growing excess plant
capacity suggests the likelihood of
further decreases in real outlays,
while firms take advantage of lower
long-term rates to restructure their
balance sheets.
Despite sizable cutbacks in production, some involuntary inventory accumulation appears to have occurred
this spring as a consequence of the
steep fall in sales. The stock-sales
ratio for all manufacturing and trade
in real terms rose only moderately
during the first quarter, but climbed
appreciably in April and May to near
the level of late 1974. Since the start

56

Monetary Policy Reports

of the year, substantial increases in
the ratio have been registered in most
major industries with especially large
rises for primary metals manufacturers, furniture and appliance
retailers, and the motor vehicle industry. Auto sales incentive programs
and production adjustment in the
first quarter of 1980 largely eliminated excessive stocks that had
resulted from last summer's gasoline
shortages. However, beginning in
mid-April, automobile sales plummeted, and despite further curtailments of production, some
overhang of stocks at dealers reappeared.
Government, Spending at all levels
of government has been restrained in
recent months. Total federal expenditures, which grew rapidly in the early
months of the year, moderated in the
second quarter largely as a result of
the March budget cuts. Growth in
receipts fell off much more, however,
as weakness in personal income and
profits offset the impact of additional
revenue from the windfall profits tax
on oil producers. As a result, the
federal deficit on a national income
accounts basis probably deepened by
about $30 billion, at an annual rate,
between the fourth quarter of 1979
and the second quarter of 1980.
However, the high-employment
budget, a better indicator of the
thrust of discretionary fiscal policy,
showed a movement toward restraint
during this period.
State and local government spending fell in real terms during the first
half of 1980, as governmental units
curtailed outlays in response to the
slower growth of revenues caused by
tax cuts enacted in 1979, the weakening economy, and the March reductions of federal grants-in-aid. The
reduced pace of spending was most



pronounced for construction activity
because federal funding was cut back
and municipal bond issuance was
constrained in the first quarter by
high interest rates. Despite the
downward adjustments of outlays,
the aggregate operation deficit of the
state and local government sector apparently widened considerably in the
spring.
International trade and payments.
Real exports of goods and services
continued to grow rapidly in the first
quarter of 1980, but the rise appears
to have slowed somewhat in the second quarter. The deceleration largely
reflected the slowing of economic expansion abroad and the fading of the
impact of the 1917-IS real depreciation of the dollar. All of the growth in
the first half was concentrated in nonagricultural exports; agricultural
shipments were reduced, partly because of the embargo on additional
grain sales to the Soviet Union imposed by the President in January.
The volume of imports, meanwhile,
began to fall off as U.S. economic activity slackened and as higher prices
and greater fuel efficiency acted to
restrain oil imports. The volume of
non-oil imports rose slightly on
balance in the first half of 1980, but
all of the increase was in the first
quarter. The quantity of oil imports
fell, apparently reaching its lowest
rate in four years in the second quarter. Despite a declining volume of oil
imports in the first quarter, higher
prices by the Organization of Petroleum Exporting Countries (OPEC) resulted in a continuation of the rapid
growth in the dollar value of oil imports. The oil import bill nearly
doubled between the fourth quarter
of 1978 and the first quarter of 1980;
in the second quarter the value of oil
imports changed little as lower

Monetary Policy Reports
volume offset a further rise in import
prices.
The U.S. merchandise trade deficit
increased about $6 Vi billion at an annual rate in the first quarter of this
year from the rate in the last quarter
of 1979. The current account moved
from a deficit of about $7 billion at
an annual rate in the fourth quarter,
and near balance for the year 1979, to
a deficit of about $10 billion in the
first quarter of 1980. Higher foreign
earnings of U.S. oil companies offset
part of the rise in the merchandise
trade deficit. Partial data indicate
that the trade and current-account
deficits narrowed in the second
quarter.
Labor Markets and
Capacity Utilization
Labor demand was relatively wellmaintained early in the year, but it
fell off steeply in the spring as firms
responded to the sharp declines in
sales by cutting their work forces and
shortening workweeks. Between January and June, the number of workers on the payrolls of nonfarm establishments fell almost 950,000; total
employment, as measured by the
household survey, fell more than 1 lA
million. With layoffs rising, the
nation's jobless rate jumped from 6lA
percent in January to IVA percent in
May and June.
Much of the cutback in employment occurred in the construction
sector and in durable goods manufacturing, especially motor vehicle and
related industries. By June, the
number of auto workers on indefinite
layoff was nearly 250,000 (about 30
percent of total hourly workers in the
industry), and substantial layoffs had
occurred in the steel and tire industries as well. Construction employment began to drop early in the year,



57

and subsequently suppliers of building materials also reduced their payrolls. During the spring, however,
weakness in labor demand began to
spread throughout the economy; employment at trade establishments
dropped 190,000 over the second
quarter, and in June payrolls in the
service-producing sector registered
the first monthly decline since 1975.
In addition to trimming payrolls,
employers have curtailed work schedules in light of the weakening of sales.
Since January, the average workweek
at manufacturing establishments has
been shortened almost 114 hours.
More generally, the number of workers on part-time schedules for
economic reasons rose sharply in the
second quarter, with former full-time
jobholders accounting for most of the
increase.
The rise in joblessness has been
widespread among demographic and
occupational groups, with especially
large increases reported among adult
males. Since December, the jobless
rate among men has climbed almost
2Vi percentage points, compared with
an increase of VA percentage point for
adult women, and June marked the
first time in two decades that the rate
for men was higher than that for
women. Unemployment among bluecollar workers rose sharply to an 11 Vi
percent rate in June, the highest since
September 1975. In contrast, unemployment rates among white-collar
workers have increased only marginally since the end of 1979.
The adjustments in output by
firms, especially in the second quarter, were reflected in a sharp decline
in the index of industrial production.
Between January and June, industrial
production fell nearly IVi percent.
Production declines in auto-related
industries and in industries supplying

58

Monetary Policy Reports

construction materials began early in
the year, but by late spring cutbacks
were occurring in most other industries as well. Among manufacturing
firms, capacity utilization in June
dropped to 76 percent, almost 11 percentage points below its 1979 peak.
Prices, Wages and Productivity
After exploding upward in the early
months of the year, rates of price increase moderated significantly in the
second quarter. The improvement resulted primarily from a stabilizing of
energy prices and from declines in the
prices of nonferrous metals, after a
flurry of speculative activity earlier in
the year. Increases in the prices of
construction materials and components also slowed noticeably in the
second quarter with the decline in
activity in the housing sector.
In the energy area, retail prices
surged in January and February, in
large part the result of the hike in
OPEC prices that occurred in late
1979, but the pace of increase then
slowed noticeably in the spring, as inventories reached near-record levels
and demand continued to drop. The
increase in energy prices also moderated at the producer level. Nonetheless, indirect effects of earlier
increases in the prices of fuels and
petroleum feedstocks were still evident through the end of June in items
such as plastics and rubber products,
industrial chemicals, and household
supplies. Moreover, a number of factors—including the latest increases in
OPEC prices, the curtailment of gasoline production, and the progressive
decontrol of crude oil prices—suggest
that further relief in the energy area is
not to be expected.
Food prices generally have exerted
a moderating influence on aggregate
price measures since the beginning of



the year. At the producer level, finished food prices fell at about a AVi
percent annual rate between December and June. Steep drops in wholesale prices through May—particularly
for livestock—alleviated cost pressures at the retail level, contributing
to relatively stable retail food prices
since the end of last year. However,
recent developments in the markets
for livestock and fresh produce indicate that food prices also are likely to
rise more rapidly in the second half of
the year.
Inflationary pressures have persisted in sectors outside food and
energy since the beginning of the
year. In the consumer price index, increases in the homeownership component have been particularly large, as
the measures of mortgage rates and
home purchase prices both advanced
rapidly in the first half of this year;
the recent easing of mortgage rates
will likely hold down increases in the
consumer price index during the next
few months. In the producer price
index, prices of capital equipment accelerated in the first half of 1980 from
the already rapid pace of 1979.
Labor cost pressures remained intense in the first half of 1980, as compensation increases were substantial
while productivity declined further.
Output per hour in the private nonfarm business sector dropped at
about a 1 Vi percent annual rate in the
first quarter, after falling 2 percent
over the preceding year. At the same
time, hourly compensation accelerated to a 10 VA percent annual rate, so
that the unit labor costs of nonfarm
businesses rose at about an 113A percent rate in the first quarter. Preliminary data for the second quarter suggest that unit labor costs continued to
rise rapidly, as productivity contracted further. Although cyclical

Monetary Policy Reports
reductions in overtime and the changing employment mix may restrain the
growth in total compensation somewhat in coming months, wage demands are likely to remain strong,
especially in light of past increases in
consumer prices. Thus, upward pressures on unit labor costs will probably
remain substantial over the near term.
Financial Developments
During the First Half of 1980
Interest rates. Market rates of interest moved sharply higher in the
early months of 1980, exceeding previous record levels and peaking
around the end of the first quarter.
These increases were largely reversed
in the second quarter amid a substantial downslide in economic activity
and contracting demands for money
and credit. The upward pressure on
yields at the turn of the year resulted
from a combination of factors, including a deterioration in inflationary
expectations as actual price increases
accelerated in January and February,
the failure of incoming data to confirm the long-anticipated downturn in
activity, and international political
developments that raised the likelihood of an increase in federal deficit
spending. In February, moreover,
growth in money and credit surged,
creating demands for bank reserves
well in excess of the provision of nonborrowed reserves consistent with the
Federal Reserve's target ranges for
growth in the monetary aggregates.
In the Treasury bill market, in particular, the resulting rise in short-term
interest rates was reinforced by large
sales of securities by foreign institutions to finance intervention in
foreign exchange markets.
On March 14, the Board of Governors took actions of a temporary
nature designed to reinforce the effec


59

tiveness of the measures announced
in October 1979 and thus to provide
greater assurance that the monetary
goals reported to the Congress in
February would be met. These actions, some of which were taken
under the authority of the Credit
Control Act as part of a broad
government effort aimed at reducing
inflationary pressures, included the
following: (1) a special credit restraint
program directed toward limiting the
growth in loans to U.S. customers by
commercial banks and finance companies to ranges consistent with the
monetary and credit objectives of the
Federal Reserve; (2) a special deposit
requirement for all types of lenders
on increases in certain categories of
consumer credit; (3) an increase in the
marginal reserve requirement on
managed liabilities of large member
banks and U.S. branches and agencies of large foreign banks; (4) a
special deposit requirement on increases in managed liabilities of large
nonmember banks; (5) a special deposit requirement on increases in
total assets of money market mutual
funds; and (6) a surcharge of 3 percentage points on frequent borrowing
by large member banks from Federal
Reserve Banks.
These measures hastened the movement toward reduced credit availability already in train at many lenders,
and apparently increased the resolve
of consumers to curtail their use of
credit. In subsequent weeks, incoming data revealed a substantial slackening in money and credit growth to
well within the Federal Reserve's objectives. In light of these developments, the Board amended the special
credit program: on May 6 the 3-percentage-point surcharge on discount
borrowing by large banks was eliminated, and on May 22 special deposit

60

Monetary Policy Reports

requirements were reduced by half
and the special credit restraint guidelines were modified. On July 3 the
final phaseout of the program was
announced.
The rise in most interest rates came
to a halt in late March and early
April, and yields began to move down
as demands for money and credit
dropped abruptly in response to developing slack in the economy. Most
private short-term rates fell 7 to 9 percentage points, to their lowest levels
since the spring of 1978. In long-term
securities markets, bond yields retraced most or all of the increases recorded earlier in the year, as market
participants appeared to have lowered their expectations of inflation.
The restraining posture of monetary
and fiscal policy, as well as moderating rates of price increase in the
cyclical downturn, has contributed to
this improved outlook for price
changes.
Foreign exchange markets and the
dollar. Movements in U.S. interest
rates greatly influenced fluctuations
in the foreign exchange value of the
dollar over the first half of 1980. The
dollar was in strong demand early in
the year when U.S. interest rates rose
sharply. The growing perception by
market participants of accelerating
inflation and worsening payments
deficits abroad gave added impetus to
the dollar's rise over this period, as
did the announcement of credit control measures on March 14. Authorities in a number of foreign countries
also moved to tighten monetary conditions, but the resulting increase in
foreign interest rates lagged well behind that of U.S. rates. The strengthening in the foreign exchange value of
the dollar in February and March was
moderated somewhat by substantial



intervention activities by U.S. and
foreign monetary authorities.
The peaking and subsequent steep
decline in U.S. interest rates in early
April triggered heavy selling pressure
on the dollar in international markets, and the dollar's foreign exchange value fell in the April to June
period. Foreign and U.S. monetary
authorities intervened to moderate
this decline by making net purchases
of dollars. Even so, by the end of
June earlier gains were entirely
erased, and the weighted-average exchange value of the dollar at midyear
was little changed from its value at
the beginning of the year.
Domestic credit flows. Net funds
raised in credit markets by domestic
nonfinancial sectors of the U.S. economy totaled a sizable $391 billion at
an annual rate in the first quarter of
1980, but contracted sharply to an
estimated $193 billion in the second
period. This exceptionally large
decline in borrowing reflected in large
part the recent sudden weakening in
production and sales activity; in addition, monetary restraint, supplemented by the special policy actions
of mid-March, contributed to tauter
credit terms and reduced availability
of funds at many lenders.
In the private sector, the volume of
funds raised in the first quarter was
greatly enlarged by a surge in borrowing on the part of nonfinancial business firms. Some of this increased
borrowing reflected needs to finance
growth in inventories and fixed capital outlays, as the gap between such
expenditures and internally generated
funds of nonfinancial corporations
widened. But fears that unchecked inflation would lead to the imposition
of credit controls and a consequent
reduction in credit availability appar-

Monetary Policy Reports
ently led to a burst of anticipatory
borrowing by firms as well. As a result, corporations added substantially
to their holdings of liquid assets in the
first quarter and appear to have
drawn down these holdings in subsequent months.
As interest rates moved up rapidly
early in the year, businesses concentrated their credit demands in shortand intermediate-term markets, with
borrowing at banks and in the commercial paper markets especially
heavy. Corporate bond financing remained relatively low as businesses,
especially industrial firms, were reluctant to issue long-term debt at historically high yields. This pattern of corporate financing shifted dramatically,
however, when interest rates dropped
rapidly in the spring. Public offerings
of longer-term corporate bonds accelerated to unprecedented levels, with
the proceeds from many of these
issues being used to pay down bank
debt.
After March, commercial banks—
concerned both about pressures on
their earnings margins as interest
rates dropped and about meeting the
loan growth guidelines of the voluntary special credit restraint program
—tended to discourage business borrowers. In particular, adjustments in
the bank prime lending rate lagged
substantially behind downward
movements in other market rates,
greatly increasing the relative cost of
this source of financing. As a result
of the relatively high cost of bank
credit, coupled with a desire of businesses to adjust their balance sheets
following the heavy reliance on shortterm debt in previous months, business loans at banks contracted markedly in the second quarter. Although
commercial paper issuance by firms



61

remained very large, total short- and
intermediate-term business credit
demands in the second quarter moderated appreciably from the firstquarter pace. Late in the second quarter, the prime rate began to move
down, narrowing the gap with market
rates somewhat; survey data, furthermore, suggest that banks in May were
making a large share of short-term
business loans at below-prime interest
rates.
In the household sector, consumers
greatly reduced their use of installment credit during the first half. The
large growth of consumer installment
and mortgage debt in 1979—both in
absolute terms and in relation to disposable income—had produced a
marked deterioration in household liquidity. The combination of resulting
heavy debt burdens, high interest
rates, and, in some states, restrictive
usury ceilings acted to slow growth of
installment credit in late 1979 and the
first quarter of 1980. The volume of
outstanding installment credit contracted in the second quarter as consumers curtailed expenditures and
repaid debt against a backdrop of
rapidly declining real incomes and rising unemployment. Credit-tightening
measures by lenders after the announcement of the credit-control
package on March 14 and uncertainty
on the part of consumers about the
effects of those controls contributed
further to the reduction in the use of
credit.
Household borrowing in mortgage
markets also slowed considerably in
the first half. Reduced deposit flows
and pressures on earnings margins
from rising costs of funds constrained
the lending activity of thrift institutions and pushed mortgage rates to
record levels in March. Many would-

62

Monetary Policy Reports

be homebuyers were deterred by the
high cost of mortgage credit. More
recently, lower market interest rates
have helped to reduce cost pressures
for thrift institutions and have contributed to a pickup in deposit flows.
Sharp drops in mortgage rates since
early April and reports of some
easing in nonrate terms suggest that
lending institutions have become
more active in seeking mortgage loans
since early June. But mortgage rates
remain high by historical standards,
while demands for housing and housing credit continue to be damped by a
weak economy and by the liquidity
concerns of households; consequently, mortgage commitment activity
apparently has remained relatively
sluggish.
The Treasury borrowed heavily in
credit markets in the first half to
finance the combined deficits of the
federal government and off-budget
agencies. Normal seasonal patterns in
federal cash flows associated with the
timing of tax receipts led to a concentration of the Treasury's borrowing
in the first three months of the year.
Although the first-quarter deficit was
further deepened this year by unusually large tax refunds associated




with overwithholding in 1979, the
Treasury was able to even out its borrowing pattern somewhat by permitting its cash balance to drop over the
first quarter and then rebuilding it in
the second.
In contrast to the federal sector,
net borrowing by state and local governments dropped off in the first
quarter but accelerated appreciably in
the second. Many municipal governments postponed or canceled scheduled bond issues early in the year
because of high interest rates; for
some government units, these actions
were necessitated by the rise of interest rates above statutory limitations.
But the volume of tax-exempt financing picked up considerably in the second quarter when interest rates fell
and many previously postponed bond
issues were brought to market. The financing needs of state and local units
generally increased over the first half
in response to slower growth of revenues and a consequent widening of
their operating deficits. In addition,
the volume of tax-exempt securities
issued continued to be boosted by offerings of mortgage revenue bonds,
designed to finance single-family
housing.

Part 2
Records, Operations,
and Organization




65

Record of Policy Actions
of the Board of Governors
Regulation A
(Extensions of Credit
by Federal Reserve Banks)
August 6, 1980—Revision
The Board revised Regulation A, effective September 1, 1980, to carry
out provisions of the Monetary Control Act of 1980.
Votes for this action: Messrs. Volcker,
Schultz, Wallich, Partee, Mrs. Teeters,
Messrs. Rice, and Gramley. Votes
against this action: None.

and Regulation Q
(Interest on Deposits)

The Monetary Control Act of 1980
granted access to the Federal Reserve
discount window to any depository
institution offering transaction accounts or nonpersonal time deposits
subject to reserve requirements.
Under the revised regulation, as
under the current procedures, Federal
Reserve credit will be made available
chiefly for purposes of meeting an institution's immediate cash or reserve
needs; such advances, referred to as
adjustment credit, would be expected
to be repaid promptly. In addition,
the revised regulation sets forth the
conditions under which the Federal
Reserve will provide extended credit
to institutions that need funds over
longer periods.

The Board established reserve requirements and deposit interest rate
limitations for federally licensed and
federally chartered agencies and
branches of foreign banks and statelicensed agencies and branches that
have consolidated worldwide banking
assets of more than $1 billion. The
amendments included the following
changes: (1) reserve requirements
(Regulation D) and interest rate ceilings (Regulation Q) will be established for agencies and branches identical to those for similar deposits at
member banks; (2) credit balances at
agencies will be subject to the same
reserve requirements as deposits of
similar maturity at Edge corporations
(Regulation K) and member banks;
(3) agencies and branches will have
access to all System services; and (4)
agencies and branches will have access to the discount window (Regulation A) on the same basis and under

Regulation A
(Extensions of Credit
by Federal Reserve Banks),
Regulation D
(Reserves of Member Banks),
Regulation K
(Internationa! Banking
Operations).



March 5, 1980—Amendments
The Board amended Regulations A,
D, K, and Q, effective September 4,
1980, to implement certain provisions
of the International Banking Act of
1978.
Votes for this action: Messrs. Volcker,
Schultz, Wallich, Partee, Mrs. Teeters,
and Mr. Rice. Votes against this action: None.1

1. On this and subsequent pages, footnote 1
indicates that there was one vacancy on the
Board at the time the action was taken.

66

Board Policy Actions

the same conditions as is afforded
domestic money center member
banks.
Regulation C
(Home Mortgage Disclosure)
November 26,1980—Amendments
The Board amended Regulation C,
effective December 5, 1980, to require institutions that must make
disclosures under the Home Mortgage Disclosure Act to report their
mortgage data on a calendar-year
rather than a fiscal-year basis.
Votes for this action: Messrs. Volcker,
Schultz, Wallich, Partee, Mrs. Teeters,
Messrs. Rice, and Gramley. Votes
against this action: None.
The change implemented some of
the recent amendments to the Home
Mortgage Disclosure Act; changes
implementing other amendments to
the act will be adopted in 1981. In addition to the change in the reporting
year, the amendment also established
March 31, 1981, as the date by which
reports for 1980 and for any portion
of 1979 not included in a previous
report must be filed.
Regulation D
(Reserves of Member Banks)
March 5, 1980—Amendments
These actions are discussed under
Regulation A.
March 14,1980—Amendment and
Adoption of a New Regulation
May 22, 1980—Amendments
July 2, 1980—Amendments and
Termination of Regulation
These actions are discussed under
Credit Restraint.



Regulation D
(Reserve Requirements of
Depository Institutions)
August 6, 1980—Revision
The Board revised Regulation D, effective November 13, 1980, to carry
out provisions of the Monetary Control Act of 1980.
Votes for this action: Messrs. Volcker,
Schultz, Wallich, Partee, Mrs. Teeters,
Messrs. Rice, and Gramley. Votes
against this action: None.
The Board revised Regulation D to
implement reserve requirement provisions of the Monetary Control Act
that imposed reserve requirements on
all depository institutions maintaining transaction accounts or nonpersonal time deposits. The revised reserve requirement provisions also
apply to Edge Act and Agreement
corporations and to U.S. branches
and agencies of foreign banks.
In connection with the provisions
of the Monetary Control Act, the title
of Regulation D was changed from
Reserves of Member Banks to Reserve Requirements of Depository Institutions.
August 13, 1980—Amendment
The Board amended Regulation D,
effective November 13, 1980, to implement the passthrough provisions
of the Monetary Control Act of 1980.
Votes for this action: Messrs. Volcker,
Wallich, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against this
action: None. Absent and not voting:
Mr. Schultz.

Under the Monetary Control Act,
nonmember depository institutions
are required to hold reserves on transaction accounts and nonpersonal time
deposits. These reserves may be held

Board Policy Actions
with a Federal Home Loan Bank, the
Central Liquidity Facility of the National Credit Union Administration,
or with any depository institution
maintaining its required reserves with
a Federal Reserve Bank. The amendment establishes rules for nonmember
depository institutions to follow if
they pass required reserve balances
through another institution to the
Federal Reserve and rules for intermediary institutions to follow in
handling the reserve balances of
others.

Regulation E
(Electronic Fund Transfers)
January 23, 1980—Amendments
The Board amended Regulation E by
adding several major sections to implement the Electronic Fund Transfer
Act and by revising some of the existing provisions, effective May 10,
1980.
Votes for this action: Messrs. Volcker,
Schultz, Wallich, Coldwell, Partee,
Mrs. Teeters, and Mr. Rice. Votes
against this action: None.
The new sections of the regulation
specify the following: (1) documentation requirements for electronic fund
transfers (EFTs), (2) requirements for
notifying consumers about preauthorized credits, (3) procedures for
resolving errors, and (4) responsibilities for compliance when certain
types of EFT services are provided by
an institution other than the institution holding the account.
The Board amended the definition
of an electronic fund transfer, as contained in a section adopted in 1979, to
exclude payments made by check,
draft, or other paper instrument at
electronic terminals and to include
customer use of automated teller




67

machines for the deposit of cash and
checks. The Board also adopted
several technical amendments and a
clarifying amendment to the section
dealing with initial disclosures to
specify that the required disclosures
must be in a form that can be retained
by the consumer.
April 9, 1980—Amendments
The Board amended four provisions
of Regulation E pertaining to requirements for terminal receipts and
periodic statements. Three were effective May 10, 1980; the fourth
delayed the effective date of certain
requirements until August 10, 1980.
Votes for this action: Messrs. Schultz,
Wallich, Partee, and Mrs. Teeters.
Votes against this action: None. Absent and not voting: Messrs. Volcker
and Rice.1
One of the amendments related to
receipts given at cash-dispensing
machines. Machines that can dispense
cash but cannot provide receipts are
exempt from the requirement to provide receipts at the time the transfer is
initiated. Institutions that had ordered or installed these machines
before February 6, 1980, are allowed
to continue using them provided they
mail receipts to customers on the next
business day.
The other three amendments pertained to the requirements for
periodic statements. Some institutions offering electronic fund transfer
(EFT) services allow customers to use
automated teller machines to make
deposits to their accounts. One
amendment allows financial institutions to omit from the periodic statement information identifying the location of the terminal used for such
deposits. Another revision relates to
the disclosure on the periodic state-

68

Board Policy Actions

ment of charges for electronic transfers. The amendment allows institutions to combine EFT charges with
other account charges on the periodic
statement. The fourth amendment
gives institutions until August 10,
1980, to comply with the requirement
that periodic statements indicate the
location of the terminal at which a
transfer was initiated and the name of
any third party to whom or from
whom funds were transferred.

mation could be obtained through the
authorization network associated
with the point-of-sale system. The
Board believed that each of the alternatives represented an unwarranted
burden, and therefore it decided to
remove the requirement that receipts
for point-of-sale transactions indicate
the type of account being used.

May 5, 1980—Amendment

The Board adopted four amendments
to Regulation E, effective October 6,
1980, pertaining to intra-institutional
transfers and documentation requirements.

The Board amended Regulation E,
effective May 10, 1980, to eliminate a
requirement that the receipts given at
point-of-sale terminals identify the
type of account being charged, if only
one account can be accessed at the
point of sale by the EFT card.
Votes for this action: Messrs. Volcker,
Schultz, Wallich, Partee, Mrs. Teeters,
and Mr. Rice. Votes against this action: None.1

Regulation E requires that transactions made through an electronic terminal be recorded on a receipt specifying which type of account is used—
for example, whether a savings or
checking account is involved. In
transactions involving point-of-sale
terminals, compliance with that requirement is difficult because the
debit card used in these transactions
may not indicate the type of account
it accesses.
The Board believed that none of the
three alternative resolutions for compliance was practical. One alternative
would require the sales clerk to ask
the customer the account to be used
and record the information manually.
A second alternative would involve
the issuance of new debit cards indicating the type of account they access. As a third alternative, the infor


September 24, 1980—
Amendments

Votes for this action: Messrs. Volcker,
Schultz, Wallich, Partee, Mrs. Teeters,
and Mr. Rice. Votes against this action: None. Absent and not voting:
Mr. Gramley.

One amendment exempts from the
regulation transfers between accounts
of family members at the same institution. A second change provides
an exemption for certain automated
teller machines that do not comply
with the terminal receipt requirements in the regulation. A few
machines permit customers to access
more than one account with the same
card, but cannot uniquely identify the
account used on the terminal receipt;
institutions that ordered or purchased
such machines before February 6,
1980, the date the regulation became
effective, were exempt from that requirement.
The other two amendments are
technical. One permits financial institutions to omit from the periodic
statement reference to the state in
which an electronic transfer was initiated if the transaction was made
within 50 miles of the institution's
main office. The fourth amendment

Board Policy Actions
eliminates a requirement that periodic
statements include the code used on
terminal receipts to identify any third
party to whom or from whom funds
were transferred. The code is unnecessary because the name of the
third party is given on the periodic
statements.
Regulation F (Securities of
Member State Banks)
September 17, 1980—
Amendments
The Board amended Regulation F, effective November 1, 1980, to conform with changes in comparable
regulations of the Securities and Exchange Commission and to simplify
the regulatory format.
Votes for this action: Messrs. Volcker,
Schultz, Wallich, Partee, Mrs. Teeters,
Messrs. Rice, and Gramley. Votes
against this action: None.
The amendments prompted by the
SEC changes pertained mainly to the
form and content of financial statements and to certain disclosures on
loans required of officers, majority
shareholders, and others. In addition,
the Board simplified the regulation by
replacing the instructions for preparing financial statements with a reference to the instructions for preparing
the reports of condition and of income.
Regulation K (International
Banking Operations)
March 5, 1980—Amendments
These actions are discussed under
Regulation A.
September 17, 1980—Amendment
The Board amended Regulation K,
effective October 2, 1980, by adding a
new section
 to implement the inter

69

state banking provisions of the International Banking Act of 1978.
Votes for this action: Messrs. Volcker,
Schultz, Wallich, Partee, Mrs. Teeters,
Messrs. Rice, and Gramley. Votes
against this action: None.

The new section (Subpart B) of
Regulation K sets forth rules governing the activities of branches, agencies, commercial lending companies,
and subsidiary banks of foreign
banking organizations that operate or
seek to operate in more than one
state. The rules specify how such an
organization may select its "home
state" of operation and the circumstances under which it may
change its home state and establish
offices in other states.
November 12,1980—Amendments
The Board amended Regulation K,
effective November 13, 1980, to
change the consent procedures by
which banking organizations may
make additional investments in their
subsidiaries. It also amended the
regulation, effective January 3, 1981,
to implement provisions in the International Banking Act and the Bank
Holding Company Act concerning
the nonbanking activities of foreign
banking organizations.
Votes for these actions: Messrs.
Volcker, Schultz, Wallich, Partee,
Mrs. Teeters, Messrs. Rice, and
Gramley. Votes against these actions:
None.

The revised consent procedures
permit member banks, Edge and
Agreement corporations, and bank
holding companies, under certain
conditions, to make additional investments in the organizations in
which they already have an interest
without first seeking approval from
the Board.

70

Board Policy Actions

The International Banking Act extended the nonbanking prohibitions
of the Bank Holding Company Act to
foreign banks operating in the United
States through a branch, agency, or
commercial lending company. The
revisions to Regulation K implement
the provisions of the Bank Holding
Company Act that grant foreign
banks certain exemptions from the
nonbanking prohibitions. To qualify
for those exemptions, a foreign banking organization must be principally
engaged in the banking business outside the United States. The revisions
established criteria for determining
whether a foreign banking organization meets this test. Organizations
that fail to qualify in two consecutive
years will no longer be entitled to an
exemption; those failing to qualify
may petition the Board for specific
determination of eligibility.
Foreign banking organizations that
qualify for an exemption may engage
in certain nonbanking activities that
otherwise would be prohibited. In
general, such activities are limited to
those that are in the same line of
business as the foreign organization
engages in outside the United States.
The Board agreed that resolution of
questions regarding whether activities
are in the same line of business will be
made by reference to the four-digit
"establishment" category of the
Standard Industrial Classification
(SIC). Banking or financial activities
(those included in division H of the
SIC) usually may be pursued only
with specific Board approval.
Regulation L
(Management Official Interlocks)
February 27, 1980—Amendments
The Board amended Regulation L,
Digitizedeffective May 9, 1980, to add new secfor FRASER


tions and to clarify existing provisions.
Votes for this action: Messrs. Wallich,
Coldwell, Partee, Mrs. Teeters, and
Mr. Rice. Votes against this action:
None. Absent and not voting: Messrs.
Volcker and Schultz.
In June 1979, when the Board
adopted the new Regulation L to implement the Depository Institution
Management Interlocks Act, it also
proposed for comment additional
provisions to complete the regulation.
Based partly on the comments received, the Board amended the
regulation (1) by providing additional
time to terminate prohibited interlocking relationships for institutions that would be faced with a
disruptive loss of officers or directors
and (2) by changing the definition of
"adjacent communities" for purposes of the regulation. In addition,
the Board adopted several clarifying
or technical amendments pertaining
to the following: the types of interlocking relationships that can be
grandfathered; the definition of
"person" as it applies to corporations or other businesses; and the circumstances that would change the
grandfather privileges of an institution.
Regulation Q
(Interest on Deposits)

February 26—Amendment
The Board amended Regulation Q,
effective February 27, 1980, to
establish temporarily for member
banks a maximum interest rate ceiling
of H3/4 percent on 2!/2-year certificates of deposit.
Votes for this action: Messrs. Volcker,
Wallich, Coldwell, Partee, Mrs.
Teeters, and Mr. Rice. Votes against
this action: None. Absent and not
voting: Mr. Schultz.

Board Policy Actions
As of January 1, 1980, depository
institutions were permitted to offer a
21/i-year certificate of deposit with an
interest rate ceiling that would vary
according to changes in the yield on
Treasury securities of comparable
maturities that are auctioned each
month. No maximum was imposed
on that ceiling. A rise in interest rates,
however, threatened to be disruptive
to certain financial institutions, particularly those whose assets comprise
primarily long-term fixed-rate loans,
because such institutions are less able
to pay the higher rates over the life of
the deposits than are other institutions. Consequently, the Board and
the other federal regulators of financial institutions established maximum
interest rate ceilings on this category
of deposit.
March 5, 1980—Amendments
These actions are discussed under
Regulation A.
March 14, 1980—Amendment
The Board amended Regulation Q,
effective immediately, to impose interest rate ceilings on certain obligations issued by the parent holding
company of a member bank.
Votes for this action: Messrs. Volcker,
Schultz, Wallich, Partee, Mrs. Teeters,
and Mr. Rice. Votes against this action: None.1

The amendment, which applied to
obligations issued in denominations
of less than $100,000 and with maturities of four years or less, imposed
interest rate limitations on such
obligations similar to those on
member bank time deposits of comparable maturities. The action was
taken to reduce potential pressures
Digitizedfor FRASER
for continued disintermediation from


71

depository institutions, particularly
thrift institutions.
Regulation T
(Credit by Brokers and Dealers)
February 27, 1980—Amendments
The Board amended Regulation T,
effective June 2, 1980, to relieve certain administrative burdens of brokers and dealers and to recognize improvements in information-processing technology.
Votes for this action: Messrs. Wallich,
Coldwell, Partee, Mrs. Teeters, and
Mr. Rice. Votes against this action:
None. Absent and not voting: Messrs.
Volcker and Schultz.
The amendments to Regulation T
provided for the following: (1) changing from five business days to seven
business days the period within which
deposits must be made to a margin
account; (2) increasing from $100 to
$500 the minimum amount of shortfall in a margin account or special
cash account that would require
regulatory action by the broker; (3)
allowing a securities exchange,
association, or other self-regulatory
organization to approve requests
from brokers or dealers for extensions of time for payment; and (4)
permitting the date of the postmark
on a request for an extension of time
to serve as evidence of timely filing.
In connection with the last amendment, the Board also rescinded an interpretation that required the use of
the date of receipt of the request
(rather than the postmark) as evidence of timely filing.
June 11, 1980—Amendments
The Board amended Regulation T to
establish for marketmakers in options
a financing rule, similar to the

72

Board Policy Actions

one provided for securities specialists,
whereby options specialists may obtain, under certain circumstances,
financing on terms more favorable
than those available to ordinary
customers. In a related action, the
Board rescinded an existing special
provision that exempted options
specialists from the Board's uniform
margin requirements, since the
amendment provides that exemption
directly. Both actions were effective
August 11, 1980.
Votes for these actions: Messrs.
Schultz, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against these
actions: None. Absent and not voting:
Messrs. Volcker and Wallich.
The Board's securities credit
regulations permit stock specialists to
finance with broker-dealers their
positions in the stocks in which they
specialize on terms more advantageous than those available to the
public. This concession is provided to
help stock specialists maintain fair
and orderly markets in their specialty
stocks. In the mid-1970s, the
Securities and Exchange Commission
adopted rules stating that marketmakers in options performed the
same functions in the market as stock
specialists and should be included in
the same regulations. Accordingly,
the Board amended Regulation T to
extend the specialist credit provisions
to exchange-registered options specialists.
In early 1977, the Board temporarily exempted options specialists from
a new rule that established uniform
margin requirements for the writing
of options. With the adoption of a
separate rule for options specialists,
the special exemption was no longer
necessary and the Board therefore
rescinded it.



August 6, 1980—Amendment
The Board amended Regulation T,
effective November 3, 1980, to allow
brokers and dealers to extend credit
on mutual fund shares that have been
fully paid for.
Votes for this action: Messrs. Volcker,
Schultz, Wallich, Partee, Mrs. Teeters,
Messrs. Rice, and Gramley. Votes
against this action: None.

The Board's securities credit
regulations already permitted banks
and other lenders to extend credit on
mutual fund shares, and this amendment provided similar authority to
brokers and dealers.
December 12, 1980—
Interpretation
The Board determined that Regulation T does not permit the use of
bank depository receipts for gold as
the required margin deposit.
Votes for this action: Messrs. Volcker,
Partee, Mrs. Teeters, Messrs. Rice,
and Gramley. Votes against this action: None. Absent and not voting:
Messrs. Schultz and Wallich.

The Board had been asked to determine whether bank depository
receipts for gold could be used in a
margin account. It was argued that
since the South African Krugerrand is
considered currency and therefore is
eligible for use as credit in a margin
account, bank depository receipts for
gold, being similar in nature to the
Krugerrand, also should be eligible
for use as a cash credit in a margin account under Regulation T. The relevant provision of Regulation T (permitting the use of foreign currency in
an account if the currency is regarded
as a commodity) had been adopted
when U.S. citizens were prohibited

Board Policy Actions
from owning gold. The Board ruled,
therefore, that bank depository
receipts for gold were not acceptable
substitutes for cash in margin accounts.
Regulation Y
(Bank Holding Companies and
Change in Bank Control)

July 2, 1980—Decisions
on Impermissible
Nonbanking Activities
The Board decided not to add the
underwriting of home mortgage life
insurance to the list of nonbanking
activities permissible for bank holding companies.
Votes for this action: Messrs. Volcker,
Partee, and Gramley. Vote against this
action: Mr. Rice. Abstention: Mr.
Schultz. Absent and not voting: Mr.
Wallich and Mrs. Teeters.
The Board also decided that the
provision of key entry services on a
contract basis was not a permissible
activity for bank holding companies.
Votes for this action: Messrs. Volcker,
Schultz, Partee, Rice, and Gramley.
Votes against this action: None. Absent and not voting: Mr. Wallich and
Mrs. Teeters.
In its determination that underwriting mortgage life insurance was
not permissible for bank holding
companies, the Board noted that
many insurance companies provide
mortgage life coverage and that there
was no reason to conclude that the activity was closely related to banking.
Although holding companies are permitted to underwrite credit life and
credit accident and health insurance,
the Board distinguished between
those types of insurance and mortgage life insurance. Credit life insurance generally has been provided



73

only by the lender; mortgage insurance, on the other hand, is more
like term insurance and is available
from many sources. It was noted that
obtaining credit life insurance was
almost simultaneous with consummating the loan; with mortgage life
insurance, however, the two transactions are more likely to be separate.
Governor Rice dissented from this
action because he preferred to delay a
decision on whether the activity was
closely related to banking until public
comment could be sought.
In the second action, the Board
considered an application by a holding company to retain a data processing subsidiary whose activities included providing contract key entry
services. The terms of that service call
for the subsidiary to receive financial
information from a customer and to
convert the data into a medium usable by the customer's processing
equipment—either key-punched
cards or magnetic cards, tapes, or
discs. After the data have been converted to a usable format, the information is returned to the customer
for processing on its own system.
The Board determined that key entry services were not closely related to
banking. The service was not in a
traditional area of banking expertise
nor was it an integral part of other
data processing services that the subsidiary provided. Thus, the Board
decided that providing such services
should not be an activity permissible
for bank holding companies.
August 6, 1980—Interpretation
The Board issued an interpretation of
Regulation Y, effective August 11,
1980, concerning nonbanking activities permissible for bank holding
companies.

74

Board Policy Actions
Votes for this action: Messrs. Volcker,
Schultz, Wallich, Partee, Mrs. Teeters,
Messrs. Rice, and Gramley. Votes
against this action: None.

The interpretation allows a bank
holding company to form a subsidiary to perform services for other subsidiaries within the organization if the
holding company itself can perform
those services directly.
October 23, 1980—Amendment
The Board amended Regulation Y,
effective December 31, 1980, to add
the performance of real estate appraisals to the list of activities permissible for bank holding companies.
Votes for this action: Messrs. Schultz,
Wallich, Partee, Mrs. Teeters, and Mr.
Gramley. Votes against this action:
None. Absent and not voting: Messrs.
Volcker and Rice.

The amendment allows bank
holding companies to perform appraisals of real estate, including
single-family residences, upon proper
application to the Board.
Regulation Z
(Truth in Lending)
May 14, 1980—Amendments
The Board approved three amendments to Regulation Z, effective May
21, 1980, in conjunction with provisions of the Truth in Lending Simplification and Reform Act of 1980.
Votes for this action: Messrs. Schultz,
Wallich, Partee, Mrs. Teeters, and Mr.
Rice. Votes against this action: None.
Absent and not voting: Mr. Volcker.1

The Simplification Act required
that the Board adopt a revised
Regulation Z by April 1, 1981;



however, it permitted simplified procedures to become effective more
promptly. In April 1980, the Board
had proposed for comment a revised
regulation, and in May it adopted
three simplifying amendments: (1) to
exempt all agricultural credit from
the disclosure requirements of the
regulation; (2) to eliminate the
disclosure requirements in periodic
statements provided by lenders in
connection with closed-end credit
transactions; and (3) to continue a
provision, which otherwise would
have expired May 31, 1980, that
governs a consumer's right to rescind
a transaction made under an openend credit plan secured by the consumer's residence.
July 23—Amendment
The Board amended Regulation Z to
increase temporarily the tolerance for
error in disclosing annual percentage
rates for irregular mortgage transactions.
Votes for this action: Messrs. Schultz,
Wallich, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against this
action: None. Absent and not voting:
Mr. Volcker.

A congressional conference report
issued in conjunction with passage of
the Truth in Lending Simplification
and Reform Act of 1980 recommended that the Board permit, on a temporary basis, a more generous tolerance for error in disclosing the annual
percentage rate for mortgage transactions that involve irregular payments
or advances. The transactions would
include those with multiple advances,
such as loans for construction financing, and those with irregular repayment schedules, such as mortgages in
which the monthly payments include

Board Policy Actions
insurance premiums that can vary
over the term of the loan.
In adopting the recommendation
contained in the conference report,
the Board increased the tolerance
from 1/8 of 1 percentage point to 1/2
of 1 percentage point above or below
the actual rate. The greater tolerance
would be permitted between August
1, 1980, and March 31, 1981; during
that period, lenders were expected to
gain experience in using the calculation tools necessary for computing
the annual percentage rates for complicated mortgages. After March 31,
1981, the tolerance would revert to
1/8 of 1 percentage point.

Credit Restraint
March 14, 1980—Amendment and
Adoption of a New Regulation
As part of a general government program to help curb inflationary pressures, the Board took a series of actions, effective March 14, 1980, to
control inflation generated by extensions of credit in excessive amounts.2
To impose special deposit requirements on certain creditors, the Board
amended Regulation D and adopted a
new regulation, Part 229 (Credit
Restraint): Subpart A (Consumer
Credit), Subpart B (Short-Term Financial Intermediaries), and Subpart
C (Nonmember Commercial Banks).
Votes for these actions: Messrs.
Volcker, Schultz, Wallich, Partee,
Mrs. Teeters, and Mr. Rice. Votes
against these actions: None.1
The Board also approved establishment of a special credit restraint program that encouraged all creditors to
2. This subject is discussed in greater detail
in other sections of the REPORT.



75

comply voluntarily with the Board's
overall objectives of reducing credit
availability and dampening inflationary pressures.
Votes for this action: Messrs. Volcker,
Schultz, Partee, Mrs. Teeters, and Mr.
Rice. Vote against this action: Mr.
Wallich.1
The Board adopted, in conjunction
with several actions taken by the administration, the following antiinflation measures, pursuant in part
to the Credit Control Act of 1969 and
to Executive Order 12201:
1. Amendment of Regulation D to
increase from 8 to 10 percent the
marginal reserve requirement that
had been imposed in October 1979 on
certain managed liabilities of member
banks and Edge corporations.
2. Adoption of Subpart A to require creditors who provide certain
types of consumer credit to maintain
a special non-interest-earning deposit
with the Federal Reserve equal to 15
percent of the growth in covered assets above the base level outstanding
on March 14, 1980.
3. Adoption of Subpart B to require money market mutual funds
and other similar creditors to maintain a special non-interest-earning
deposit equal to 15 percent of the
growth in covered assets above the
amount outstanding on March 14.
4. Adoption of Subpart C to require nonmember banks to maintain
a special non-interest-earning deposit
equal to the 10 percent marginal
reserve requirement established for
member banks on their managed liabilities, as described in 1 above.
The Board also established a voluntary special credit restraint program
that urged financial intermediaries,
other creditors, and borrowers to

76

Board Policy Actions

take into account the Federal Reserve's anti-inflationary efforts when
making credit decisions. Lenders
were asked to continue to meet the
essential credit needs of their
established customers, but to avoid
lending for speculative or nonproductive purposes and to limit overall
growth in credit to a range of 6 to 9
percent.
Governor Wallich dissented from
the action on the voluntary program
because he preferred that the Federal
Reserve continue to rely on market
prices rather than to rely on moral
suasion for the execution of monetary
policy. He feared that some creditors
might try to circumvent the voluntary
program, possibly by shifting business abroad; he also was concerned
about the increased administrative
burden that would be placed on the
Federal Reserve.
March 27, 1980—Amendments
The Board approved, effective March
28, 1980, several amendments to Subpart B of the credit restraint regulation that modified the program's applicability to certain investment
funds. The Board also added Subpart
D (Reports under Special Credit Restraint Program) to implement the
reporting provisions of the program.
Votes for these actions: Messrs.
Schultz, Partee, Mrs. Teeters, and Mr.
Rice. Votes against these actions:
None. Absent and not voting: Messrs.
Volcker and Wallich.1
The amendments to the credit
restraint program had the following
effects:
1. Excluded bona fide personal
trust, pension, retirement, and other
tax-exempt accounts invested by bank
fiduciaries in money market funds.
2. Allowed a unit investment trust



of a particular sponsor to roll over
maturing investments, under certain
conditions, without incurring the 15
percent special deposit requirement.
3. Exempted the tax-exempt assets
of money market funds that invest at
least 80 percent of their assets in
short-term tax-exempt obligations.
4. Permitted certain money market
funds in existence on March 14, 1980,
to use $100 million as the minimum
base from which to calculate increases in outstanding credit.
5. Established reporting procedures for all affected organizations,
and delayed for one week (until April
8, 1980) the filing of the base report
of assets of money market funds.
April 2, 1980—Amendments
The Board amended the credit
restraint regulation, Subpart A, effective immediately, to establish a
uniform rule for creditors who
change the terms on existing openend credit plans.
Votes for this action: Messrs. Volcker,
Schultz, Wallich, Partee, and Mrs.
Teeters. Votes against this action:
None. Absent and not voting: Mr.
Rice.1
The Board also amended Subpart A,
effective immediately, to provide an
alternative method of calculating a
creditor's base amount of covered
credit.
Votes for this action: Messrs. Schultz,
Wallich, Partee, and Mrs. Teeters.
Votes against this action: None. Absent and 1not voting: Messrs. Volcker
and Rice.
One amendment established a nationwide rule for creditors who impose or increase any finance or other
charge on open-end credit accounts,
change the method of computing the

Board Policy Actions
balance upon which charges are assessed, or increase the minimum required payment. The new rule requires creditors to provide a written
notice 30 days in advance of any such
change in terms. Consumers may
either accept the new terms and continue to use the account, or reject the
new terms, discontinue use of the
credit card, and pay off any existing
balance under the old terms.
The second action was taken to
prevent undue hardship to some creditors, particularly retailers, who could
be unfairly restricted because their
outstanding level of credit may have
been at the normal seasonal low in
mid-March. The change allowed
creditors to choose an alternate base
period that would accommodate established seasonal variations.

April 16, 1980—Adoption of a
Temporary Seasonal Credit
Program
The Board adopted a temporary
seasonal credit program to assist
small banks faced with liquidity
pressures.
Votes for this action: Messrs. Volcker,
Schultz, Wallich, Mrs. Teeters, and
Mr. Rice. Votes against this action:
None. 1Absent and not voting: Mr.
Partee.
The program extended to small
nonmember banks, under simplified
guidelines, the seasonal borrowing
privileges previously available only to
member banks. It allowed institutions
with less than $100 million in deposits
to obtain credit from the Federal
Reserve to help them meet the credit
needs of farmers, small businesses,
and other priority users.
The program and guidelines were
considered a temporary action to implement provisions of the Monetary



77

Control Act of 1980; permanent provisions will be issued later.

May 22, 1980—Amendments
The Board approved amendments to
the special credit restraint program
that reduced by one-half the limitations on credit growth.
Votes for this action: Messrs. Volcker,
Wallich, Partee, and Rice. Votes
against this action: None. Absent and
not voting: Mr. Schultz and Mrs.
Teeters.1
In view of the reduction in credit
growth that had occurred and the
possibility of weakening economic
conditions, the Board took the
following actions:
1. Reduced to 5 percent the marginal reserve requirement on managed liabilities and increased by IVi
percent the base amount upon which
reserves are calculated, effective with
the statement week May 29-June 5,
1980, for both member and nonmember banks.
2. Reduced to IVi percent the special deposit requirement for covered
consumer credit, effective beginning
with the average amount of credit
outstanding in June.
3. Reduced to IVi percent the special deposit requirement on money
market mutual funds, effective with
the computation period beginning
June 16, 1980.

July 2, 1980—Amendments and
Termination of Regulation
The Board amended Regulation D
and rescinded the credit restraint
regulation, Subparts A, B, C, and D,
to terminate during July the remaining requirements imposed as part of
the credit restraint program. The
Board further amended Regulation D

78

Board Policy Actions

to eliminate a 2 percent supplementary reserve requirement imposed
in November 1978 on large time deposits of member banks.
Votes for these actions: Messrs.
Volcker, Schultz, Partee, Rice, and
Gramley. Votes against these actions:
None. Absent and not voting: Mr.
Wallich and Mrs. Teeters.
The Board completed the phaseout of the credit restraint program by
taking the following actions:
1. Eliminating the 2 percent supplemental reserve requirement and
the remaining 5 percent marginal reserve requirement for managed liabilities, effective with the reserve maintenance period beginning July 24.
2. Eliminating the IVi percent deposit requirement on consumer credit.
No further deposits are necessary
after the deposit maintenance period
expires on July 23.
3. Eliminating the IVi percent deposit requirement on money market
mutual funds, effective with covered
assets outstanding on July 28.
4. Eliminating the voluntary special credit restraint program. No further reports are required after institutions file the June 30 report.

Policy Statements and
Other Actions
March 26, 1980—
Formation of Small
One-Bank Holding Companies
The Board adopted a statement of
policy for assessing the formation of
one-bank holding companies when
sizable acquisition debt is involved.
Votes for this action: Messrs. Volcker,
Schultz, Partee, and Rice. Votes



against this action: None. Absent and
not voting: Mr. Wallich and Mrs.
Teeters.1

The new policy, which applies to
one-bank holding companies with total assets of $150 million or less and
with no significant nonbanking activities, was designed to facilitate the
change of ownership of small banks
and to help maintain local ownership.
While stressing the need to maintain
the safety and soundness of the banking system, the Board said it would
permit a higher level of debt than
would be permissible for larger or
multibank holding companies. Previously, the Board required the retirement of acquisition debt within 12
years. The revised policy establishes
no time limit for debt retirement; instead, it requires that the ratio of debt
to equity capital of the holding company be reduced to 30 percent within
12 years. That ratio approximates the
debt level maintained by many multibank holding companies. The capital
of the subsidiary bank must be maintained at a level of no less than 8 percent of assets.

May 7, 1980—
Divestitures under the
Bank Holding Company Act
The Board adopted a statement of
policy regarding its treatment of certain divestitures required by the Bank
Holding Company Act.
Votes for this action: Messrs. Schultz,
Wallich, Partee, and Mrs. Teeters.
Votes against this action: None. Absent and not voting: Messrs. Volcker
and Rice.1

The 1970 amendments to the Bank
Holding Company Act allowed certain one-bank holding companies that
also engaged in impermissible non-

Board Policy Actions
bank activities up to ten years to complete one of the following actions: (1)
to qualify for an exemption that
would permit retention of the activity; (2) to divest the activity; or (3) to
divest the bank and cease being a
bank holding company. The act required affected companies to complete such actions by December 31,
1980; it contained no provision for
extending the deadline. A provision
in the Monetary Control Act of 1980,
however, would allow bank holding
companies having impermissible real
estate holdings an additional two
years within which to divest.
The Board noted that a number of
banking organizations still had not
filed their plans for complying with
the divestiture requirements. The
policy statement issued by the Board
required that each affected company
file by July 1, 1980, an application to
retain a nonbanking activity if it
planned to do so. Failure to file such
an application would be considered a
declaration of the company's intention to divest the activity. Those
organizations planning to divest must
begin filing reports with the Board on
August 1, 1980, regarding their progress in completing the divestiture.
With regard to the real estate provisions of the Monetary Control Act,
the policy statement indicated that
the Board would review on a case-bycase basis requests for extensions of
time within which to comply. In
reviewing those requests, the Board
would take into account whether the
company had made a good-faith effort in the past to divest and whether
immediate divestiture would impose a
substantial financial loss. Holding
companies that wished to take advantage of the extension of time were
required to submit a request by July 1,
1980.



79

November 26, 1980—
Procedures for Handling
Applications by Banks and
Bank Holding Companies
The Board adopted a policy statement describing the procedures to be
followed regarding notice of applications by banks or bank holding companies, the timeliness of comments,
and guidelines for public meetings.
The policy is effective with all applications for which notice is published after January 31, 1981.
Votes for this action: Messrs. Volcker,
Schultz, Wallich, Partee, Mrs. Teeters,
Messrs. Rice, and Gramley. Votes
against this action: None.
The new policy establishes improved procedures for notifying the
public of applications to acquire subsidiaries or branches, to merge, or to
become members of the Federal Reserve. The statement includes model
formats for required newspaper
notices; the notices must specify the
deadline for receipt of comments on
an application or for a request for an
extension of the comment period.
The policy also prescribes guidelines
to be used for informal hearings on
protested applications, particularly
those protested under the Community
Reinvestment Act.
In conjunction with the new policy,
the Board also approved technical
amendments to its Rules of Procedure.

December 12, 1980—
Fee Schedules and Pricing
Principles for System Services
The Board adopted pricing principles, implementation dates, and a
partial schedule of fees to be charged
depository institutions that use the
Federal Reserve's services.

80

Board Policy Actions
Votes for this action: Messrs. Volcker,
Partee, Mrs. Teeters, Messrs. Rice,
and Gramley. Votes against this action: None. Absent and not voting:
Messrs. Schultz and Wallich.

To implement provisions of the
Monetary Control Act of 1980, the
Board adopted schedules of prices for
certain of its services and published
the principles and price determinants
underlying the prices.
Fees, or a timetable for the adoption of fees, were established for the
following services:
1. Payment system services, such
as check clearing and collection, wire
transfer of funds, and use of Federal
Reserve automated clearinghouse facilities.
2. Book entry, safekeeping, and
other services associated with the purchase or sale of government securities.
3. Noncash collections.
4. Transportation of currency and
coin, and coin wrapping.
Charges are to be phased in over a
12-month period: Charges for wire
transfer and net settlement transactions will begin January 29, 1981;
charges for a number of other services will be imposed in the summer
and fall of 1981; and on January 1,
1982, charges will be implemented for
coin and currency services.
In its determination of appropriate
prices, the Board was guided by a
number of principles, including the
following:
1. All System services covered by
the fee schedule shall be priced explictly.
2. All such services shall be
available to nonmember depository
institutions at the same fee charged
member banks.
3. Revenues for major service cate


gories shall match costs over the long
run and shall reflect adjustments for
the costs that would be incurred by
private businesses if they provided the
services. The pricing principles,
however, shall give due regard to
competitive factors and the provision
of an adequate level of services nationwide.
4. The structure of fees and service
arrangements shall be designed to improve the efficiency of services and to
facilitate longer-run improvements in
the payments system.
5. Interest shall be charged on
items credited prior to collection at
the current rate applicable on federal
funds.
1980—Discount Rates
The Board approved seven changes in
the basic discount rate during 1980.
All were increases or decreases of 1
percentage point. These changes included an increase from 12 percent to
13 percent in mid-February, three
reductions from 13 percent to 10 percent between late May and late July,
and three increases from 10 percent to
13 percent between late September
and early December. The Board also
voted on four occasions to turn down
requests for increases submitted by
individual Federal Reserve Banks. No
requests to lower the rate were disapproved during 1980.
In mid-March a surcharge of 3
percentage points above the basic discount rate was established on frequent borrowings by institutions with
deposits of $500 million or more.
This surcharge was lifted in early
May, but later in the year a new surcharge was imposed; it was set at 2
percentage points in mid-November
and subsequently was increased to 3
percentage points in early December.

Board Policy Actions

81

The specific reasons for the
Board's decisions are reviewed below.
In reaching those decisions the Board
took into account general economic
and financial developments that are
covered in more detail elsewhere in
this REPORT. A listing of the Board's
discount rate actions during 1980, including the votes on the actions and
the reasons for dissents, follows this
review.

Reserve Banks. The surcharge provided added incentive for affected institutions to adjust their loans and investments more promptly to changing
market conditions. Such adjustments
would improve the ability of the
Federal Reserve to attain its longerrun objectives for bank credit and the
money supply.

January to Mid-March:
Increase in Basic Discount Rate;
Imposition of Surcharge

In late March and in mid-April requests by two Federal Reserve Banks
to raise the basic discount rate by 2
percentage points and 3 percentage
points were denied by the Board. The
other ten Banks had proposed that
the current rate be maintained. Over
previous weeks short-term market
rates had risen to levels well above the
discount rate. However, because of
the sensitivity of financial markets to
monetary policy developments, the
Board concluded that a large increase
in the discount rate was likely to convey a misleading message of further
tightening in monetary policy and put
further upward pressure on bank
lending rates and market interest
rates.

During the early weeks of the year the
Board became very concerned that
economic developments, including a
large increase in the price of imported
oil, were adding to inflationary
pressures and might lead to further
destabilizing pricing decisions.
Moreover, by mid-February monetary expansion appeared to be accelerating, after an extended period
of relatively moderate growth. In the
Board's judgment these developments underscored the need to
highlight the System's continuing
policy to resist inflation, and on
February 15 the Board approved an
increase in the basic discount rate
from 12 percent—the level in effect
since October 8, 1979—to 13 percent.
Subsequently, on March 14 the
Board approved a surcharge of 3
percentage points on frequent borrowings by institutions with deposits
of $500 million or more. The surcharge was introduced as part of a
broader program to curb inflation. It
was designed to discourage the frequent use of the discount window by
institutions with access to the money
market and was intended to supplement the administrative discipline
already in place at the Federal



Late March through April:
No Change

Early May to Late July:
Removal of Surcharge;
Reductions in
Basic Discount Rate
On May 6 the Board approved requests by several Federal Reserve
Banks to eliminate the surcharge of 3
percentage points on frequent borrowings by large depository institutions.
At the time it was established the surcharge brought the cost of Federal
Reserve credit for affected borrowers
into approximate alignment with the
constellation of short-term market
rates. Those rates had declined sub-

82

Board Policy Actions

stantially during April and by early
May were well below the surcharge
rate. In the circumstances the Board
concluded ihat the need for a surcharge no longer existed.
From late May to late July, the
Board approved three reductions of 1
percentage point in the basic discount
rate—from 13 percent to 10 percent.
All of these actions were technical in
nature: they were designed to bring
the discount rate into closer alignment with short-term market rates,
which fell substantially over the
period, and were not intended to
signal a change in the general course
of monetary policy.

Early August through
Mid-September: No Change in
Basic Discount Rate
Between early August and mid-September, one Federal Reserve Bank requested a change in the basic discount
rate—an increase of Vi percentage
point. The request was disapproved
on September 15. The Board's decision reflected its view that the discount rate was then at an appropriate
level in relation to short-term market
rates.
On August 22 the Board approved
a reduction of Vi percentage point in
the rate on loans made under section
10(b) of the Federal Reserve Act.
Such loans were secured by "ineligible paper," and the purpose of this action was to conform the System's
lending rules with the Monetary Control Act of 1980. The latter had
removed the previous requirement
that loans collateralized by ineligible
paper be made at a rate at least Vi
percentage point above the basic discount rate. This action eliminated the
penalty rate in question by providing
that adjustment and seasonal credit



collateralized to the satisfaction of
the Reserve Bank be made at the basic
discount rate, which remained at 10
percent.

Late September through
December: Increases in
Basic Discount Rate;
Reimposition of Surcharge
On September 25 the Board approved
an increase of 1 percentage point in
the basic discount rate to a level of 11
percent. This action was taken
against the background of an unexpectedly sharp recovery in economic
activity and the persistence of intense
inflationary pressures. These developments were associated in turn with
rapid expansion in money and bank
credit and with sizable increases in
market interest rates. By late
September short-term interest rates
had risen to levels well above the basic discount rate, and bank borrowings had also advanced appreciably
on average. In announcing this action
the Board referred to the continuing
policy of the Federal Reserve to
discourage excessive growth in the
monetary aggregates.
The Board approved a further increase of 1 percentage point in the
basic discount rate on November 14
and also approved a surcharge of 2
percentage points on frequent borrowings by depository institutions
with $500 million or more in deposits.
Interest rates and bank borrowings
had risen considerably further since
late September. The monetary aggregates and bank credit had continued to expand at rapid rates, with
particular strength exhibited by
business loans. In this situation the
Board decided that increases in
System lending rates were desirable to
bring them into better alignment with

Board Policy Actions
market rates and to highlight the
Federal Reserve's continuing antiinflationary policy.
On December 4 the Board approved an additional increase of 1
percentage point in the basic discount
rate to a level of 13 percent and also
approved a higher surcharge, of 3
percentage points, on frequent borrowings by large depository institutions. In the Board's judgment, there
was a strong case on technical
grounds for raising the System's lending rates, given the unusually wide
spread that had developed in recent
weeks between those rates and market
interest rates. Moreover, borrowings
by depository institutions had remained relatively high. The Board
also believed that the increases in
question would be consistent with the
policy of restraining excessive growth
in money and credit and would have a
favorable impact on inflationary expectations.
Subsequent requests by three Federal Reserve Banks to raise the basic
discount rate by 1 or 2 percentage
points were turned down by the
Board on December 22. In reaching
this decision, the Board took account
of sizable increases in short-term interest rates since early December, but
it also noted that expansion in the
monetary aggregates appeared to
have moderated substantially in recent weeks. Moreover, while inflation
and inflationary expectations remained very strong, there were signs
that economic activity might weaken
in the months ahead.

Votes on Reserve Bank Actions
to Change the Discount Rate
Under the provisions of the Federal
Reserve Act, the boards of directors
of the Federal Reserve Banks are re


83

quired to establish rates on discounts
for and advances to member banks 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 approval or disapproval of actions to
change the rate. Reference is made to
the rate on discounts for and advances to depository institutions for
short-term adjustment credit. This
rate has been referred to as the basic
discount rate in the foregoing report.
A corresponding change in subsidiary rates was approved each time
the basic rate was changed. As of
December 31, 1980, the structure of
rates was as follows: a basic rate of 13
percent for short-term adjustment
credit, subject to a surcharge of 3
percentage points for such borrowing
by institutions with deposits of $500
million or more that borrowed in successive statement weeks or in more
than four weeks in a calendar quarter; 13 percent for extended seasonal
credit; 14 percent for extended credit
in situations in which exceptional circumstances or practices are adversely
affecting an individual institution;
and 16 percent for emergency credit
to borrowers other than depository
institutions.

February 15, 1980
Effective February 15, 1980, the
Board approved actions taken by the
directors of the Federal Reserve
Banks of New York, Cleveland, Richmond, Atlanta, Chicago, St. Louis,
Minneapolis, Dallas, and San Francisco to increase the discount rate
from 12 percent to 13 percent.
Votes for this action: Messrs. Volcker,
Schultz, Wallich, Partee, Mrs. Teeters,
and Mr. Rice. Votes against this action: None. Absent and not voting:
Mr. Coldwell.

84

Board Policy Actions

The Board subsequently approved
similar actions taken by the directors
of the Federal Reserve Banks of
Boston, Philadelphia, and Kansas
City, effective February 19, 1980.
Mr. Wallich, while voting in favor
of this action, indicated that he would
have preferred a larger increase in
light of the strength of inflationary
forces and inflationary sentiment in
the economy.

March 14, 1980
Effective March 17, 1980, the Board
approved actions taken by the directors of all of the Federal Reserve
Banks to establish a surcharge of 3
percentage points for borrowing for
ordinary adjustment credit by institutions with deposits of $500 million or
more, when such borrowing occurred
in two successive statement weeks or
when it occurred in more than four
weeks in a calendar quarter.
Votes for this action: Messrs. Volcker,
Schultz, Wallich, Partee, Mrs. Teeters,
and Mr. Rice. Votes against this action: None.1

March 31, 1980
The Board disapproved actions taken
on March 27 by the directors of the
Federal Reserve Bank of Cleveland to
increase the discount rate to 16 percent and by the directors of the
Federal Reserve Bank of St. Louis to
increase the discount rate to 15 percent.
Votes for this action: Messrs. Schultz,
Wallich, Partee, Mrs. Teeters, and Mr.
Rice. Votes against this action: None.
Absent and not voting: Mr. Volcker.1
April 14, 1980
The Board disapproved an action
1. This note appears on p. 65.



taken by the directors of the Federal
Reserve Bank of Cleveland on April
10 to increase the discount rate to 15
percent.
Votes for this action: Messrs. Volcker,
Schultz, Partee, Mrs. Teeters, and Mr.
Rice. Votes against this action: None.
Absent and not voting: Mr. Wallich.1

May 6, 1980
Effective May 7, 1980, the Board approved actions taken by the directors
of the Federal Reserve Banks of
Boston, Philadephia, Richmond,
Atlanta, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco to
eliminate the 3 percentage point surcharge, approved on March 14, 1980,
applicable to frequent borrowings by
depository institutions with deposits
of $500 million or more.
Votes for this action: Messrs. Volcker,
Schultz, Mrs. Teeters, and Mr. Rice.
Vote against this action: Mr. Wallich.
Absent and not voting: Mr. Partee.1
The Board subsequently approved
similar actions taken by the directors
of the Federal Reserve Banks of New
York, Cleveland, and Kansas City,
effective May 9, 1980.
Mr. Wallich voted against this action because he believed the sizable
decline in market interest rates during
recent weeks had generated an undesirable inference of easing in monetary policy. Removal of the discount
rate surcharge would reinforce that
view in his judgment and have an
adverse effect on inflationary expectations.
May 28, 1980
Effective May 29, 1980, the Board
approved actions taken by the directors of the Federal Reserve Banks of
Boston, Philadelphia, Cleveland,

Board Policy Actions

85

Richmond, Atlanta, Chicago, St.
Louis, Minneapolis, Kansas City,
Dallas, and San Francisco to reduce
the discount rate from 13 percent to
12 percent.

York, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis,
Kansas City, Dallas, and San Francisco to reduce the discount rate to 10
percent.

Votes for this action: Messrs. Volcker,
Schultz, Mrs. Teeters, and Mr. Rice.
Vote against this action: Mr. Wallich.
Absent and not voting: Mr. Partee.1

Votes for this action: Messrs. Volcker,
Wallich, Mrs. Teeters, Messrs. Rice,
and Gramley. Votes against this action: None. Absent and not voting:
Messrs. Schultz and Partee.

The Board subsequently approved
a similar action taken by the directors
of the Federal Reserve Bank of New
York, effective May 30, 1980.
Mr. Wallich was opposed to a reduction at this time because he was
concerned that such action would be
interpreted as a move toward a more
stimulative monetary policy and
would therefore have an adverse impact on inflationary expectations.
June 12, 1980
Effective June 13, 1980, the Board
approved actions taken by the directors of the Federal Reserve Banks of
New York, Philadelphia, Cleveland,
Richmond, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and
San Francisco to reduce the discount
rate to 11 percent.
Votes for this action: Messrs. Volcker,
Schultz, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against this
action: None. Absent and not voting:
Mr. Wallich.
The Board subsequently approved
similar actions taken by the directors
of the Federal Reserve Banks of
Boston and Atlanta, effective June
16, 1980.
July 25, 1980
Effective July 28, 1980, the Board approved actions taken by the directors
of the Federal Reserve Banks of New



The Board subsequently approved
similar actions taken by the directors
of the Federal Reserve Banks of
Boston and Philadelphia, effective
July 29, 1980.

August 22, 1980
Effective September 2, 1980, the
Board approved actions taken by the
directors of the Federal Reserve
Banks of Boston, New York, Philadelphia, and Atlanta to reduce the
discount rate under section 10(b) of
the Federal Reserve Act from lOVi
percent to 10 percent.
Votes for this action: Messrs. Volcker,
Schultz, Partee, and Gramley. Votes
against this action: None. Absent and
not voting: Mr. Wallich, Mrs. Teeters,
and Mr. Rice.
The Board subsequently approved
similar actions taken by the directors
of the Federal Reserve Banks of
Cleveland, Richmond, Chicago, St.
Louis, Minneapolis, Kansas City,
Dallas, and San Francisco, effective
September 2, 1980.

September 15, 1980
The Board disapproved an action
taken by the directors of the Federal
Reserve Bank of St. Louis on September 11, 1980, to increase the discount rate from 10 percent to IOV2
percent.

86

Board Policy Actions
Votes for this action: Messrs. Volcker,
Schultz, Partee, Mrs. Teeters, Messrs.
Rice, and Gramley. Votes against this
action: None. Absent and not voting:
Mr. Wallich.

September 25, 1980
Effective September 26, 1980, the
Board approved actions taken by the
directors of all of the Federal Reserve
Banks to increase the discount rate to
11 percent.
Votes for this action: Messrs. Volcker,
Schultz, Wallich, Partee, Mrs. Teeters,
Messrs. Rice, and Gramley. Votes
against this action: None.

November 14, 1980
Effective November 17, 1980, the
Board approved actions taken by the
directors of all of the Federal Reserve
Banks to increase the discount rate to
12 percent and to adopt a surcharge
of 2 percentage points on frequent
use of the discount window by large
borrowers.
Votes for these actions: Messrs.
Volcker, Schultz, Wallich, Partee,
Rice, and Gramley. Vote against these
actions: Mrs. Teeters.
Mrs. Teeters voted against the increases because she felt they would
put further upward pressure on market interest rates, which she believed
were already too high, and could have
seriously adverse consequences for
the economy.
December 4, 1980
Effective December 5, 1980, the
Board approved actions taken by the
directors of the Federal Reserve
Banks of New York, Cleveland, Rich-




mond, Atlanta, St. Louis, Minneapolis, Kansas City, and San Francisco to increase the discount rate to
13 percent and to raise the surcharge
to 3 percentage points for large
depository institutions that have a
record of frequent borrowing.
Votes for these actions: Messrs.
Volcker, Schultz, Wallich, Partee,
Rice, and Gramley. Vote against these
actions: Mrs. Teeters.
The Board subsequently approved
similar actions taken by the directors
of the Federal Reserve Banks of
Boston, Philadelphia, Chicago, and
Dallas, effective December 8, 1980.
Mrs. Teeters believed that no
change should be made in discount
rates. In her view interest rates were
already too high and were having a
highly restraining impact on economic activity. She saw a major risk
that further sizable increases in interest rates, which were likely to be
stimulated by a rise in discount rates,
might be followed by a relatively
sharp downturn in overall economic
activity.
December 22, 1980
The Board disapproved actions taken
on December 11 by the directors of
the Federal Reserve Banks of Richmond and St. Louis to increase the
discount rate to 14 percent and by the
directors of the Federal Reserve Bank
of Cleveland to increase the discount
rate to 15 percent.
Votes for this action: Messrs. Volcker,
Wallich, Partee, Rice, and Gramley.
Votes against this action: None. Absent and not voting: Mr. Schultz and
Mrs. Teeters.

87

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 1980,
including the votes on the policy decisions made at those meetings as well
as a re'sume 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 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 Committee were equally agreed as to 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 1980 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.
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 1980. 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, 1980
1. The Federal Open Market Committee authorizes and directs the Federal

88

FOMC Policy Actions

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:
(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 9 months at the
time of acceptance that (1) arise out of
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
1. Pursuant to an action taken by the Committee on December 19, 1979, the limit on
changes between the 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 January 9, 1980, at which time it
reverted to $3.0 billion.



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 aceptances 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 accom-

FOMC Policy Actions
modation of the Treasury, provided that
the rate charged on such certificates shall
be a rate of XA of 1 percent below the discount 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 bases 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, 1980
The information reviewed at this meeting suggests that real output of goods



89

and services is declining in the current
quarter, after the third-quarter rebound,
and that prices on the average are continuing to rise rapidly. Retail sales, which had
expanded sharply during the third quarter
in both constant and current dollars,
dropped in October. Industrial production remained near its midyear level. Nonfarm payroll employment rose considerably, after three months of little
growth, but the unemployment rate increased from 5.8 to 6.0 percent. Producer
prices of finished goods continued to rise
rapidly in October, in part because of further sharp increases in energy costs. The
rise in the index of average hourly earnings during the first 10 months of the year
was close to the rapid pace during 1978.
On October 6 the Federal Reserve announced a series of complementary actions directed toward assuring control
over the expansion of money and bank
credit and toward curbing speculative excesses in commodity and financial
markets, including foreign exchange
markets. The actions included an increase
in Federal Reserve Bank discount rates
from 11 percent to 12 percent; establishment of a marginal reserve requirement on
increases in the total of managed liabilities
of member banks, Edge corporations, and
U.S. agencies and branches of foreign
banks; and a shift in the conduct of open
market operations to an approach placing
greater emphasis in day-to-day operations
on the supply of bank reserves and less
emphasis on confining short-term fluctuations in the federal funds rate.
Following the announcement on October 6, the downward pressure on the
dollar in the exchange markets that had
developed in September was reversed, and
by the end of October the trade-weighted
value of the dollar against major foreign
currencies hadrisenabout VA percent. In
mid-November, however, the value of the
dollar declined, reflecting in part
developments concerning Iran. The U.S.
foreign trade deficit increased in September as the cost of oil imports rose, but
the deficit was somewhat lower for the
third quarter as a whole than for the second quarter.
Growth of M-l, which had accelerated
in September and was exceptionally rapid
in the third quarter as a whole, slowed
sharply in October to an annual rate of
2Vi percent. Expansion of interest-

90

FOMC Policy Actions

bearing deposits included in M-2 remained strong, as a rise in net flows into
time deposits at commercial banks in
response to increased yields offset a contraction in savings deposits. Inflows of
deposits at nonbank thrift institutions
slowed somewhat. Flows into money
market mutual funds accelerated. Growth
of commercial bank credit moderated in
October; nevertheless, banks increased
their reliance on the negotiable, largedenomination CD's and other managed
liabilities that became subject to the
marginal reserve requirement in the statement week beginning October 11. Both
short- and long-term market interest rates
have risen sharply on balance since the
early October announcement of the System's policy actions, although most
recently rates have declined; mortgage interest rates have increased substantially
further.
Taking account of past and prospective
developments in employment, unemployment, production, investment, real income, productivity, international trade
and payments, and prices, the Federal
Open Market Committee seeks to foster
monetary and financial conditions that
will resist inflationary pressures while encouraging moderate economic expansion
and contributing to a sustainable pattern
of international transactions. At its
meeting on July 11, 1979, the Committee
agreed that these objectives would be furthered by growth of M-l, M-2, and M-3
from the fourth quarter of 1978 to the
fourth quarter of 1979 within ranges of
1 Vi toAVi percent, 5 to 8 percent, and 6 to
9 percent respectively, the same ranges
that had been established in February.
The range for M-l had been established
originally on the basis of an assumption
that expansion of ATS and NOW accounts would dampen growth by about 3
percentage points over the year. It now
appears that expansion of such accounts
will dampen growth by about 1 Vi percentage points over the year; thus after
allowance for the deviation from the
earlier estimate, the equivalent range for
M-l is now 3 to 6 percent. The associated
range for bank credit is IVi to lOVi percent. The Committee anticipates that for
the period from the fourth quarter of 1979
to the fourth quarter of 1980, growth may
be within the same ranges, depending
upon emerging economic conditions and



appropriate adjustments that may be required by legislation or judicial
developments affecting interest-bearing
transactions accounts. These ranges will
be reconsidered at any time as conditions
warrant.
In the short run, the Committee seeks
to restrain expansion of reserve aggregates
to a pace consistent with deceleration in
growth of M-l, M-2, and M-3 in the
fourth quarter of 1979 to rates that would
hold growth of these monetary aggregates
over the whole period from the fourth
quarter of 1978 to the fourth quarter of
1979 within the Committee's longer-run
ranges, provided that in the period before
the next regular meeting the weekly
average federal funds rate remains within
a range of 11/2 to 15 Yi percent.
It it appears during the period before
the next meeting that the constraint on the
federal funds rate is inconsistent with the
objective for the expansion of reserves,
the Manager for Domestic Operations is
promptly to notify the Chairman, who
will then decide whether the situation calls
for supplementary instructions from the
Committee.

Authorization, for Foreign
Currency Operations
In Effect January 1, 1980
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:

FOMC Policy Actions
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
$1.0 billion, unless a larger position is expressly authorized by the Committee.
[Note. An overall open position not exceeding $8.0 billion had been expressly
authorized by the Committee on December 19, 1978, and was in effect as of
January 1, 1980.] 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
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

91

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 Mexico
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
500
250
300
4,000
600
1.250

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. Currencies to be used for liquidation
of System swap commitments may be purchased from the foreign central bank
drawn on, at the same exchange rate as
that employed in the drawing to be liquidated. Apart from any such purchases
at the rate of the drawing, all transactions
in foreign currencies undertaken under
paragraph 1(A) above shall, unless otherwise expressly authorized by the Committee, be at prevailing market 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 of System
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.
When appropriate in connection with arrangements to provide investment facilities for foreign currency holdings, U.S.

92

FOMC Policy Actions

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 daily to the Foreign Currency
Subcommittee. 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 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 operations 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, 1980
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.

FOMC Policy Actions
Meeting Held on
January 8-9, 1980

Domestic Policy Directive
The information reviewed at this
meeting suggested that, contrary to
the estimates presented at the time
of the November 20 meeting, real
output of goods and services expanded somewhat further in the
fourth quarter of 1979 after its
rebound in the third quarter. Average prices, as measured by the fixedweight price index for gross domestic business product, appeared to
have risen at a pace close to the annual rate of about 10 percent experienced during the first three quarters
of the year.
Total retail sales strengthened in
November and recovered the sizable
decline in October, although sales of
new automobiles remained at a reduced level. In December, auto sales
improved considerably.
The index of industrial production
fell 0.5 percent in November, and on
balance the level of production was
little changed from that in December
1978. Nonfarm payroll employment
rose considerably in October and
November, following three months
of slower expansion, and the rate of
unemployment edged down in November from 6.0 to 5.8 percent.
Private housing starts declined
somewhat in October and fell sharply further in November to an annual
rate of 1.5 million units. Building
permits for new units declined substantially in both October and November, and combined sales of new
and existing single-family homes appeared to be lower in both months.
The latest survey of business
plans taken by the Department of
Commerce in late October and November suggested that spending for



93

plant and equipment would be 14.7
percent greater in 1979 than in 1978.
The survey also indicated that investment outlays would increase at
an annual rate of 12.8 percent over
the first half of 1980.
Producer prices of finished goods
and consumer prices continued to
rise rapidly in November, reflecting
in part the continuing diffusion of
earlier increases in energy costs. Advances in prices of food contributed
importantly to the November rise in
producer prices, while further sharp
increases in the costs of homeownership were a major factor in sustaining the upward pressure on consumer prices.
The index of average hourly earnings of private nonfarm production
workers rose at an annual rate of 9lli
percent in November and at a rate of
about 8 percent over the first 11
months of 1979, close to the rate of
increase in 1978. Labor cost pressures in the nonfarm business sector
intensified during 1979, as large increases in total hourly compensation
were associated with a decline in
productivity.
In foreign exchange markets the
trade-weighted value of the dollar
against major foreign currencies had
depreciated about 3 percent since
mid-November, reflecting in large
part developments relating to Iran
and Afghanistan and a firming of
monetary conditions in a number of
foreign countries. The U.S. trade
deficit in October and November averaged slightly below the rate for the
third quarter. In November a decline
in the value of oil imports contributed to the improvement, as a sharp
drop in the physical volume of oil
more than offset a further rise in its
price.
At its meeting on November 20,

94

FOMC Policy Actions

1979, the Committee had reaffirmed
the broad objectives for monetary
growth adopted at its meeting on October 6 and had decided that over the
remainder of 1979 the Manager for
Domestic Operations should continue to restrain expansion of bank reserves in pursuit of the Committee's
objective of decelerating growth of
M-l, M-2, and M-3 over the fourth
quarter to rates that would hold expansion of these monetary aggregates from the fourth quarter of 1978
to the fourth quarter of 1979 within
the Committee's ranges for that period; it was understood at the meeting
that persistence of recent relationships might result in growth of M-2
at about the upper limit of its range.
Specifically, the Committee instructed the Manager to restrain the expansion of bank reserves to a pace
thought to be consistent with growth
at average annual rates of about 5
percent for M-l and 8V2 percent for
M-2 in November and December,
provided that in the period before
the next regular meeting the weekly
average federal funds rate remained
generally within a range of IIV2 to
15V2 percent.
Over the first four weeks after the
November meeting, both total and
nonborrowed reserves grew at about
the rates projected at the time of the
meeting. Member bank borrowings
averaged about $13A billion, compared with an average of slightly less
than $2 billion in the preceding three
weeks, and the federal funds rate
continued to average around 13V2
percent. Toward the end of the fourweek period, however, the demand
for reserves appeared to be easing
relative to the path consistent with
desired monetary growth. In the
three weeks remaining before this
meeting, member bank borrowings



declined to a daily average of about
$1.1 billion. Despite the decline in
borrowings, the federal funds rate
edged up to an average of about 14
percent in late December and early
January, at least in part because of
exceptionally large demands for excess reserves around the year-end
holidays.
Expansion in the major monetary
aggregates remained at a reduced
pace in November and December,
after having slowed markedly in October. Over the two-month period,
M-l, M-2, and M-3 grew at annual
rates of about VU percent, 6 percent, and 53A percent respectively.1
Over the three months from September to December, M-l grew at a rate
of about 3 percent and M-2 and M-3
at rates of about 7 percent and 6V4
percent respectively.
The reduced growth in the monetary aggregates over the fourth quarter was associated with a slowing of
expansion in interest-bearing deposits as the quarter progressed. At
commercial banks, net flows into
money market certificates and largedenomination time deposits accounted for all of the growth in interestbearing deposits during the quarter.
Among nonbank thrift institutions,
mutual savings banks and credit
unions experienced particularly
weak net inflows.
Growth in total loans and investments at commercial banks slowed
sharply in the fourth quarter. Slower
expansion was especially pro1. M-l comprises private demand deposits
and currency in circulation. M-2 comprises
M-l and commercial bank time and savings
deposits other than large-denomination certificates of deposit. M-3 is M-2 plus deposits
at nonbank thrift institutions (savings and
loan associations, mutual savings banks, and
credit unions).

FOMC Policy Actions
nounced in business loans. Growth
in real estate loans remained close to
the pace in the first three quarters of
the year.
Since the November meeting of
the Committee, interest rates had
fluctuated over a relatively wide
range, although they had been somewhat less volatile than in the previous intermeeting period. On balance, most interest rates had
declined. Most banks had reduced
their loan rate to prime business borrowers from 153/4 to 15V4 percent,
and a few banks had cut the rate to
15 percent. Mortgage rates had
edged higher in the primary market,
and available information suggested
continued weakness in mortgage
commitments and lending activity at
nonbank thrift institutions.
Staff projections suggested that
growth of nominal gross national
product would slow considerably in
the current quarter and then pick up
gradually over the remainder of
1980. The projections suggested,
however, that a contraction in real
GNP would develop in the current
quarter and would continue later in
the year, although at a diminishing
pace in the second half, and that the
rate of unemployment would increase substantially. The rise in average prices was projected to accelerate slightly during the early part of
1980, mainly because of increases in
energy costs, but to subside later.
In the Committee's consideration
of the economic outlook, several
members stressed the elements of
uncertainty in the current situation.
The observation was made that the
relationships of the past appeared to
provide less guidance than usual in
appraising the current situation and
outlook. In the latter part of 1979,
for example, overall activity had been



95

unexpectedly strong and the widely
anticipated recession had not developed, although automobile production and housing starts had declined.
In the judgment of a number of members, a downturn now seemed to be
getting under way, but there was
also recognition that it could be delayed for another quarter or two.
Consumption expenditures in particular were stronger in late 1979
than had been anticipated, and the
saving rate fell to an exceptionally
low level. To the extent that the reduced saving rate was attributable to
buying in anticipation of rapid increases in prices, strength in consumer buying could persist for a
time. On the other hand, to the extent that the reduced rate reflected
pressure on consumer budgets arising from past inflation and from the
onset of the heating season with
sharply higher prices for energy, the
strength in consumer buying could
give way rather promptly to substantial weakness.
The outlook for domestic economic activity continued to be clouded
by political developments abroad.
The problem of the U.S. hostages
held in Iran was unresolved, and in
recent days international tensions
had been heightened by the Soviet
Union's invasion of Afghanistan. Increased defense spending could have
an impact on economic activity, although current information suggested that increases would be of
limited proportions.
Inflation remained a major concern. In part because of earlier increases in oil prices and in mortgage
interest rates, the consumer price indexes to be published in the next few
months probably would continue to
show exceptionally large advances.
At its meeting on July 11, 1979,

96

FOMC Policy Actions

the Committee had reaffirmed the
following ranges for monetary
growth from the fourth quarter of
1978 to the fourth quarter of 1979
that it had established in February:
M-l, IV2 to 472 percent; M-2, 5 to 8
percent; and M-3, 6 to 9 percent.
Having established the range for M-l
in February on the assumption that
expansion of automatic transfer
service (ATS) and negotiable order
of withdrawal (NOW) accounts
would dampen growth by about 3
percentage points over the year, the
Committee also agreed that actual
growth of M-l might vary in relation
to its range to the extent of any deviation from that estimate. Later in
the year, expansion of such accounts
appeared to be reducing measured
growth of M-l over the year by
about IV2 percentage points, and after allowance for the deviation from
the earlier assumption, the equivalent range was 3 to 6 percent. Over
the year ending in the fourth quarter
of 1979, M-l grew about 5lh percent, M-2 about 8V4 percent, and
M-3 about 8 percent.2
At the July meeting the Committee also anticipated that growth
of the monetary and credit aggregates over the year ending in the
fourth quarter of 1980 might be within the ranges established for 1979. At
this meeting the Committee began a
review of the ranges for 1980. It was
understood that at its meeting scheduled for early February the Com-

2. These growth rates are based on revised
data for the monetary aggregates, reflecting
new benchmarks for deposits at nonmember
banks that were published on January 10,
1980. On the basis of unrevised figures, the
growth rates were slightly lower for M-l and
M-2—about 5 percent and 8 percent respectively.



mittee would complete its review
and would establish ranges for 1980
within the framework of the Full
Employment and Balanced Growth
(Humphrey-Hawkins) Act of 1978.
In the discussion of policy for the
near term, the members in general
considered rates of monetary growth
for the three months from December
to March within the framework of
some reduction in ranges for growth
over the whole of 1980 from those
for 1979 in pursuit of the Committee's objective of reducing the
rate of inflation. The Committee also
took note of a staff analysis indicating that the demand for money
could be relatively weak in the first
quarter of 1980, if growth of nominal
GNP did in fact slow sharply, and
could strengthen as the year progressed.
A number of members favored
pursuit of somewhat slower monetary growth in the early months of
the year than they might accept for
the whole year, and some indicated a
willingness to tolerate relatively
slow monetary growth if significant
declines in interest rates developed
in the weeks immediately ahead.
These views were consistent with
the possibility that the demand for
money would be relatively weak
early in the year and that pressures
for monetary growth were likely to
increase later in the year if growth of
nominal GNP picked up. Moreover,
concern was expressed that any substantial declines in interest rates
might be interpreted as a significant
easing of monetary policy and thus
could have adverse consequences
for inflationary expectations and for
the foreign exchange value of the
dollar. Other members of the Committee, however, expressed skepticism about the feasibility of fine tun-

FOMC Policy Actions
ing policy in an effort to provide for
rather small, intrayear variations in
the rate of monetary growth.
Differences in views concerning
the particular rates of monetary
growth to be specified for the period
from December to March were not
great. Preferences were expressed
for growth indexed by expansion in
M-l at an annual rate of 4 percent, a
rate of 5 percent, and something between the two.
With respect to the acceptable
range of fluctuation for the federal
funds rate, almost all members preferred to retain the range of 11 lli to
1572 percent originally adopted at
the meeting on October 6, 1979, and
continued at the meeting on November 20. One member suggested raising the range slightly, to 12 to 16 percent.
At the conclusion of the discussion, the Committee agreed that
open market operations in the period
until the next meeting should be directed toward expansion of reserve
aggregates consistent with growth
over the first quarter of 1980 at an
annual rate between 4 and 5 percent
for M-l and on the order of 7 percent
for M-2, provided that the weekly
average federal funds rate remained
within a range of IIV2 to 1572 percent. If it appeared during the period
before the next regular meeting that
the constraint on the federal funds
rate was inconsistent with the objective for the expansion of reserves,
the Manager for Domestic Operations was promptly to notify the
Chairman who would then decide
whether the situation called for supplementary instructions from the
Committee.
The following domestic policy directive was issued to the Federal Reserve Bank of New York:



97

The information reviewed at this
meeting suggests that real output of
goods and services expanded somewhat
further in the final quarter of 1979 and
that prices on the average continued to
rise rapidly. In November retail sales
strengthened and nonfarm payroll employment rose considerably further, but
industrial production declined somewhat
and private housing starts fell. The
unemployment rate edged down from 6.0
to 5.8 percent. Producer prices of finished goods and consumer prices continued to rise rapidly, in part because of the
spreading effects of earlier increases in
energy costs. Over recent months the
rise in the index of average hourly earnings has remained close to the rapid pace
during 1978.
The trade-weighted value of the dollar
against major foreign currencies has depreciated about 3 percent since mid-November, reflecting in large part the
Middle East situation as well as a firming
of monetary conditions in a number of
foreign countries. The U.S. foreign trade
deficit in October and November on the
average was slightly below the rate for
the third quarter.
Growth of the major monetary aggregates, which had slowed in October, remained at reduced rates in the final
months of 1979. From the fourth quarter
of 1978 to the fourth quarter of 1979 M-l
grew 5V2 percent, M-2 about 874 percent, and M-3 about 8 percent. Most
market interest rates have declined
somewhat on balance since the Committee's meeting in late November.
Taking account of past and prospective developments in employment, unemployment, production, investment,
real income, productivity, international
trade and payments, and prices, the Federal Open Market Committee seeks to
foster monetary and financial conditions
that will resist inflationary pressures
while encouraging moderate economic
expansion and contributing to a sustainable pattern of international transactions. At its meeting on July 11, 1979, the
Committee agreed that these objectives
would be furthered by growth of M-l,
M-2, and M-3 from the fourth quarter of
1978 to the fourth quarter of 1979 within
ranges of IV2 to 472 percent, 5 to 8 percent, and 6 to 9 percent respectively. It
appeared that expansion of ATS and

98

FOMC Policy Actions

NOW accounts would dampen growth of
M-l by about IV2 percentage points over
the year, half as much as assumed early
in the year; thus after allowance for the
deviation from the earlier estimate, the
equivalent range for M-l was 3 to 6 percent. The associated range for bank
credit was VI2 to IOV2 percent. The
Committee anticipated that for the period from the fourth quarter of 1979 to
the fourth quarter of 1980, growth may
be within the same ranges, depending
upon emerging economic conditions and
appropriate adjustments that may be required by legislation or judicial developments affecting interest-bearing transactions accounts. Ranges for 1980 will be
reconsidered at the meeting of the Committee scheduled for early February.
In the short run, the Committee seeks
expansion of reserve aggregates consistent with growth over the first quarter of
1980 at an annual rate between 4 and 5
percent for M-l and on the order of 7
percent for M-2, provided that in the period before the next regular meeting the
weekly average federal funds rate remains within a range of IIV2 to 15V2 percent.
If it appears during the period before
the next meeting that the constraint on
the federal funds rate is inconsistent with
the objective for the expansion of reserves, the Manager for Domestic Operations is promptly to notify the Chairman
who will then decide whether the situation calls for supplementary instructions
from the Committee.
Votes for this action: Messrs. Volcker, Balles, Black, Coldwell, Kimbrel,
Mayo, Partee, Rice, Schultz, Mrs.
Teeters, Messrs. Wallich, and Timlen. Votes against this action: None.
(Mr. Timlen voted as an alternate
member.)

Meeting Held on
February 4-5, 1980
Domestic Policy Directive
Growth in real output of goods and
services moderated to an annual rate
of about IV2 percent in the fourth
quarter of 1979, according to preliminary estimates of the Commerce



Department. Real gross national
product had grown at a rate of about
3 percent in the third quarter, buttressed by strength in consumer
spending. Average prices, as measured by the fixed-weight price index
for gross domestic business product,
increased at an annual rate of about
974 percent in the fourth quarter, after having risen at an average annual
rate of about 10 percent in the first
three quarters. Over the year ending
with the fourth quarter of 1979, real
GNP and nominal GNP grew about
3
A percent and 10 percent respectively.
Total retail sales strengthened in
November and December, after a
sharp decline in October. From the
third to the fourth quarter, however,
sales changed little in constant-dollar terms as consumer buying of new
automobiles and some other durable
goods weakened.
The index of industrial production
rose somewhat in December, offsetting the decline in November. In
the fourth quarter, industrial production was up about 1 percent from a
year earlier.
Nonfarm payroll employment,
which had expanded moderately
during the fourth quarter, rose substantially further in January. However, the rate of unemployment rose
from 5.9 to 6.2 percent in January,
its highest level in well over a year.
The Department of Commerce
survey of business spending plans
taken in late November and December suggested that expenditures for
plant and equipment would rise
about 11 percent from 1979 to 1980,
after having expanded about 143/4
percent in 1979. After allowance for
expected increases in prices, however, the rise projected for 1980 was
negligible.

FOMC Policy Actions
In December private housing
starts were at an annual rate of 1.5
million units, unchanged from November but down from an average
rate of 1.8 million units in both the
second and the third quarters of the
year. Combined sales of new and
existing single-family homes fell in
November for the second consecutive month, and preliminary indications suggested a further decline
in December.
Producer prices of finished goods
and consumer prices continued to
rise rapidly in late 1979, in part because of the continuing spread of the
effects of earlier increases in energy
costs. In December producer prices
and consumer prices were about
12V2 percent and 1374 percent respectively above a year earlier. Both
measures had risen around 9 percent
during 1978.
The rise in the index of average
hourly earnings of private nonfarm
production workers moderated in
January, following sharp increases
in November and December. For the
year 1979 the index was up 8.3 percent, about the same as in 1978.
In foreign exchange markets,
pressures on the dollar were relatively slight in January. The tradeweighted value of the dollar against
major foreign currencies changed
little on balance despite increased international political tensions. The
U.S. trade deficit rose considerably
in December from a relatively low
November level, in large part because of an increase in oil imports.
For the fourth quarter as a whole,
the trade deficit was close to the second- and third-quarter levels.
At its meeting on January 8-9,
1980, the Committee had agreed that
open market operations in the period
until this meeting should be directed



99

toward expansion of reserve aggregates consistent with growth of M-l
during the first quarter of 1980 at an
annual rate between 4 and 5 percent
and expansion of M-2 on the order of
7 percent, provided that in the intermeeting period the weekly average
federal funds rate remained generally within a range of 11V2 to 15V2 percent. The Committee had also
agreed that if the constraint on the
federal funds rate appeared to be inconsistent with the objective for the
expansion of reserves, the Manager for Domestic Operations was
promptly to notify the Chairman
who would then decide whether the
situation called for supplementary
instructions from the Committee.
Expansion in the major monetary
aggregates, which had subsided in
the final months of 1979, remained at
reduced rates in January. M-l and
M-2 were estimated to have expanded in January at annual rates of
about IV2 percent and 5V4 percent
respectively, compared with rates of
about 3 percent and 63A percent over
the preceding three months. M-3
was estimated to have grown at an
annual rate of about 4V2 percent in
January, after having expanded at a
rate of about 6 percent during the
fourth quarter.
With the demand for money moderate, the federal funds rate declined
from an average of about 14 percent
in late December and early January
to about 13V2 percent in the statement week ending January 30 and to
a somewhat lower average in the remaining days preceding this meeting. Growth in total reserves
decelerated sharply in January to an
annual rate of 4 percent. Nonborrowed reserves expanded at an
annual rate of about 11 percent, as
average member bank borrowings

100 FOMC Policy Actions
declined somewhat further in January from the reduced level in December.
Newly available data confirmed a
weakening of bank credit extensions
to nonfinancial businesses in the
fourth quarter. However, incomplete data for January suggested
a rise in bank lending to such borrowers. In addition, the issuance of
commercial paper by nonfinancial
corporations rebounded in December and January.
Most market interest rates, especially longer-term rates, rose over
the intermeeting period despite the
decline in the federal funds rate. Advances in Treasury bill rates appeared to reflect large Treasury
issues to raise new cash. Longerterm debt markets were influenced
by an intensification of inflationary
expectations, which seemed to reflect data indicating stronger business activity than anticipated and
the prospect of enlarged defense
spending in response to international
tensions. The home mortgage market remained exceptionally tight in
January, but there were a few reports of liberalization in lending policies in the primary market.
Staff projections prepared for this
meeting suggested that growth of
nominal GNP would slow much less
in the current quarter than had appeared likely a month earlier, and
growth over the remaining quarters
of 1980 was expected to vary relatively little from the first-quarter
pace. The projections continued to
suggest that real GNP would contract moderately during the year and
that the rate of unemployment would
increase substantially. Price prospects for the current year were similar to those of a month earlier: the
rise in average prices was projected



to accelerate somewhat during the
early part of the year from the annual rate of about 974 percent in the
fourth quarter of 1979, mainly because of increases in energy costs,
but to subside later. In view of international conditions and an apparent
strengthening of inflationary psychology, however, the projections
were subject to greater uncertainties
than usual, especially with regard to
consumer and defense spending.
In the Committee's discussion of
the economic situation and outlook,
the members in general stressed the
unusual uncertainties affecting forecasts of both output and prices.
Most members thought that a moderate contraction in real GNP was
likely in 1980, bringing a substantial
increase in unemployment, and they
expected the rise in prices to remain
very rapid. The view was also expressed, however, that real GNP
would decline little if at all during the
year, that the unemployment rate
would increase less than generally
anticipated, and that the rise in
prices could well accelerate further.
One major uncertainty for the immediate future was the probable behavior of consumer spending for
goods and services. Such spending
had been unexpectedly strong in the
latter part of 1979 despite weak
growth in disposable personal income, and the saving rate had fallen
to an exceptional low of about 374
percent in the fourth quarter. Interpretations of the phenomenon and
its implications for the future differed: it might result primarily from
inflation's squeeze on household
budgets and thus foreshadow a sudden retrenchment in consumer
spending; or it might represent primarily a consumer adaptation to
high current and prospective rates of

FOMC Policy Actions 101
inflation and so could persist. Nearterm prospects for consumer spending were clouded, in addition, by
more than the usual uncertainty
about the effects of federal income
tax refunds, which were expected to
be unusually large in March and
April this year.
A second major element of uncertainty in projecting output and
prices was the course of defense
expenditures in the light of the
heightened international tensions
provoked by the Soviet Union's invasion of Afghanistan. Opinions differed concerning the speed with
which a buildup of defense spending
could be accomplished and, consequently, about whether federal
spending would contribute more or
less to overall demand and output
than suggested by the administration's budget. In this connection, it
was observed that business outlays
could be expected to expand in anticipation of the defense buildup. On
the receipts side of the federal budget, tax reductions this year generally were regarded as unlikely—in the
absence, at least, of considerably
greater weakness in economic activity than was commonly foreseen at
this time.
Committee members continued to
express great concern about the inflationary environment and its role in
generating distortions and instability. It was suggested that the recent
international developments, including the further substantial increases
in oil prices, were counteracting the
progress that had been made in the
latter part of 1979 in dampening expected rates of increase in prices.
At this meeting, the Committee
completed the review, begun a
month earlier, of the ranges for
growth of monetary aggregates over



the period from the fourth quarter of
1979 to the fourth quarter of 1980
within the framework of the Full
Employment and Balanced Growth
Act of 1978. The act, which
amended section 2A of the Federal
Reserve Act, requires the Board of
Governors to transmit to the Congress by February 20 and July 20 of
each year written reports concerning
the objectives and plans of the Board
and the Committee with respect to
the ranges of growth or diminution
of the monetary and credit aggregates for the calendar year during
which the report is transmitted and,
in the case of the July report, the objectives and plans with respect to
ranges for the following calendar
year as well. The act also requires
that the written reports set forth a review and analysis of recent developments affecting economic trends in
the nation and the relationship of the
plans and objectives for the aggregates to the short-term goals set
forth in the most recent Economic
Report of the President and to any
short-term goals approved by the
Congress.1
In contemplating monetary growth
for the year ahead, the Committee
considered ranges for the new definitions of the monetary aggregates: M-1A, M-1B, M-2, and M-3.
A description of these newly defined
aggregates was announced on February 7. M-1A comprises currency
plus demand deposits at commercial
banks; it is the same as the displaced
M-l, except that demand deposits
held by foreign banks and foreign official institutions are excluded. M-1B
comprises M-l A and other check1. The Board's third report under the act
was transmitted to the Congress on February
19, 1980.

102 FOMC Policy Actions
able deposits at all depositary institutions; thus, NOW accounts, ATS,
credit union share drafts, and demand deposits at mutual savings
banks are included. M-2 contains
M-1B and savings and small-denomination time deposits at all depositary institutions, overnight RPs at
commercial banks, overnight Eurodollars held at Caribbean branches
of member banks by U.S. residents
other than banks, and money market
mutual fund shares. Finally, M-3 is
M-2 plus large-denomination time
deposits at all depositary institutions
and term RPs at commercial banks
and savings and loan associations.
From the fourth quarter of 1978 to
the fourth quarter of 1979, M-1A
grew 5.5 percent, the same as M-l;
after taking into account the amount
of demand deposits apparently
shifted to ATS and New York State
NOW accounts, the estimated rate
was 6.8 percent. M-1B grew 8.0 percent; M-2, 8.8 percent; and M-3, 9.5
percent.
In contemplating ranges for
growth of the monetary aggregates
over the year ahead, Committee
members stressed the unusually
great uncertainties concerning prospects for economic activity and
prices and thus for growth of nominal GNP. The shift to new definitions of monetary aggregates
introduced additional uncertainties
concerning the relationships between them and nominal GNP as
well as the relationships among the
aggregates themselves in response to
changing financial market conditions. Moreover, enactment of pending legislation to authorize NOW
accounts nationally would in the
short run have a significant impact
on growth of some of the monetary
aggregates in relation to changes in



economic activity. It was noted,
however, that the ranges adopted at
this meeting could be modified at
any time in the light of legislative or
other developments and in any event
would be reconsidered at midyear.
In the Committee's discussion of
the ranges for the coming year, the
members agreed that monetary
growth should slow further in 1980,
following some deceleration over
1979, in line with the continuing objective of curbing inflation and providing the basis for restoration of
economic stability and sustainable
growth in output of goods and services. Committee members differed
somewhat in their views concerning
the particular aggregates for which
longer-run ranges of growth should
be specified. Most members thought
that in the present circumstances it
was appropriate to specify ranges for
the four aggregates, M-1A, M-1B,
M-2, and M-3; but some sentiment
was also expressed for omitting
M-l A from the list, and some for
omitting M-3 as well. With respect to
M-l A, its growth would be dampened
in the event of enactment of nationwide NOW account legislation and,
as would be expected, a large transfer of funds from demand deposits to
NOW accounts. In support of retaining M-l A on the list, however, it was
noted that enactment of the legislation would tend to distort growth of
M-1B also—in the opposite direction
as a result of transfers of funds from
savings deposits to NOW accounts—and no doubt would lead
the Committee to reconsider whatever ranges it adopted at this meeting.
A few members favored specification of relatively narrow ranges. In
light of the difficulties of maintaining
growth within a narrow range and of

FOMC Policy Actions 103
the uncertainties concerning both
the outlook for the economy and the
behavior of the newly defined aggregates, however, most members favored ranges on the order of the 3
percentage points adopted for 1979.
At the conclusion of the discussion, the Committee adopted the
following ranges for growth of the
monetary aggregates over the period
from the fourth quarter of 1979 to the
fourth quarter of 1980: M-1A, 372 to
6 percent; M-1B, 4 to 6V2 percent;
M-2, 6 to 9 percent; and M-3, 6V2 to
972 percent. The associated range
for growth of commercial bank credit was 6 to 9 percent. It was understood that the longer-run ranges
would be reconsidered in July or at
any other time that conditions might
warrant. It was also understood that
short-run factors might cause considerable variation in annual rates of
growth from one month to the next
and from one quarter to the next.
The Committee adopted the following
ranges for rates of growth in monetary
aggregates for the period from the fourth
quarter of 1979 to the fourth quarter of
1980: M-1A, 372 to 6 percent; M-1B, 4 to
6V2 percent; M-2, 6 to 9 percent; and
M-3, 6V2 to 972 percent. The associated
range for bank credit is 6 to 9 percent.
Votes for this action: Messrs. Volcker, Balles, Black, Coldwell, Kimbrel,
Mayo, Partee, Rice, Schultz, Mrs.
Teeters, Messrs. Wallich, and Timlen. Votes against this action: None.
(Mr. Timlen voted as an alternate
member.)

In contemplating policy for the
near term, the Committee took note
of a staff analysis indicating that the
policy decision taken at the meeting
of early January implied an annual
rate of growth of about 472 percent
in the new M-1A over the period
from December to March. Consis


tent rates of growth in M-1B and the
newly defined M-2 were estimated to
be slightly above 5 percent and
about 672 percent respectively. In
January M-1A had grown at a rate of
about 43/4 percent; growth in M-1B
and M-2, at rates of about 6 percent
and 874 percent respectively, had
exceeded their three-month rates by
larger margins. Accordingly, monetary growth, particularly as measured by M-1B and M-2, would have
to decelerate from January to March
if the rates realized for the whole
three-month period were to be consistent with those implied by the
Committee's decision in January.
The staff analysis also noted that
the transactions demand for money
in the first quarter implied by projections of nominal GNP were stronger
than a month earlier. At the same
time, the relationship between money growth and GNP was particularly
uncertain because disbursement of
the exceptionally large federal income tax refunds beginning in late
February could generate a temporary bulge in money demand.
In the Committee's discussion of
policy for the period immediately
ahead, most members favored essentially an extension of the objectives for the period from December
to March that had been established
in early January. The behavior of the
monetary aggregates had been more
or less on course since then and, it
was suggested, little had occurred to
warrant a change in course. On the
other hand, some sentiment was expressed for a reduction in the objectives for monetary growth over the
first three months of the year, on the
grounds that prospects for economic
activity apparently had strengthened
since a month earlier and inflationary expectations had worsened.

104 FOMC Policy Actions
At the conclusion of the discussion, the Committee agreed that
open market operations in the period
until the next meeting should be directed toward expansion of reserve
aggregates consistent with growth
over the first quarter of 1980 at an
annual rate of about Alli percent for
M-1A and about 5 percent for M-1B,
provided that in the period until the
next meeting the weekly average
federal funds rate remained within a
range of IIV2 to 15V2 percent. Consistent with this short-run policy, in
the Committee's view, the newly defined M-2 should grow at an annual
rate of about 6V2 percent over the
first quarter. If the constraint on the
federal funds rate appeared to be inconsistent with the objective for the
expansion of reserves, the Manager for Domestic Operations was
promptly to notify the Chairman
who would then decide whether the
situation called for supplementary
instructions from the Committee.
The following domestic policy directive was issued to the Federal Reserve Bank of New York:
The information reviewed at this
meeting suggests that real output of
goods and services expanded somewhat
in the final quarter of 1979 and that prices
on the average continued to rise rapidly.
In December retail sales strengthened,
industrial production edged up, and nonfarm payroll employment continued to
rise, while private housing starts remained at the reduced level of November. Nonfarm payroll employment rose
substantially further in January, but the
unemployment rate rose from 5.9 to 6.2
percent. Producer prices of finished
goods and consumer prices continued to
rise rapidly toward the end of 1979, in
part because of the spreading effects of
earlier increases in energy costs. Over
the past several months the rise in the index of average hourly earnings has remained close to the rapid pace recorded
earlier in 1979.



The trade-weigh ted value of the dollar
against major foreign currencies changed
little in January, and exchange market
pressures were relatively slight in spite
of increased international political tensions. The U.S. foreign trade deficit rose
in December, in large part because of an
increase in imports of petroleum.
Growth of the major monetary aggregates, which had subsided in the final
months of 1979, remained at reduced
rates in January. Most market interest
rates, especially long-term rates, have
risen since the Committee's meeting in
early January.
Taking account of past and prospective economic developments, the Federal Open Market Committee seeks to
foster monetary and financial conditions
that will resist inflationary pressures
while encouraging moderate economic
expansion and contributing to a sustainable pattern of international transactions. The Committee agreed that these
objectives would be furthered by growth
of M-1A, M-1B, M-2, and M-3 from the
fourth quarter of 1979 to the fourth quarter of 1980 within ranges of VI2 to 6, 4 to
6V2, 6 to 9, and 6V2 to 9V2 percent respectively. The associated range for
bank credit was 6 to 9 percent.
In the short run, the Committee seeks
expansion of reserve aggregates consistent with growth over the first quarter of
1980 at an annual rate of about 4V2 percent for M-1A and 5 percent for M-1B,
provided that in the period before the
next regular meeting the weekly average
federal funds rate remains within a range
of IIV2 to 15V2 percent. The Committee
believes that, consistent with this shortrun policy, M-2 as newly defined should
grow at an annual rate of about 6V2 percent over the first quarter.
If it appears during the period before
the next meeting that the constraint on
the federal funds rate is inconsistent with
the objective for the expansion of reserves, the Manager for Domestic Operations is promptly to notify the Chairman
who will then decide whether the situation calls for supplementary instructions
from the Committee.
Votes for this action: Messrs. Volcker, Balles, Black, Kimbrel, Mayo,
Partee, Rice, Schultz, Mrs. Teeters,
and Mr. Timlen. Votes against this

FOMC Policy Actions 105
action: Messrs. Coldwell and Wallich. (Mr. Timlen voted as an alternate member.)
Messrs. Coldwell and Wallich dissented from this action because they
favored a more restrictive policy for
the period immediately ahead. Believing that inflationary expectations
had worsened in recent weeks while
prospects for economic activity had
strengthened, they thought that
money and credit were too readily
available and current levels of interest rates were not exerting sufficient
restraint.
Subsequent to the meeting, on
February 22, available data suggested that M-1A and M-1B were
growing at rapid rates in February,
and in consequence the demand for
bank reserves had strengthened considerably. The federal funds rate had
risen to about 15 percent, and member bank borrowings had also increased. To provide the Manager for
Domestic Operations with additional
scope for operations in these circumstances, Chairman Volcker recommended that the upper limit of the
range of IIV2 to 15V2 percent specified for the federal funds rate be
raised to I6V2 percent on a temporary basis until the situation could be
reassessed.

In the statement week ending
March 5, the federal funds rate rose
to an average of slightly more than
16V8 percent and member bank borrowings expanded further to a daily
average of about %2lli billion. On
March 6 federal funds generally traded around 17 percent, despite sizable
reserve-supplying operations by the
System, and the Manager advised
that in his opinion additional leeway
above the existing upper limit of
I6V2 percent was needed for operational flexibility in meeting reserve
objectives. In late afternoon, Chairman Volcker recommended that the
upper limit of the intermeeting range
for the federal funds rate be raised to
17V2 percent, pending a discussion
of the situation in a telephone conference of the Committee to be held
in the afternoon of the following day,
and the Committee voted to approve
the Chairman's recommendation.
Votes for this action: Messrs. Volcker, GufTey, Morris, Partee, Rice,
Roos, Schultz, Mrs. Teeters, Messrs.
Wallich, Winn, and Timlen. Votes
against this action: None. (Mr. Timlen voted as alternate member.)

In the telephone conference held
in the afternoon of March 7, the
Committee voted to raise the upper
limit of the intermeeting range for
the federal funds rate to 18 percent,
to provide greater operational flexiOn February 22, the Committee modi- bility in meeting reserve objectives.
fied the domestic policy directive
adopted at its meeting on February 4-5,
On March 7, the Committee further
1980, to raise the upper limit of the range modified the domestic policy directive
for the federal funds rate to I6V2 per- adopted at its meeting of February 4-5,
cent.
1980, to raise the upper limit of the range
for the federal funds rate to 18 percent.
Votes for this action: Messrs. Volcker, Balles, Black, Kimbrel, Mayo,
Votes for this action: Messrs. VolckPartee, Rice, Schultz, Mrs. Teeters,
er, Guffey, Morris, Partee, Rice,
Messrs. Wallich and Timlen. Votes
Roos, Schultz, Mrs. Teeters, Messrs.
against this action: None. Absent:
Wallich, Winn, and Timlen. Votes
Mr. Coldwell. (Mr. Timlen voted as
against this action: None. (Mr. Timalternate member.)
len voted as alternate member.)



106 FOMC Policy Actions
crease about 11 percent from 1979 to
1980. Adjusted for price increases
1. Domestic Policy Directive
that were expected by businesses,
The information reviewed at this the survey implied little change in
meeting suggested that real output of real outlays.
In January housing starts declined
goods and services was continuing
to grow in the first quarter of 1980 further to an annual rate of about 1.4
after having expanded at an annual million units. Since the third quarter
rate of about 2 percent in the fourth of 1979, housing starts had fallen by
quarter of 1979. The rise in average more than 20 percent and residential
prices, as measured by the fixed- building permits by nearly 25 perweight price index for gross domes- cent. Sales of new single-family
tic business product, appeared to homes rose somewhat in January but
have accelerated in the current quar- remained well below their thirdter from an average rate of about 10 quarter level, while sales of existing
single-family homes continued to depercent during 1979.
Retail sales rose briskly in Janu- cline.
Producer prices of finished goods
ary, but advance data suggested a
moderate decline in February. After rose at a greatly accelerated pace in
adjustment for higher prices, the lev- January and February, and conel in February was close to the aver- sumer prices also increased at a
age for the fourth quarter. Unit sales sharply higher rate in January. The
of new automobiles in the first two advances reflected a continuing
months of the year were consid- surge in prices of energy-related
erably above the reduced pace in the items and, with the exception of
foods, widespread increases in prices
fourth quarter.
The index of industrial production of other items as well. During 1979
rose somewhat in both January and producer prices had risen 12V2 perX
February after changing little during cent and consumer prices about 13 U
the fourth quarter, and returned to percent. The index of average hourly
its peak level of March 1979. The earnings of private nonfarm producrate of capacity utilization in manu- tion workers rose at an annual rate of
facturing was unchanged in Febru- about 7 percent over the Januaryary at a level about 3 percentage February period, compared with a rise
points below its recent peak in of about 8V2 percent during 1979.
In foreign exchange markets the
March 1979.
Nonfarm payroll employment, dollar had been in strong demand
which had expanded substantially in since mid-February, largely in reJanuary, rose appreciably further in sponse to sharp increases in U.S. inFebruary, and the rate of unemploy- terest rates and, most recently, to
ment fell 0.2 percentage point to 6.0 the President's announcement of a
percent. Employment in manufac- series of measures designed to curb
inflationary pressures in the U.S.
turing continued to change little.
The latest Department of Com- economy. By the first part of March
merce survey of business spending the trade-weighted value of the dolplans, taken in late January and Feb- lar against major foreign currencies
ruary, suggested that expenditures had risen to around its high of late
for plant and equipment would in- October 1979. By mid-March, the



FOMC Policy Actions 107
dollar had advanced further, to
about 6 percent above its level at the
time of the February meeting. Over
the course of recent weeks foreign
monetary authorities had intervened
in heavy volume to support their
currencies.
In January the U.S. foreign trade
deficit increased sharply, despite
some reduction in the volume and
value of oil imports. Other imports
rose substantially, while exports expanded at a reduced pace; agricultural exports were down somewhat
from a high December level.
At its meeting on February 4-5,
the Committee had decided that
open market operations in the period
until this meeting should be directed
toward expansion of reserve aggregates consistent with growth from
December 1979 to March 1980 at an
annual rate of about 472 percent for
M-1A and about 5 percent for M-1B,
provided that in the intermeeting period the weekly average federal
funds rate remained within a range
of 1172 to 1572 percent. In the Committee's view this short-run policy
should be consistent with growth in
M-2, as newly defined, at an annual
rate of about 672 percent over the
first quarter.
Growth in M-1A and M-1B accelerated in February to annual rates of
about 12 percent and 1172 percent
respectively from rates of about 372
percent and 474 percent in January.
Growth in M-2 also quickened in
February, to an annual rate of about
103/4 percent from 63/4 percent in
January, reflecting in part the continued rapid expansion in money market mutual funds; and growth in M-3
was buoyed by increased issuance of
large-denomination time deposits at
commercial banks associated with
rapid expansion of bank credit. In



late February and the first part of
March, growth of M-1A and M-1B
subsided.
Reflecting the acceleration of monetary growth in February, the demand for bank reserves expanded
substantially in relation to the supply
of nonborrowed reserves and money
market conditions tightened considerably. Effective February 15, Federal Reserve discount rates were
raised from 12 percent to 13 percent.
The federal funds rate rose from
about 1372 percent in the statement
week ending February 13, the first
full week after the Committee's
meeting in early February, to almost
15 percent in the week ending February 20. On February 22 the Committee voted to raise the upper limit
of the intermeeting range for the
funds rate to 1672 percent, and on
March 7 it voted to raise the limit to
18 percent. The federal funds rate
averaged about 1672 percent in the
week ending March 12, the last complete statement week before this
meeting, and exceeded 17 percent on
some days in early March. Member
bank borrowings rose to an unusually high level of almost $372 billion
in the week ending March 12; in the
preceding three weeks borrowings
had averaged about $274 billion.
Expansion of total credit outstanding at U.S. commercial banks
strengthened in January and accelerated further in February. Growth
was especially pronounced in business loans, and available reports indicated a surge in demands for loan
commitments in the latter part of
February and early March. The issuance of commercial paper by nonfinancial corporations strengthened
markedly in December and continued very large in January and February.

108 FOMC Policy Actions
Interest rates rose sharply during 10 percent in the marginal reserve
the intermeeting period as inflation- requirement on managed liabilities
ary expectations continued to wors- of large member banks and a reducen. Upward pressures on rates, es- tion in the base upon which the repecially on short-term rates, also serve requirement is calculated.
reflected the constraint on the provi4. A special deposit requirement
sion of bank reserves in relation to of 10 percent on increases in manthe demand for reserves and the in- aged liabilities of large nonmember
creases in Federal Reserve Bank dis- banks.
count rates on February 15. Such
5. A special deposit requirement
pressures were reinforced in short- of 15 percent on increases in total asterm markets by the sizable bank is- sets of money market mutual funds.
suance of certificates of deposit and
6. A surcharge of 3 percentage
by large sales of Treasury bills by points on frequent borrowings from
foreign official institutions to finance the Federal Reserve Banks by memintervention in foreign exchange ber banks with deposits of $500 milmarkets. Over the period, com- lion or more.
mercial banks raised their loan rate
In part because of the new proto prime business borrowers from gram announced on March 14, pro15V4 percent to I8V2 percent. In jections of activity and prices at this
home mortgage markets, rates on time were subject to more uncernew commitments advanced sharply tainty than usual. Staff projections
further and lenders also tightened prepared for this meeting suggested
other lending terms.
that real GNP probably would turn
On March 14 the President an- down in the second quarter and that
nounced a broad program involving the contraction in activity was likely
fiscal, energy, credit, and other mea- to persist for a number of quarters
sures that were designed to help and to be accompanied by a significurb inflationary forces in a manner cant increase in the unemployment
that would also restore the basis for rate. The rise in average prices was
stable economic growth. Consistent projected to moderate from the acwith that program and with the con- celerated pace in the first quarter but
tinuing objective of the Federal Re- to remain rapid.
In the Committee's discussion of
serve System to restrain growth in
money and credit during 1980, the the economic situation, many of the
Board of Governors announced the members continued to stress the unfollowing actions on March 14 to re- usual uncertainties affecting ecoinforce the measures announced on nomic forecasts, although the likelihood of some decline in activity over
October 6, 1979:
1. A voluntary special credit re- the rest of 1980 was broadly acceptstraint program intended to curb the ed. With respect to price prospects,
expansion in credit extensions by a it was suggested that the underlying
inflation rate would not be reduced
variety of financial institutions.
2. A special deposit requirement very much in the short run by the
of 15 percent for all lenders on in- rather moderate contraction in activcreases in certain types of consumer ity generally being projected.
Contrary to widespread expectacredit.
3. An increase from 8 percent to tions, it was noted, expansion in



FOMC Policy Actions 109
some sectors of the economy had
been strong enough in recent months
to sustain overall output despite considerable weakness in the automobile and housing markets. For the
period immediately ahead, the
course of total output appeared to be
dependent to a considerable degree
on whether consumer expenditures
for goods and services remained abnormally high in relation to disposable income or tended to decline.
While the strength of investment activity and apparently balanced inventory behavior suggested a mild
recession, the possibility was recognized that a recession, whenever it
occurred, could be exacerbated by
the accumulation of sizable amounts
of debt, by businesses as well as
consumers, at exceptionally high interest rates and by other developing
strains in the financial system.
At its meeting on February 4-5,
1980, the Committee had agreed that
from the fourth quarter of 1979 to the
fourth quarter of 1980 average rates
of growth in the monetary aggregates within the following ranges appeared to be consistent with broad
economic aims: M-1A, Vh to 6 percent; M-1B, 4 to 6V2 percent; M-2, 6
to 9 percent; and M-3, 6V2 to 9lli
percent. The associated range for
the rate of growth in commercial
bank credit was 6 to 9 percent. It had
also been agreed that the longer-run
ranges, as well as the particular aggregates for which such ranges were
specified, would be reconsidered in
July or at any other time that conditions might warrant, and also that
short-run factors might cause considerable variation in annual rates of
growth from one month to the next
and from one quarter to the next.
In contemplating policy for the period immediately ahead, the Com


mittee took note of a staff analysis
indicating that growth of M-1A and
M-1B over the first two months of
the year had substantially exceeded
the pace consistent with the objectives for the December-March period established by the Committee at
its preceding meeting. Accordingly,
extension of the first-quarter objectives for M-1A and M-1B through
the second quarter, in keeping with
the Committee's objectives for monetary growth over the whole year,
would imply a considerable slowing
of growth from February to June.
The staff analysis also noted that
monetary growth had subsided in recent weeks; available data indicated
little if any growth of M-1A in
March, even if growth resumed in
the latter part of the month.
Growth of M-2 over the first half
associated with extension of the earlier objectives for M-1A and M-1B
would be more rapid than had been
contemplated for the first quarter,
but the projected rate nevertheless
was well within the range established for the year as a whole. Owing
to the public's response to the high
market interest rates prevailing, expansion of money market mutual
funds in the first two months of the
year had been stronger than expected. Whether their expansion
would remain relatively strong depended in part on the adjustments
the funds made to the new special
deposit requirement imposed on the
increase in their assets.
In the Committee's discussion of
policy for the period immediately
ahead, most members favored essentially an extension through the
second quarter of the objectives for
the first quarter that had been established at the meeting in early February. Specifically, they favored annu-

110 FOMC Policy Actions
al rates of growth over the first half
of the year of about 4V2 percent for
M-1A and about 5 percent for M-1B,
with an associated rate of about VI4
percent for M-2. Such a policy was
viewed as sufficiently restrictive, especially in light of its implication for
a significant slowing of monetary
growth over the period from February to June. However, some sentiment was also expressed for seeking
slightly lower rates of growth over
the first half, to underscore support
for the new anti-inflation program by
making clear that general credit restraint would not be relaxed.
Many members expressed concern about the possibility that a
bulge in monetary growth in April,
even if it followed little growth or a
decline in March, would have an adverse impact on market psychology
and on assessments of the likely success of the new program in helping
to contain inflation. While favoring
essentially an extension of the firstquarter objectives for monetary
growth that had been established at
the preceding meeting, they also advocated directing operations in the
period immediately ahead toward
working against any bulge that might
be developing and assuring that excessive growth in April, should it occur, would be compensated for in
succeeding months. These members
in general felt that, in the process,
they would be willing to tolerate
somewhat less growth over the first
half of the year than the annual rates
of 472 percent for M-1A and 5 percent for M-1B that represented an
extension of the first-quarter objectives.
Members differed in their views
concerning the range to be specified
for the weekly average federal funds
rate during the period before the



next meeting of the Committee. Sentiment was expressed for a number
of variations: retaining the widened
range of IIV2 to 18 percent existing
since the Committee's vote on
March 7 to raise the upper limit; restoring the range to the more customary 4 percentage points by raising the lower limit to 14 percent; and
raising the upper limit to 20 percent,
with no change in the lower limit or
with an increase in that limit to 13 V2
or 14 percent. It was observed, in
this connection, that the Committee
had, and frequently used, established procedures for changing specifications during periods between
meetings when circumstances seemed
to warrant such changes.
The suggestion was made that the
language of the domestic policy directive take account of the new voluntary special credit restraint program. That might be done by including a reference in the operational
paragraphs to an expectation of an
appropriate slowing of growth in
bank credit in the months ahead.
At the conclusion of the discussion, the Committee agreed that
open market operations in the period
until the next meeting should be directed toward expansion of reserve
aggregates consistent with growth
over the first half of 1980 at annual
rates of 4V2 percent for M-1A and 5
percent for M-1B, or somewhat less,
provided that in the intermeeting period the weekly average federal
funds rate remained within a range
of 13 to 20 percent. Consistent with
this short-run policy, in the Committee's view, M-2 should grow at an
annual rate of about VU percent
over the first half, and expansion
of bank credit should slow in the
months ahead to a pace compatible
with growth over the year as a whole

FOMC Policy Actions 111
within the range of 6 to 9 percent
agreed upon. If it appeared during
the period before the next regular
meeting that the constraint on the
federal funds rate was inconsistent
with the objective for the expansion
of reserves, the Manager for Domestic Operations was promptly to notify the Chairman who would then decide whether the situation called for
supplementary instructions from the
Committee.
The following domestic policy directive was issued to the Federal Reserve Bank of New York:
The information reviewed at this
meeting suggests that real output of
goods and services continued to grow in
the first quarter of 1980 and that the rise
in prices accelerated. In February retail
sales declined moderately, but the decrease followed an exceptionally large
increase in January. Industrial production expanded somewhat in both
months, after a period of little change,
and nonfarm payroll employment continued to rise. The unemployment rate
edged down in February to 6.0 percent.
Private housing starts declined further in
January and were more than one-fifth below the rate in the third quarter of last
year. The rise in producer prices of finished goods and in consumer prices was
more rapid in the first month or two of
1980 than in 1979, despite some easing
in prices of foods. Over the first two
months of 1980 the rise in the index of
average hourly earnings was somewhat
below the rapid pace recorded in 1979.
The dollar has been in strong demand
in exchange markets since mid-February, largely in response to rising U.S.
interest rates; by early March the tradeweighted value of the dollar against major foreign currencies had returned to
about the level reached at the end of last
October, and since then, it has risen further. Intervention by foreign monetary
authorities to support their currencies
was very heavy in February and the first
half of March. The U.S. foreign trade
deficit rose sharply in January although
the volume and value of imports of petroleum were somewhat reduced.



Growth of M-l A and M-1B, which had
remained moderate in January, accelerated sharply in February, and growth of
M-2 also quickened. In recent weeks,
however, monetary growth has subsided. Expansion of commercial bank
credit picked up in the first two months
of this year from the reduced pace in the
fourth quarter of 1979. Market interest
rates have risen substantially in recent
weeks. An increase in Federal Reserve
discount rates from 12 to 13 percent was
announced early on February 15, effective immediately.
On March 14 the President announced
a broad program of fiscal, energy, credit,
and other measures designed to moderate and reduce inflationary forces in a
manner that can also lay the groundwork
for a return to stable economic growth.
Consistent with that objective and with
the continuing intent of the Federal Reserve System to restrain growth in money and credit during 1980, the Board of
Governors took the following actions to
reinforce the effectiveness of the measures announced in October 1979: (1) A
special credit restraint program; (2) A
special deposit requirement for all lenders on increases in certain types of consumer credit; (3) An increase in the marginal reserve requirement on managed
liabilities of large member banks; (4) A
special deposit requirement on increases
in managed liabilities of large nonmember banks; (5) A special deposit requirement on increases in total assets of
money market mutual funds; (6) A surcharge of 3 percentage points on frequent borrowing of large member banks
from Federal Reserve Banks.
Taking account of past and prospective economic developments, the Federal Open Market Committee seeks to foster monetary and financial conditions
that will resist inflationary pressures
while encouraging moderate economic
expansion and contributing to a sustainable pattern of international transactions. At its meeting on February 4-5,
1980, the Committee agreed that these
objectives would be furthered by growth
of M-1A, M-1B, M-2, and M-3 from the
fourth quarter of 1979 to the fourth quarter of 1980 within ranges of 3 l h to 6, 4 to
6V2, 6 to 9, and 6V2 to 9V2 percent respectively. The associated range for
bank credit was 6 to 9 percent.

112 FOMC Policy Actions
In the short run, the Committee seeks
expansion of reserve aggregates consistent with growth over the first half of
1980 at an annual rate of 4l/i percent for
M-1A and 5 percent for M-1B, or somewhat less, provided that in the period before the next regular meeting the weekly
average federal funds rate remains within a range of 13 to 20 percent. The Committee believes that, consistent with this
short-run policy, M-2 should grow at an
annual rate of about VI4 percent over the
first half and expansion of bank credit
should slow in the months ahead to a
pace compatible with growth over the
year as a whole within the range agreed
upon.
If it appears during the period before
the next meeting that the constraint on
the federal funds rate is inconsistent with
the objective for the expansion of reserves, the Manager for Domestic Operations is promptly to notify the Chairman
who will then decide whether the situation calls for supplementary instructions
from the Committee.

rizations and directives. The Committee reaffirmed the authorization
for domestic open market 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, Guffey, Morris, Partee,
Rice, Roos, Schultz, Mrs. Teeters,
Messrs. Wallich, Winn, and Timlen.
Votes against these actions: None.
(Mr. Timlen voted as alternate member.)

In reviewing the authorization for
domestic open market operations,
the Committee took special note of
paragraph 3, which authorizes the
Reserve Banks to engage in the lending of U.S. government securities
held in the System Open Market AcVotes for this action: Messrs. Volck- count under such instructions as the
er, Guffey, Morris, Partee, Rice,
Roos, Schultz, Mrs. Teeters, Messrs. Committee might specify from time
Winn, and Timlen. Vote against this to time. That paragraph had been
action: Mr. Wallich. (Mr. Timlen added to the authorization on Octovoted as alternate member.)
ber 7, 1969, on the basis of a judgment by the Committee that such
Mr. Wallich dissented from this lending of securities was reasonably
action because he favored pursuit of necessary to the effective conduct of
a more restrictive policy for the peri- open market operations and to the
od immediately ahead to assure implementation of open market polimaintenance of firm general credit cies, and on the understanding that
restraint, especially as a means of the authorization would be reviewed
buttressing the new anti-inflation periodically. At this meeting the
program.
Committee concurred in the judgment of the Manager for Domestic
Operations that the lending activity
2. Review of
in question remained reasonably
Continuing Authorizations
necessary and that, accordingly, the
This being the first regular meeting authorization should remain in effect
of the Federal Open Market Com- subject to annual review.
mittee following the election of new
members from the Federal Reserve
3. Authorization for
Banks to serve for the year beginForeign Currency Operations
ning March 1, 1980, the Committee
followed its customary practice of The Committee reaffirmed the aureviewing all of its continuing autho- thorization for foreign currency op


FOMC Policy Actions 113
erations, with a technical modification. In paragraph 6, the title
4
'Manager for Foreign Operations"
was substituted for " Manager" the
first time the latter appeared, in recognition that positions and titles relating to management of the System
Open Market Account had been
changed since the Committee had
last conducted its annual review of
its continuing authorizations and directives.
Votes for this action: Messrs. Volcker, Guffey, Morris, Partee, Rice,
Roos, Schultz, Mrs. Teeters, Messrs.
Wallich, Winn, and Timlen. Votes
against this action: None. (Mr. Timlen voted as alternate member.)
Pursuant to paragraph 3 of the authorization for foreign currency operations, the Committee expressly
authorized the Federal Reserve
Bank of New York, for the System
Open Market Account, to enter into
contracts to purchase foreign exchange at specified rates that reflected
market rates of late February and
early March when contract discussions were initiated and simultaneously to transfer the foreign exchange so acquired directly to the
Exchange Stabilization Fund (ESF)
at those same rates.
Votes for this action: Messrs. Volcker, Guffey, Morris, Partee, Rice,
Roos, Schultz, Mrs. Teeters, Messrs.
Wallich, Winn, and Timlen. Votes
against this action: None. (Mr. Timlen voted as alternate member.)

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
Federal Reserve undertake to



' 'warehouse" foreign currencies—
that is, to make spot purchases of
foreign currencies from the 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 in December 1978,
that the Federal Reserve would be
prepared to warehouse for the
Treasury or for the ESF up to $5 billion of eligible foreign currencies for
periods of up to 12 months. In view
of the U.S. program of issuing notes
denominated in foreign currencies,
the Committee voted at this meeting
to reaffirm the agreement to warehouse up to $5 billion of foreign currencies and to drop the 12-month
limitation on the period such currencies could be warehoused. It was
understood that the basic agreement
would be subject to annual review.
Votes for this action: Messrs. Volcker, Guffey, Morris, Partee, Rice,
Roos, Schultz, Mrs. Teeters, Messrs.
Wallich, Winn, and Timlen. Votes
against this action: None. (Mr. Timlen
voted as alternate member.)

5. Authorization for Domestic
Open Market Operations
On April 16, 1980, the Committee
voted to increase from $3 billion to
$472 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 immediately, for the period ending with the
close of business on April 22, 1980.
Votes for this action: Messrs. Volcker, Guffey, Morris, Partee, Rice, Roos,
Schultz, Mrs. Teeters, Messrs. Wallich,
Winn, and Timlen. Votes against this
action: None. Absent and not voting:

114 FOMC Policy Actions

erably in January and February and
dropped sharply further in March to
an annual rate of just over one milThis action was taken on recom- lion units, about 40 percent less than
mendation of the Manager for Do- in the second and third quarters of
mestic Operations. The Manager 1979 and the lowest rate since April
had advised that since the March 1975. Building permits for new units
meeting, large-scale purchases of also declined substantially further in
securities had been undertaken to March. In February sales of singlecounter the effects on member bank family homes fell for the fifth conreserves of a decline in float, an in- secutive month.
crease in currency in circulation,
The index of industrial production
and a rise in required reserves asso- fell 0.8 percent in March, after
ciated with the System actions an- changing little on balance in other renounced on March 14. As a result, cent months. The March decline rethe leeway for further purchases had flected widespread cutbacks in outbeen reduced to less than $200 mil- put of final products and materials.
lion. It appeared likely that addition- The rate of capacity utilization in
al purchases would be required be- manufacturing fell nearly 1 percentcause projections indicated a need age point in March to 83 percent,
for further reserve-providing opera- about 4 percentage points below its
tions in the week ahead.
recent high in March 1979.
Nonfarm payroll employment declined appreciably in March followMeeting tfiici on April 22, 1980
ing a substantial rise earlier in the
Domestic Policy Directive
year, and the rate of unemployment
The information reviewed at this rose 0.2 percentage point to 6.2 permeeting suggested that economic ac- cent. Employment in manufacturing
tivity turned down in the latter part fell somewhat in March after changof the first quarter of 1980. For the ing little in January and February,
quarter as a whole, however, real and the length of the average workgross national product grew at an an- week was reduced for the second
nual rate of about 1 percent, accord- consecutive month.
The rise in average prices, as meaing to preliminary estimates of the
Commerce Department, compared sured by the fixed-weight price index
with a rate of 2 percent in the fourth for gross domestic business product,
accelerated to an annual rate of
quarter of 1979.
Retail sales on a constant-dollar about 12 percent in the first quarter
basis fell sharply in February and from a rate of about 10 percent durMarch, after having increased in ing 1979. Producer prices of finished
January, and were estimated to have goods and consumer prices rose at
declined over the first quarter as a annual rates of about 19 percent and
whole. Unit sales of new automo- 18 percent respectively during the
biles slowed in both February and first quarter. The advances reflected
March from a brisk pace in January a continuing surge in prices of enerand apparently remained weak in gy-related items and substantial increases in prices of numerous other
early April.
Private housing starts fell consid- items. The index of average hourly
Mr. Solomon. (Mr. Timlen voted as alternate for Mr. Solomon.)




FOMC Policy Actions 115
earnings of private nonfarm produc- reserves continued strong in relation
tion workers rose at an annual rate to the supply being made available
of 9V2 percent during the first quar- through open market operations,
ter, compared with a rise of about and the federal funds rate rose from
an average of 1674 percent in the
872 percent during 1979.
In foreign exchange markets the statement week ending March 19 to
strong demand for dollars that about 193/8 percent in the week endemerged in mid-February persisted ing April 2. Subsequently, the dethrough early April, but some selling mand for bank reserves eased, and
pressure developed in the second the funds rate dropped to an average
week of April, in large measure be- of about 183/8 percent in the week
cause accumulating signs of a reces- ending April 16. Member bank borsion in the United States led many rowings averaged around $274 bilmarket participants to conclude that lion in the three statement weeks
U.S. interest rates had peaked. De- ending April 16, down from an averspite the recent weakening of the age of about $374 billion in the predollar, its trade-weighted value ceding two weeks.
against major foreign currencies was
The monetary aggregates weakcurrently about 5 percent above its ened substantially in March after
level of early February.
growing at accelerated rates in FebThe U.S. foreign trade deficit rose ruary. M-1A and M-1B, which had
further in February following a sharp expanded at annual rates of around
increase in January. The marked in- 12 percent in February, declined at
crease over the first two months of annual rates of 372 and 2 percent re1980 reflected a surge in imports, as- spectively in March, and available
sociated in large part with rising data suggested further contraction in
prices, that was only partly offset by early April. Growth in M-2 slowed
from an annual rate of 103/4 percent
a moderate expansion in exports.
At its meeting on March 18, the in February to 372 percent in March,
Committee had agreed that open reflecting mainly the contraction in
market operations in the period until the narrow measures of the money
this meeting should be directed to- stock. Growth in money market muward expansion of reserve aggre- tual funds slowed markedly on a
gates consistent with growth over monthly average basis, but the imthe first half of 1980 at annual rates pact on M-2 was offset by greater
of 4V2 percent for M-1A and 5 per- strength in small-denomination time
cent for M-1B, or somewhat less, deposits, principally reflecting rapid
provided that in the intermeeting pe- growth in money market certificates.
riod the weekly average federal From December to March, M-1A
funds rate remained within a range and M-1B grew at annual rates of
of 13 to 20 percent. In the Com- about 4 percent and 472 percent remittee's view, this short-run policy spectively, and M-2 expanded at a
should be consistent with growth in rate of 7 percent.
Expansion of total credit outM-2 at an annual rate of about 73/U
percent over the first half of the standing at U.S. commercial banks
slowed substantially in March after
year.
During the first part of the inter- accelerating earlier in the year. The
meeting period, demands for bank slowdown was especially pro


116 FOMC Policy Actions
nounced for business loans, but
growth in real estate loans also moderated appreciably. Overall expansion in short-term business credit
remained relatively strong as nonfinancial corporations continued to
issue large amounts of commercial paper.
Most market interest rates declined considerably on balance during the intermeeting period. Following the Committee's meeting on
March 18, interest rates extended
earlier advances and reached new
highs in late March or early April.
Subsequently, most interest rates
turned down, with the federal funds
rate falling moderately and other
rates declining sharply as market
participants reacted to accumulating
signs of a slowdown in economic activity and to weakening in the monetary aggregates. During the period
commercial banks initially raised
their loan rate to prime business borrowers from I8V2 percent to 20 percent and then lowered it to 1972 percent. In primary markets for home
mortgages, average rates on new
commitments leveled out at around
I6V2 percent.
Staff projections prepared for this
meeting suggested that real GNP
would decline in the current quarter
and continue to move lower for a
number of quarters. The contraction
in activity was projected to be somewhat larger than had been anticipated a month earlier and to be accompanied by a substantial increase
in unemployment. The rise in average prices was projected to remain
rapid, although some moderation
was expected after the current quarter.
In the Committee's discussion of
the economic situation, the judgment was broadly shared that a de


cline in overall activity had probably
begun, especially in light of new evidence that had accumulated since
the Committee's meeting in March.
It was emphasized, however, that
uncertainties concerning the outlook
persisted and that, in any case, forecasting the severity and duration of a
recession was always difficult.
The degree of prospective weakness in consumer spending was viewed
as a major source of uncertainty.
The anti-inflationary measures announced on March 14 appeared
to have curbed considerably spending in anticipation of price increases.
It was noted in this connection that a
rise in the saving rate from the abnormally low levels of the most recent two quarters to a more normal
rate would imply a marked cutback
in consumer spending. Such a development would also tend to depress
business investment in inventories
and plant and equipment. However,
it would be premature to conclude
that inflationary attitudes and behavior had been fundamentally altered,
especially in view of the prospect
that the rapid rise in the consumer
price index would persist for a number of months.
At its meeting on February 4-5,
1980, the Committee had agreed that
from the fourth quarter of 1979 to the
fourth quarter of 1980 average rates
of growth in the monetary aggregates within the following ranges appeared to be consistent with broad
economic aims: M-1A, Vli to 6 percent; M-1B, 4 to 6V2 percent; M-2, 6
to 9 percent; and M-3, 6V2 to 9V2
percent. The associated range for
the rate of growth in commercial
bank credit was 6 to 9 percent. It had
also been agreed that the longer-run
ranges, as well as the particular aggregates for which such ranges were

FOMC Policy Actions 117
specified, would be reconsidered in
July or at any other time that conditions might warrant, and also that
short-run factors might cause considerable variation in annual rates of
growth from one month to the next
and from one quarter to the next.
In contemplating policy for the period immediately ahead, the Committee took note of a staff analysis
indicating that M-1A and M-1B were
likely to decline further on the average in April and, consequently, that
growth over the first four months of
the year would fall considerably
short of the objectives for the first
half of the year established by the
Committee at its meeting in March.
Thus, realization of those objectives
would require substantial expansion
in M-1A and M-1B over May and
June. A significant rebound in their
growth was likely over the twomonth period, given the staflF projection of a fairly sizable expansion in
nominal GNP in the current quarter
and the associated increase in the
transactions demand for money, but
efforts to realize the first-half objectives for growth established in
March could require System open
market operations that would put
further downward pressure on the
federal funds rate. The staff analysis
also suggested that growth of M-2
over the half year was likely to be
lower in relation to growth of the
narrower monetary aggregates than
had been thought a month earlier,
owing to a scaling down of expected
expansion in money market mutual
funds.
In the Committee's discussion of
policy for the period immediately
ahead, most members favored reaffirming the monetary growth objectives for the first half of 1980 that had
been established at the previous



meeting, but some sentiment was also expressed for lower rates of monetary growth. The members generally accepted the view that retention
of the earlier objectives for monetary growth was likely to be associated with further downward pressure on interest rates.
Several members noted their concern that if a large decline in interest
rates were to occur over the next
few weeks, it was likely to be perceived by some market participants—depending upon which variables they thought important—as an
easing of monetary policy and could
have very undesirable repercussions
on inflationary psychology and on
the dollar in foreign exchange markets. Such a decline in interest rates
could ultimately prove especially
troublesome and unsettling to financial markets if after a short interval a
stronger-than-expected resurgence
in monetary and credit expansion led
to its reversal. The view was also expressed that the course of economic
activity would not be adversely affected if any decline in interest rates
were gradual rather than precipitous.
Other members, however, stressed
the risk that a continued shortfall in monetary growth and persistence of relatively high interest
rates could exacerbate recessionary
forces in the economy. It was observed that a significant decline in interest rates, if that were to occur in
coming weeks, should be regarded
as a consequence of the Committee's continuing emphasis on its
announced objectives for achieving
limited monetary growth and not as
a shift toward a stimulative policy.
The Committee's monetary objectives should be perceived as fully
consistent with a moderation of in-

118 FOMC Policy Actions
flationary forces over time as well as
with resistance to recessionary tendencies in the short run. With respect to foreign exchange markets,
the view was expressed that the possibility of downward pressure on the
dollar in association with a relative
decline in U.S. interest rates would
have to be faced sooner or later. On
the other hand, some decline in U.S.
interest rates might already have
been discounted, and exchange markets should in any event be reassured by the general thrust of monetary policy and the prospect for
improvement over time in the performance of the current account. It
was also noted that U.S. interest
rates remained higher than key interest rates abroad.
In light of the outlook for a somewhat lower federal funds rate in the
weeks immediately ahead, most
members believed it would be appropriate to reduce the upper limit of
the current range, and several members suggested 19 percent for the
new upper limit. Most members expressed a preference for retaining
the current lower limit of 13 percent.
At the conclusion of the discussion, the Committee agreed that
open market operations in the period
until the next meeting should continue to be directed toward expansion
of reserve aggregates consistent with
growth over the first half of 1980 at
annual rates of 4lh percent for M-1A
and 5 percent for M-1B, or somewhat less, provided that in the intermeeting period the weekly average
federal funds rate remained within a
range of 13 to 19 percent. Consistent
with this short-run policy, in the
Committee's view, M-2 should grow
at an annual rate of about 63A* percent over the first half, and expansion of bank credit should slow in



the months ahead to a pace compatible with growth over the year as a
whole within the range of 6 to 9 percent agreed upon. It was generally
recognized that conditions could
arise that might make desirable a review of the situation in advance of
the next regular meeting scheduled
for May 20. In any case, if it appeared that the constraint on the federal funds rate was inconsistent with
the objective for the expansion of reserves, the Manager for Domestic
Operations was promptly to notify
the Chairman who would then decide whether the situation called for
supplementary instructions from the
Committee.
The following domestic policy directive was issued to the Federal Reserve Bank of New York:
The information reviewed at this
meeting suggests that economic activity
turned down in the latter part of the first
quarter of 1980, although for the quarter
as a whole real GNP expanded somewhat further and the rise in prices accelerated. Retail sales in real terms declined
sharply in February and March, after
having increased in January. In March
industrial production and nonfarm payroll employment declined, and the
unemployment rate edged up to 6.2 percent. Private housing starts declined
throughout the first quarter, to a rate in
March about two-fifths below that in the
third quarter of last year. The rise in producer prices of finished goods and in
consumer prices was considerably more
rapid during the first three months of
1980 than in 1979. Over the first quarter,
the rise in the index of average hourly
earnings was somewhat above the rapid
pace recorded in 1979.
The strong demand for the dollar in
exchange markets that began in midFebruary persisted through early April.
Some selling pressure developed in the
second week of April as market participants reacted to indications that U.S. interest rates might have peaked, but
the trade-weighted value of the dollar
against major foreign currencies re-

FOMC Policy Actions 119
mained well above its level of early February. The U.S. foreign trade deficit rose
further in February.
M-1A and M-1B, which had expanded
sharply in February, contracted in March
and early April; M-2 increased relatively little in March. From December
to March, M-1A and M-1B grew at
annual rates of about 4 percent and 472
percent respectively, and M-2 grew at a
rate of 7 percent. Expansion of commercial bank credit slowed substantially
in March from the accelerated pace earlier in the year. Since mid-March, most
market interest rates on balance have declined considerably.
Taking account of past and prospective economic developments, the Federal Open Market Committee seeks to foster monetary and financial conditions
that will resist inflationary pressures
while encouraging moderate economic
expansion and contributing to a sustainable pattern of international transactions. At its meeting on February 4-5,
1980, the Committee agreed that these
objectives would be furthered by growth
of M-1A, M-1B, M-2, and M-3 from the
fourth quarter of 1979 to the fourth quarter of 1980 within ranges of 3l/i to 6, 4 to
672, 6 to 9, and 6V2 to 9l/i percent respectively. The associated range for
bank credit was 6 to 9 percent.
In the short run, the Committee seeks
expansion of reserve aggregates consistent with growth over the first half of
1980 at an annual rate of 472 percent for
M-1A and 5 percent for M-1B, or somewhat less, provided that in the period before the next regular meeting the weekly
average federal funds rate remains within a range of 13 to 19 percent. The Committee believes that, to be consistent
with this short-run policy, M-2 should
grow at an annual rate of about 63/4 percent over the first half and that bank
credit should grow in the months ahead
at a pace compatible with growth over
the year as a whole within the range
agreed upon.
If it appears during the period before
the next meeting that the constraint on
the federal funds rate is inconsistent with
the objective for the expansion of reserves, the Manager for Domestic Operations is promptly to notify the Chairman
who will then decide whether the situation calls for supplementary instructions
from the Committee.



Votes for this action: Messrs. Volcker, Guffey, Morris, Partee, Rice,
Roos, Schultz, Solomon, Mrs. Teeters,
and Mr. Winn. Vote against this action: Mr. Wallich.
Mr. Wallich dissented from this
action because he believed that it
represented a premature and excessive relaxation of restraint. He favored a policy for the period until
the next meeting directed toward
lower rates of monetary growth over
the first half of the year, accompanied by an intermeeting range for
the federal funds rate that would allow for considerably less decline.
On May 6 the Committee held a
telephone conference to review the
situation and to consider whether
supplementary instructions were
needed. Available data suggested
that the demand for money and
hence the demand for reserves had
remained weak, and the federal
funds rate most recently had fallen
below the 13 percent lower limit of
the intermeeting range of 13 to 19
percent. The Committee voted to reduce the lower limit of the intermeeting range for the funds rate to
IOV2 percent.
On May 6 the Committee modified the
domestic policy directive adopted at its
meeting on April 22, 1980, to reduce the
lower limit of the range for the federal
funds rate to IOV2 percent.
Votes for this action: Messrs. Volcker, Morris, Rice, Roos, Schultz,
Mrs. Teeters, and Mr. Winn. Votes
against this action: Messrs. Guffey,
Solomon, and Wallich. Absent: Mr.
Partee.
Messrs. Guffey and Solomon voted against this action because they
preferred smaller reductions in the
lower limit of the federal funds

120 FOMC Policy Actions
rate and Mr. Wallich voted against it
because he preferred to maintain the
lower limit at 13 percent.

nounced in automobile- and construction-related industries. The
length of the average workweek fell
for the third successive month.
Private housing starts declined
Meeting Held on
throughout the first quarter and
edged down further in April to an anMay 20,1980
nual rate of about 1 million units.
1. Domestic Policy Directive
Building permits for new units were
The information reviewed at this down substantially further in April.
meeting suggested that real output of In March sales of single-family
goods and services was declining homes fell for the sixth consecutive
markedly in the current quarter after month.
increasing at an annual rate of 0.6
The rise in producer prices of finpercent in the first quarter. How- ished goods moderated appreciably
ever, average prices, as measured by in April, reflecting a large drop in
the fixed-weight price index for prices of consumer foods and a less
gross domestic business product, rapid advance in prices of energy-rewere continuing to rise at a rapid lated items than in earlier months. In
pace following increases at an annu- the first quarter both producer prices
al rate of about 11 percent in the first and consumer prices had risen at acquarter and nearly 10 percent during celerated rates following rapid ad1979.
vances in 1979. The index of average
The dollar value of total retail hourly earnings of private nonfarm
sales fell substantially further in production workers rose at an annuApril after declining sharply in Feb- al rate of about 8 percent over the
ruary and March. Unit sales of new first four months of the year, comautomobiles slowed markedly fur- pared with an increase of 8V2 perther in April to the lowest level since cent during 1979.
In foreign exchange markets the
the spring of 1975 and apparently remained exceptionally weak in early dollar had remained under downward pressure over most of the preMay.
The index of industrial production vious four weeks. Such pressure,
fell 1.9 percent in April, following which had emerged in early April,
small reductions in February and reflected primarily a sharp decline in
March. The April decline reflected interest rates on dollar assets in relawidespread cutbacks in output. The tion to those on foreign-currency asrate of capacity utilization in manu- sets. The trade-weighted value of the
facturing fell 2 percentage points fur- dollar against major foreign curther in April to 81 percent, 6 percent- rencies had fallen about VI2 percent
age points below the recent peak in since the Committee's meeting on
April 22 and about Vli percent since
March 1979.
In April nonfarm payroll employ- early April.
The U.S. foreign trade deficit inment declined substantially following a moderate reduction in March, creased substantially from the fourth
and the rate of unemployment rose quarter of 1979 to the first quarter of
from 6.2 to 7.0 percent. Decreases in 1980 despite a considerable reducemployment were especially pro- tion in March from the average in



FOMC Policy Actions 121
January and February. For the quarter as a whole, imports, including
both petroleum and nonpetroleum
products, rose at a much faster rate
than exports even though nonagricultural exports exhibited considerable strength.
At its meeting on April 22, the
Committee had agreed that open
market operations in the period until
this meeting should continue to be
directed toward expansion of reserve aggregates consistent with
growth over the first half of 1980 at
annual rates of 4V2 percent for M-1A
and 5 percent for M-1B, or somewhat less, provided that in the intermeeting period the weekly average
federal funds rate remained within a
range of 13 to 19 percent. In the
Committee's view, this short-run
policy should be consistent with
growth in M-2 at an annual rate of
about VI4 percent over the first half
of the year. The Committee had also
agreed that if the constraint on the
federal funds rate appeared to be inconsistent with the objective for the
expansion of reserves, the Manager for Domestic Operations was
promptly to notify the Chairman,
who would then decide whether the
situation called for supplementary
instructions from the Committee.
Immediately after the meeting, required reserves and thus member
bank demands for reserves began to
fall substantially in relation to the
supply being made available through
open market operations, reflecting a
sharp weakening of the monetary
aggregates during April. Consequently, member bank borrowings for
adjustment purposes and the federal funds rate both declined sharply. On May 6, after the funds rate
had fallen below the 13 percent
lower limit of the Committee's inter


meeting range and available data had
suggested that the demand for money and for reserves had remained
weak, the Committee voted to reduce the lower limit of the intermeeting range for the funds rate to
IOV2 percent. In the statement week
ending May 14, the funds rate averaged 107/s percent, down from an average of about 183/8 percent in the
statement week ending April 16.
In April M-1A and M-1B contracted at annual rates of I8V2 and
HV2 percent respectively following
small declines in March, while M-2
fell at an annual rate of about 3 percent after increasing moderately in
March. As a result, expansion of
the monetary aggregates—especially
M-1A and M-1B—over the first four
months of the year averaged well below the growth paths set by the
Committee for the first half; M-1A
declined at an annual rate of 1V2 percent over that period; M-1B was unchanged; and M-2 expanded at an
annual rate of 4V2 percent. In early
May, however, there were substantial increases in demand deposits and money market mutual funds.
Total credit outstanding at U.S.
commercial banks contracted in
April after expanding at a substantially reduced pace during
March. The April decline reflected
reductions in both investments and
loans, which included a drop in business loans. Net issues of commercial
paper by nonfinancial corporations
moderated in April from an exceptionally strong pace during the
first quarter.
Interest rates fell sharply further
during the intermeeting period as
market participants reacted to accumulating signs of a slowdown in
economic activity, to sustained weakness in the money stock, and to the

122 FOMC Policy Actions
decline in the federal funds rate. The
rate declines were especially pronounced in short-term debt markets,
but bond yields also moved substantially lower. Commercial banks reduced their loan rate to prime business borrowers from \9l/i to I6V2
percent over the interval. In primary
markets for home mortgages, average
rates on new commitments at sampled savings and loan institutions fell
more than 2 percentage points to
about 14Vs percent. On May 6 the
Federal Reserve announced the removal of the surcharge of 3 percentage points on frequent borrowings
from the Federal Reserve Banks by
member banks with deposits of $500
million or more. This surcharge had
been imposed in mid-March as part
of a broad program of credit restraint.
Staff projections prepared for this
meeting suggested a larger decline in
real GNP in the current quarter than
had been anticipated a month earlier. Further declines were expected
in subsequent quarters, and unemployment was projected to increase
substantially. Prices of goods and
services were projected to continue
under substantial upward pressure,
although the rate of increase was not
expected to be so rapid as in the first
quarter.
Committee members agreed that a
marked contraction in real GNP was
under way in the current quarter.
The rapidity of the decline, reflecting in part the abrupt weakening in
consumption expenditures, suggested a risk that the contraction
would prove to be deeper than was
widely expected. At the same time,
inflation remained a serious problem. The rise in prices appeared
likely to remain rapid, even though
there were grounds for anticipating



some moderation of the rise over the
months ahead.
At its meeting on February 4-5,
1980, the Committee had agreed that
from the fourth quarter of 1979 to the
fourth quarter of 1980 average rates
of growth in the monetary aggregates within the following ranges appeared to be consistent with broad
economic aims: M-1A, 3V2 to 6 percent; M-1B, 4 to 6V2 percent; M-2, 6
to 9 percent; and M-3, 6V2 to 97 2
percent. The associated range for
the rate of growth in commercial
bank credit was 6 to 9 percent. It had
also been agreed that the longer-run
ranges, as well as the particular aggregates for which such ranges were
specified, would be reconsidered in
July or at any other time that conditions might warrant, and also that
short-run factors might cause considerable variation in annual rates of
growth from one month to the next
and from one quarter to the next.
In contemplating policy for the period immediately ahead, the Committee took note of a staff analysis
indicating that growth of M-1A and
M-1B over the first four months of
the year had fallen considerably
short of the rates consistent with the
objectives for the first half of the
year that the Committee had established at its meeting in March and
reaffirmed at its meeting in April.
Some rebound in growth of these aggregates was likely to occur over the
May-June period, assuming interest
rates at around current levels and
given the staff projection of expansion in nominal GNP during the second quarter and the public's lively
need to rebuild depleted cash balances. It still seemed likely, however, that growth of these aggregates
over the first half of 1980 would fall
considerably short of the rates con-

FOMC Policy Actions 123
sistent with the Committee's ranges
for the year from the fourth quarter
of 1979 to the fourth quarter of 1980.
Growth of M-2 and M-3 appeared to
be less weak relative to the Committee's longer-run ranges than that
of the narrowly defined aggregates.
In the Committee's discussion of
policy, the members agreed that operations in the period immediately
ahead should be directed toward
expansion of monetary aggregates
at rates high enough to promote
achievement of the Committee's objectives for monetary growth over
the year, recognizing that a number
of months might well be required in
the process. They differed to some
extent in their views concerning the
speed with which that goal should be
sought and about the further nearterm decline in the federal funds rate
that might be tolerated in its pursuit.
Several members believed that if
the demand for money were to remain weak, the Committee should
move in a relatively gradual fashion
over the balance of the year to restore the desired longer-run rates of
money growth. Concern was expressed that a more aggressive approach would lead to such sharp declines in the federal funds rate and
other short-term interest rates in the
period immediately ahead that there
could be a perverse impact on longterm interest rates by exacerbating
inflationary expectations, and there
could also be strong adverse effects
on the value of the dollar in foreign
exchange markets. Moreover, aggressive efforts to promote monetary
growth might have to be reversed
before long, perhaps leading to significant increases in interest rates
in a period of substantial weakness
in the economy. The possibility was
also suggested that the demand for



money had shifted downward once
again, so that vigorous efforts in the
short run to bring monetary growth
into line with the Committee's longer-run objectives could result in excessive creation of money.
Other members of the Committee
preferred efforts to bring monetary
growth more promptly into line with
the Committee's objectives for the
year. Such an approach, which they
regarded as more consistent with the
operating procedures the Committee
had been following since early October 1979, could make an important
contribution to moderating the severity of the recession.
At the conclusion of the discussion, the Committee agreed that
open market operations in the period
until the next meeting should be directed toward expansion of reserve
aggregates consistent with growth of
M-1A, M-1B, and M-2 at rates high
enough to promote achievement of
the Committee's objectives for monetary growth for the year as a whole,
provided that in the period before
the next regular meeting the weekly
average federal funds rate remained
within a range of 8V2 to 14 percent.
Specifically, the Committee agreed
that operations should be directed
toward encouraging growth of M-l A,
M-1B, and M-2 over May and
June at annual rates of 7 to lxli percent, 772 to 8 percent, and about 8
percent respectively. The Committee also agreed that, in light of the
recent shortfall, moderately faster
monetary growth would be acceptable if that developed in response to
a strengthening of the demand for
money. It was understood that if the
demand for money and for bank reserves proved to be weak and the
federal funds rate declined significantly within its specified range, the

124 FOMC Policy Actions
Committee would review the situa- investments, contracted in April after
tion in advance of the next regular having slowed substantially in March.
meeting scheduled for July 9. In any Over recent weeks, market interest rates
case, if it appeared that the constraint on the federal funds rate was
inconsistent with the objective for
the expansion of reserves, the Manager for Domestic Operations was
promptly to notify the Chairman,
who would then decide whether the
situation called for supplementary
instructions from the Committee.
The following domestic policy directive was issued to the Federal Reserve Bank of New York:
The information reviewed at this
meeting suggests a marked contraction
in real GNP in the current quarter. In
April the dollar value of total retail sales
declined substantially for the third consecutive month. Industrial production
and nonfarm payroll employment were
curtailed sharply, and the unemployment
rate rose from 6.2 to 7.0 percent. Private
housing starts, which had declined
throughout the first quarter to a relatively low rate, edged down further in April.
The overall rise in prices of goods and
services has remained rapid in recent
months, although in April the rise in producer prices of finished goods was
slowed by a large decrease in foods and
by a lessening of the rapid rise in energy
items. Over the first four months of the
year, the rise in the index of average
hourly earnings was somewhat less than
the rapid pace recorded in 1979.
The downward pressure on the dollar
in exchange markets that emerged in
early April has continued over most of
the past four weeks, in response primarily to the sharp decline in U.S. interest
rates relative to foreign interest rates;
the trade-weighted value of the dollar
against major foreign currencies has declined about 372 percent. The U.S. foreign trade deficit was substantially larger
in the first quarter of 1980 than in the preceding quarter, despite a considerable
decline in March from the average in the
preceding two months.
M-1A and M-1B contracted sharply
further in April, and M-2 also declined.
Commercial bank credit, both loans and



have declined sharply further.
Taking account of past and prospective economic developments, the Federal Open Market Committee seeks to foster monetary and financial conditions
that will resist inflationary pressures
while encouraging moderate economic
expansion and contributing to a sustainable pattern of international transactions.
At its meeting on February 4-5, 1980, the
Committee agreed that these objectives
would be furthered by growth of M-1A,
M-1B, M-2, and M-3 from the fourth
quarter of 1979 to the fourth quarter of
1980 within ranges of 372 to 6, 4 to 672, 6
to 9, and 672 to 972 percent respectively.
The associated range for bank credit was
6 to 9 percent.
In the short run, the Committee seeks
expansion of reserve aggregates consistent with growth of M-1A, M-1B, and
M-2 at rates high enough to promote
achievement of the Committee's objectives for monetary growth over the year,
provided that in the period before the
next regular meeting the weekly average
federal funds rate remains within a range
of 872 to 14 percent.
If it appears during the period before
the next meeting that the constraint on
the federal funds rate is inconsistent with
the objective for the expansion of reserves, the Manager for Domestic Operations is promptly to notify the Chairman
who will then decide whether the situation calls for supplementary instructions
from the Committee.
Votes for this action: Messrs. Volcker, Guffey, Morris, Rice, Schultz,
Solomon, Mrs. Teeters, Messrs. Wallich, and Winn. Votes against this action: Messrs. Partee and Roos.

Mr. Partee dissented from this action because he believed that it involved a risk of extending the shortfall in monetary growth relative to
the Committee's growth ranges for
the year. In an effort to guard against
the continuation of such a shortfall,
which could worsen recessionary
prospects, he preferred to direct op-

FOMC Policy Actions 125
erations toward achieving somewhat
higher rates of monetary growth in
the May-June period. He also preferred an intermeeting range for the
federal funds rate with a lower limit
below 8V2 percent, because such a
range would be less likely to interfere with reserve-supplying operations consistent with the objectives
for the aggregates.
Mr. Roos dissented because in his
view the annual growth rate objective of 372 to 6 percent for M-lA established by the Committee in February 1980 was consistent with
reduction of inflation without aggravating recessionary pressures. He
believed that the 872 to 14 percent
constraint on the federal funds rate
was incompatible with that agreedupon objective and would cause
money growth to remain below it.
Such slow growth would unnecessarily exacerbate the current economic slowdown. Historically, deep
recessions had inevitably brought
about countermeasures that intensified inflation.

2. Authorization for Foreign
Currency Operations
The Committee approved an increase from $300 million to $500 million in the System's swap arrangement with the Bank of Sweden and
the corresponding amendment to
paragraph 2 of the authorization for
foreign currency operations, effective May 23, 1980, for a period of
one year. With this change paragraph 2 read as follows:
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 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 Mexico
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
500
250
..500
4,000
600
1,250

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.
Votes for this action: Messrs. Volcker, Guffey, Morris, Partee, Rice,
Roos, Schultz, Solomon, Mrs. Teeters, Messrs. Wallich, and Winn.
Votes against this action: None.

This action was taken to expand
the short-term financing facilities
available to the Bank of Sweden.
Meeting Held on
July 9, 1980
1. Domestic Policy Directive
The information reviewed at this
meeting indicated that real output of
goods and services had declined
markedly in the second quarter after
having expanded at an annual rate of
1.2 percent in the first quarter. Aver-

126 FOMC Policy Actions
age prices, as measured by the fixedweight price index for gross domestic business product, continued to
rise at a rapid pace, but not so rapidly as in the first quarter.
The dollar value of total retail
sales declined substantially in May
for the fourth consecutive month; in
real terms such sales had fallen 10
percent below their peak in January,
the sharpest four-month drop on record. Unit sales of new automobiles
slowed considerably further in May
and remained weak in June.
The index of industrial production
fell 2.1 percent in May, following a
similar reduction in April. The decline was broadly based, reflecting
reductions in output for all major
product groupings. The rate of capacity utilization in manufacturing
fell 2 percentage points further to 79
percent, 8 percentage points below
its recent high in March 1979.
Nonfarm payroll employment declined in May and fell sharply further
in June. Employment decreases
were concentrated in manufacturing
and construction in both months,
and in June the service-producing
sector registered its first decline
since the previous recession. The
unemployment rate, however, edged
down from 7.8 to 7.7 percent in
June, following large increases in the
preceding two months.
The Department of Commerce
survey of business spending plans
taken in late April and May indicated
that expenditures for plant and
equipment would be about 10 percent higher in 1980 than in 1979. The
survey also suggested, however,
little real growth in such expenditures over the year after allowance for expected increases in
prices.
Private housing starts fell consid


erably further in May to an annual
rate of 920,000 units, one of the lowest monthly rates in the postwar period, while residential building permits edged up. There were some
indications of improvement in newhome sales in May.
The rise in producer prices of finished goods and of materials moderated substantially in the second
quarter following exceptionally rapid advances in other recent quarters.
The rate of increase in consumer
prices slowed appreciably in April
and May from the accelerated pace
in the first quarter. The recent moderation in both producer and consumer prices was due largely to a
lessening of the rapid rise in prices of
energy-related items. The index of
average hourly earnings of private
nonfarm production workers rose at
an annual rate of about 9lli percent
over the first half of 1980, compared
with an increase of 8V2 percent during 1979.
In foreign exchange markets the
downward pressure on the dollar
that had developed in early April
abated in mid-June but reemerged in
early July. The renewed pressure apparently reflected concern about the
possibility of further declines in U.S.
interest rates. The trade-weighted
value of the dollar against major foreign currencies, which had fallen
about 3V2 percent since the Committee's meeting on May 20 and
about 11 percent since early April,
was close to its level in early 1980.
The U.S. foreign trade deficit for
April and May was well below the
average for the first quarter, reflecting a reduction in both oil and nonoil imports. Nonagricultural exports
increased slightly after exhibiting
considerable strength in 1979 and in
the first quarter of 1980.

FOMC Policy Actions 127
At its meeting on May 20, the
Committee had agreed that open
market operations in the period until
this meeting should be directed toward expansion of reserve aggregates consistent with growth of
M-1A, M-1B, and M-2 at rates high
enough to promote achievement of
the Committee's objectives for
growth over the year, provided that
in the intermeeting period the weekly average federal funds rate remained within a range of 8V2 to 14
percent. Specifically, the Committee
had agreed that operations should be
directed toward encouraging growth
of M-1A, M-1B, and M-2 over May
and June at annual rates of 7 to lxh
percent, I112 to 8 percent, and about
8 percent respectively. The Committee also had agreed that, in light
of the earlier shortfall, moderately
faster growth would be acceptable if
that developed in response to a
strengthening of the demand for
money.
In pursuit of the Committee's objective of encouraging growth in the
monetary aggregates, System open
market operations were directed
during the intermeeting period at
fostering an ample availability of
nonborrowed reserves, and conditions in the money market eased further. The federal funds rate declined
from an average of about 107/s percent in the statement week ending
May 14 to around 93/s percent in the
statement week ending July 2. In
recognition of the easier conditions
in money markets, reductions in
Federal Reserve discount rates from
13 percent to 11 percent in two equal
steps were announced on May 28
and June 12.
Growth in M-1A and M-1B accelerated in June to annual rates of WU
percent and 163A percent respective


ly, following little change in May and
sharp contraction in April. Growth
in M-2 also accelerated in June to an
annual rate of about 171U percent,
up from a rate of 83/4 percent in May
and a small decline in April; the faster growth in M-2 partly reflected
rapid expansion in money market
mutual funds. From the fourth quarter of 1979 to the second quarter of
1980, M-1A and M-1B grew at annual rates of about V2 and l3/4 percent
respectively, considerably below the
growth paths consistent with the
Committee's ranges for the year
ending in the fourth quarter of 1980;
M-2 and M-3 grew at rates just above
the lower bounds of their ranges.
Following rapid expansion in the
first quarter, total credit outstanding
at U.S. commercial banks contracted in June for the third consecutive month. The June decline reflected continuing weakness in
loans, including business loans.
However, short-term business borrowing was sustained by rapid
growth in net issuance of commercial paper by nonfinancial corporations following a surge of such
issuance to a record rate in May.
Over the first half of 1980, total commercial bank credit grew at an annual rate of about 4V2 percent, somewhat below the lower bound of the
Committee's range for the year.
Market interest rates declined
considerably further in late May and
the first half of June but since then
most rates have retraced part of the
decline. On balance, private shortterm rates declined 100 to 125 basis
points over the intermeeting period
while most long-term rates fell 10 to
50 basis points; municipal bond
yields, however, rose somewhat.
Over the interval, commercial banks
reduced their loan rate to prime busi-

128 FOMC Policy Actions
ness borrowers from I6V2 percent to
IIV2 percent. In primary markets for
home mortgages, average rates on
new commitments at savings and
loan associations declined to about
127s percent.
On May 22 the Board of Governors announced a partial phaseout
of the special measures of credit
restraint that had been put in place,
or reinforced, on March 14. Subsequently, on July 3, the Board
announced plans to complete the
phaseout of the special credit restraint program. The Board noted
that recent banking and other data
clearly indicated that credit expansion was running at a moderate pace,
and accordingly the special conditions necessitating the extraordinary
credit restraint measures were no
longer present.
According to staff estimates presented at this meeting, the decline in
real GNP during the second quarter
was larger than had been anticipated
at the time of the meeting in May.
The staff's projections suggested
that real GNP would continue to decline in the remaining quarters of
1980, although at a progressively
less rapid pace, and that the
unemployment rate would increase
substantially further. A modest recovery in real GNP appeared likely
to begin around the turn of the year.
The rise in prices, as measured by
the fixed-weight index for gross domestic business product, was expected to remain rapid, but somewhat less rapid during 1981 than
1980.
Although members of the Committee differed somewhat in their appraisals of the depth of the overall
decline and of the pace of the recovery, they generally agreed that the
contraction in real GNP would con


tinue well into the second half of
1980 and that a recovery in 1981 was
likely to be modest compared with
most earlier periods of recovery. All
members believed that the rise in
prices would remain rapid in 1981,
although a few anticipated a somewhat more significant slowing than
the staff projected; one or two members expected little if any improvement. However, it was suggested
that uncertainty about the forecasts
was especially great, partly because
of the difficulty of evaluating the impact that persistent inflation might
have on expectations and thus on
various categories of expenditures.
At its meeting on February 4-5,
1980, the Committee had agreed that
from the fourth quarter of 1979 to the
fourth quarter of 1980 average rates
of growth in the monetary aggregates within the following ranges appeared to be consistent with broad
economic aims: M-1A, 372 to 6 percent; M-1B, 4 to 672 percent; M-2, 6
to 9 percent; and M-3, 672 to 972
percent. The associated range for
the rate of growth in commercial
bank credit was 6 to 9 percent. In establishing the ranges then, the Committee had agreed that monetary
growth should slow further in 1980,
following some deceleration in 1979,
in line with the continuing objective
of curbing inflation and providing the
basis for restoration of economic
stability and sustainable growth in
output.
At this meeting, in accordance
with the Full Employment and Balanced Growth Act of 1978 (the Humphrey-Hawkins Act), the Committee
reviewed the ranges for growth of
the monetary and credit aggregates
for the period from the fourth quarter of 1979 to the fourth quarter of
1980 that it had established at its

FOMC Policy Actions 129
meeting in February and gave preliminary consideration to objectives
for monetary growth that might be
appropriate for 1981.1 In doing so,
the Committee continued to face unusual uncertainties concerning the
forces affecting monetary growth.
As noted earlier, expansion of both
M-1A and M-1B from the fourth
quarter of 1979 to the second quarter
of 1980 fell considerably below the
growth paths consistent with the
Committee's ranges for the year.
However, growth of M-2 and M-3
was considerably stronger: over the
two quarters both of these aggregates grew at rates just above the
lower bounds of their ranges. By
midyear, growth of M-2 was near the
midpoint of its range, and it appeared to be moving higher.
The weakness in the narrower
measures of money that developed
in the second quarter was unusual. It
raised the question of whether the
demand for money in relation to income and interest rates had shifted
downward once again, perhaps as a
response to the unusually high level
of interest rates of the preceding
quarter. It was also possible that
part of the second-quarter decline in
money balances was a temporary
phenomenon associated with the
substantial repayments of short-term
debt that followed the special measures of credit restraint announced
on March 14. In the latter case, the
public would probably make some
effort to rebuild balances in the second half of the year, which would
strengthen the demand for both
M-1A and M-1B. In any event, in view
of recent evidence of a preference
1. The Board's midyear report under the act
was transmitted to the Congress on July 21,
1980.



for interest-bearing transactions accounts over demand deposits that
was greater than anticipated, it appeared likely that M-1B would grow
somewhat faster relative to M-1A
than had been projected earlier in
the year.
The stronger performance of the
broader aggregates over the first half
of the year in relation to their ranges
for the year reflected rapid growth in
instruments yielding market rates of
interest, including shares in money
market mutual funds. As short-term
market interest rates declined sharply toward the end of the period, contraction in savings deposits in banks
and other depository institutions
slowed and then gave way to a rise.
For part of the period, growth of M-3
was also promoted by issuance of
large-denomination time deposits by
commercial banks and thrift institutions, but the outstanding volume of
such deposits began to contract in
late spring as credit demands weakened.
For 1981, the prospective relationships among the various monetary
aggregates were subject to even
greater uncertainty because of,
among other things, certain institutional changes expected to result
from the Monetary Control Act of
1980. In particular, relationships
among the aggregates will be affected by introduction of NOW accounts on a nationwide basis as of
December 31, 1980, as authorized by
that act. During 1981, shifts of funds
from demand deposits to NOW accounts are likely to be substantial,
and will retard the growth of M-1A.
At the same time, transfers from
savings deposits and other interestbearing assets to NOW accounts will
enhance the growth of M-IB. To the
extent that funds are shifted into

130 FOMC Policy Actions
NOW accounts from other deposit
components of M-2 and M-3, growth
of these aggregates will be unaffected. The behavior of these aggregates, however, will also be influenced by the further development of
money market mutual funds, which
are included in M-2. The possibility
that the apparent downward shift in
the demand for narrow money will
persist into next year was an additional element of uncertainty.
In the Committee's discussion, all
but one member favored retention of
the ranges for 1980 that had been
adopted at the meeting in February.
The likely shift in relative growth of
M-1A and M-1B was not considered
large enough to justify "fine-tuning"
the growth ranges at the expense of
causing public confusion about the
meaning of the adjustments. One
member advocated a reduction in
the ranges for both M-l A and M-1B.
In reaffirming the existing ranges
for 1980, Committee members in
general recognized that growth of
the narrow aggregates over the year
as a whole might reasonably fall below the midpoints of their ranges and
possibly near the lower bounds. On
the other hand, the recent behavior
of the interest-bearing nontransactions components of M-2 and M-3,
along with a possible pickup in demands for transactions balances, suggested that growth of the broader aggregates over the year as a whole
might rise to about the midpoints of
their ranges or, in the case of M-2,
well into the upper part of the range.
Committee members also recognized that the sharp contraction in
commercial bank credit during the
second quarter raised the possibility
that growth over the year would fall
short of its range, even if the anticipated resumption of expansion in



bank credit occurred. It was noted,
however, that a substantial portion
of business credit needs was being
met through other sources of funds,
particularly the issuance of commercial paper and the flotation of
corporate bonds.
Thus the Committee decided to retain the ranges for 1980 that it had
established in February: for the period from the fourth quarter of 1979 to
the fourth quarter of 1980, 3V2 to 6
percent for M-1A, 4 to 6V2 percent
for M-lB, 6 to 9 percent for M-2, and
6V2 to 972 percent for M-3. The associated range for commercial bank
credit remained 6 to 9 percent. As in
the past, it was understood that the
longer-run ranges, as well as the particular aggregates for which ranges
were specified, would be reconsidered at any time that conditions
might warrant, and that short-run
factors might cause considerable
variation in annual rates of growth
from one month to the next and from
one quarter to the next.
With respect to objectives for
monetary growth in 1981, most
Committee members expressed
strong reservations about attempting
to be numerically precise at this
time, owing to the unusual uncertainties about the relationships
among the monetary aggregates and
about their relationship to economic
activity; they felt that a more general
statement, consistent with the letter
and intent of the law as they understood it, would be more meaningful
and less confusing. The members
generally wished to reaffirm the
Committee's long-standing objective
of moving gradually toward rates of
monetary expansion consistent with
general price stability. Some members emphasized a possible inconsistency between reduced monetary

FOMC Policy Actions 131
growth and satisfactory recovery in
activity should strong price pressures persist, as assumed in the administration's forecast. A few were
unwilling to assume, pending further
appraisal of price and other developments in coming months, that progress could be made in 1981 toward
the longer-term goal of reduced
monetary growth. However, most
members believed that the Committee should indicate firmly its intent to make more progress in 1981
toward its objective of reduction in
monetary growth over time. One
view was that the reduction in monetary growth should be stated only
with respect to the narrowly defined
monetary aggregates, even if it were
not feasible to do so in specific quantitative terms. Another was that the
objective should be stated only in
terms of a small reduction in the
ranges for the broader aggregates, in
light of the distorted behavior of
M-1A and M-1B anticipated because
of the prospective growth of NOW
accounts on a nationwide basis.
At the conclusion of the discussion, there was rather general
agreement among members of the
Committee that it would be appropriate to plan for some further progress in 1981 toward reduction in the
targeted ranges, but that it would be
premature at this time to set forth
precise ranges for each monetary aggregate for next year, especially given the uncertainty generated by the
institutional changes affecting the
relationships among the aggregates.
Moreover, the appropriate monetary
growth in 1981 relative to 1980
would depend to some extent on actual growth this year—that is, on exactly where in the present ranges the
various aggregates fall at year-end.
The Committee adopted the following



ranges for rates of growth in monetary
aggregates for the period from the fourth
quarter of 1979 to the fourth quarter of
1980: M-1A, 3V2 to 6 percent; M-1B, 4 to
6V2 percent; M-2, 6 to 9 percent; and
M-3, 6V2 to 9V2 percent. The associated
range for bank credit is 6 to 9 percent.
Votes for this action: Messrs. Volcker, Gramley, Morris, Partee, Rice,
Roos, Schultz, Solomon, Mrs. Teeters, Messrs. Winn, and Balles. Vote
against this action: Mr. Wallich. (Mr.
Balles voted as alternate for Mr. Guffey.)
Mr. Wallich dissented from this
action because he believed that the
ranges for growth of M-1A and M-1B
over the year ending in the fourth
quarter of 1980 should be reduced by
V2 percentage point. In his opinion,
efforts to bring these aggregates up
into the ranges adopted in February
implied excessively rapid monetary
growth over the months ahead.
In the Committee's discussion of
policy for the short run, the members agreed that operations in the period before the next meeting should
be directed toward expansion of
monetary aggregates over the third
quarter at rates that would promote
achievement of its monetary objectives for the year. In doing so, the
members recognized that a number
of months might be required in the
process and that, in any case,
growth of the narrower aggregates
over the year as a whole might well
fall near the lower bounds of their
ranges.
Specifically, the Committee agreed
that open market operations in the
period until the next meeting should
be directed toward expansion of reserve aggregates consistent with
growth of M-1A, M-1B, and M-2
over the third quarter of 1980 at annual rates of about 7 percent, 8 per-

132 FOMC Policy Actions
cent, and 8 percent respectively,
provided that in the period before
the next regular meeting the weekly
average federal funds rate remained
within a range of 8V2 to 14 percent.
The Committee also agreed that in
light of the shortfall in monetary
growth over the first half of the year,
moderately faster growth would be
acceptable if it developed in response to a strengthening in the public's demand for money balances as
narrowly defined. In assessing the
behavior of M-1A and M-1B, it was
also understood that the rate of
growth in M-2 would be taken into
account. If it appeared during the period before the next regular meeting
that the constraint on the federal
funds rate was inconsistent with the
objective for the expansion of reserves, the Manager for Domestic
Operations was promptly to notify
the Chairman who would then decide whether the situation called for
supplementary instructions from the
Committee.
The following domestic policy directive was issued to the Federal Reserve Bank of New York:
The information reviewed at this
meeting indicates a marked contraction
in real GNP in the second quarter. In
May total retail sales declined substantially for the fourth consecutive
month, and housing starts, industrial
production, and nonfarm payroll employment continued to decline. Employment fell sharply further in June; however, the unemployment rate edged
down from 7.8 to 7.7 percent, following
large increases in April and May. The
overall rise in prices of goods and services has moderated in recent months, in
large part owing to a lessening of the rapid rise in energy items. Over the first six
months of the year, the rise in the index
of average hourly earnings was moderately faster than the pace recorded in
1979.
The downward pressure on the dollar



in exchange markets that emerged in
early April abated in mid-June, and then
was resumed in early July. The average
U.S. foreign trade deficit for April and
May was well below the average for the
first quarter, reflecting reduced oil and
non-oil imports.
Monetary expansion was rapid in
June, following weakness earlier in the
spring. Over the first half of the year
growth of M-1A and M-1B fell short of
the rates consistent with the Committee's ranges for the year from the
fourth quarter of 1979 to the fourth quarter of 1980; the rate of growth for M-2
was just above the lower bound of its
range. Outstanding bank loans to business declined substantially during the
second quarter following a large increase
in the first quarter. Market interest rates
declined considerably further in late May
and the first half of June, but since then
most rates have retraced part of the decline. Reductions in Federal Reserve
discount rates from 13 to 11 percent in
equal steps were announced on May 28
and June 12.
Taking account of past and prospective economic developments, the Federal Open Market Committee seeks to foster monetary and financial conditions
that will resist inflationary pressures
while encouraging moderate economic
expansion and contributing to a sustainable pattern of international transactions. The Committee agrees that these
objectives would be furthered by growth
of M-1A, M-1B, M-2, and M-3 from the
fourth quarter of 1979 to the fourth quarter of 1980 within ranges of 3V2 to 6 percent, 4 to 6V2 percent, 6 to 9 percent, and
6V2 to 972 percent respectively. The associated range for bank credit is 6 to 9
percent.
In the short run, the Committee seeks
expansion of reserve aggregates consistent with growth of M-1A, M-1B, and
M-2 over the third quarter of 1980 at annual rates of about 7 percent, 8 percent,
and 8 percent respectively, provided that
in the period before the next regular meeting the weekly average federal funds rate
remains within a range of 8V2 to 14 percent.
If it appears during the period before
the next meeting that the constraint on
the federal funds rate is inconsistent with
the objective for the expansion of re-

FOMC Policy Actions
serves, the Manager for Domestic Operations is promptly to notify the Chairman
who will then decide whether the situation calls for supplementary instructions
from the Committee.
Votes for this action: Messrs. Volcker, Gramley, Morris, Partee, Rice,
Roos, Schultz, Solomon, Mrs. Teeters,
Messrs. Wallich, Winn, and Balles.
Votes against this action: None. (Mr.
Balles voted as alternate for Mr. Guffey.)

Subsequent to the meeting, Chairman Volcker advised the Committee
that its attempt to cut through the institutional uncertainty affecting the
behavior of and relationships among
the various monetary aggregates and
to describe the broad substance of
its intent with respect to monetary
growth ranges for 1981 apparently
had led to some misunderstanding at
the monetary oversight hearings before the Senate and House banking
committees on July 22-23. In an attempt to clear up that misunderstanding, the Chairman recommended that the Committee indicate its
general intent of looking toward a reduction in ranges of growth for
M-1A, M-1B, and M-2 for 1981 on
the order of lli percentage point, abstracting from the institutional influences affecting the behavior of the
aggregates. The Committee voted to
approve the Chairman's recommendation. It was understood that all of
the ranges would be reassessed in
February 1981, or before, in accordance with usual procedures.
On July 29, 1980, the Committee
agreed that for the period from the fourth
quarter of 1980 to the fourth quarter of
1981, it looked toward a reduction in the
ranges for growth of M-1A, M-1B, and
M-2 on the order of lli percentage point
from the ranges adopted for 1980, abstracting from institutional influences affecting the behavior of the aggregates.



133

Votes for this action: Messrs.
Volcker, Gramley, Guflfey, Partee,
Rice, Roos, Schultz, Solomon, Wallich, Winn, and Eastburn. Vote
against this action: Mrs. Teeters. (Mr.
Eastburn voted as alternate for Mr.
Morris.)

Mrs. Teeters dissented from this
action because she believed that it
was undesirable to specify precise
numerical ranges for monetary
growth in 1981 so far in advance
while economic activity was still
contracting. In her opinion, monetary goals for 1981 specified at this
time could prove to be inconsistent
with other, as yet undetermined, economic policies and with the objective of reducing inflation while encouraging a sustainable recovery in
economic activity. She was especially concerned about a possible inconsistency in view of the unusually
great uncertainties generated by the
introduction of NOW accounts nationally and by shifts in the relationship among money, interest rates,
and nominal GNP.

2. Authorization for Domestic
Open Market Operations
At this meeting the Committee voted
to increase from $3 billion to $4 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 immediately, for
the period ending with the close of
business on August 12, 1980.
Votes for this action: Messrs. Volcker, Gramley, Morris, Partee, Rice,
Roos, Schultz, Solomon, Mrs. Teeters,
Messrs. Wallich, Winn, and Balles.

134 FOMC Policy Actions
Votes against this action: None. (Mr.
Balles voted as alternate for Mr.
Guffey).

This action was taken in light of
projections indicating a need for substantial reserve-absorbing operations
over the coming intermeeting interval
to counter the effects of significant
reductions in required reserves associated with the phaseout of the special credit restraint program.
Meeting Held on
August 12, 1980
Domestic Policy Directive
The information reviewed at this
meeting suggested that the decline in
real output of goods and services began to moderate toward the end of
the second quarter. For the quarter
as a whole real GNP fell at an annual
rate of 9.1 percent, according to preliminary estimates of the Commerce
Department. The rise in average
prices, as measured by the fixedweight price index for gross domestic business product, moderated to
an annual rate of about Wi percent
in the second quarter from a rate of
about \\XA percent in the first quarter.
Following four months of substantial decreases, the dollar value
of total retail sales rose considerably
in both June and July. While increases in sales were fairly widespread,
sharp gains in the automotive sector
accounted for much of the twomonth advance. Sales of new automobiles were at an annual rate of 9
million units in July, compared with
a recent low of about 1XA million in
May.
Private housing starts rose substantially in June, to an annual rate
of 1.2 million units from 910,000



units in May, and building permits
for new units also increased markedly. The steep decline in sales of new
homes during March and April was
reversed in May and in June. Sales
of existing homes also picked up in
June, following a marked decrease
over the preceding eight months.
The index of industrial production
fell 2.4 percent in June, about the
same as in both April and May. The
decline was broadly based, reflecting reductions in output for all major
product groupings. The rate of capacity utilization in manufacturing
fell 2.3 percentage points further to
76.1 percent; the cumulative decline
from its recent peak in March 1979
exceeded 10 percent.
Nonfarm payroll employment fell
further in July but by considerably
less than the average monthly decline in the second quarter. Employment decreases continued sizable in
manufacturing, and the factory
workweek remained at a reduced
level. However, employment in the
service-producing sector expanded
significantly following only two
months of decline. In contrast to the
establishment data, employment as
measured by the survey of households increased substantially in July
after falling sharply earlier in the
year. The civilian labor force also increased and the unemployment rate
edged up from 7.7 to 7.8 percent.
The rise in both producer prices
and consumer prices moderated in
the second quarter following exceptionally rapid advances in the
first quarter. The moderation reflected primarily a lessening of the rapid
rise in prices of energy-related
items. The index of average hourly
earnings of private nonfarm production workers rose at an annual rate
of about 8% percent over the first

FOMC Policy Actions 135
seven months of the year, somewhat
faster than in 1979.
In foreign exchange markets the
trade-weighted value of the dollar
against major foreign currencies had
risen somewhat since late July, after
fluctuating in a narrow range earlier
in the month, and was about 2 percent above its level at the time of the
Committee's meeting on July 9. The
U.S. foreign trade deficit was reduced further in June, bringing the
average for the second quarter well
below that for the first. A decline in
both oil and non-oil imports accounted for the improvement as exports
were about unchanged.
At its meeting on July 9, the Committee had agreed that open market
operations in the period until this
meeting should be directed toward
expansion of reserve aggregates consistent with growth of M-1A, M-1B,
and M-2 over the three months from
June to September at annual rates of
about 7 percent, 8 percent, and 8
percent respectively, provided that
in the intermeeting period the weekly average federal funds rate remained within a range of SVi to 14
percent. The Committee also had
agreed that, in light of the shortfall in
monetary growth over the first half
of the year, moderately faster
growth would be acceptable if that
developed in response to a strengthening in the public's demand for
money balances as narrowly defined; in assessing the behavior of
M-1A and M-1B, the rate of growth
in M-2 would be taken into account.
Early in the intermeeting period,
the monetary aggregates appeared to
be growing at rates slightly above
those that had been specified for the
period from June to September. In
accordance with the Committee's
objectives, System open market op


erations were directed toward providing the reserves consistent with
that monetary growth. Later in the
period, however, both M-1B and
M-2 appeared to be growing considerably faster than their specified
rates, and System operations were
not directed toward accommodating
this additional growth. As the demand for reserves expanded in association with the growth of deposits,
excess reserves appeared to increase
to exceptional levels, and conditions
in the money market firmed. Member bank borrowing expanded temporarily, and the federal funds rate,
after having fallen from an average
of about 9% percent in the statement
week ending July 2 to about 8% percent in the week ending July 23, rose
to an average of slightly more than
Wi percent in the week ending August 6.
Growth of M-1A and M-1B moderated in July to annual rates of
about IV2 and 10% percent respectively from rates of about HVi and
15 percent in June. In July, M-2 grew
at an annual rate of 17 percent, only
slightly below the exceptional rate
recorded in the previous month;
money market mutual funds, overnight repurchase agreements, and
savings deposits continued to expand rapidly. As a result of the
June-July resurgence, growth of
M-1A over the period from the fourth
quarter of 1979 to July was much
closer to, but still somewhat below,
the rate consistent with the lower
limit of the Committee's range for
the year ending in the fourth quarter
of 1980; growth of M-1B was at
about the lower limit of its range for
the year, but growth of M-2 was at
about the upper bound of its range.
Total credit outstanding at U.S.
commercial banks apparently ex-

136 FOMC Policy Actions
panded in July after three months of
decline. The July rise reflected a
sharp increase in bank holdings of
securities and a cessation of declines
in loan portfolios; business loans increased marginally and real estate
loans rose moderately while consumer loans were estimated to have
fallen further. Net issues of commercial paper by nonfinancial corporations moderated substantially in
July from an exceptionally strong
pace in other recent months.
Market interest rates rose considerably further over the intermeeting
period. Markets were called upon to
absorb large amounts of Treasury
and corporate securities, and market
participants reacted to prospects for
tax reductions and enlarged government deficits, to more rapid monetary growth, and to indications of
some improvement in the economic
outlook. Over the interval, shortterm rates increased about 50 basis
points and long-term rates about 75
basis points. In primary markets for
home mortgages average rates on
new commitments at savings and
loan associations rose slightly, to
12V4 percent. Over this period, however, commercial banks reduced
their loan rate to prime business borrowers from HVi to 11 percent. On
July 25 the Board of Governors announced a reduction in Federal Reserve Bank discount rates from 11 to
10 percent to bring the discount rate
into closer alignment with the level
of short-term market interest rates
and bank lending rates.
The staff projections prepared for
this meeting, like those of early July,
suggested that real GNP would decline at a progressively less rapid
pace in the third and fourth quarters
of the year, and the contraction was
now anticipated to be less pro


nounced than had appeared likely a
month earlier. A modest recovery in
real GNP was expected to begin
around the turn of the year. Nevertheless, the rise in the unemployment rate over the months ahead
was still projected to be substantial.
The projections of price changes
were essentially the same as a month
ago: the rise in the fixed-weight index for gross domestic business
product was anticipated to remain
rapid, although somewhat less rapid
during 1981 than 1980.
Members of the Committee agreed
in general that further declines in economic activity would be more moderate than had appeared probable a
month earlier and that a modest recovery was likely to begin before or
around the turn of the year. However, a few members emphasized
that the evidence supporting such a
judgment was quite limited and that
the recession still could prove to be
more severe and more protracted
than projected. With respect to inflation, a number of members felt that
prospects had deteriorated and that
little if any reduction in the rate of
increase in prices was to be expected.
At its meeting in July, the Committee reaffirmed the ranges for
monetary growth in 1980 that it had
established in February. Thus, the
Committee agreed that from the
fourth quarter of 1979 to the fourth
quarter of 1980 average rates of
growth in the monetary aggregates
within the following ranges appeared
to be consistent with broad economic aims: M-1A, V/i to 6 percent;
M-1B, 4 to 6Vi percent; M-2, 6 to 9
percent; and M-3, 6Vi to W2 percent.
The associated range for the rate of
growth in commercial bank credit
was 6 to 9 percent. For the period

FOMC Policy Actions 137
from the fourth quarter of 1980 to the
fourth quarter of 1981, the Committee looked toward a reduction in
the ranges for growth of M-1A,
M-1B, and M-2 on the order of Vi
percentage point from the ranges
adopted for 1980, abstracting from
institutional influences affecting the
behavior of the aggregates. It was
understood that the longer-run
ranges would be reconsidered as
conditions might warrant.
In contemplating policy for the period immediately ahead, the Committee took note of a staff analysis
suggesting that over the two months
of August and September growth of
M-1B was likely to moderate in relation to growth of M-1A, as the recent
rise in market interest rates contributed to a slowing of growth in ATS
balances from the extraordinarily
rapid rates of recent months. (Such
balances tend to include varying
amounts of ordinary passbook savings.) It was also anticipated that
growth of M-2 would slow relative to
that of M-1B, as expansion of money
market mutual funds moderated further in reponse to a reduction in the
attractiveness of their yields relative
to yields on competing investments.
Nevertheless, the apparent shifts in
the public's preferences for different
types of assets suggested that if
M-1A grew from June to September
at or even somewhat less than the
annual rate of 7 percent that had
been specified at the meeting in early
July, growth of M-1B and, still more
so, growth of M-2 would exceed the
annual rate of 8 percent that had
been specified for both aggregrates.
The staff analysis also suggested
that extrapolation of growth in M-1A
at an annual rate of 7 percent in the
final three months of the year would
result in growth from the fourth



quarter of 1979 to the fourth quarter
of 1980 at a rate slightly above the
lower bound of the Committee's
range for that period. If the relationships of the third quarter persisted,
growth of M-1B over the year would
be near the midpoint of its range;
growth of M-2 would be at about the
upper bound and that of M-3 near
the midpoint of their ranges.
In the Committee's discussion of
policy, several members stressed the
unusual uncertainties about both the
relative rates of growth in the monetary aggregates in this period and the
relationships between growth of the
aggregates and the course of economic activity. In the light of the
special factors accounting for the
larger differentials than had been anticipated earlier, many members
were satisfied to retain for the period
from June to September the 7 percent annual rate for growth of M-1A
that had been specified a month earlier and to accept the higher rates of
growth in M-1B and M-2 that now
appeared to be associated with that
rate for M-1A. In general, they felt
that any appreciable lowering of the
June-September rate for M-1A
would require a reduced provision of
nonborrowed reserves, provoking a
rise in member bank borrowings and
further increases in interest rates in
the near term, although the Committee's longer-run targets did not at
this time clearly suggest the need for
reduced growth of the monetary aggregates. In that view, prospects for
economic activity did not appear to
support leaning toward lower growth
in the aggregates at this time. The
observation was made that inflation
was still a major problem but that
monetary policy evidently was already exerting some restraint. It was
also noted that if in the period ahead

138 FOMC Policy Actions
monetary growth appeared to be significantly stronger than anticipated,
the Committee's operating procedures were likely to result in increases in member bank borrowings and
thus in the federal funds rate and
other short-term rates; in those circumstances, increases in interest
rates would be seen more clearly as
a consequence of the need to avoid
excessive monetary growth.
A few members preferred to reduce somewhat the specified rate for
growth of M-1A over the period
from June to September and to specify a rate for growth of M-1B that
was closer to or the same as the rate
that had been specified a month earlier. It was suggested that it would
be appropriate at this time to take
steps to provide greater assurance
that growth of the aggregates would
be moderate over the remainder of
the year, in view of the rapid growth
recently and the resulting progress in
overcoming the April-May shortfall.
The indications of some improvement in the outlook for economic activity recently, combined with the
perceived deterioration in prospects
for inflation, seemed consistent with
a slightly lower rate of reserve provision. The opinion was also expressed that, at least for the present,
M-1B was the most reliable of the
monetary aggregates as a guide to
policy.
It was generally expected that
with any of the approaches to the aggregates under discussion, the federal funds rate on a weekly average
basis would remain well within the
range of SV2 to 14 percent that had
been specified at the meeting in early
July, although in the statement week
ending July 23 it had fallen as low as
8% percent. There were proposals to
make a slight reduction in the lower



limit, in the upper limit, or in both
limits, as well as to retain the range
of SV2 to 14 percent.
At the conclusion of the discussion, the Committee agreed to
specify a slightly lower rate of
growth for M-1A over the third quarter and higher rates for M-1B and
M-2 than the rates specified a month
earlier. Specifically, the Committee
agreed that open market operations
in the period until the next meeting
should be directed toward expansion
of reserve aggregates consistent with
growth of M-1A, M-1B, and M-2
dver the period from June to September at annual rates of about (sVi
percent, 9 percent, and 12 percent
respectively, provided that in the period before the next regular meeting
the weekly average federal funds
rate remained within a range of 8 to
14 percent. Member bank borrowings were not expected to increase
appreciably from the recent, nearfrictional levels unless the monetary
aggregates grew more rapidly than
the specified rates. If it appeared
during the period before the next
regular meeting that the constraint
on the federal funds rate was inconsistent with the objective for the expansion of reserves, the Manager for
Domestic Operations was promptly
to notify the Chairman, who would
then decide whether the situation
called for supplementary instructions from the Committee.
The following domestic policy directive was issued to the Federal Reserve Bank of New York:
The information reviewed at this
meeting suggests that the decline in economic activity, which was marked in the
second quarter as a whole, has been
moderating. While industrial production
and nonfarm payroll employment continued to decline sharply in June, total retail

FOMC Policy Actions 139
sales advanced after four months of sub- These ranges will be reconsidered as
stantial decreases, and housing starts conditions warrant.
rose from a depressed level. In July retail
In the short run, the Committee seeks
sales advanced further; nonfarm payroll expansion of reserve aggregates consisemployment declined, but not so sharply tent with growth of M-1A, M-1B, and
as during the second quarter, and the M-2 over the third quarter of 1980 at anunemployment rate edged up from 7.7 to nual rates of about &/i percent, 9 percent,
7.8 percent. The overall rise in prices of and 12 percent respectively, provided
goods and services moderated in the sec- that in the period before the next regular
ond quarter, in large part owing to a less- meeting the weekly average federal funds
ening of the rapid rise in energy items. rate remains within a range of 8 to 14
Over the first seven months of the year, percent.
the rise in the index of average hourly
If it appears during the period before
earnings was somewhat faster than the the next meeting that the constraint on
pace recorded in 1979.
the federal funds rate is inconsistent with
The weighted average value of the dol- the objective for the expansion of relar in exchange markets has risen some- serves, the Manager for Domestic Operwhat since late July, after having fluc- ations is promptly to notify the Chairtuated in a narrow range earlier in the man, who will then decide whether the
month. A reduced U.S. foreign trade situation calls for supplementary instrucdeficit in June brought the average for tions from the Committee.
the second quarter well below the averVotes for this action: Messrs. Volckage for the first quarter.
er, Gramley, Morris, Partee, Rice,
Monetary expansion remained rapid in
Roos, Schultz, Solomon, Mrs. TeeJuly, although not so rapid as in June.
ters, Messrs. Wallich, Winn, and
The recent resurgence brought growth of
Balles. Votes against this action:
M-1A closer to and that of M-1B about to
None. (Mr. Balles voted as alternate
the lower bounds of the Committee's
for Mr. Guffey.)
ranges for the year from the fourth quarter of 1979 to the fourth quarter of 1980.
However, the rate of growth for M-2 was Meeting Held on
near the upper bound of its range. Mar- September 16,1980
ket interest rates have risen considerably
further in recent weeks.
Domestic Policy Directive
Taking account of past and prospective economic developments, the Feder- The information reviewed at this
al Open Market Committee seeks to fos- meeting suggested that the decline in
ter monetary and financial conditions real output of goods and services
that will help to reduce inflation, encourage economic recovery, and contribute had moderated in the third quarter,
to a sustainable pattern of international following a contraction at an annual
transactions. At its meeting in July, the rate of 9.0 percent in the second
Committee agreed that these objectives quarter, and some recent data inwould be furthered by growth of M-1A, dicated that the decline might have
M-1B, M-2, and M-3 from the fourth
quarter of 1979 to the fourth quarter of ended, at least temporarily. Average
1980 within ranges of V/i to 6 percent, 4 prices, as measured by the fixedto 6V2 percent, 6 to 9 percent, and 6V2 to weight price index for gross domesW2 percent respectively. The associated tic business product, were continrange for bank credit was 6 to 9 percent.
For the period from the fourth quarter of uing to rise at a rapid pace, which
1980 to the fourth quarter of 1981, the was, however, slightly below the anCommittee looked toward a reduction in nual rate of increase of about IOV2
the ranges for growth of M-1A, M-1B, percent indicated for the second
and M-2 on the order of Vi percentage quarter.
point from the ranges adopted for 1980,
The dollar value of total retail
abstracting from institutional influences
affecting the behavior of the aggregates. sales rose considerably further in



140 FOMC Policy Actions
August, according to the advance report, after increasing sharply in June
and July. Sales of new automobiles
were at an annual rate of 8.6 million
units, down from 9.0 million in July
but appreciably above the secondquarter rate.
The index of industrial production
rose an estimated 0.5 percent in August, following a cumulative decline
of about 8.5 percent over the preceding six months. The August increase
was fairly widespread among industry groupings, with notable gains in
output of construction supplies and
consumer home goods.
Nonfarm payroll employment expanded in August after several months
of decline, and the unemployment
rate edged down from 7.8 to 7.6 percent. Employment in manufacturing,
which accounted for about half of
the August increase, registered its
first monthly gain since December
1979, and the length of the average
workweek rose substantially.
The Department of Commerce
survey of business spending plans
taken in July and August indicated
that current-dollar expenditures for
plant and equipment would be about
83/4 percent higher in 1980 than in
1979. In view of the expenditures in
the first half of 1980, the indicated increase for the year as a whole implied a marked decline in real outlays for the second half. New orders
for nondefense capital goods and
contracts for business construction
strengthened in June and July but
were still well below their levels
early in the year.
Private housing starts edged up in
July to an annual rate of about 1.3
million units, following a substantial
rebound in June from the depressed
levels of earlier months; building
permits for new units rose markedly.



Sales of new houses increased for
the third successive month, bringing
the number of unsold units to its
lowest level in more than four years.
Sales of existing homes, which had
picked up in June after eight consecutive months of decline, rose
substantially further in July.
Producer prices of finished goods
rose rapidly in July and August, after
increasing at a sharply reduced pace
during the second quarter; the recent
advances reflected mainly a surge in
food prices. At the consumer level,
increases in prices of food and many
commodities accelerated in July, but
a sharp decline in measured costs of
homeownership held the overall
consumer price index to its monthearlier level. The index of average
hourly earnings of private nonfarm
production workers rose at an annual rate of about 83A percent over the
first eight months of the year, somewhat faster than in 1979, but the rate
of increase in July and August was
more moderate than that earlier in
the year.
In foreign exchange markets the
trade-weighted value of the dollar
against major foreign currencies had
declined somewhat over the interval
since the Committee's meeting on
August 12. The U.S. foreign trade
deficit was reduced further in July to
a level significantly lower than the
average for the second quarter. A
sharp decline in petroleum imports
accounted for most of the change as
exports and non-oil imports were
about unchanged.
At its meeting on August 12, the
Committee had decided that open
market operations in the period until
this meeting should be directed toward expansion of reserve aggregates consistent with growth of
M-1A, M-1B, and M-2 from June to

FOMC Policy Actions 141
September at annual rates of about
6V2 percent, 9 percent, and 12 percent respectively, provided that in
the intermeeting period the weekly
average federal funds rate remained
within a range of 8 to 14 percent.
Early in the intermeeting interval,
incoming data indicated that growth
of M-1A and M-1B would probably
exceed the Committee's third-quarter objectives, as well as earlier projections, by a wide margin, and
growth of M-2 was also expected to
be relatively rapid. Required reserves, and thus member bank demands for reserves, rose substantially in relation to the supply
being made available through open
market operations. As a consequence,
member bank borrowings for reserveadjustment purposes moved up sharply from a weekly average of about
$110 million at the time of the August meeting to an average of about
$825 million in the two latest statement weeks. The pressures on bank
reserve positions were also associated with increases in the federal
funds rate from the 8V2 to 9 percent
area at the time of the August meeting to around IOV2 to 11 percent
in recent days.
Growth of M-1A and M-1B accelerated in August to record annual
rates of about 1972 percent and 22
percent respectively from rates of
about VU percent and 11 percent in
July. Expansion in M-2 remained
rapid in August at an annual rate of
about 1474 percent but was down
from growth rates averaging 18 percent in June and July. For the period
from the fourth quarter of 1979
through August, growth of M-1A
was in the lower half of the Committee's range for the year ending
with the fourth quarter of 1980;
growth of M-1B was in the upper



half of its range, while growth of M-2
was somewhat above the upper limit
of its range.
Total credit outstanding at U.S.
commercial banks picked up in July
and expanded substantially further
in August, following a decline in the
second quarter. Bank holdings of
securities grew rapidly in both
months, and total loans increased
substantially in August, after changing little in July. Loans to businesses
exhibited renewed strength in August, and real estate lending expanded moderately. A sharp decline
in net issues of commercial paper by
nonfinancial corporations partly offset the growth in business loans.
Market interest rates fluctuated
widely but rose on balance over the
intermeeting interval. Upward pressures on rates reflected market response to the exceptionally rapid
growth in money and the associated
impact on bank reserve positions, to
further indications of improvement
in real economic activity, to the disappointing performance of measures
of inflation, and to concerns about
prospective budgetary deficits. On
balance, short-term rates increased
about 172 to 2 percentage points
over the intermeeting period and
long-term rates rose about lU to 3U
percentage point. Commercial banks
raised their loan rate to prime business borrowers from 11 percent to
1274 percent. In primary markets for
home mortgages, rates on new commitments at savings and loan associations averaged a little over 13 percent compared with 1274 percent at
the time of the August meeting.
The staff projections presented at
this meeting suggested that the decline in real GNP would be much
less pronounced in the third quarter
than had appeared likely a month

142 FOMC Policy Actions
earlier; a modest recovery in real
GNP was expected to begin by yearend and to continue in 1981. The
unemployment rate was projected to
increase somewhat more gradually
over the months ahead than had
been anticipated earlier. While the
projections suggested slightly larger
price increases, the staff continued
to expect that the rise in the fixedweight index for gross domestic
business product would be somewhat less rapid in 1981 than in 1980.
The Committee's discussion of the
economic outlook indicated a broadly shared judgment that a recovery
in economic activity was under way,
and some members believed that the
economy was likely to be somewhat
stronger in the fourth quarter than
the staff was projecting. Other members were less sanguine about the
near-term outlook, and some expressed the view that a renewed
downturn could not be ruled out.
With regard to the outlook for 1981,
the members were in broad agreement with the staff projection of a
modest recovery. Concern was expressed that, despite the competitive
pressures in many industries and relatively high levels of unemployment,
a substantial rise in wages and prices
remained in prospect for the year
ahead. Under such circumstances
several members noted a potential
dilemma between the need for sustained recovery and the need for significant progress toward bringing inflation under control.
At its meeting in July, the Committee had reaffirmed the ranges for
monetary growth in 1980 that it had
established in February. Thus, the
Committee agreed that from the
fourth quarter of 1979 to the fourth
quarter of 1980, average rates of
growth in the monetary aggregates



within the following ranges appeared
to be consistent with broad economic aims: M-1A, Vli to 6 percent;
M-1B, 4 to 6V2 percent; M-2, 6 to 9
percent; and M-3, 6V2 to 9lli percent.
The associated range for the rate of
growth in commercial bank credit
was 6 to 9 percent. For the period
from the fourth quarter of 1980 to the
fourth quarter of 1981, the Committee looked toward a reduction in
the ranges for growth of M-1A,
M-1B, and M-2 on the order of V2
percentage point from the ranges
adopted for 1980, abstracting from
institutional influences affecting the
behavior of the aggregates. It was
understood that the longer-run ranges
would be reconsidered as conditions
warranted.
In contemplating policy for the period immediately ahead, the Committee took note of a staff analysis
indicating that growth of M-1A and
M-1B was running well above, and
growth of M-2 moderately above,
the objectives established by the
Committee for the June-to-September period. Given the recent behavior of money, achievement of the
Committee's monetary growth objectives for the year would require a
marked slowing in growth over the
balance of the year and the staff projection suggested that such a slowing
was likely in September.
In the Committee's discussion of
policy, all of the members favored
operations over the period ahead directed toward the deceleration in
monetary growth needed to promote
achievement of the Committee's objectives for the year. The members
recognized that achievement of the
growth objectives for M-1A and
M-1B might be associated with expansion in M-2 at a rate slightly in excess of the Committee's 1980 range

FOMC Policy Actions 143
for that broader measure of money,
given the shifts that had occurred in
the public's preferences for deposits
of various types. The members also
recognized that, in light of the rapid
expansion in NOW and ATS accounts, growth in M-1B for the year
was likely to be higher relative to
growth in M-1A than was implied by
the ranges set for each of these monetary aggregates at the start of the
year.
While there was general agreement that monetary expansion
should be reduced substantially from
the recent pace, differing views
emerged concerning the specific
growth objectives that should be established for the August-to-December period. Some members favored
growth-rate objectives on the low
side of the ranges that were considered at this meeting in order to provide greater assurance that the Committee would achieve its objectives
for the year as a whole. Members
supporting this view emphasized the
need for a policy posture that would
minimize any risk of exacerbating inflationary forces in the economy or
worsening inflationary expectations.
Other members believed that, in
light of present economic and financial market conditions, growth in the
August-to-December period might
reasonably be a bit higher, consistent with growth for the year in the
upper part of the range established
for M-1B and around the midpoint of
the range set for M-1A; this approach was also viewed as consistent with broad, longer-run policy
objectives. In this connection it was
observed that interest rates had already risen appreciably from their
recent lows, that these increases
might well begin to reduce money
and credit demands over the months



ahead, that economic recovery was
in its very early stages, and that
some sectors such as housing were
especially sensitive to emerging
credit conditions.
Still other members proposed a
middle course—a policy approach
that was adopted. It was generally
recognized that differences in approach were relatively minor: All of
the members favored a policy that
would greatly reduce growth in the
aggregates over the balance of the
year. In the discussion, it was observed that the reserve path to
achieve restraint in money growth
would probably not involve an immediate change in money market
conditions, assuming that money
growth did slow sharply in September. Differences for the most part
turned on the degree of pressure on
bank reserve positions that could
emerge should money demand begin
to exceed the money supply path.
At the conclusion of the discussion the Committee agreed that
open market operations in the period
until the next meeting should be directed toward expansion of reserve
aggregates consistent with growth of
M-1A, M-1B, and M-2 over the August-to-December period at annual
rates of about 4 percent, 6V2 percent, and 8V2 percent respectively,
provided that in the period before
the next regular meeting the weekly
average federal funds rate remained
within a range of 8 to 14 percent. If it
appeared during the period before
the next regular meeting that the
constraint on the federal funds rate
was inconsistent with the objective
for the expansion of reserves, the
Manager for Domestic Operations
was promptly to notify the
Chairman, who would then decide
whether the situation called for

144 FOMC Policy Actions
supplementary instructions from the
Committee.
The following domestic policy directive was issued to the Federal Reserve Bank of New York:
The information reviewed at this
meeting suggests that the decline in economic activity has moderated in the third
quarter following a sharp contraction in
the second quarter. Industrial production and nonfarm payroll employment
expanded in August after several months
of decline; the unemployment rate edged
down from 7.8 to 7.6 percent; and total
retail sales advanced considerably further. In July housing starts rose slightly,
following a substantial rebound in June,
and were well above the depressed levels
of the preceding three months. Producer
prices of finished goods rose rapidly in
July and August, after increasing at a
sharply reduced pace in the second quarter; the recent advance reflected mainly
a surge in food prices. Over the first eight
months of the year, the rise in the index
of average hourly earnings was somewhat faster than the pace recorded in
1979.
The weighted average value of the dollar in exchange markets has declined
somewhat over the past five weeks. The
U.S. trade deficit in July was significantly lower than the monthly average in the
second quarter, reflecting a sharp decline
in petroleum imports.
M-1A and M-1B grew at record rates
in August, while growth in M-2 moderated from an exceptionally rapid pace in
June and July. For the year through August growth of M-1A was in the lower
half and growth of M-1B in the upper half
of their respective ranges set by the
Committee for the year from the fourth
quarter of 1979 to the fourth quarter of
1980, while growth in M-2 was somewhat
above the upper limit of its range. Market interest rates have fluctuated widely
since mid-August and on balance shortterm rates have risen considerably while
long-term rates have increased moderately.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation, encourage economic recovery, and
contribute to a sustainable pattern of in


ternational transactions. At its meeting
in July, the Committee agreed that these
objectives would be furthered by growth
of M-1A, M-1B, M-2, and M-3 from the
fourth quarter of 1979 to the fourth quarter of 1980 within ranges of VI2 to 6 percent, 4 to 6V2 percent, 6 to 9 percent, and
6V2 to 9V2 percent respectively. The associated range for bank credit was 6 to 9
percent. For the period from the fourth
quarter of 1980 to the fourth quarter of
1981, the Committee looked toward a reduction in the ranges for growth of
M-1A, M-1B, and M-2 on the order of V2
percentage point from the ranges
adopted for 1980, abstracting from institutional influences affecting the behavior
of the aggregates. These ranges will be
reconsidered as conditions warrant.
In the short run, the Committee seeks
expansion of reserve aggregates consistent with growth of M-1A, M-1B, and
M-2 over the August-to-December period
at annual rates of about 4 percent, 6V2
percent, and 8V2 percent respectively,
provided that in the period before the
next regular meeting the weekly average
federal funds rate remains within a range
of 8 to 14 percent.
If it appears during the period before
the next meeting that the constraint on
the federal funds rate is inconsistent with
the objective for the expansion of reserves, the Manager for Domestic Operations is promptly to notify the Chairman, who will then decide whether the
situation calls for supplementary instructions from the Committee.
Votes for this action: Messrs.
Volcker, Gramley, Morris, Partee,
Rice, Schultz, Solomon, and Mrs.
Teeters. Votes against this action:
Messrs. Guffey, Roos, Wallich, and
Winn.
Messrs. Guffey, Roos, Wallich, and
Winn dissented because they believed
that, given the excessive monetary
expansion in recent months and the
outlook for inflation, the directive
adopted at this meeting incurred too
much of a risk that the Committee's
objectives for monetary growth in
1980 would be exceeded. To enhance
the prospects for restraining monetary growth to rates consistent with
the longer-run ranges, they favored
specifying lower rates of growth for
M-1A, M-1B, and M-2 over the Au-

FOMC Policy Actions
gust-to-December period than those
that were adopted.

Meeting Held on
October 21,1980
1. Domestic Policy Directive
The information reviewed at this
meeting suggested that economic activity had expanded in the third
quarter. According to preliminary
estimates of the Commerce Department, real GNP increased at an annual rate of 1 percent in the quarter,
following a contraction at an annual
rate of about 9lli percent in the second quarter. Average prices, as measured by the fixed-weight price index
for gross domestic business product,
continued to rise at the annual rate
of about IOV2 percent recorded in
the second quarter.
The dollar value of total retail
sales rose in September for the
fourth consecutive month. Sales at
food stores and gas service stations
rose sharply, while combined sales
at general merchandise, apparel, and
furniture and appliance stores were
unchanged, following large increases
in July and August. Sales of new automobiles changed little in September, but for the third quarter as a
whole they were up substantially
from the depressed rate in the second quarter.
Private housing starts rose considerably further in September, to an
annual rate of more than 1.5 million
units. Most of the increase was in
multifamily units and apparently reflected a bulge in starts associated
with federal subsidies at the end of
the fiscal year. In August, sales of
new houses declined somewhat, after rising markedly over the previous
three months, but the stock of un


145

sold units fell further to its lowest
level in more than four years. Sales
of existing homes, which had accelerated in July, rose somewhat further in August.
The index of industrial production
rose an estimated 1 percent in September; the index had increased 0.6
percent in August after declining
somewhat more than 8 percent over
the previous six months. The increase in September, like that in August, was broadly based and included notable gains in output of
materials, construction supplies, and
consumer home goods. The rate of
capacity utilization in manufacturing
increased nearly 1 percentage point
during August and September, following a cumulative decline of more
than 12 percentage points from the
peak in March 1979.
Nonfarm payroll employment expanded in September for the second
consecutive month, and the unemployment rate edged down from 7.6
to 7.5 percent. Employment gains
were especially strong in trade and
service industries. Employment in
manufacturing rose further, and the
length of the average workweek
edged up to a level one-half hour
above its July trough.
Producer prices of finished goods
declined slightly in September, but
they rose substantially on the average during the third quarter as a
whole. At the consumer level, increases in food prices accelerated
sharply in August, but prices of energy items continued to rise at a
greatly reduced pace and homeownership costs declined somewhat further; excluding those categories,
consumer prices increased at about
the 8 percent pace that had prevailed
since April. The rise in the index of
average hourly earnings of private

146 FOMC Policy Actions
nonfarm production workers moderated in the third quarter, but the increase over the first nine months of
the year was at an annual rate of 8V2
percent, about the same as in 1979.
In foreign exchange markets the
trade-weighted value of the dollar
against major foreign currencies had
risen somewhat on balance over the
interval since the Committee's meeting in mid-September. The U.S. foreign trade deficit in August remained
at a level well below the monthly average in the second quarter. The volume and value of oil imports fell
sharply in the July-August period,
while the value of other imports was
about unchanged and the value of
exports increased.
At its meeting on September 16,
the Committee had decided that
open market operations in the period
until this meeting should be directed
toward expansion of reserve aggregates consistent with growth of
M-1A, M-1B, and M-2 over the period from August to December at annual rates of about 4 percent, 6V2
percent, and 8V2 percent respectively, provided that in the period until
the next regular meeting the weekly
average federal funds rate remained
within a range of 8 to 14 percent.
Early in the intermeeting period, incoming data indicated that the monetary aggregates, particularly M-1A
and M-1B, were growing faster than
the rates consistent with the Committee's objectives for the Augustto-December period. Required reserves and member bank demands
for reserves expanded substantially
in relation to the supply of reserves
being made available through open
market operations. Consequently,
member bank borrowings for reserve-adjustment purposes increased
sharply, to an average of $1.4 billion



in the four statement weeks ending
on October 15 from an average of
about $835 million in the preceding
four weeks. These developments
were associated with additional upward pressures on the federal funds
rate and other short-term interest
rates. Those pressures were intensified by an increase in Federal Reserve discount rates from 10 to 11
percent announced on September
25. In the days preceding this meeting, the funds rate was in the area of
12V2 to 13 percent, compared with
IOV2 to 11 percent in the days just
before the Committee's meeting on
September 16.
In September, M-1A and M-1B
grew at annual rates of 1274 and
15V4 percent respectively, down
markedly from the record rates set in
August but still far above the rates
consistent with the Committee's objectives for the period from August
to December. Expansion in M-2
moderated further in September, to
an annual rate of about 8V4 percent,
reflecting in part a further slowing in
the growth of nontransaction accounts included in that measure of
money. However, M-3 grew more
rapidly than M-2 for the first time
since the spring, as both banks and
thrift institutions stepped up their issuance of large-denomination certificates of deposit and other managed
liabilities. For the period from the
fourth quarter of 1979 through September, growth of M-1A was just
above the midpoint of the Committee's range for the year ending in
the fourth quarter of 1980; M-IB and
M-2 grew at rates somewhat above
the upper limits of their respective
ranges, and growth of M-3 was near
the upper limit of its range.
Expansion in total credit outstanding at U.S. commercial banks

FOMC Policy Actions 147
was relatively rapid in September,
although somewhat below the August pace. Bank acquisitions of securities moderated in September from
the brisk pace in the previous two
months; but growth in total loans, including business loans, accelerated,
following a substantial increase in
August. Net issuance of commercial
paper by nonfinancial corporations
declined further in September.
Short-term market interest rates
rose 5/s to IV2 percentage points further over the intermeeting period,
while long-term rates changed little
on balance. Over the interval, commercial banks increased their loan
rate to prime business borrowers
from 12V4 to 14 percent. In primary
markets for home mortgages, average rates on new commitments for
conventional loans at savings and
loan associations rose to about 133/4
percent from a little over 13 percent
at the time of the September meeting.
The staff projections presented at
this meeting suggested that the rise
in real GNP in the third quarter
marked the beginning of a recovery,
but a sluggish one that was likely to
be associated with some further increase in the rate of unemployment
over the next few quarters. The projections continued to suggest that
the rise in the fixed-weight price index for gross domestic business
product would be somewhat less
rapid in 1981 than in 1980.
During the Committee's discussion of the economic situation,
the members agreed that recovery in
economic activity had begun, and
several suggested that growth in real
GNP could well be greater in the
current quarter than that incorporated in the staff projections and greater
than that in the third quarter. How


ever, prospects for 1981 were viewed
with much more uncertainty, and
considerable skepticism was expressed about the degree of confidence with which consumer and
business behavior could be forecast
in the current environment.
Major sources of uncertainty as
well as of concern with regard to the
business outlook were the continued
rapid pace of inflation and the substantial rebound of interest rates so
soon after the turnaround in economic activity. In these circumstances, the outlook for consumer
spending was very clouded. It was
suggested, for example, that continued expansion in consumption expenditures and a further decline in
the already low personal saving rate
might tend to sustain the recovery in
activity for a time, as consumers attempted to maintain their standards
of living or even to anticipate additional increases in prices. Alternatively, consumer spending might be
constrained by the low saving rate,
by increases in prices of foods and
other necessities, and by rising interest rates. Similarly, concern was expressed that the rise in interest rates,
aggravated by the prospect of sizable budget deficits, would have significantly adverse consequences for
residential construction and business investment; but it was also suggested that in the current inflationary environment the higher levels of
interest rates might have considerably less inhibiting effects than
they would have had in the past.
At its meeting in July, the Committee had reaffirmed the ranges for
monetary growth in 1980 that it had
established in February. Thus, the
Committee had agreed that from the
fourth quarter of 1979 to the fourth
quarter of 1980, average rates of

148 FOMC Policy Actions
growth in the monetary aggregates
within the following ranges appeared
to be consistent with broad economic aims: M-1A, 3lh to 6 percent;
M-1B, 4 to 6V2 percent; M-2, 6 to 9
percent; and M-3, 6V2 to 9V2 percent. The associated range for the
rate of growth in commercial bank
credit was 6 to 9 percent. For the
period from the fourth quarter of
1980 to the fourth quarter of 1981,
the Committee looked toward a reduction in the ranges for growth of
M-1A, M-1B, and M-2 on the order
of V2 percentage point from the
ranges adopted for 1980, abstracting
from institutional influences affecting the behavior of the aggregates.
It was understood that the longerrun ranges would be reconsidered as
conditions warranted.
In contemplating policy for the period immediately ahead, the Committee noted that growth of the narrower monetary aggregates in
September had substantially exceeded the rates consistent with the
growth objectives for the period
from August to December adopted
at the meeting on September 16.
Those objectives in turn had been
consistent with growth for M-1A just
below the midpoint of the Committee's range for the year from the
fourth quarter of 1979 to the fourth
quarter of 1980 and with growth for
M-1B just below the upper bound of
its range. The members had recognized that, owing to shifts in the public's preferences for deposits of various types, growth of M-2 over the
year might slightly exceed its range.
According to a staff analysis, expansion in the public's demands for
money might be expected to slow
substantially in the final three
months of the year even with some
further pickup in growth of nominal



GNP, because of the substantial accumulation of cash balances in the
third quarter and the large increase
in short-term interest rates since
midyear. The analysis also emphasized that the differential between
growth of M-1A and M-1B would remain appreciably greater than had
been anticipated when the ranges for
growth of the aggregates during 1980
were first adopted in February.
In the Committee's discussion of
policy for the period immediately
ahead, all of the members favored
pursuit of a sharp reduction in monetary expansion over the final three
months of the year from the rapid
pace of recent months. The uncertainty concerning projections of
much slower growth in the monetary
aggregates was emphasized, and it
was generally recognized that further evidence that growth was proceeding faster than targeted in the
short run would require greater pressure on bank reserve positions. The
members differed somewhat in their
views with respect to the precise
growth rate targets that should be
adopted for the period ahead. A
number of members favored growth
objectives for the final three months
of the year that would arithmetically
compensate for the overshoot in
September and thus would be consistent with the growth rates for the
period from August to December
that had been adopted at the Committee's meeting in September. Most
members, on the other hand, favored adoption of objectives that
would contemplate slightly higher
growth over the final three months of
the year, given the developments in
the aggregates since the last meeting, although they were willing to accept lower rates of growth should
such rates emerge as a result of pres-

FOMC Policy Actions 149
sures already placed on bank reserves.
Those who favored the objectives
precisely consistent with the growth
rates adopted at the preceding meeting believed that such a stated objective was appropriate in the interest
of reducing inflationary expectations
and strengthening confidence. It was
considered in this context that, while
the differences discussed were
small, the lower objective could better assure the maintenance of growth
of M-1B, as well as that of M-1A,
within its range for the year, which
could be psychologically important.
The point was made, moreover, that
very slow monetary growth in the
course of the fourth quarter could be
tolerated in view of the rapid growth
in the third quarter, and also that
such a development would contribute toward gradual year-to-year reduction in monetary growth.
Other members, while also seeking sharply reduced growth rates of
the aggregates in the months ahead,
attached less significance to targets
precisely consistent with the August-to-December objectives adopted a month earlier, in light of the
inherent volatility of the data in the
short run. Committee actions affected the money supply only with some
lag, and given actions already in
place and the uncertainties in the
economic outlook, the possibility
could not be excluded that very ambitious short-run objectives with respect to restraint could generate undesirable instability in both interest
rates and the money supply over a
somewhat longer period and thus be
counter to the Committee's more
fundamental goals. These members
agreed, however, that further indications of excessive monetary
growth would need to be reflected in



further pressures on bank reserve
positions.
During the Committee's discussion, most members agreed that
the differences concerning the numerical targets for growth over the
last three months of the year should
be reconciled by small adjustments
among the competing views, with
the general understanding that some
shortfall from the specified rates of
monetary growth would be accepted. It was pointed out that, in light of
the recent excessive rate of monetary expansion, growth of M-1B
could marginally exceed the upper
bound of its range for 1980 if increases over the months ahead equaled
or exceeded the numerical specifications. In that connection, it was also
emphasized that an inconsistency
had become apparent during the
course of the year between the longer-run ranges for M-1A and M-1B
as a result of faster-than-expected
growth of ATS and NOW accounts,
which had been at the expense partly
of demand deposits and partly of
savings deposits or other sources of
funds not included in M-l. In light of
those developments during the past
year, the range for growth of M-lB
in 1980 presumably should have
been somewhat higher than that actually adopted, while the range for
M-l A should have been somewhat
lower, to achieve the intended economic result. It was understood that
the agreed approach would be associated with significant further pressures on bank reserve positions if
growth of the monetary aggregates
and the associated demands for reserves proved to be greater than anticipated. In light of the recent rise in
the federal funds rate and the objective of sharply reducing monetary
growth, sentiment was expressed for

150 FOMC Policy Actions
raising the intermeeting range for the
funds rate from the range of 8 to 14
percent specified at the September
meeting.
At the conclusion of the discussion the Committee agreed that
open market operations in the period
until the next meeting should be directed toward expansion of reserve
aggregates consistent with growth of
M-1A, M-1B, and M-2 over the September-to-December period at annual rates of about 2lh percent, 5 percent, and 7V4 percent respectively,
or somewhat less, provided that in
the period before the next regular
meeting the weekly average federal
funds rate remained within a range
of 9 to 15 percent. If it appeared during the period before the next regular
meeting that the constraint on the
federal funds rate was inconsistent
with the objective for the expansion
of reserves, the Manager for Domestic Operations was promptly to notify the Chairman, who would then
decide whether the situation called
for supplementary instructions from
the Committee.
The following domestic policy directive was issued to the Federal Reserve Bank of New York:
The information reviewed at this
meeting suggests that real GNP increased somewhat in the third quarter
following the sharp contraction in the
second quarter, while prices on the average continued to rise rapidly. The recovery in retail sales and housing starts that
began in June continued during the third
quarter. Industrial production and nonfarm payroll employment expanded in
September for the second consecutive
month, and the unemployment rate
edged down from 7.6 to 7.5 percent. The
rise in the index of average hourly earnings moderated in the third quarter, but
the rise over the first nine months of the
year was about as rapid as in 1979.
The weighted average value of the dollar in exchange markets on balance has



risen somewhat over the past month.
The U.S. trade deficit in August remained well below the monthly average
in the second quarter.
M-1A and M-1B continued to grow
rapidly in September, although not so
rapidly as in August, while growth in
M-2 moderated further. From the fourth
quarter of 1979 to September, growth of
M-1A was slightly above the midpoint of
the range set by the Committee for
growth over the year ending in the fourth
quarter of 1980, while growth of M-1B
and M-2 was somewhat above the upper
limits of their ranges. Expansion in commercial bank credit was relatively rapid
in both August and September. On balance short-term market interest rates
have risen considerably further since
mid-September while long-term rates
have changed little; average rates on new
home mortgage commitments have continued upward. An increase in Federal
Reserve discount rates from 10 to 11 percent was announced on September 25.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation, encourage economic recovery, and
contribute to a sustainable pattern of international transactions. At its meeting
in July, the Committee agreed that these
objectives would be furthered by growth
of M-1A, M-1B, M-2, and M-3 from the
fourth quarter of 1979 to the fourth quarter of 1980 within ranges of 3V2 to 6 percent, 4 to 6V2 percent, 6 to 9 percent, and
6V2 to 9V2 percent respectively. The associated range for bank credit was 6 to 9
percent. For the period from the fourth
quarter of 1980 to the fourth quarter of
1981, the Committee looked toward a reduction in the ranges for growth of
M-1A, M-1B, and M-2 on the order of
V2 percentage point from the ranges
adopted for 1980, abstracting from institutional influences affecting the behavior
of the aggregates. These ranges will be
reconsidered as conditions warrant.
In the short run, the Committee seeks
behavior of reserve aggregates consistent with growth of M-1A, M-1B, and
M-2 over the September-to-December
period at annual rates of about 2V2 percent, 5 percent, and 774 percent respectively, or somewhat less, provided that
in the period before the next regular
meeting the weekly average federal funds

FOMC Policy Actions
rate remains within a range of 9 to 15
percent.
If it appears during the period before
the next meeting that the constraint on
the federal funds rate is inconsistent with
the objective for the expansion of reserves, the Manager for Domestic Operations is promptly to notify the Chairman, who will then decide whether the
situation calls for supplementary instructions from the Committee.
Votes for this action: Messrs. Volcker, Gramley, Guffey, Partee, Rice,
Schultz, Solomon, and Mrs. Teeters.
Votes against this action: Messrs.
Morris, Roos, Wallich, and Winn.
Messrs. Morris, Roos, Wallich,
and Winn dissented from this action
because, given the excessive monetary expansion in recent months,
they favored specification of lower
monetary growth rates for the period
from September to December than
those adopted at this meeting. In
their view, such a policy stance was
appropriate in order to enhance the
prospects for restraining growth of
the monetary aggregates within the
Committee's ranges for the period
from the fourth quarter of 1979 to the
fourth quarter of 1980 and thereby
contribute to restraining inflation.

2. Authorization for Domestic
Open Market Operations
At this meeting the Committee
voted to increase from $3 billion to
$4 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 immediately, for the period ending with the
close of business on November 18,
1980.
Votes for this action: Messrs. Volcker, Gramley, Guffey, Morris, Partee,



151

Rice, Roos, Schultz, Solomon, Mrs.
Teeters, Messrs. Wallich, and Winn.
Votes against this action: None.
This action was taken in light of
projections indicating a need for substantial reserve-absorbing operations over the coming intermeeting
interval to counter the effects of a
significant reduction in required reserves. The anticipated reduction
was associated with the implementation in November of new regulations
on reserve requirements under provisions of the Monetary Control Act
of 1980.
Meeting Held
oo November 18, 198(1
Domestic Policy Directive
The information reviewed at this
meeting suggested that real GNP,
which had increased at an annual
rate of 1 percent in the third quarter
following a sharp second-quarter
contraction, was expanding further
in the current quarter. Average
prices, as measured by the fixedweight price index for gross domestic business product, appeared to be
continuing to rise at a rapid pace,
close to the annual rate of IOV2 percent experienced in the second and
third quarters.
The index of industrial production
rose an estimated 1.6 percent in October, following substantial gains in
each of the two preceding months.
Over the three-month period, industrial production increased 4 percent,
but the index in October was still
about 4 percent below its level in the
first quarter of 1980. Capacity utilization in manufacturing increased
about 1 percentage point further in
October to 77.6 percent, but remained about 6 percentage points
below the first-quarter rate.

152 FOMC Policy Actions
Nonfarm payroll employment expanded substantially in October for
the third consecutive month, and the
unemployment rate remained at
about 772 percent. Employment
gains were widespread, but were especially strong in durable goods
manufacturing and construction—industries in which earlier job losses
had been sizable—and the average
workweek in manufacturing lengthened slightly.
The dollar value of retail sales
changed little in October, according
to the advance report, following a
large increase over the four preceding months. Sales of new automobiles were at an annual rate of 9.0
million units in October, up from 8.8
million in September.
Private housing starts rose further
in September to an annual rate of
more than 1.5 million units, reflecting in part a bulge in starts of federally subsidized units at the end of the
fiscal year. Sales of new houses declined in September for the second
successive month, although sales of
existing houses rose further. Fragmentary data for October suggested
that housing activity was weakening.
Producer prices of finished goods
rose substantially in October after a
small decline in September. Consumer prices rose at an accelerated
pace in September, reflecting not only continued sharp advances in food
prices but increases in most other
categories as well. The index of average hourly earnings of private nonfarm production workers rose at an
annual rate of 9 percent over the first
ten months of the year, compared
with an increase of about 874 percent during 1979.
In foreign exchange markets the
trade-weighted value of the dollar
against major foreign currencies had



risen about 3 percent over the interval since the Committee's meeting in
mid-October. In September the U.S.
foreign trade deficit was essentially
unchanged from the August level; in
the third quarter the deficit was
sharply below the average of the first
two quarters and was the smallest
since the second quarter of 1976.
The volume and value of oil imports
fell sharply in the third quarter,
while the value of exports—especially agricultural products—increased.
At its meeting on October 21, the
Committee had decided that open
market operations in the period until
this meeting should be directed toward expansion of reserve aggregates consistent with the growth of
M-1A, M-1B, and M-2 over the period from September to December at
annual rates of about 272 percent, 5
percent, and 774 percent respectively, or somewhat less, provided that
in the period until the next regular
meeting the weekly average federal
funds rate remained within a range
of 9 to 15 percent. Early in the intermeeting period, incoming data indicated that the monetary aggregates, particularly M-1A and M-1B,
were growing much faster than both
the rates projected at the time of the
meeting and the rates consistent
with the Committee's objectives for
the September-to-December period.
Required reserves and member bank
demands for reserves expanded substantially in relation to the constrained supply of reserves being
made available through open market
operations. Consequently, member
bank borrowings increased sharply,
to an average of $1.7 billion in the
three statement weeks ending on
November 12 from an average of
$1.3 billion in the five weeks be-

FOMC Policy Actions 153
tween the September and October
meetings. These developments were
associated with additional upward
pressures on the federal funds rate
and other short-term interest rates;
in mid-November the funds rate averaged Wh percent, compared with
about I2V2 percent in the days just
before the Committee's meeting on
October 21.
After the markets closed on November 14, the Board of Governors
announced an increase in Federal
Reserve discount rates from 11 to 12
percent and a surcharge of 2 percentage points on frequent borrowing
of large institutions. The actions,
which were effective on Monday,
November 17, were taken in view of
the prevailing level of short-term
market interest rates and the recent
rapid growth in the monetary aggregates and bank credit. On November
17, the day before this meeting, federal funds traded at an average rate
of about I6V4 percent.
Growth in M-1A and M-1B moderated further in October, but the annual rates of about 9 and 11 percent
respectively were substantially above
those consistent with the Committee's objectives for the period from
September to December. Expansion
in M-2 accelerated slightly in October, to an annual rate of about 9 percent, reflecting a pickup in growth of
nontransaction accounts included in
that aggregate; growth in M-3 also
accelerated somewhat. From the
fourth quarter of 1979 through October, growth of M-1A was in the upper part of the range set by the Committee for the year ending in the
fourth quarter of 1980; M-1B and
M-2 grew at rates somewhat above
the upper ends of their respective
ranges, while M-3 grew at a rate
near the upper end of its range.



Expansion in total credit outstanding at U.S. commercial banks
was relatively rapid in October, although somewhat below the pace in
August and September. Bank holdings of securities grew at about the
same pace in October as in the previous month, while growth in total
loans moderated somewhat despite
continuing strength in business loans.
Outstanding commercial paper of
nonfinancial corporations fell by a
record amount in October, extending the decline that began in August.
Short-term market interest rates
rose 13A to 3 percentage points further over the intermeeting period,
while long-term rates increased
about 3A percentage point. Over the
interval, the prime rate charged by
commercial banks on short-term
business loans was raised from 14 to
I6V4 percent. In home mortgage
markets, average rates on new commitments rose about 40 basis points
further over the intermeeting period,
and available information suggested
a slowing in new commitment activity at nonbank thrift institutions most
recently.
The staff projections presented at
this meeting suggested that growth
in real GNP would be a little greater
in the fourth quarter as a whole than
in the third. However, the recovery
in activity appeared to be in the
process of weakening, and the projections suggested little growth in
real GNP and some increase in the
unemployment rate over the next
few quarters. The rise in the fixedweight price index for gross domestic business product was projected
to be only a little less rapid over the
year ahead than during the past year.
In the Committee discussion of
the economic situation and its implications for policy, the members con-

154 FOMC Policy Actions
sidered the possibility that the greater-than-anticipated strength of the
recovery in recent months would be
followed in early 1981 by a decline in
real GNP. It was recognized that in
the near term the recent rise in interest rates would be an important
force restraining activity in some
sectors. At the same time, the higher
interest rates resulted in part from
the continuing rapid pace of inflation, which remained a major source
of concern and of current and prospective instability. The observation
was made that, assuming monetary
expansion in line with the Committee's longer-run objectives, the
progress of recovery in the months
ahead was likely to be limited unless
inflation abated. It was also noted,
however, that the rise in prices had
not slowed and that once again the
economy might be subjected to
shocks from substantial increases in
prices of both energy and foods, and
perhaps from a reduction in supplies
of energy as well. The outlook was
clouded, moreover, by unusual uncertainty regarding prospective federal outlays, especially for national
defense, by the increases in federal
taxes effective at the beginning of
the new year, and by the prospects
for legislation next year to reduce
federal taxes.
At its meeting in July, the Committee had reaffirmed the ranges for
monetary growth in 1980 that it had
established in February. Thus, the
Committee had agreed that from the
fourth quarter of 1979 to the fourth
quarter of 1980, average rates of
growth in the monetary aggregates
within the following ranges appeared
to be consistent with broad economic aims: M-1A, Vli to 6 percent;
M-1B, 4 to 6V2 percent; M-2, 6 to 9
percent; and M-3, 6V2 to 9V2 percent.



The associated range for the rate of
growth in commercial bank credit
was 6 to 9 percent. For the period
from the fourth quarter of 1980 to the
fourth quarter of 1981, the Committee looked toward a reduction in
the ranges for growth of M-1A,
M-1B, and M-2 on the order of V2
percentage point from the ranges
adopted for 1980, abstracting from
institutional influences affecting the
behavior of the aggregates. It was
understood that the longer-run
ranges would be reconsidered as
conditions warranted.
In contemplating policy for the period immediately ahead, the Committee noted that growth of the narrower monetary aggregates in
October had substantially exceeded
the rates consistent with the objectives for growth over the period from
September to December adopted at
the meeting on October 21. If those
objectives were to be realized, M-1A
would have to decline slightly over
the final two months of the year and
growth of M-1B would have to be
very slow.
According to a staff analysis, the
demand for money had been quite
strong in recent months because recovery in economic activity and in
nominal GNP had been much larger
than anticipated. Growth of transaction balances was projected to slow
significantly over the remainder of
the year, in part because of the
lagged effect on the demand for money of the sharp rise in interest rates
over recent months and in part because of the apparent weakening of
the recovery in activity.
In the Committee's discussion of
policy for the period immediately
ahead, the members generally favored pursuit of a sharp reduction in
monetary expansion from the rapid

FOMC Policy Actions 155
pace of recent months. Such a slowing might already be developing for
the reasons given in the staff analysis, but it was emphasized that uncertainties were great concerning the
projection of a weakening in the
pace of the business recovery and also about the impact of nominal GNP
and current levels of interest rates
on monetary growth.
In the circumstances, most members favored reaffirming essentially
the objectives for monetary growth
over the period from September to
December that had been adopted at
the meeting in mid-October, with the
same proviso that somewhat less
growth would be acceptable if it
emerged. A number of members preferred adoption of somewhat higher
growth rates over the near term,
with a view to scaling down monetary growth over a slightly longer period than the six weeks remaining
before the end of the year, but they
also were willing to accept slower
growth if it emerged. In addition,
some sentiment was expressed for
specification of somewhat lower
rates of monetary growth.
While favoring sharply reduced
growth of the monetary aggregates
in the period immediately ahead, a
number of members expressed concern about inadvertently contributing to the volatility of interest
rates, because of the implications of
such volatility for economic activity,
for inflationary psychology, and for
the functioning of financial markets.
Specifically, a substantial reduction
in the provision of nonborrowed reserves or other measures in a highly
aggressive pursuit of the short-run
monetary growth rates being contemplated might lead promptly to
further increases in interest rates,
which were probably already con


straining the business recovery and
slowing monetary growth. Subsequent declines in rates might be
unduly large, and if monetary
growth accelerated again in lagged
response, inflationary expectations
could well be heightened. At the
same time, an aggressive response to
any temporary slackening in the demand for money that developed in
the period just ahead appeared inappropriate, particularly in the light
of the excessive monetary growth of
recent months. In either case, the result might be undesirable instability
in both interest rates and monetary
growth over time, which could generate uncertainty about the basic
thrust of Federal Reserve policy.
Reflecting these concerns, some
members suggested setting the upper
limit of the intermeeting range for
the federal funds rate relatively close
to the average rate in the latest statement week, while others suggested
setting a lower limit not much below
the latest week's average.
At the conclusion of the discussion, the Committee decided to
specify essentially the same monetary growth rates for the period from
September to December that had
been adopted at the meeting in October, with a range for the federal
funds rate that was somewhat narrower and was centered on about the
average rate in the most recent statement week. Thus, the Committee
agreed that open market operations
in the period until the next meeting
should be directed toward expansion
of reserve aggregates consistent with
growth of M-1A, M-1B, and M-2
over the September-to-December
period at annual rates of about 2V2
percent, 5 percent, and VU percent
respectively, or somewhat less, provided that in the period before the

156 FOMC Policy Actions
next regular meeting the weekly average federal funds rate remained
within a range of 13 to 17 percent.
While some shortfall from the specified rates of monetary growth would
be accepted, it was also understood
that operations would not be directed toward placing substantial
additional pressures on bank reserve positions unless growth of the
monetary aggregates and the associated demands for reserves proved to
be significantly greater than anticipated. If it appeared during the period before the next regular meeting
that the constraint on the federal
funds rate was inconsistent with the
objective for the expansion of reserves, the Manager for Domestic
Operations was promptly to notify
the Chairman, who would then decide whether the situation called for
supplementary instructions from the
Committee.
The following domestic policy directive was issued to the Federal Reserve Bank of New York:
The information reviewed at this
meeting suggests that real GNP is recovering further in the fourth quarter from
the sharp contraction in the second quarter, while prices on the average continue
to rise rapidly. In October industrial production and nonfarm payroll employment expanded substantially for the third
consecutive month, and thel unemployment rate remained around l li percent.
The value of retail sales changed little,
following four months of recovery. The
rise in the index of average hourly earnings over the first ten months of 1980 was
somewhat more rapid than in 1979.
The weighted average value of the dollar in exchange markets on balance has
risen further over the past month. The
U.S. trade deficit was essentially unchanged in September, and the rate in
the third quarter was sharply lower than
that in the first half.
Growth in M-1A and M-1B moderated
further in October but was still relatively
rapid; growth in M-2 accelerated slight


ly, reflecting a pickup in expansion of its
nontransactions component. From the
fourth quarter of 1979 to October,
growth of M-1A was in the upper part of
the range set by the Committee for
growth over the year ending in the fourth
quarter of 1980, while growth of M-1B
and M-2 was somewhat above the upper
limits of their ranges. Expansion in commercial bank credit was rapid in October, although not so rapid as in August
and September. Market interest rates
have risen sharply in recent weeks; average rates on new home mortgage commitments have continued upward. On
November 14 the Board of Governors
announced an increase in Federal Reserve discount rates from 11 to 12 percent and a surcharge of 2 percentage
points on frequent borrowing of large
member banks from Federal Reserve
Banks.
The Federal Open Market Committee
seeks to foster monetary and financial
conditions that will help to reduce inflation, encourage economic recovery, and
contribute to a sustainable pattern of international transactions. At its meeting
in July, the Committee agreed that these
objectives would be furthered by growth
of M-1A, M-1B, M-2, and M-3 from the
fourth quarter of 1979 to the fourth quarter of 1980 within ranges of 3V2 to 6 percent, 4 to 6V2 percent, 6 to 9 percent, and
6V2 to 9V2 percent respectively. The associated range for bank credit was 6 to 9
percent. For the period from the fourth
quarter of 1980 to the fourth quarter of
1981, the Committee looked toward a reduction in the ranges for growth of
M-1A, M-1B, and M-2 on the order of V2
percentage point from the ranges
adopted for 1980, abstracting from institutional influences affecting the behavior
of the aggregates. These ranges will be
reconsidered as conditions warrant.
In the short run, the Committee seeks
behavior of reserve aggregates consistent with growth of M-1A, M-1B, and
M-2 over the period from September to
December at annual rates of about 2V2
percent, 5 percent, and VU percent respectively, or somewhat less, provided
that in the period before the next regular meeting the weekly average federal
funds rate remains within a range of 13 to
17 percent.
If it appears during the period before

FOMC Policy Actions 157
the next meeting that the constraint on
the federal funds rate is inconsistent with
the objective for the expansion of reserves, the Manager for Domestic Operations is promptly to notify the Chairman, who will then decide whether the
situation calls for supplementary instructions from the Committee.
Votes for this action: Messrs. Volcker, Gramley, Guffey, Morris, Partee,
Rice, Roos, Schultz, Solomon, and
Wallich. Votes against this action:
Mrs. Teeters and Mr. Winn.
Mrs. Teeters dissented from this
action because she believed that it
would result in additional increases
in interest rates, which would intensify downward pressures on demands for housing, automobiles, and
business fixed capital and thus risk a
major contraction in economic activity with a substantial rise in unemployment. In her view, open market
operations over the weeks immediately ahead should be directed
toward maintaining the federal funds
rate within a range of 11 to 15
percent.
Mr. Winn dissented from this action because he favored specification of lower rates of expansion in
the monetary aggregates for the period from September to December
than those adopted at this meeting.
In his view, more vigorous action
was appropriate in order to enhance
the prospects for restraining the expansion of the monetary aggregates
and establishing growth paths consistent with the monetary growth objectives for 1981 contemplated by
the Committee in July 1980.
Shortly after the meeting, incoming data indicated that M-1A and
M-1B were growing much faster
than the rates consistent with the
Committee's objectives for the period from September to December.
Required reserves and member bank



demands for reserves had expanded
substantially in relation to the supply
of reserves being made available
through open market operations,
and member bank borrowings had
increased further. These developments were associated with additional upward pressure on the federal
funds rate, which in the first statement week after the meeting had
been at about or somewhat above
the upper limit of the range of 13 to
17 percent specified by the Committee. In a telephone conference on
November 26, the Committee raised
the upper limit of the intermeeting
range for the funds rate to 18 percent.
On November 26, the Committee
modified the domestic policy directive
adopted at its meeting on November 18,
1980, to raise the upper limit of the range
for the federal funds rate to 18 percent.
Votes for this action: Messrs. Volcker, Gramley, Guffey, Morris, Partee,
Rice, Schultz, Solomon, Wallich, and
Baughman. Vote against this action:
Mrs. Teeters. Absent: Messrs. Roos
and Winn. (Mr. Baughman voted as
alternate for Mr. Roos.)
Mrs. Teeters dissented from this
action for essentially the same reasons that she had dissented from the
action to adopt the domestic policy
directive at the Committee's meeting
on November 18, 1980.
On December 4, after closing of
the markets, the Board of Governors
announced an increase in Federal
Reserve discount rates. In light of
the current level of market interest
rates and consistent with existing
policy to restrain excessive growth
in money and credit, the Board approved an increase from 12 to 13 percent in the basic rate and an increase
from 2 to 3 percentage points in the

158 FOMC Policy Actions
surcharge on frequent borrowings of
large institutions, effective December 5.
The increase in discount rates exerted additional upward pressure on
the federal funds rate. In trading during the morning of December 5, the
rate generally was well above 18 percent, the level to which the upper
limit of the intermeeting range for
the weekly average funds rate had
been raised about a week earlier,
and other short-term interest rates
rose substantially as well. At the
same time, incoming data suggested
that M-1A and M-1B currently might
be growing a little less rapidly than
projected a week earlier, which
would imply a somewhat lower level
of required reserves and also some
reduction in member bank demands
for reserves in relation to the supply
being made available through open
market operations.
Thus, it was possible that the additional upward pressure on the federal funds rate would prove to be transitory. Alternatively, pursuit of the
Committee's short-run objective for
the growth of reserves might be associated with a federal funds rate
above the upper limit of the existing
range, even if some weakness in demands for reserves developed, but
the extent of any upward pressure
on the rate was difficult to gauge
while markets were in the process of
adjusting to the discount rate action.
In light of these uncertainties, the
Committee decided in a telephone
conference in the afternoon of December 5 to take account of the repercussions of the increases in discount rates by providing the
Manager for Domestic Operations
with leeway to pursue the Committee's short-run objectives for the
behavior of reserve aggregates with


out operations being precisely constrained in the current statement
week by the 18 percent upper limit of
the intermeeting range for the federal funds rate, pending another consultation in about a week if one appeared to be desirable.
On December 5, the Committee modified the domestic policy directive
adopted at its meeting on November 18,
1980, and subsequently modified on November 26, to take account of the action
of the Board of Governors on December
4 to raise discount rates by providing
leeway for pursuit of the Committee's
short-run objectives for the behavior of
reserve aggregates without operations
being precisely constrained in the current statement week by the 18 percent
upper limit of the intermeeting range for
the federal funds rate.
Votes for this action: Messrs. Volcker, Gramley, Guffey, Morris, Partee,
Rice, Roos, Solomon, and Winn.
Votes against this action: Mrs.
Teeters and Mr. Wallich. Absent: Mr.
Schultz.
Mrs. Teeters dissented from this
action for essentially the same reasons that she had dissented from the
action to adopt the domestic policy
directive at the Committee's meeting
on November 18, 1980.
Mr. Wallich dissented from this
action because he preferred to raise
the upper limit of the federal funds
rate range for the remainder of the
intermeeting period, which in his
view would be consistent with the
action on the preceding day to raise
Federal Reserve discount rates.
The Committee held another telephone conference in the afternoon of
Friday, December 12. In the statement week ending December 10, the
federal funds rate had averaged
about 183/4 percent, and since then
the rate had been in a range of 19 to
20 percent. At the same time, the

FOMC Policy Actions 159
most recent data tended to support
the indications of the week before
that M-1A and M-1B currently might
be growing a little less rapidly than
projected earlier and that the demand for reserves could be easing.
Market conditions were unsettled,
however, and there was considerable uncertainty about the relationship between money market
conditions and objectives for the behavior of reserves. In these circumstances, the Committee decided to
extend through the period before the
next regular meeting, scheduled for
December 19, the leeway for open
market operations that it had voted
to approve on December 5.
On December 12, the Committee modified the domestic policy directive issued
on November 18, 1980, and subsequently modified on November 26 and
December 5, to extend through the period before the next regular meeting
leeway for pursuit of the Committee's
short-run objectives for the behavior of
reserve aggregates without operations
being precisely constrained by the 18
percent upper limit of the intermeeting
range for the federal funds rate.
Votes for this action: Messrs. Volcker, Gramley, Guflfey, Morris, Partee,
Rice, Roos, Schultz, Solomon, and
Winn. Vote against this action: Mrs.
Teeters. Absent: Mr. Wallich.

Mrs. Teeters dissented from this
action for essentially the same reasons that she had dissented from the
action to adopt the domestic policy
directive at the Committee's meeting
on November 18, 1980.
Meeting Held
on December 1&-19, 1980
1. Domestic Policy Directive
The information reviewed at this
meeting suggested that real GNP expanded more in the fourth quarter



than in the third. Average prices as
measured by the fixed-weight price
index for gross domestic business
product were continuing to rise at a
rapid pace, close to the average annual rate of about 10V2 percent recorded in the first three quarters of
the year.
The dollar value of retail sales
rose substantially further in November, according to the advance report, after a large increase over the
five preceding months. Sales of new
automobiles were at an annual rate
of 9.1 million units in November,
marginally above the October rate.
A brisk selling pace of foreign cars
sustained total unit sales as sales of
domestic autos edged down.
The index of industrial production
rose an estimated 1.4 percent in November, following substantial gains
in each of the three preceding
months. Capacity utilization in manufacturing increased about 1 percentage point further in November
to 78.8 percent, 3.9 percentage
points above its July trough but well
below earlier peaks.
Nonfarm payroll employment expanded substantially in November
for the fourth consecutive month,
and the unemployment rate was essentially unchanged at 7l/2 percent.
Employment gains were widespread, and the average workweek in
manufacturing lengthened slightly.
In November private housing
starts remained at the annual rate of
about IV2 million units recorded in
September and October. Sales of
new homes edged off slightly further
in October, and sales of existing
houses declined for the first time
since May.
Producer prices of finished goods
rose appreciably in October and November, but the rate of increase over

160 FOMC Policy Actions
the two months was considerably
below the exceptional pace in the
third quarter. In October consumer
prices continued to rise rapidly;
average prices of energy items fell,
but mortgage interest rates rose
sharply after having declined over
the preceding three months. The rise
in the index of average hourly earnings of private nonfarm production
workers accelerated sharply in October and November; over the first
eleven months of the year the index
rose at an annual rate of about 9l/2
percent, compared with an increase
of about 8V4 percent during 1979.
In foreign exchange markets the
trade-weighted value of the dollar
against major foreign currencies had
risen about 2V2 percent over the interval since the Committee's meeting in mid-November. The U.S. foreign trade deficit in October was
essentially unchanged from the August-September level, which was
well below the rate in the first half of
the year. The volume and value of
oil imports were up somewhat in
October from the sharply reduced
levels of the third quarter, while the
value of non-oil imports was little
changed. Total exports in October
also were close to the third-quarter
level.
At its meeting on November 18,
the Committee had decided that
open market operations in the period
until this meeting should be directed
toward expansion of reserve aggregates consistent with growth of
M-1A, M-1B, and M-2 over the period from September to December at
annual rates of about 2l/2 percent, 5
percent, and 1% percent respectively, or somewhat less, provided that
in the period before the next regular
meeting the weekly average federal
funds rate remained within a range



of 13 to 17 percent. Shortly after the
November 18 meeting, incoming
data indicated that the monetary aggregates were growing considerably
faster than the rates consistent with
the Committee's objectives for the
September-to-December period. Required reserves and member bank
demands for reserves expanded substantially in relation to the constrained supply of reserves being
made available through open market
operations. These developments
were associated with additional upward pressures on the federal funds
rate and other short-term interest
rates; in the first statement week
after the meeting, the funds rate was
at about or somewhat above the upper limit of the range of 13 to 17
percent specified by the Committee,
compared with an average of \Al/2
percent in mid-November. In a telephone conference on November 26,
the Committee raised the upper limit
of the intermeeting range for the
funds rate to 18 percent.
On December 4 the Board of Governors announced an increase from
12 to 13 percent in basic discount
rates at Federal Reserve Banks and
an increase from 2 to 3 percentage
points in the surcharge on frequent
borrowings of large institutions,
effective December 5. This action
exerted additional upward pressure
on the federal funds rate; in trading
during the morning of December 5,
the rate generally was well above 18
percent. At the same time, incoming
data suggested that M-1A and M-1B
currently might be growing a little
less rapidly than projected a week
earlier, which would imply some reduction in member bank demands
for reserves in relation to the supply
being made available through open
market operations.

FOMC Policy Actions 161
In light of uncertainties about the
duration and extent of upward pressure on the federal funds rate while
markets were adjusting to the discount rate action, the Committee
decided in the afternoon of December 5 to provide the Manager for
Domestic Operations leeway to pursue the short-run objectives for the
reserve aggregates without operations being precisely constrained in
the current statement week by the 18
percent upper limit of the intermeeting range for the federal funds rate.
On December 12 the Committee decided to extend this leeway for operations through the period before the
meeting. In the statement weeks of
December 10 and 17 the funds rate
averaged 18.8 percent and 19.8 percent. Member bank borrowings receded to an average of about $1.6
billion in the two statement weeks
ending December 17 from an average of about $2.2 billion in the preceding two statement weeks.
Growth in M-1A and M-1B moderated further in November to annual
rates of about 7 percent and 9l/4
percent respectively, but these
growth rates were still well above
those consistent with the Committee's objectives for the period from
September to December. In early
December growth in both measures
of money slowed substantially further. Expansion in M-2 and M-3 continued to accelerate in November,
reflecting a surge in both small- and
large-denomination time deposits.
From the fourth quarter of 1979
through November, growth of M-1A
was in the upper part of the range set
by the Committee for the year ending in the fourth quarter of 1980;
M-1B and M-2 grew at rates somewhat above the upper limits of their
ranges, while M-3 grew at a rate



slightly above the upper limit of its
range.
Total credit outstanding at U.S.
commercial banks continued to expand in November at about the rapid
pace of the previous three months.
Growth in business loans remained
especially vigorous, but expansion
in other bank loans was also sizable
and banks added further to their
holdings of securities. Outstanding
commercial paper of nonfinancial
corporations continued to fall in November, extending the decline that
had begun in August.
Pressures on bank reserve positions and strong business demands
for credit, along with large Treasury
financings, were associated with
sharp further increases in short-term
interest rates over the intermeeting
period. Rate increases were especially pronounced for bank CDs and
commercial paper, which rose 3 to 6
percentage points, while Treasury
bill rates advanced 1 to 3 percentage
points. Most long-term bond yields
moved up about !/2 to 1 percentage
point over the interval. The prime
rate charged by commercial banks
on short-term business loans was
raised from 16V4 percent to a new
high of 21 percent. In home mortgage markets, average rates on new
commitments for fixed-rate loans
rose more than V2 percentage point
further, and new commitment activity was reported to be quite limited
at prevailing rates.
The staff projections presented at
this meeting suggested that the accelerated growth of real GNP in the
current quarter was likely to be followed by some decline in the first
part of 1981 and by sluggish recovery later in the year. Accordingly,
the unemployment rate was expected to increase during 1981. The rise

162 FOMC Policy Actions
in the fixed-weight price index for
gross domestic business product was
projected to remain rapid, although
not quite so rapid in the second half
of the year as in the first half.
In the Committee's discussion of
the economic situation and its implications for policy, the members noted the clear possibility of a decline in
activity in the early part of the new
year and of a sluggish performance
over 1981 as a whole, although some
members expressed the view that
underlying expansive forces were
strong. It was observed that the statistical indicators of prospective activity had not been signaling a nearterm contraction, but that the
greater-than-anticipated expansion
in GNP in the current quarter had
itself contributed to developments,
including the sharp rise in interest
rates, that were likely to produce
some decline in the early part of
1981. Later in the year, assuming
monetary expansion to be consistent
with the Committee's longer-run objectives, the recovery was likely to
be limited unless progress was made
in reducing inflation. The need to
deal with the deep-seated problem of
inflation was emphasized, as was the
difficulty of doing so without accepting risks of unsatisfactory economic
performance in the short run. It was
generally recognized that the course
of economic activity remained difficult to forecast because of the unpredictability of behavior based on inflationary expectations and because
of uncertainties about the fiscal and
other economic policies of the new
administration to be inaugurated on
January 20.
At its meeting in July 1980, the
Committee had reaffirmed the following ranges for monetary growth
from the fourth quarter of 1979 to the



fourth quarter of 1980 that it had
established in February: M-1A, 3V2
to 6 percent; M-1B, 4 to 6V2 percent;
M-2, 6 to 9 percent; and M-3, 6l/2 to
9V2 percent. The associated range
for the rate of growth in commercial
bank credit was 6 to 9 percent. For
the period from the fourth quarter of
1980 to the fourth quarter of 1981,
the Committee had looked toward a
reduction in the ranges for growth of
M-1A, M-1B, and M-2 on the order
of V2 percentage point from the
ranges adopted for 1980, abstracting
from institutional influences affecting the behavior of the aggregates.
During the course of 1980, an inconsistency had become apparent between the longer-run ranges for
M-1A and M-IB as a result of fasterthan-expected growth of ATS and
NOW accounts, which had been at
the expense partly of demand deposits and partly of savings deposits and
other instruments not included in the
narrowly defined aggregates. In that
light, the specified range for growth
of M-1B in 1980 should have been
somewhat higher than that actually
adopted, while the range for M-1A
should have been somewhat lower,
consistent with the intended economic result.
At this meeting the Committee began a review of the ranges for 1981 in
the expectation that at the meeting
scheduled for early February 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). The
Committee once again faced unusual
uncertainties concerning the forces
affecting monetary growth, in part
because of some sizable variations
evident in the demand for both narrowly and broadly defined money in

FOMC Policy Actions 163
relation to nominal GNP during over the past few months and to the
1980. For the year ahead, moreover, slackening of economic activity prothe institutional changes expected to jected for the months ahead; but
result from the Monetary Control growth of M-2 was expected to be
Act of 1980 would need to be evalu- greater in relation to growth of the
ated and interpreted. Relationships narrowly defined aggregates than
among the monetary aggregates will suggested by the tentative ranges for
be affected by the introduction of 1981.
NOW accounts on a nationwide baMost of the members favored
sis as of December 31, 1980, as au- specification of monetary growth
thorized by the act. A staff analysis rates for the first quarter that were
suggested that during 1981 shifts of consistent with the tentative ranges
funds from demand deposits into for growth over the full year ahead.
NOW accounts would be substantial In view of the excessively rapid
and would significantly retard the monetary growth in recent months,
growth of M-1A. At the same time, they were willing to accept a shorttransfers from savings deposits and fall from those rates for a time, proother interest-bearing assets into vided that the shortfall developed
NOW accounts would enhance the concurrently with some abatement
growth of M-1B. However, esti- of pressures in the money market.
mates of such shifts varied within However, one member favored
wide ranges. Shifts of funds into specification of higher rates of monNOW accounts were not expected to etary growth for the first quarter,
affect growth of M-2 significantly and another member favored specifibecause virtually all of the funds cation of lower rates.
likely to be shifted into such acA number of members continued
counts are included in M-2.
to express concern about the ecoIn the Committee's discussion of nomic and financial effects of the
policy for the near term, the mem- high degree of variability of interest
bers considered rates of monetary rates in 1980. In the light of the
growth over the first three months of current prospects for economic ac1981 against the background of the tivity and for the demand for money,
tentative ranges specified earlier for these members wished to set a poligrowth over the year as a whole, cy course for the near term that
pending the completion of the re- would tend both to avoid additional
view of those ranges scheduled for pressures in the money market and
the meeting in early February. The to moderate the expected easing of
midpoints of the tentative ranges for pressures. While the Committee's
1981, abstracting from the effects of general practice had been to relax
the introduction of NOW accounts the constraint implied by the interon a nationwide basis, were 4l/4 per- meeting range for the federal funds
cent for M-1A, 43/4 percent for rate when the constraint became
M-1B, and 7 percent for M-2. It was binding, some members felt that a
considered likely that the substantial somewhat narrower range than
weakening of the demand for cash specified for most recent intermeetbalances evident in recent weeks ing periods might be appropriate to
would persist for a time, in response provide an opportunity for review of
to the sharp increase in interest rates the situation if market interest rates



164 FOMC Policy Actions
changed by a sizable amount. It was
also suggested that the Committee
hold a consultation before the next
scheduled meeting if it appeared that
the rate might decline quickly toward the lower end of the range. One
member expressed the opinion that
setting 18 percent as the upper end
of the range, which would lead to a
prompt easing in money market conditions consistent with a decline in
the funds rate to or below that level,
would contribute over time to a reduction in the volatility of both interest rates and monetary growth.
At the conclusion of the discussion, the Committee decided to seek
behavior of reserve aggregates associated with growth of M-1A, M-1B,
and M-2 over the first quarter along
a path consistent with the ranges for
growth in 1981 contemplated in July
1980, abstracting from the effects of
deposit shifts connected with the introduction of NOW accounts on a
nationwide basis. The members recognized that the spread of NOW
accounts and ATS accounts nationally was likely to widen the differential between growth of M-1A and
M-1B to an unpredictable extent and
that operational paths for reserves
would have to be adjusted in the
light of the developing differential.
Some shortfall in growth would be
acceptable in the near term if that
developed in the context of reduced
pressures in the money market. If it
appeared during the period before
the next regular meeting that fluctuations in the federal funds rate, taken over a period of time, within a
range of 15 to 20 percent were likely
to be inconsistent with the monetary
and related reserve paths, the Manager for Domestic Operations was
promptly to notify the Chairman,
who would then decide whether the



situation called for supplementary
instructions from the Committee.
The following domestic policy directive was issued to the Federal
Reserve Bank of New York:
The information reviewed at this meeting suggests that real GNP expanded
more in the fourth quarter than in the
third, and prices on the average continued to rise rapidly. In November retail
sales, industrial production, and nonfarm payroll employment expanded substantially further, and the unemployment
rate was essentially unchanged at ll/2
percent. Housing starts remained at their
September-October level. The rise in the
index of average hourly earnings has
been somewhat more rapid this year than
in 1979.
The weighted average value of the
dollar in exchange markets has risen
considerably further over the past
month. The U.S. trade deficit was unchanged in October, remaining well below the rate in the first half.
Growth in M-1A and M-1B continued
to moderate in November but was still
relatively rapid; growth in M-2 continued
to accelerate, reflecting a further pickup
in expansion of its nontransaction component. In early December, growth of
M-1A and M-1B slowed substantially
further. From the fourth quarter of 1979
to November, growth of M-1A was in the
upper part of the range set by the Committee for growth over the year ending in
the fourth quarter of 1980; M-1B and M-2
grew at rates somewhat above the upper
limits of their respective ranges. Expansion in commercial bank credit was
about as rapid in November as on the
average in the preceding three months.
Short-term market interest rates have
risen sharply further in recent weeks.
Long-term market yields have also risen,
although considerably less, and average
rates on new home mortgage commitments have continued upward. On December 4 the Board of Governors announced an increase in Federal Reserve
discount rates from 12 to 13 percent and
an increase in the surcharge from 2 to 3
percentage points on frequent borrowing
of large institutions.
The Federal Open Market Committee

FOMC Policy Actions
seeks to foster monetary and financial
conditions that will help to reduce inflation, encourage economic recovery, and
contribute to a sustainable pattern of
international transactions. At its meeting
in July, the Committee agreed that these
objectives would be furthered by growth
of M-1A, M-1B, M-2, and M-3 from the
fourth quarter of 1979 to the fourth quarter of 1980 within ranges of 3l/2 to 6
percent, 4 tol 6l/2 percent, 6 to 9 percent,
and 6l/2 to 9 /2 percent respectively. The
associated range for bank credit was 6 to
9 percent. For the period from the fourth
quarter of 1980 to the fourth quarter of
1981, the Committee looked toward a
reduction in the ranges for growth of
M-1A, M-1B, and M-2 on the order of V2
percentage point from the ranges adopted for 1980, abstracting from institutional influences affecting the behavior of the
aggregates.
In the short-run the Committee seeks
behavior of reserve aggregates associated with growth of M-1A, M-1B, and M-2
over the first quarter along a path consistent with the ranges for growth in 1981
contemplated earlier, which will be reviewed in February 1981. Those ranges,
abstracting from the effects of deposit
shifts connected with the introduction of
NOW accounts on a nationwide basis,
imply growth in these3 aggregates centered on 4!/4 percent, 4 /4 percent, and 7
percent respectively. It is recognized
that the introduction of NOW and ATS
accounts nationwide at the beginning of
1981 is likely to widen the discrepancy
between growth in M-1A and M-1B to an
extent that cannot now be accurately
estimated, and operational reserve paths
will be developed in the light of evaluation of those differences as they emerge.
In the light of the rapid growth of monetary and credit aggregates in recent
months, some shortfall in growth would
be acceptable in the near term if that
developed in the context of reduced
pressures in the money market. If it
appears during the period before the next
meeting that fluctuations in the federal
funds rate, taken over a period of time,
within a range of 15 to 20 percent are
likely to be inconsistent with the monetary and related reserve paths, the Manager for Domestic Operations is promptly to notify the Chairman, who will then
decide whether the situation calls for



165

supplementary instructions from the
Committee.
Votes for this action: Messrs.
Volcker, Gramley, Guffey, Morris,
Partee, Rice, Roos, Schultz, Solomon, and Winn. Votes against this
action: Mrs. Teeters and Mr. Wallich.
Mrs. Teeters dissented from this
action because she believed that the
objectives for monetary growth were
unduly restrictive in terms of their
eventual effects on output and employment without improving prospects for significantly tempering the
rate of inflation. Pending completion
of the Committee's review of its
ranges for growth in 1981, she preferred specification of moderately
higher rates for monetary growth
over the first quarter.
Mr. Wallich dissented from this
action because, given the excessive
monetary expansion in recent
months, he favored specification of
lower monetary growth rates for the
first quarter of 1981 than those
adopted at this meeting along with a
higher intermeeting range for the
federal funds rate. In his view, such
a policy stance was appropriate both
to restrain monetary growth if economic activity remained strong and
to moderate the probable decline in
interest rates if economic activity
weakened.

2. Authorization for Domestic
Open Market Operations
On January 23, 1981, the Committee
voted to increase from $3 billion to
$4 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

166 FOMC Policy Actions
immediately, for the period ending
with the close of business on February 3, 1981.
Votes for this action: Messrs.
Volcker, Gramley, Guffey, Morris,
Partee, Rice, Roos, Schultz, Solomon, Mrs. Teeters, Messrs. Wallich,
and Winn.

This action was taken on recommendation of the Manager for Do-




mestic Operations. The Manager
had advised that since the December
meeting, substantial net sales of securities had been undertaken to absorb reserves in association with a
seasonal reduction in currency and
deposits. The leeway for further
sales had been reduced to about $1
billion, and additional sales in excess
of that amount might be required
over the rest of the intermeeting
interval.

167

Consumer and Community Affairs
Introduction
The Board's Division of Consumer
and Community Affairs focused on
two principal tasks in 1980. They
were implementation of the Electronic Fund Transfer Act and
simplification of regulations under
the Truth in Lending Act, the newest
and the oldest of the more than a
dozen consumer credit protection
laws for which the Congress has assigned special responsibilities to the
Federal Reserve.
In addition to implementation, the
Federal Reserve System began a nationwide program to educate the
public about the electronic transfer of
funds and the provisions of the new
act.
The EFT Act is designed to protect
consumers in their use of electronic
fund transfers. During 1979 the
Board wrote rules (Regulation E) implementing parts of the act, and in
January 1980 the Board published
final rules for the remaining portions
of the act that became effective in
May 1980. These regulations establish
ground rules for consumers and financial institutions that use this new
technology, by means of which consumers can use EFT cards to pay electronically at the point of sale for
goods and services, or to deposit,
withdraw, or transfer funds from
their accounts at automatic tellers.
The Federal Reserve also undertook an educational program designed to make available, especially
for high schools, written and filmed
materials explaining the electronic



transfer of funds, the possible risks in
its use, and the rights and responsibilities of the consumers who use
EFT services and of the financial institutions that offer them. The Board
added to its consumer-oriented publications a 16-page pamphlet, "Alice
in Debitland," describing EFT services in story form and answering
questions about loss of EFT cards,
about ways to correct errors, and
about the requirements for documentation of EFT transactions.
On behalf of the System, the Federal Reserve Bank of Philadelphia
produced a film, "EFT at Your Service." The 14-minute color film
shows how the electronic movement
of funds has changed the ways in
which Americans conduct their financial affairs. The film is intended
especially as a high school teaching
aid, and is distributed with a study
guide for teachers.
By year-end, the Federal Reserve
had printed 3 million copies of "Alice
in Debitland," and hundreds of prints
of the EFT film were in demand for
months ahead.
In its other principal rulewriting activity in the field of consumer credit
protection in 1980, the Board intensified efforts to simplify the Truth
in Lending rules on disclosures to
make it easier for creditors to comply and for consumers to know the
full cost of borrowing.
The Truth in Lending Act and the
Board's implementing Regulation Z
date from 1968 and 1969 respectively.
Efforts to modernize, restructure,
shorten, and simplify Regulation Z

168 Consumer Affairs
began in 1978 under the Board's
Regulatory Improvement Project.
The Board had meanwhile recommended changes in the act to the Congress as the basis for a more thorough
simplification of the implementing
regulation. The Congress subsequently passed Truth in Lending simplification and reform legislation as one section of the Depository Institutions
Deregulation and Monetary Control
Act of 1980.
At year-end, a new draft of a simplified Regulation Z, based on the
new act, had been published for comment, and the Board expected to
complete the overhaul early in the
new year to meet a deadline of April
1, 1981.
As an important simplification
tool, the revised Regulation Z will
rely on disclosure forms that will
assure consumers that they have correct disclosures and assure creditors
that they have complied with the law.
Five principal ideas underlie the
Board's proposed disclosure requirements:
1. Precise and simple rules should
replace statements of principles that
themselves often require explanation
through new rules.
2. Wider scope should be permitted for tolerances for error and for
estimates in making disclosures.
3. The rules should emphasize
those disclosures that are most relevant to decisions about the use of
credit.
4. Requirements not justified by
substantial consumer benefits should
be eliminated.
5. Recognizing that regulatory
rules cannot span the great variety of
credit instruments and credit practices in common use, the regulation
should provide flexibility for cred


itors to apply the required disclosures
to their own credit plans.
The proposed new Regulation Z
would be shorter and plainer than the
current regulation and the Board interpretations that it would incorporate. But the Board made clear that
the regulation will, at best, be lengthy
and complex because the act affords
protection to consumers in a wide
variety of transactions, including
leasing, credit reporting, and closedand open-end credit, and because so
many types of credit are used in the
United States.
The Consumer and Community
Affairs Division continued to engage
in a broad range of regulatory, compliance examination, and enforcement activities relating to the consumer protection laws the Board administers. The Division also resolves
consumer complaints for the Board.
These activities are described in
subsequent sections of this Report.
As a participant in the Federal
Financial Institutions Examination
Council, the Board helped develop a
new examination policy guide to implement the requirements of the Truth
in Lending Simplification and Reform Act.
Other consumer protection activities included adoption of a policy
statement for handling protested applications, including applications
protested under the Community Reinvestment Act. The policies set forth
in the statement are intended to give
the public better notice of applications to expand bank holding companies or to merge financial institutions and, in general, to improve procedures for protests. The Board expects these procedures to assist individuals or groups desiring to protest
applications that come before the

Consumer Affairs 169
Federal Reserve and to help applicants comply with relevant laws
and regulations.
In other educational activities, the
Federal Reserve updated and reissued
in 1980 its most popular consumer
pamphlet, the Consumer Handbook
to Credit Protection Laws. Four
million copies of this brief, nontechnical guide to consumer credit
protection rights and responsibilities
have been printed since 1978. The
Federal Reserve also continued its
program of workshops throughout
the nation for high school teachers, to
acquaint them with consumer credit
protection laws and with the teaching
aids available from the System. The
Federal Reserve Bank of New York
produced a teaching aid on consumer
credit protection, aimed at high
school audiences, in comic book form.
The Board's Consumer Advisory
Council met four times in 1980. The
council is headed by Dr. Ralph
Rohner, of the Catholic University
Law School in Washington, D.C. Its
members represent a broad spectrum
of consumer, creditor, and other interests from across the nation.
Truth in Lending
This 12th Annual Report on the
Truth in Lending Act summarizes the
efforts in 1980 of the Board of Governors of the Federal Reserve System to
simplify its truth in lending rules for
the benefit of consumers and creditors. It also discusses compliance,
legislative recommendations from enforcement agencies, and the education of consumers and creditors
about truth in lending.1
1. A report on truth in lending for the year 1980
was issued to the Congress on January 2, 1981.




Simplification
In 1980 the Board continued its efforts to simplify truth in lending by
supporting legislative simplification
and proposing simplified versions of
the act's implementing regulation,
Regulation Z. The effort to simplify
truth in lending rules was initiated
under the Board's Regulatory Improvement Project and shaped by the
Truth in Lending Simplification and
Reform Act. The main goals of the
Board's effort to simplify Regulation
Z are to benefit the consumer by requiring disclosures to be clearer and
more useful, to help direct the enforcement efforts of regulators to the
most important provisions of the
Truth in Lending Act, and to eliminate unnecessary burdens for creditors.
Regulatory Improvement
The Regulatory Improvement Project, adopted by the Board of Governors in June 1978, is broad in scope.
Its goals are to improve the organization of the Board's regulations, to
broaden access to regulatory materials, to eliminate any unnecessary
burdens imposed by regulations, to
clarify regulations, and to adopt
nonregulatory programs when possible to achieve the desired results. The
project calls for the periodic review of
every Board regulation. The objectives of the project were underlined
by the enactment of the Regulation
Simplification Act of 1980 (Title VII
of the Depository Institutions Deregulation and Monetary Control Act),
which establishes rulewriting goals
similar to those of the Board's project.
Proposals initiated under the
Regulatory Improvement Project to
simplify Regulation Z generally in-

170 Consumer Affairs
elude reducing the number of disclosures that creditors are required to
make to consumers, reorganizing the
regulation to make it more convenient to use, providing model forms to
ease compliance, and simplifying
rules for computing annual percentage rates. These proposals are discussed in detail later in this report.
Legislative Simplification
Legislative simplification, which the
Board supported, was accomplished
on March 31, 1980, with the enactment of the Truth in Lending Simplification and Reform Act (Title VI
of the Depository Institutions
Deregulation and Monetary Control
Act of 1980). The simplification act,
which amends the Truth in Lending
Act, provides consumers with simpler
and more meaningful disclosures,
eases creditor compliance, strengthens enforcement, and limits creditor
civil liability to substantive violations. In addition, Title VI exempts
all agricultural credit from the act
and instructs agencies to order
creditors to make monetary restitution to consumers for certain violations. The restitution provisions were
effective immediately; all other provisions are effective on April 1, 1982.
Implementing regulations must be in
place by April 1, 1981, but will not be
mandatory until a year later. From
April 1, 1981, to April 1, 1982,
creditors may comply with either the
old or the revised regulation.
Realities of Simplification
In the Board's view, the present
Regulation Z is too complicated and
broad in coverage. This problem is
due largely to statutory expansion of
the Truth in Lending Act and the
variety of credit offered by financial
institutions. The regulation has re


sulted in a process that is costly for
creditors and, because the cost may
be passed on, often for consumers
as well. Enforcement agencies have
tended to report high rates of noncompliance with the regulation,
although they regard many violations
as not harmful to the consumer.
While the Board sees the need for
simplifying the regulation, it recognizes that even the most successful
simplification effort will not produce
a brief, simple document for three
basic reasons.
First, the scope of the original
Truth in Lending Act has been greatly
expanded by statutory additions. The
present Regulation Z is 53 pages long.
Besides implementing the original
rules on credit disclosures, the regulation now implements statutes governing the issuance of credit cards, the
liability for their loss, resolution of
billing errors, and disclosures for
consumer leases. Other provisions
discourage creditors from forcing
consumers to buy credit life insurance, protect consumers from unwisely encumbering their homes, and
ensure that consumers can withhold
payment for shoddy merchandise
purchased with a bank credit card. In
short, the breadth of the legislation
that Regulation Z implements will remain a major impediment to brevity
and simplicity.
Second, one goal of the simplification effort is to incorporate virtually
the entire body of published material
on truth in lending into the regulation
and accompanying commentary. This
material includes more than 1,500
staff interpretations issued since
1968, on which the credit granting industry relies. It is worth noting that
federal courts have heard about
13,000 truth in lending lawsuits since

Consumer Affairs 171
1969, or about 100 per month. The
incorporation of the extensive interpretive material is at odds with the
goal of simply shortening the regulation.
Third, credit itself has become
complex. The 153 highly technical
subsections of the present Regulation
Z bear witness to this fact. Credit
may be available on a revolving or
closed-end basis; payable on demand
or in equal or graduated installments;
with a precomputed finance charge,
on a simple interest basis, or both;
secured or unsecured; and with or
without credit life and property insurance, which may be voluntary or
required. It may be requested in person, by mail, or by telephone; and
may be renewed, assumed, or deferred. In most cases, implementing
the statute requires that these variations, and many more, be reflected in
the regulation.
Simplification Proposals
In the spring and fall of 1980, the
Board issued proposals to simplify
Regulation Z. These proposals point
toward a new regulation that will improve the delivery of credit-shopping
information to consumers, that will
be shorter, simpler, easier to use,
reduce costs related to compliance
and litigation, and redirect enforcement efforts to the most important
matters.
More than 4,000 pages of comments were received in response to the
proposal in the spring, and in light of
those comments and further staff
analysis, the proposal was extensively
revised for further public comment.
The resulting proposal, issued for
comment in the fall, is a proposed
regulation that includes the formal
Board interpretations, but is 40 per


cent shorter than the current Regulation Z and the interpretations.
In addition to being shorter, the
proposed regulation would be relatively easy to use. As suggested by the
Regulatory Improvement Project, the
revision restructures the regulation's
format by grouping related provisions in separate subparts. Rules
related to closed-end credit (for example, installment sales and mortgage loans) are presented separately
from those related to open-end (revolving) credit. The proposal also
contains model forms and clauses for
use in the common, great majority of
transactions that are covered in the
proposal. These forms should ease
the burden of compliance and improve the format of the information
given to consumers.
The final revised proposal was
guided by five main ideas. The first
idea is that the regulation should contain precise, simple rules instead of
principles that create ambiguity and
require additional regulatory clarification. Second, tolerances in
disclosure should be more widely applied. Third, emphasis should be
placed on disclosures relevant to
credit decision-making. Fourth,
burdens not justified by substantial
consumer benefit should be eliminated. Finally, the regulation should
give creditors flexibility to tailor
disclosures to their credit plans. The
results of applying these ideas in
writing the final proposal are
sketched briefly below.
Simple rules. The proposed rules
are simple and straightforward. The
proposal presents the basic rules and
requirements of the statute without
complicating detail. The straightforwardness makes the rules relatively easy to apply and should result in a

172 Consumer Affairs
reduction of interpretations and
litigation. The Board expects the new
regulation to be used with a commentary that will replace letters of interpretation and will provide whatever
guidance is necessary. The commentary will be updated at regularly
scheduled intervals (perhaps twice a
year), so that creditors and others will
know when to expect changes.
Wider application of tolerances.
The act authorizes the Board to allow
tolerances or margins of error in
some disclosures and permits creditors to use estimates in making
disclosures. Regulation Z has always
included some such provisions. The
proposal authorizes, for the first
time, a tolerance for the disclosure of
the finance charge. It also authorizes,
among other things, increased tolerance in disclosing the annual
percentage rate in complex transactions for which calculations may be
difficult.
Disclosures related to credit decisions. The proposal concentrates on
disclosures that are most relevant to
the credit-shopping process and on
which consumers are most likely to
rely in making credit decisions. This
means that the regulation focuses less
on terms like security interests and
prepayment penalties, and also less
on changes in terms that take place
after the credit decision is made.
Burdens justified by substantial
benefits. The proposal emphasizes
disclosures in common transactions
that are of clear, substantial benefit
to consumers. The proposal focuses
less on unusual transactions that
would require disclosures too complex to be useful to consumers.
Creditor flexibility. Because of the
variety of instruments and practices
in the credit industry, creditors



themselves can sometimes design better disclosures than the regulation can
spell out. In some cases, the proposal
simply sets forth a basic disclosure requirement and permits creditors to
tailor disclosures to their own credit
plans, as in transactions involving
variable rates or in certain construction loans.
The proposal reduces the number
of disclosures in most credit transactions, as required by the Truth in
Lending Simplification and Reform
Act. The disclosures will have less information than those required under
the current regulation, but the most
important information—the terms
that are most needed by consumers in
shopping for credit—is retained. The
proposal would require creditors to
disclose the annual percentage rate,
finance charge, amount financed,
payment schedule, and total payments in a form that is straightforward, uncluttered, and therefore
more accessible and usable for the
consumer.
Comments on the proposal issued
in the fall, were requested by January 19, 1981.
Simplification Amendments
In 1980 the Board adopted four
amendments to Regulation Z.
Simplification of rules for calculation and disclosure of annual percentage rate and other credit terms. On
December 31, 1979, the Board announced its adoption of certain
amendments, effective January 10,
1980, to simplify the calculation and
disclosure of the annual percentage
rate and other credit terms. The most
important of these amendments established a tolerance of 1/8 of 1 percentage point in either direction from the
exact annual percentage rate, simpli-

Consumer Affairs 173
fied the rules for treating minor variations in payment schedules, and expanded the protection available to
creditors who have relied in good
faith on faulty calculation tools.
Extension of effective date of
revocation of an amendment exempting open-end credit arrangements
from certain rescission requirements.
In 1978 the Board created an alternative in certain circumstances to the
three-day cancellation right, generally
applicable to each transaction under
an open-end credit account secured
by a consumer's residence. This action was revoked in September 1979,
effective March 31, 1980. However,
in anticipation of congressional action that would endorse the alternative, the Board moved in February
1980 to delay the planned revocation
date.
Exemption of agricultural credit
from truth in lending requirements,
and elimination of disclosure requirements for periodic statements in
closed-end credit transactions. Effective May 21, 1980, the Board implemented provisions of the Truth in
Lending Simplification and Reform
Act that exempt agricultural credit
from disclosure requirements of truth
in lending and eliminate disclosure requirements for periodic statements in
closed-end credit transactions. These
provisions were implemented immediately because there appeared to
be no sound reason for delay.
Increase in tolerance for annual
percentage rates in irregular mortgage
transactions. This amendment was
proposed on May 20, 1980, and
adopted after review of the comments, which were mostly favorable.
Following the intent that was expressed in the conference report on
the Truth in Lending Simplification



and Reform Act, the amendment permits a tolerance of up to 0.5 percentage point in the disclosure of annual
percentage rates for complex mortgage transactions. The more generous
tolerance is available until March 31,
1981. Beginning on April 1, 1981, irregular mortgage transactions must
meet the general standards of accuracy.
Uniform Enforcement Actions
In July 1980 the Board adopted a
policy guide to enforce the restitution
provisions in the Truth in Lending
Simplification and Reform Act. The
guide, "Administrative Enforcement
of the Truth in Lending Act—Restitution," was developed by the Consumer Compliance Task Force of the
Federal Financial Institutions Examination Council (FFIEC), which
comprises representatives of the five
federal agencies that regulate financial institutions. The act requires the
agencies to order creditors to make
monetary restitution to the accounts
of consumers in cases in which disclosure errors resulted from a clear
and consistent pattern or practice of
violation, gross negligence, or a
willful violation that was intended to
mislead the consumer. The policy
guide describes rules for determining
violations covered by the provisions,
for calculating adjustments, and for
defining the extent of agency discretion in ordering restitution.
Consumer Advisory Council
The Consumer Advisory Council,
which was established in 1976 to advise the Board on its responsibilities
under the Consumer Credit Protection Act and other consumer-related
activities, consists of 31 members

174 Consumer Affairs
representing the interests of consumers and creditors in different
regions of the country. The council
met four times in 1980. It considered
the requirements of the Truth in
Lending Simplification and Reform
Act, and, specifically, the use and
timing of alternative shopping
disclosures for closed-end credit and
ways to disclose changes in credit
terms that occur during the life of a
credit contract. Other truth in lending
matters discussed included legislative
and regulatory amendments to integrate provisions regarding error
resolution and consumer liability
under the Truth in Lending Act and
the Electronic Funds Transfer Act
and whether truth in lending disclosure requirements adequately ensure consumer understanding of the
method of computing finance charges
that is called the "average daily
balance (with current debits)."
The council also discussed the relationship between credit-scoring
systems and Regulation B, which implements the Equal Credit Opportunity Act; enforcement of the Community Reinvestment Act; whether
state usury ceilings should be preempted by federal law; regulation of
alternative mortgages; the "Holder
II" rule proposed by the Federal
Trade Commission; and uniformity
in consumer credit enforcement.

Compliance
The five federal agencies that supervise financial institutions reported
that the 1980 compliance picture
shows little substantive change from
1979. The Federal Deposit Insurance
Corporation (FDIC) and the National
Credit Union Administration (NCUA)
report small increases in the number
of institutions not in full compliance;



the Board, the Office of the Comptroller of the Currency (OCC), and
the Federal Home Loan Bank Board
(FHLBB) show a small decrease in
noncompliance. All of the agencies
report high noncompliance. It should
be noted that institutions reported as
not being in full compliance include
those with only one, or a few, violations. It is likely that noncompliance
would be substantially reduced if only
institutions with a more significant
number of violations were counted.
Agencies reporting that more violations have been discovered in 1980
believe that the reason is the increased
sophistication of examiners and improved examination techniques.
To assist member banks in complying with truth in lending requirements, the Federal Reserve
System provided 219 educational/advisory visits in 1980. The Board
believes that the high level of noncompliance reported by each of the
agencies is strong evidence of the
need for simplification of Regulation
Z. Many of the reported violations
represent failure to follow detailed requirements that could be simplified
with no substantive loss to consumers. An example of this is the requirement that , the specific term
"balloon payment" be used in
closed-end credit disclosures.
The FDIC issued three cease-anddesist orders in 1980 that charged
violations of the act and Regulation
Z. The Board entered into written
agreements with two banks to ensure
correction of Regulation Z violations,
including understatement of annual
percentage rates and finance charges
and other violations of general disclosure requirements.
According to the Board's records
and to summaries of examination
findings compiled by the OCC,

Consumer Affairs 175
FDIC, FHLBB, and NCUA, the violations discovered most frequently
are (1) failure to use required terms
such as "total of payments" and
"balloon payment" in disclosures
related to closed-end credit, (2)
failure to obtain separately signed
and dated credit life insurance
authorizations, (3) failure to follow
requirements related to rules that call
for describing property that secures
credit, (4) failure to disclose either the
correct finance charge or the annual
percentage rate, and (5) failure to disclose other information related to
periods of payments scheduled to repay indebtedness.
The other agencies with statutory
authority to enforce truth in lending—the Civil Aeronautics Board
(CAB), the Farm Credit Administration (FCA), and the Small Business
Administration (SBA)—report that
the institutions they supervise are
generally in substantial compliance
with truth in lending. The CAB also
reports that four carriers were found
to be in violation of certain requirements related to timing in the
transmission to credit-card issuers of
credit statements used to make refunds. The regulation requires that in
sales transactions involving a credit
card issued by a person other than the
seller, the seller must send to the card
issuer within seven days any credit
statements used to effect a refund.
Consent agreements with two of the
carriers have been negotiated, and
two others are in process.
The Federal Trade Commission
(FTC) has been conducting an industrywide investigation to see
whether creditors under its jurisdiction are correctly charging customers
for credit and making the disclosures
required by truth in lending. The
commission reports that creditors ap


pear to persist in failing to disclose
clearly, when applicable, that credit
insurance in closed-end credit transactions is voluntary, and in failing to
make required disclosures before consummation. The FTC also mentioned
that many advertisers of automobile
financing continue to advertise the
"add on" rate instead of the annual
percentage rate, and many mortgage
lenders advertise the simple interest
rate. The FTC also notes that consumer complaints and inquiries suggest continued widespread noncompliance with the Fair Credit Billing Act and Regulation Z, especially
with regard to procedures for resolving errors in consumer accounts. The
FTC mentions two consent orders
and two consent judgments as significant enforcement actions in 1980.
These involve an oil company, a retail
business, a real estate firm, and a furniture business.
The FTC attributes the apparently
high level of compliance with the
Consumer Leasing Act that it has
noted to the sample lease disclosure
forms issued by the Board.

Legislative Recommendations
Some of the enforcement agencies
have responded in writing to the proposed revisions of truth in lending
rules, and these recommendations
have played an important role in
rulewriting by the Board. Beyond
these regulatory recommendations,
the Board and the NCUA have recommended the enactment of proposed legislation to integrate the requirements of the Electronic Fund
Transfer Act with the Truth in Lending Act; the NCUA has also recommended further exploration of the
feasibility of reducing truth in lending
compliance burdens for small finan-

176 Consumer Affairs
cial institutions. The Comptroller of
the Currency has recommended that
real estate disclosures be simpler and
fewer in number.

Education
In 1980 the Federal Reserve System
continued to provide a variety of
educational materials and services to
educate consumers and creditors. The
Board and the Federal Reserve Banks
distributed more than 2 million copies
of its pamphlets on Regulation Z, including "What Truth in Lending
Means to You," "If You Use a
Credit Card," and "Truth in Leasing;" as well as 2 million copies of the
Board's "Consumer Handbook to
Credit Protection Laws," which summarizes the main provisions of seven
major laws on consumer credit protection, including truth in lending,
consumer leasing, and fair credit billing. More than 2.3 million persons
are estimated to have viewed the film
on consumer credit protection, entitled "To Your Credit."
In November 1980 a consumer exhibit prepared by Board staff
members was recognized by the
District of Columbia Office of Consumer Protection and the Washington Chapter of the Society of Consumer Affairs Professionals for its
excellence. The exhibit was judged
for its practical value to the consumer
and for the effectiveness of its
method of presenting information.
The FDIC offered 46 consumer
compliance seminars to banks
throughout the country during the
year. The seminars were designed
particularly to help small banks. It
also established a toll-free consumer
hotline to give consumers better access to information about credit protection laws.



The NCUA reports that, in addition to providing an advisory service
and speakers to groups of credit
unions, it entered into a contract in
1980 with the Consumers League to
prepare educational materials that
will be known as "The Informed
Consumer."
The FTC reports that thousands of
copies of its new consumer credit and
lease advertising manual, "Advertising Consumer Credit and Lease
Terms," have been distributed
through the Government Printing Office. It has also distributed a series of
fact sheets, "Facts for Consumers
from the Federal Trade Commission," some of which are on truth in
lending.
The Bureau of Consumer Protection of Maine, one of the states that
has been granted exemptions from
most provisions of federal truth in
lending requirements, publishes a
quarterly newsletter to keep creditors
informed of regulatory developments. To encourage credit shopping,
it also publishes a monthly newspaper
listing of prevailing annual percentage rates for typical consumer loans.
Oklahoma, also an exempt state,
reports that it provides speakers to a
variety of groups and is particularly
active in developing consumer education materials for use in public
schools from kindergarten through
high school. It also worked with college newspapers and radio and television stations to disseminate information on consumer credit protection.
Equal Credit Opportunity
This fifth annual report on the Equal
Credit Opportunity Act (ECOA) discusses the Federal Reserve System's
enforcement of, and assessment of
compliance with, the act and Regula-

Consumer Affairs 177
tion B in 1980. It also examines the
enforcement activities of other federal agencies, their assessment of such
compliance by the creditors that they
supervise, and, in the case of some
agencies, their efforts to educate consumers and creditors about equal
credit opportunity. The report then
describes the rulewriting activities
and legislative recommendations of
the Board; the Consumer Advisory
Council; and interagency activities.

Enforcement and Assessment
of Compliance
Most of the federal agencies that are
responsible for enforcing the ECOA
and Regulation B indicated that compliance improved in 1980. Statistics
from summaries of examination reports of the Board, the Office of the
Comptroller of the Currency (OCC),
the Federal Deposit Insurance Corporation (FDIC), and the Federal Home
Loan Bank Board (FHLBB) show
varying levels of improvement. The
Small Business Administration
(SBA), the U.S. Department of Agriculture (USDA), the Civil Aeronautics Board (CAB), the Securities and
Exchange Commission (SEC), and
the Farm Credit Administration
(FCA) reported that compliance
among the creditors they supervise
generally appears good.
Federal Reserve System
The Federal Reserve enforces the
ECOA and Regulation B through its
examination of state member banks
and investigation of consumer complaints against these banks. Specially
trained consumer affairs and civil
rights examiners from the Federal
Reserve Banks conduct the examinations, and Board staff members review selected examination reports to
determine the compliance status of



individual banks. Examination reports are also reviewed to evaluate
and improve examination procedures
and reporting methods.
The Board's records show significant improvement in 1980 in the compliance of state member banks with
the ECOA. The Federal Reserve System examined about 10 percent more
state member banks in 1980 than in
1979; examination reports received as
of December 1980 reveal that 60 percent of the banks examined had one
or more violations, compared with 77
percent in 1979. The most common
violations were failure to provide an
adverse-action notice (containing a
statement of the action taken, the required ECOA notice, and the name
and address of the federal agency that
enforces compliance); failure to
notify applicants of the action taken
within specific time periods; and
failure to make required disclosures
related to requests for information
about "other income."
In 1980 the Board took formal action against two state member banks
that had violated consumer laws and
regulations. In both cases written
agreements were issued that required
each bank to appoint a compliance
officer whose job description and
qualifications were to be reviewed by
the appropriate Reserve Bank, to submit written compliance procedures to
the Reserve Bank within a prescribed
time, to establish consumer protection training and educational programs for bank employees, to develop an internal program to audit
compliance with consumer laws and
regulations, to replace or correct all
disclosure forms to ensure compliance, and to establish procedures for
periodic progress reports to the
Reserve Bank.
The Federal Reserve System replies

178 Consumer Affairs
to complaints and inquiries about
diverse areas of consumer activity.
Responses range from providing consumers with explanations of laws to
conducting investigations that may
reveal errors made by state member
banks. In the latter case, the bank is
asked to take corrective action. Complaints alleging illegal credit discrimination are investigated by the appropriate Federal Reserve Bank and the
consumer is informed of the results.
In cases of possible violation, the
commercial bank is required to take
corrective action and the consumer is
advised of his or her rights and
remedies.
The Federal Reserve System received 284 ECOA-related complaints
against state member banks in 1980.
Of the 238 complaints, or 84 percent
that concerned adverse actions, 31
alleged discrimination on the basis of
characteristics covered by the act:
eight, on age; seven, on sex; seven, on
source of income; four, on marital
status; two, on race, color, or national origin; two, on exercise of
rights under the Consumer Credit
Protection Act; and one, on religion.
The other complaints alleged unfair
treatment: 83, with regard to credit
history; 29, income; 22, length of
employment; 13, length of residency;
and 60, miscellaneous.
Of the 238 complaints, 21 percent
were resolved by correcting the complainant's misunderstanding of the
law; 57 percent, through investigation
that revealed no bank error; 1 percent, through investigation that
revealed a factual dispute between the
complainant and the bank (the consumer was advised to consult an attorney); 1 percent, through investigation that revealed a possible bank
violation; 4 percent, through investi


gation that revealed a bank error,
which was corrected; and 2 percent
through investigation that revealed
error on the part of the customer. As
of October 31, 1980, the remaining 14
percent were still under investigation.
To assist creditor compliance with
the requirements of the ECOA and
Regulation B in 1980, representatives
of the Federal Reserve System visited
more than 219 member banks to advise them about the requirements of
the act and other consumer laws.
These visits are made to member
banks on request and provide them
with the opportunity to ask specific
questions about how ECOA requirements relate to the actual practices
and procedures of the bank.
The Federal Reserve distributed
more than two million copies of the
Board's consumer pamphlets on the
ECOA, including "The Equal Credit
Opportunity Act and Women," "The
Equal Credit Opportunity Act and
Age," "The Equal Credit Opportunity Act and Doctors, Lawyers and
Small Retailers," "The Equal Credit
Opportunity Act and Credit Rights in
Housing," and "How the New Equal
Credit Opportunity Act Affects
You." These pamphlets are distributed free on request and during presentations to consumers and creditors.
In 1980 more than two million people viewed the color film, "To Your
Credit." Designed for school and
television use, the film shows how
Regulation B and Regulation Z,
Truth in Lending, protect the consumer.
Other Agencies
The Civil Aeronautics Board (CAB)
reported a satisfactory level of compliance among U.S. and foreign air-

Consumer Affairs 179
lines in 1980. The number of con- munity reinvestment; provided consumer complaints in 1980 was lower sumers with a toll-free "hotline;"
than in 1979, and, according to the and prepared for a series of conCAB, none warranted formal en- sumer-awareness seminars to begin in
early 1981. The seminars are aimed at
forcement action.
The Farm Credit Administration neighborhood leaders and others con(FCA) reported good compliance cerned with consumer protection and
with the act. They received 12 com- civil rights issues.
The Federal Home Loan Bank
plaints in 1980, and investigations
revealed no violations. Four of the Board (FHLBB) reported that 23 pertwelve complaints charged discrimi- cent of the institutions it examined in
nation based on sex; three, on race; 1980 were found to have one or more
one, on national origin; and four violations of Regulation B. About
3,000 violations were reported last
specified no particular basis.
The Federal Deposit Insurance year, down from 4,000 in 1979. The
Corporation (FDIC) reported a mod- most frequent violations reported
est improvement in compliance with were failure to provide applicants
the act in 1980. Of the banks exam- with the required adverse-action
ined, 47 percent were not in full com- notice, failure to provide the required
pliance with Regulation B, compared information on adverse-action
with 50 percent the previous year. notices, and failure to retain records
The violations that were reported as required by Regulation B.
most frequently, according to the
The FHLBB reports that 217 comFDIC, all related to the requirements plaints related to equal credit opporfor adverse-action notices; failure to tunity were received in 1980. Of
provide a notice; failure to provide a these, 131 did not involve violations;
written statement of specific reasons 17 involved interpretive problems
for adverse action, or a notice of the that were settled; 18 were unresolved
right of the applicant to such a state- as of September 30, 1980; 45 were
ment; failure to provide the required referred to other agencies for resoluname and address of the FDIC as the tion; and 6 involved violations or
enforcement agency; and failure to errors that were corrected.
give the required ECOA notice.
The Federal Trade Commission
The FDIC received 369 consumer (FTC) reported that overall complicomplaints and 186 inquiries related ance with the act seems to have imto equal credit opportunity. The types proved, and that it received fewer
of discrimination that were most fre- complaints related to credit discrimiquently alleged were related to sex, nation in 1980 than in 1979. Continumarital status, race, color, and ing compliance problems in the sales
national origin, in that order.
finance and small loan industries, acSeveral FDIC activities in 1980 cording to the FTC, involve requests
were designed to provide information for a spouse's signature and informaand education on the ECOA to credi- tion about a spouse. The FTC has
tors and consumers. The agency con- also reported that a number of crediducted consumer compliance semi- tors may treat protected income less
nars for bankers on equal credit favorably than other income in both
opportunity, fair housing, and com- judgmental and credit-scoring sys


180 Consumer Affairs
terns. It continues to be concerned
that the use of ZIP codes in creditscoring systems may have a disproportionately adverse effect on racial
minorities. Finally, the FTC reported
that its staff investigation of mortgage lenders, sales finance companies, and small loan companies suggests that various subtle forms of
discrimination, such as discouraging
minorities and others from applying
for credit, may be replacing the more
blatant discriminatory practices that
were documented during hearings
before the enactment of the ECOA.
The FTC initiated formal action
against two creditors that failed to
comply with the act. A complaint
filed by the Department of Justice on
behalf of the FTC charged that an oil
company's consideration of ZIP
codes had the effect of discriminating
against blacks and Hispanics; its
practice of discounting protected income had the effect of discriminating
against women and recipients of public assistance; and its method of disclosing reasons for adverse action
failed to reveal the specific reasons
for denial. In a second consent judgment, the FTC acted against a credit
union that discriminated against
women by treating anticipated maternity leave as grounds for denying
credit.
The FTC also reports the development of a program to monitor the
credit activities of the Farmers Home
Administration. The program requests everyone who applies to the
Farmers Home Administration for
credit to specify his or her race, sex,
and national origin for monitoring
purposes; if the information is not
volunteered, it must be designated by
the person taking the application
based on surname or visual observa


tion. Educational activities of the FTC
during 1980 included lectures at industry conferences and the continued
distribution of two consumer brochures, "Women and Credit Histories" and "Equal Credit Opportunity."
The Interstate Commerce Commission (ICC) reported that it received
no consumer complaints related to
credit discrimination in 1980, as in
1979. The ICC has created a new office of consumer protection to maintain a computer record of complaints
and to develop profiles of carrier
abuses and irregularities.
The National Credit Union Administration (NCUA) reported that 63
percent of the credit unions examined
in 1980 were found not to be in full
compliance with the ECOA; in 1979
the figure was 44 percent. The NCUA
attributes this increase to the intensified examination procedures of its
new separate examination program
for consumer compliance. The most
frequently reported violations, according to the NCUA, were failure to
provide adverse-action notices, failure to avoid loan policies that might
have the effect of discriminating on a
prohibited basis; failure to avoid certain prohibited requests for information on loan applications; and failure
to avoid prohibited requests for the
signature of a spouse. The NCUA
issued two cease-and-desist orders in
1980.
In 1980 the NCUA received 57 consumer complaints. The two most
common allegations were discrimination on the basis of race and national
origin and failure to provide proper
adverse-action notices.
The Office of the Comptroller of
the Currency (OCC) reported improved compliance with the ECOA.

Consumer Affairs 181
Of the banks examined in 1980, 63
percent were not in full compliance,
compared with 82 percent in 1979.
The most frequently reported violations, according to the OCC, were
failure to provide adverse-action
notices or notices of the right to
receive such a statement; failure to
disclose the rights of applicants with
regard to giving information about
income from alimony, child support,
separate maintenance, part-time employment, retirement benefits, or
public assistance; failure to provide a
notice of action taken within the required time periods; and failure to
observe prohibitions against requesting marital status and using certain
terms in applications for unsecured
credit. The OCC reported a number
of administrative actions in 1980
against banks failing to comply with
the act and Regulation B: four ceaseand-desist orders, eleven formal
agreements, and four memoranda of
understanding.
The OCC received 1,180 consumer
complaints involving the ECOA.
More than two-thirds were related to
the requirements for denial of credit:
16 percent alleged that the creditor
refused to give reasons for adverse
action, and 52 percent claimed a lack
of clarity in the reasons given. Twothirds were related to bank credit
cards. The OCC reported 44 percent
of the complaints of discrimination
named either sex or marital status.
To educate consumers and creditors about the ECOA and Regulation
B, the OCC provided speakers for
meetings with consumer and civil
rights groups and assisted trade
groups in preparing educational
materials on the ECOA. In 1980 the
OCC began using a computerized
mailing list to send information to



consumer, civil rights, and community groups.
The OCC reported that in the last
quarter of 1980, a new unit was
formed to implement the ECOA and
other fair lending enforcement laws.
This unit is expected to produce a
sharper focus on civil rights enforcement activities and a more effective
coordination of civil rights responsibilities. The OCC also reported a new
data system, the Fair Housing Home
Loan Data System, designed to determine national bank compliance with
the ECOA and the Fair Housing Act.
The system has been in operation
since August 1980; it requires
national banks to submit information
on home-loan activity each month,
and, if warranted, additional information on a sample of home-loan
applications.
The Securities and Exchange Commission (SEC) reported continued
good compliance with the ECOA.
Only one complaint relating to the act
was received in 1980, and investigation revealed that no violation
occurred.
The Small Business Administration
(SBA) reported continued good compliance with the ECOA; no violations
were discovered in 1980, as in 1979.
The SBA received 21 complaints of
discrimination, but none were substantiated. In response to an audit of
its civil rights compliance activities by
the Department of Justice, the SBA is
conducting onsite reviews of all small
business investment companies, development companies, and other recipients of SBA funds.
The U.S. Department of Agriculture (USDA) reported no compliance
problems in the limited program
under the Packers and Stockyards
Act.

182 Consumer Affairs

Rulewriting
In August 1980 the Board issued two
proposed interpretations of Regulation B. The first concerns the consideration of income by creditors, and
the second, the disclosure of reasons
for adverse action.
The first proposal deals with the
meaning of the requirement in Regulation B that a creditor not discount
or exclude from consideration an applicant's income that is derived from
alimony, child support, separate
maintenance, part-time employment,
retirement benefits, or public assistance. Under the proposal the creditor
would be required, in evaluating a
credit application, to treat protected
income at least as favorably as income from any other source. When
such income would have no effect on
the credit decision, the creditor would
not have to consider it.
The second proposal addresses the
question of how a creditor should
select and disclose the principal reasons for denying credit. In the case of
a credit-scoring system, the disclosed
reasons for adverse action would
have to be directly related to the factors actually scored by the creditor.
Creditors would be required to attempt to disclose the minimum adjustment that the applicant would
have to make to become creditworthy. Regardless of the method
used to evaluate credit applications,
the creditor would be required to be
consistent in the use of that method,
applying it to all applications.
In response to numerous requests,
and to encourage public participation, the comment period for both
proposals was extended to December 22, 1980. The Board is expected
to take final action on the proposed



interpretations in the first quarter of
1981.
Final action on two amendments to
Regulation B that relate to business
credit will be considered by the Board
at the same time. The amendments,
proposed in October 1978, would
eliminate the exemption of business
credit from requirements for recordkeeping and notification in certain
transactions under $100,000, and
from the prohibition against requesting information on marital status in
all business credit transactions.

Legislative Recommendations
The Board received one legislative
recommendation from the Small
Business Administration (SBA). With
regard to the SBA and its recipients
who engage in credit activity, the
Equal Credit Opportunity Act is enforced by the Civil Rights Compliance Division of the SBA through a
letter of understanding with the
Federal Trade Commission. The SBA
has expressed the belief that the act
should assign this enforcement responsibility directly to the SBA.
Consumer Advisory Council
The Consumer Advisory Council was
established in 1976 to advise the
Board on its responsibilities under the
Consumer Credit Protection Act and
other consumer-related activities. The
council has 31 members who represent the interests of consumers and
creditors and come from different
regions of the country.
The council met four times in 1980.
Regarding equal opportunity in
credit, the council discussed creditscoring systems; in particular, the advantages and disadvantages of judg-

Consumer Affairs 183
mental and credit-scoring systems to
consumers and creditors, the use of
ZIP codes in scoring systems, and the
importance of creditors giving consumers adequate adverse-action
notices. Some council members suggested that the federal government
monitor credit-scoring practices that
use ZIP codes; these members were
concerned that the use of ZIP codes
may have the effect of discriminating
against applicants in certain racially
or ethnically concentrated neighborhoods. Other members cautioned
against federal attempts to tinker
with credit-scoring systems because
removing a particular factor can have
an undesirable effect on the classes of
borrowers that the law seeks to
protect.
With regard to reasons for denial
of credit, many council members
were firm in expressing the view that
the reasons should be explained as
fully as possible so that consumers
have the opportunity to refute any inaccurate or unusual factor used in the
assessment.
The council also discussed enforcement of the Community Reinvestment Act and the need for uniformity
in the enforcement of consumer
credit protection and related civil
rights laws.

Interagency Activities
The member agencies of the Federal
Financial Institutions Examination
Council—the Federal Reserve,
the Comptroller of the Currency, the
Federal Deposit Insurance Corporation, the Federal Home Loan Bank
Board, and the National Credit
Union Administration—have jointly
proposed uniform guidelines for the



enforcement of the ECOA, Regulation B, and the Fair Housing Act.
Field tests to determine the operational feasibility and the general effectiveness of the guidelines were completed in early 1980, after which the
guidelines were redrafted by an interagency work group and sent to the
Examination Council's Task Force
on Consumer Compliance.
The Examination Council conducted five Consumer Compliance
Schools in 1980 to refine its educational program before giving it formal approval. The development of
the lesson plans, the teaching, and the
other responsibilities associated with
the school were all shared by the
agencies represented on the Examination Council. More than 195 consumer examiners from the member
agencies were trained at these
schools. About 16 percent of the
classroom time at each of the sessions
was devoted to the ECOA, Regulation B, and the Fair Housing Act;
about 27 percent, to civil rights in
general.

Federal Trade Commission Act
This sixth annual report describes the
activities of the Board of Governors
of the Federal Reserve System that
are required under section 18(0 of the
Federal Trade Commission Act. The
Board's responsibilities are to identify and prohibit unfair or deceptive
banking practices; to receive and
remedy complaints against state
member banks; and within 60 days of
the issuance of certain rules by the
Federal Trade Commission, to promulgate bank regulations that are
substantially similar, unless certain
exceptions apply.

184 Consumer Affairs

Identification of Unfair or
Deceptive Practices
During 1980, the Board continued to
monitor consumer complaints about
unregulated banking practices to
identify those that are unfair or
deceptive. To help in this identification, the Board added an "early
warning" feature to its computerized
system for consumer complaints.
This feature signals the receipt of 15
or more complaints per quarter, or 50
annually, about any single category
of unregulated practices. In 1980, 971
such complaints were identified by
the early warning feature.
These complaints fall into 11
categories: those about disputed
deposits (174, or 8.8 percent of the
total number of complaints about
unregulated practices, including those
not signaled by early warning); discrepancies in accounts (144, or 7.3
percent); excessive time to clear check
deposits (95, or 4.8 percent); excessive insufficient-fund charges and
miscellaneous procedures (89, or 4.5
percent); refusals to cash checks (79,
or 4 percent); excessive or allegedly
unfair service charges (72, or 3.6 percent); late receipt of dividend checks
(73, or 3.7 percent); repossessions in
debt collection (60, or 3 percent);
other tactics in debt collections (75,
or 3.8 percent); high interest rates and
other terms (54, or 2.7 percent); and
alleged mismanagement of trust accounts (56, or 2.8 percent).
The two most numerous kinds of
complaints (disputed deposits and
discrepancy in accounts) really reflect
factual disputes, and thus do not
clearly involve practices that are unfair or deceptive. Moreover, they
represent only a small fraction (3.9
and 3.2 percent respectively) of the



total of all consumer complaints, including those about regulated and
unregulated practices. Table 1 identifies by subject the consumer complaints received by the Federal Reserve System during 1980.
In 1980, the Board used nonregulatory means to prevent possible unfair or deceptive practices by member
banks; for example, the Board issued
a policy statement in October concerning advertising by member banks
of negotiable order of withdrawal
(NOW) accounts. The purpose was to
emphasize that the advertising requirements of Regulation Q (Interest
on Deposits) apply to NOW accounts.
The policy statement set out the
following procedures:
1. Any advertisements or promotional materials issued before
December 31, 1980, for NOW accounts or accounts that will be converted to NOW accounts should
prominently indicate the unavailability under federal law of NOW account services before December 31,
1980.
2. Existing accounts that are
scheduled to be converted on December 31 should not be characterized
before that time as NOW accounts.
3. Any advertisement of a specific
rate of interest to be paid on a NOW
account must comply with the provisions of Regulation Q regarding interest on deposits.
4. The fact that conditions or
charges are to be imposed on the
account must appear in the advertisement.
5. An institution should inform its
customers, not later than the time a
NOW account is opened, or an existing account is converted to a NOW
account, of the method for com-

Consumer Affairs 185
materials. Staff of the Federal
Reserve System investigated and
resolved complaints against state
member banks, and referred those
about creditors or businesses not
under the Board's supervision to the
Consumer Complaints
appropriate enforcement agencies.
The Board's Division of Consumer
The Federal Reserve System received
4,505 complaints in 1980: 2,582 by and Community Affairs has instimail, 1,860 by telephone, and 63 in tuted a new procedure for assessing
person (table 1). The total number the handling of consumer complaints
received represents an 11 percent in- by the Federal Reserve Banks: Recrease over 1979, which the Board serve Banks regularly submit to the
believes is due largely to the System's Board all correspondence connected
continuing effort to educate bank with oral and written complaints that
customers about their rights and how were resolved during a representative
to exercise them. The Board is en- period; members of the Board staff
couraged by this evidence of success review the actions of the Reserve
Banks for timeliness, thoroughness,
in its consumer education efforts.
In 1980, the Board staff received responsiveness, and adherence to
349 written inquiries concerning con- System procedures; and the results of
sumer credit laws and bank policies the review are then conveyed to the
and procedures, and responded to pertinent Reserve Bank. Because this
each by explaining pertinent laws, program has been successful in furregulations, and bank practices, and ther strengthening the complaintby providing relevant printed handling systems of the Reserve
Banks, the Board plans to continue it
1. Consumer Complaints Received by the in 1981.
Federal Reserve System, by Subject,
In 1980, staff members of the
1980
Board sent follow-up questionnaires
to consumers whose complaints
Subject
Number
against state member banks were
Regulation B (Equal Credit Opportunity) ..
723
reviewed by the Board or by one of
Regulation C (Home Mortgage Disclosure).
8
the Reserve Banks. A high proportion
Regulation E (Electronic Fund Transfer)...
83
Regulation Q (Interest on Deposits)
428
of the responses that were returned
Regulation V (Securities Credit)
2
Regulation X (Securities Credit)
(60 percent) were favorable to the
1
Regulation Z (Truth in Lending)
817
way the complaints were handled by
Regulation BB (Community Reinvestment).
4
Regulation CC (Consumer Credit Restraint)
104
the Federal Reserve System. About 72
percent reported that the explanation
Fair Credit Reporting
125
Fair Debt Collection Practices .
87
they received was clear and underFair Housing Act
2
standable; 72 percent, that they were
Transfer agents
17
Holder in due course
11
satisfied with the promptness in
Unregulated bank practices
handling; 93 percent, that they were
Early warning
971
Miscellaneous
1,009
treated courteously by Federal ReOther '
113
serve staff; and 84 percent, that they
TOTAL
4,505
will contact the Federal Reserve again
1. Includes primarily miscellaneous complaints
against business entities.
if they encounter another problem
puting and paying interest on the account, including conditions for earning a stated return and charges that
may be assessed against the account.




186 Consumer Affairs
2. Consumer Complaints Received by the Federal Reserve System,
by Function and Resolution, 1980 '
Type of complaint
Total
complaints

Loan

functions

Discrimination

Type of resolution

Total complaints
Total concerning state member
banks
Insufficient information
Information furnished
Bank legally correct
No accommodation
Accommodation made . . .
Clerical error, corrected
Factual dispute
Bank violation, resolved . . . .
Possible bank violation,
unresolved
Customer error
Pending
December 31,1979
January 31, 1980

Other

Deposit
functions

Electronic
fund
transfers

Trust
services

Other

4,505

737

1,582

1,360

94

56

676

157
11
31

313
6
65

293
7
39

285
9
71

41
0
7

25
3
3

157
11
31

34
8
24
4
2

135
40
16
3
3

76
43
53
7
7

64
22
51
17
4

7
3
12
4
0

8
0
1
0

34
8
24
4
2

2
3

1
5

2

2
8

0
2

0
0

2
3

38
5

39
10

55
12

37
10

6
0

9
0

38
5

4

1

1. The terms used in this table that are not selfexplanatory are defined as follows:
Insufficient information. The staff has been unable,
after follow-up correspondence with the consumer, to
obtain sufficient information to process the complaint.
Information furnished. When it is apparent that the
complainant does not understand the law and that
there has been no violation on the part of the bank,
the Reserve System explains the law in question and
provides the complainant with other pertinent information.
Bank legally correct, accommodation made. In
these cases the bank appears to be legally correct, but
chooses to make an accommodation.
Factual dispute. These cases involve factual disputes
not resolvable by the Federal Reserve System and con-

tractual disputes that can be resolved only by the
courts. Consumers wishing to pursue the matter are
advised to seek legal counsel or legal aid, or to use
small claims courts.
Bank violation, resolved. In these cases a bank appears to have violated a law or regulation and has
taken corrective measures voluntarily or as ordered by
the Federal Reserve System.
Possible bank violation, unresolved. When a bank
appears to have violated a law or regulation, customers are advised to seek civil remedy through the
courts. Some cases that appear to involve criminal irregularity are referred to the appropriate law enforcement agency.
2. Includes complaints against national banks and
nonmember banks, which are referred for resolution
to the appropriate agencies.

with a bank. Fifty-two percent found
the resolution of the complaint acceptable. The proportion of those
satisfied with the outcome is lower
than the proportion of those satisfied with the procedure because many
complaints involve factual disputes
beyond the Federal Reserve's power
to resolve, or involve bank practices
that, however objectionable to the
consumer, do not violate state or
federal law.
Table 2 summarizes the nature and
resolution of the complaints against
state member banks received in 1980.
The complaints are compiled accord-

ing to bank functions—loans, deposits, electronic fund transfers,
trusts, and other. About 54 percent
concerned loan functions: 28 percent
alleged discrimination and 26 percent dealt with credit-cost disclosures
and other general loan functions. Approximately 26 percent involved interest on deposits and general practices concerning deposit accounts.




Consumer Education
An important part of the System's
efforts in consumer affairs is its production and distribution of materials

Consumer Affairs 187
on consumer education. Both the
Board and the Federal Reserve Banks
are active in this area. The Federal
Reserve Bank of Philadelphia, for example, has produced a film entitled
"EFT: At Your Service/' which is
available to schools with accompanying classroom materials. The Federal
Reserve Banks of Minneapolis and
New York have also produced classroom materials on how to use credit
services wisely and on other topics. In
1980 the Board published about 3
million copies of a consumer booklet
entitled Alice in Debitland, explaining consumer protections under the
Electronic Fund Transfer Act and
Regulation E. The Board also incorporated information about the Electronic Fund Transfer Act in The Consumer Handbook to Consumer Credit Protection Laws, which, like Alice
in Debitland, has proven quite
popular.
Board staff participate in consumer
education fairs, which offer opportunities to distribute information and
answer questions about the various
consumer and civil rights regulations.
In 1980, the Board received an award
for the excellence of its exhibit at the
Consumer Education and Information Fair, which was sponsored by the
District of Columbia's Office of Consumer Protection.

Rulewriting and the
Federal Trade Commission
In August 1980, the Federal Trade
Commission requested comment on a
revision of its proposed Credit Practices Rule, which was first issued for
comment in 1975. The proposed rule
would prohibit the use of certain contractual terms that are sometimes included to aid in the collection of unpaid debts and would impose specific



disclosure requirements on creditors.
The current proposal incorporates
refinements that meet some of the
technical objections that were raised
during hearings conducted by the
Federal Trade Commission in 1977
and 1978. The comment period was
extended to January 16, 1981.
In a letter to the Federal Trade
Commission, the Board noted that
several of the credit practices that
would be prohibited by this proposal
are already prohibited or curtailed in
the majority of states by state law.1
Also, although the Commission's
own Bureau of Economics supported
a few of the provisions in a memorandum issued in August 1980, it was
critical of some provisions, it recommended substantial change before
promulgation, and more important,
it questioned the underlying basis of
the rule. The Board also expressed
concern about the growing burden of
federal regulations. An excerpt from
the letter appears on page 190.

Home Mortgage Disclosure
The Board of Governors of the
Federal Reserve System implements
the Home Mortgage Disclosure Act
(HMDA) of 1975 through its Regulation C (Home Mortgage Disclosure).
The act, which requires financial institutions that have offices in standard metropolitan statistical areas
(SMSAs) to disclose publicly the location of their residential mortgage
loans, expired in June 1980, in accordance with a sunset provision. On
October 8, 1980, the HMDA was
reinacted for a five-year period, with
certain amendments.
1. Letter, dated December 22, 1980, from
Chairman Volcker to the Honorable Michael
Pertschuk, Chairman of the FTC.

188 Consumer Affairs
The statutory amendments require agency that regulates them—the Fed(1) compilation and disclosure of eral Reserve Banks, the Comptroller
mortgage loan data, beginning with of the Currency, the Federal Home
1980, on a calendar-year rather than Loan Bank Board, the Federal
fiscal-year basis; (2) itemization of Deposit Insurance Corporation, or
data by census tract or county rather the National Credit Union Administhan by census tract or ZIP code; (3) tration. State-chartered institutions
use of a standard disclosure format, that are exempt from the federal law
to be prescribed by the Board; (4) will submit the statements required by
central data repositories in each state law to their state supervisory
SMSA; and (5) aggregation of mort- agency.
gage loan data to cover all institutions
In February 1981, the Board pubin each SMSA.
lished a proposed revision of RegulaOn December 1, 1980, the Board tion C to implement the other statuamended Regulation C to implement tory amendments. The Board, while
calendar-year reporting for all institu- attempting to weigh the costs of comtions. Institutions that previously pliance of each regulatory provision
compiled data on a noncalendar against its benefits to the public, profiscal-year basis are required to poses to delete or reduce current reprepare a separate disclosure state- quirements in some instances where
ment for any portion of 1979 not the act allows. The Board proposes to
covered by their last fiscal-year state- modify others to ensure uniformity in
ment. The Board established March collection and reporting aimed at
facilitating the later aggregation of
31, 1981, as the due date.
The requirement that disclosures be the data. At the same time, in keeping
made by census tract or county was with the objectives of its Regulatory
not implemented for 1980 data be- Improvement Project, the Board has
cause of the difficulty in recompiling redrafted Regulation C in a simplisuch material. Similarly, the use of a fied, more concise form, which is apmandatory, Board-prescribed format proximately 30 percent shorter than
for disclosure statements is being the current version and which the
deferred until 1981. However, to Board believes will be easier to use.
facilitate the aggregation of mortgage Among the principal changes that the
loan data, institutions covered by Board proposes are the following:
1. An institution that is exempt
the act were asked to compile and
disclose their 1980 data in a manner and subsequently loses its exemption
consistent with the Board's form will be required to compile and report
data starting with the calendar year
HMDA-1.
Because of the statutory require- following the loss of exemption
ment regarding the aggregation of rather than with the preceding year,
data, these institutions will be subject as in the present regulation.
2. The category ''total residential
to certain reporting requirements
regarding loan data for 1980 and mortgage loans," which is the sum of
subsequent years. Financial institu- the FHA-Farmers Home Administrations will be required to submit two tion-VA loan category and the concopies of their HMDA statements to ventional loan category, will no
the regional office of the supervisory longer be required.



Consumer Affairs 189
3. Geographic breakdowns will be
given in terms of census tracts or
counties; ZIP codes will no longer be
used.
4. Disclosures at a branch office in
the SMSA where the institution's
home office is located will no longer
be required.
5. Disclosures at other branch of-




fices will be required only for data on
property loans in the SMSA where
the branch is located. However,
disclosures at home offices and at
central data repositories will contain
complete data for all the SMSAs in
which the institution has offices.
6. The availability of loan data will
no longer have to be publicized.

190 Consumer Affairs
Excerpt from letter, dated December 22, 1980, from Chairman Volcker to
the Honorable Michael Pertschuk, Chairman of the FTC.
All of us are aware of the growing concern—if not the alarm—many feel about
the constant stream of new regulations
coming out of Washington. Any one of
these regulations taken on its own may
well seem reasonable, responsive to a genuine evil, and not very costly. But the effects of government regulation are cumulative, and adding one reasonable regulation on top of another can eventually
create—and perhaps already has created—an unreasonable and unmanageable burden on the public.
The volume of rules and regulations has
reached serious proportions. For example, financial institutions this past year
have had to cope with important revisions
to federal rules governing reserve requirements, the offering of financial services by Federal Reserve Banks, credit
cost disclosures, electronic fund transfers,
management interlocks, loans to insiders,
and disclosure of mortgage lending practices. Other industries have no doubt
faced a similar experience in coping with
numerous new requirements and changes
in procedures. This problem is felt most
acutely by small businesses, which cannot
afford counsel to influence, implement,
or even monitor regulatory developments.
Moreover, these businesses must determine whether federal law supersedes state
law, which already extensively regulates
the creditor remedies covered by the proposed rule. Throughout the nation a
broad assessment of the aggregate effect
of regulation on productivity and inflation—two of our country's most serious
problems—is underway. With this as
background, the question is not whether
the rule may be responsive to some real
abuses in some cases, but whether the




need for the Credit Practices Rule is so
compelling that it too should be added to
the existing regulatory burdens.
This point seems particularly worth examining because of the long history of the
Credit Practices Rule. In 1975, when it
was first proposed, the degree of the
regulatory problem was not fully appreciated and all the regulatory additions
of the late 70's were still ahead of us.
Recently the Congress has repeatedly expressed its concern with the burden of
rulemaking. This spring, it passed the
Truth in Lending Simplification and
Reform Act expressing the clear intent to
trim back some of the Truth in Lending
requirements. An even more far-reaching
expression of congressional concern is the
Regulatory Flexibility Act, which requires
a rigorous analysis of the burden, particularly on small businesses, of all new
federal regulations. Moreover, since the
Credit Practices Rule was first proposed,
the Administration's Regulatory Council
was conceived as a way to help cope with
the national problem of overregulation
and, of course, the President's executive
order requiring regulatory reform projects
in each agency was issued.
Given that many of the practices covered by the proposal are already widely
regulated at the state level, given the opposition of the Commission's own economic staff to significant portions of the
rule, and given the nearly universal consensus that a reassessment of the breadth
of federal rulemaking is necessary, we do
not believe that this is the appropriate
time to launch a whole new set of federal
credit rules. In light of these factors, we
urge the Commission to reconsider issuance of the rule.

191

Implementation of the
Monetary Control Act of 1980
On March 30, 1980, the Monetary
Control Act of 1980 (Title I of Public
Law 96-221) was enacted. Under the
act, the Board is required to impose
reserve requirements, solely for the
purpose of conducting monetary policy, on all depository institutions that
maintain transaction accounts or
nonpersonal time deposits. The
Board also is empowered to receive
from all depository institutions, reports of assets and liabilities that it
determines are necessary for monitoring and controlling the monetary aggregates. The act opens access to
Federal Reserve credit and services to
all depository institutions. Any
depository institution that maintains
transaction accounts or nonpersonal
time deposits is entitled to the same
borrowing privileges as member
banks. The System is required to
establish a fee schedule for its services
and to make them available to all
depository institutions beginning in
September 1981.
The Board's initial actions on
reserve requirements concerned the
treatment of former member banks.
Under the act, former member banks
that left the System on or after July 1,
1979, are required to maintain full
member bank reserve requirements
without benefit of the phase-in allowed nonmember banks. The legislative history of the act indicated that
the Board was to administer this provision flexibly with respect to the date
of withdrawal from membership and
in the granting of waivers for limited
periods in the event the maintenance



of reserve requirements created a
hardship for individual former
member banks. On April 23, the
Board adopted a policy prescribing
the procedure by which institutions
could apply for such determinations.
On June 4 the Board requested
public comment on its revised
Regulation D to carry out the act's
provisions on reserve requirements.
More than 750 comments on all aspects of this proposal were received
from depository institutions, trade
associations, and other interested
parties. After considering these
public comments, the Board on
August 15 announced final rules,
which went into effect on November
13, 1980. In defining a transaction account, the Board struck a balance by
not imposing reserve requirement
costs on those accounts that permit
occasional withdrawals by various
convenient means, while applying
such requirements to deposits that
can be used generally for transactions
purposes. In addition, the Board
established a zero percent reserve requirement on time deposits with an
original maturity of four years or
more because such deposits are not
vital to effective monetary policy.
Under the act, current reserve requirements for member banks are
phased down to prescribed levels over
four years while reserve requirements
for nonmember depository institutions generally are phased in over
eight years. The phasing in does not
apply to any other category of
deposits or accounts that are first au-

192 Monetary Control Act
thorized by federal law after April 1,
1980. As a result, negotiable order
of withdrawal (NOW) accounts issued by institutions outside New
England, New York, and New Jersey
are immediately subject to full reserve
requirements. Depository institutions
outside those eight states will be required to maintain full reserve requirements on NOW account balances without any phase-in. However, the act provides a phase-in of
reserve requirements for automatic
transfer accounts (ATS), which can
be offered by commercial banks and
which are similar to NOW accounts.
After consultation with the leadership of the Senate and House Banking Committees, the Board delayed
implementation of the regulation until November 13 to afford institutions
and the Federal Reserve time to make
the necessary operational modifications. In addition, because of the
number of changes that are required
by the act, the Board further delayed
implementation for nonmember institutions with deposits of less than
$15 million. Nonmember depository
institutions that had less than $2
million in deposits as of December
31, 1979, will not become subject to
reserve requirements until May 1981
at the earliest. These 17,000 institutions account for 43 percent of the institutions in the country but hold only
0.4 percent of the total deposits. To
ease the burden of compliance, depository institutions of $2 million to
$15 million in deposits are subject only to quarterly, rather than weekly,
reserve maintenance and reporting,
beginning in January 1981. These
10,000 institutions account for 25
percent of the depository institutions
in the country and hold less than 4
percent of the total deposits. While
these actions will reduce the reporting



and reserve management burdens
temporarily for very small institutions that lack staff resources, they
may encounter difficulties in the
future in preparing reports and in
managing their reserve positions.
The Board also adopted rules to
implement the reserve passthrough
provision of the act and issued an interpretation concerning the bankers'
bank exemption from reserve requirements.
On the date of enactment of the
Monetary Control Act, the Board
issued a statement that it would consider requests for discount window
assistance from nonmember depository institutions on a case-by-case
basis until arrangements for formalizing access to the discount window were implemented. On June 10,
proposals for such access were published for public comment, and a
revised Regulation A—Extension of
Credit by Federal Reserve Banks
(12 C.F.R. Part 204)—went into effect on September 1. In addition to
short-term adjustment credit, Federal
Reserve assistance is available to accommodate the needs of depository
institutions that may be experiencing
difficulties adjusting to changing
money market conditions over a
longer period, particularly at times of
deposit disintermediation, as provided in the act.
Under the Board's rules, depository institutions are expected to make
full use of other reasonably available
sources of credit, including specialindustry lenders such as the Federal
Home Loan Banks, the National
Credit Union Administration's Central Liquidity Facility, and corporate
central credit unions before turning
to the discount window for assistance. This rule was adopted to ensure
that discount window credit does not

Monetary Control Act 193
interfere with the credit programs
that are available from other lenders;
this objective was expressed in comments received from the Federal
Home Loan Bank Board and the National Credit Union Administration.
The Federal Reserve Board believes
that this policy is consistent with the
fundamental purposes of the discount
window and fulfills congressional intent with respect to institutions with
longer-term assets; at the same time it
does not interfere with the credit programs established by the specialindustry lenders.
Under the act, the Board is required to publish for comment pricing principles and a proposed
schedule of fees for Federal Reserve
services. On August 28, 1980, the
Board announced such a proposed
schedule and the principles that
underlie them. The Board received
more than 230 comments from the
public, primarily from depository institutions and from financial institution trade groups. In light of these
comments, the Board considered its
pricing proposals at public meetings
held on December 10 and December
12, 1980, and formally announced its
decisions on December 31.'
The act specifies that fees must be
set for the following services: (1) currency and coin; (2) clearing and collection of checks; (3) wire transfer of
funds; (4) automated clearinghouse
(ACH); (5) settlement; (6) securities
safekeeping; (7) noncash collection;
(8) Federal Reserve float; and (9) any
new services that the Federal Reserve
System offers.
The System began offering priced
services—for wire transfer and net
settlement—in January 1981, consist1. See "Record of Policy Actions of Board
of Governors," p. 79.



ent with the desire of the Congress
that the benefits of System services be
provided to all depository institutions
as soon as operationally possible.
Although the act does not require the
Board to begin pricing services until
September 1981, pricing other than
for float, is scheduled to begin in
January 1981 and will be fully implemented by January 1, 1982. The
following schedule was adopted for
imposing service fees and for providing nonmembers access to services:
Type of service

Effective date

Wire transfer
January 29 1981
Net settlement
January 29, 1981
Check clearing and collection . . . . August 3, 1981 '
Automated clearinghouse
August 3, 1981
Purchase, sale, safekeeping,
and transfer of securities . . . . October 1981 2
Noncash collection
October 1981 2
Currency and coin
January 1982 2
1. In view of the December 31, 1980, effective date
for negotiable order of withdrawal (NOW) accounts
for all depository institutions and in order to limit the
impact of delaying nonmember access to checkcollection services, the Board has decided to authorize
access to current regional check processing center
(RCPC) arrangements without charge to all nonmember depository institutions. Nonmember commercial banks currently are permitted to deposit local
items in RCPCs.
2. Actual implementation dates will be announced
at the time final fee schedules are published.

At its December 1980 meetings, the
Board also decided that future fee
schedules will be based on estimated
costs for the period in which they are
effective, while developmental costs
may be spread (for fee-setting purposes) over the expected useful life of
the project; various means (such as
peak-load pricing) may be used to improve service efficiency. The Board
also announced a plan to eliminate
Federal Reserve float over a two-year
period, primarily by improving operations. The remainder will be
priced.
In view of the significant changes

194 Monetary Control Act
that depository institutions are encountering as a result of the Monetary Control Act, the Federal Reserve
has made efforts to consult with all
sectors of the financial community.
For example, other federal financial
institution regulatory agencies and industry trade groups were consulted in
developing regulations to apply to institutions with which the Federal
Reserve has not had much experience.
The Federal Reserve Banks con-




ducted many meetings at the local
level to discuss the new regulations
and pricing proposals in order to
smooth the transition of depository
institutions and the Federal Reserve
System to the new environment resulting from the act. In addition, the
Board established a Thrift Institutions
Advisory Council to provide such institutions a forum for consulting with
the Board, similar to the statutory
Federal Advisory Council.

195

Legislative Recommendations
The Board of Governors has made
the following recommendations for
legislation to the Congress of the
United States.

rather than a majority of the entire
board of directors, of loans aggregating more than $25,000 to executive officers and other insiders.
The suggested amendment would permit the board of directors to delegate
the authority to approve such loans to
a loan or executive committee of
board members and would simplify
the cumbersome procedure now required.
• Amend the civil money-penalty
provisions of the Federal Reserve Act
and the Bank Holding Company Act
to confirm the authority of the Board
to compromise, remit, or modify any
penalty. The suggested authority is
comparable to that explicitly granted
to the Comptroller of the Currency
by the FIRA.
• Amend section 18(j)(2) of the
Federal Deposit Insurance Act to exclude a foreign bank that maintains a
branch in the United States from
coverage by section 22(h) of the
Federal Reserve Act relating to extensions of credit to executive officers
and insiders. The suggested exclusion
is consistent with the exemption from
section 23A of the Federal Reserve
Act for foreign banks under the International Banking Act of 1978.

Amendments to the Financial
Institutions Regulatory and
Interest Rate Control Act of 1978
The Board has recommended a
number of amendments to the Financial Institutions Regulatory and Interest Rate Control Act of 1978
(FIRA) to clarify certain of its provisions, to ease requirements that are
unnecessarily burdensome, to correct
procedural problems, and to contribute to the efficient enforcement of
the act. The Board's recommendations for 1980 comprise the following
major elements:
• Eliminate the dollar limitations
of section 22(g) of the Federal Reserve
Act on a member bank's loans to its
executive officers for the purchase of
a home or education of children. The
statutory limitations are burdensome
and unnecessary in view of other prohibitions of the FIRA regarding preferential lending to bank insiders, including executive officers.
• Eliminate the requirement contained in section 22(g) of the Federal
Reserve Act that a member bank file Financial Transactions
a quarterly report on loans to ex- with Affiliates
ecutive officers. This reporting requirement is duplicative of the report- During 1976 and 1977 the Board coning provisions of the FIRA, which re- ducted a major review of section 23A
of the Federal Reserve Act. Section
quire annual reports on such loans.
• Amend section 22(h) of the Fed- 23A is designed to protect member
eral Reserve Act to require the prior banks from abuse by restricting nonapproval of the board of directors, arm's-length financial transactions



196 Legislative Recommendations
between these banks and affiliated
companies. The Board's review of
this statute was prompted in part by
the discovery that several relatively
large banks had been adversely affected by transactions with their affiliates.
One of the Board's major conclusions is that bank transactions with
affiliates within the statutory limits
have not caused substantial instability
in the banking system. At the same
time, the Board finds some flaws in
the present statute: (1) it is inordinately complex; (2) it contains some
potentially troublesome loopholes;
and (3) it appears to be unduly restrictive in several ways.
The Board has recommended
amendments to section 23A to correct
these flaws. Principal among its
recommendations are those (1) to
allow a holding company greater
freedom to transfer funds among its
sister subsidiary banks but to prohibit
a bank from purchasing low-quality
assets from a sister subsidiary bank;
(2) to broaden the definition of "affiliate" to include real estate investment trusts and other financial organizations that are sponsored and
advised by a banking organization;
and (3) to expand the types of collateral permitted on bank loans and
extensions of credit to affiliates while
requiring that these new types of collateral have a high value relative to
the loan.
Expansion of Class C Directors
The Board has submitted to the Congress draft legislation 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 Reserve Banks'
boards of directors 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.
Authority for
Bank Holding Companies
to Acquire Banks across
State Lines in Emergency and
Failing-Bank Situations
The Board recommends that the Congress give the Federal Reserve
authority in certain emergency and
failing-bank situations to approve the
acquisition by an out-of-state bank
holding company of a large bank that
is in severe financial difficulty. The
purpose of the legislation is to avoid
an adverse potential impact when the
failing bank is one of the largest in
the state and the public interest would
be served best by such an acquisition.
Existing law permits a foreign bank,
but not an out-of-state U.S. banking
institution, to acquire the failing
bank.
The authority would be limited to
cases involving a bank that had assets
in excess of $1.5 billion or that was
one of the three largest in the state.
The authority would be used only in
cases in which few or no purchasers
could be found within the state and in
which the size or other special characteristics of the problem bank and
the probability of widespread financial effects of its failure warrant an
exception to the general restrictions
on out-of-state bank acquisitions by a
bank holding company.

Legislative Recommendations 197
Amendments to the
International Banking Act
The International Banking Act of
1978 (IBA) required the Board to report to the House and Senate Banking
Committees within two years of the
date of enactment its recommendations to improve the implementation
of the act. The IBA provides a federal
regulatory framework governing the
operations of foreign banks within
the United States and also contains
statutory provisions governing the
organization and operations of Edge
corporations. The Board has submitted its report to the Congress
recommending that the IBA be
amended in these ways:
• To authorize access for Edge
corporations to the Federal Reserve
discount window without requiring
them to become members of the Federal Reserve System.
• To authorize the Board to permit
majority ownership of Edge corporations by a U.S. bank that is controlled
by foreign individuals.
• To eliminate the statutory limitation on member-bank investments in
Edge corporations and authorize the
Board to control aggregate and individual investments in Edge corporations.
• To 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.
• To amend the Bank Holding
Company Act in such a way as to effectively prohibit bank holding companies from acquiring by merger additional banks outside their principal
state of banking operations, and to
clarify the intent of the Congress
under section 5 of the IBA with
respect to a change in home state.
• To clarify the provisions of section 2(h) of the Bank Holding Company Act, as amended by the IBA, to
(1) assure that the requirements for
U.S. nonbanking activities are applicable to direct offices as well as to
subsidiaries, and (2) assure that
foreign banking organizations cannot
conduct U.S. financial operations of
the kinds not permissible for domestic bank holding companies.
• To permit the banking agencies
to afford confidential treatment to information obtained from foreign
banking organizations that is not
disclosed, either by law or custom, in
their home countries.
• To 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.

198

Litigation
ment company that is registered
under the Investment Company Act
of 1940. The court, on March 30,
1979, overturned the Board's amendment (606 F.2d 1004). The Board applied for and was granted certiorari
by the U.S. Supreme Court on February 19, 1980 (444 U.S. 1070). Oral
argument was heard by the Court on
October 15, 1980.
In Florida Association of Insurance Agents, Inc. v. Board of Governors, Nos. 75-3151 to 3153 (5th Cir.,
Bank Holding Companies—
filed August 12, 1975), petitioner
Antitrust Action
sought judicial review of three Board
In 1980 the U.S. Department of orders (Federal Register, volume 40,
Justice filed no challenges under the 1975, pages 30869, 30872, 30876) apantitrust laws of the United States to proving the applications of four bank
acquisitions by registered bank hold- holding companies to engage in cering companies or to bank mergers tain insurance agency activities in
that had been approved previously by Florida to the extent permitted by
the Board, and no such cases are
state law. On March 19, 1979, the
pending from previous years.
court remanded the cases to the
Board for further consideration (591
Bank Holding Companies—
F.2d 334). On January 11, 1980, the
Review of Board Actions
Board issued an order approving the
In Investment Company Institute v. application of Chase Manhattan to
Board of Governors, No. 77-1862 engage de novo through its subsidi(D.C. Cir., filed September 23, 1977), ary, Housing Investment Corporapetitioner sought judicial review of a tion of Florida, in certain insurance
Board order, dated August 31, 1977 agency activities pursuant to section
(Federal Reserve Bulletin, volume 63, 4(c)(8) of the Bank Holding ComSeptember 1977, page 856), denying pany Act (12 U.S.C. 1841 et seq.).
its petition for reconsideration and The other applications were withrescission of a portion of the Board's drawn by the applicants.
January 1972 amendment to RegulaIn Memphis Trust Company v.
tion Y (Federal Register, volume 37, Board of Governors, No. C76-64
1972, page 1463). Petitioner chal- (W.D. Tenn., filed February 19,
lenged the validity, under the Glass- 1976), plaintiff requested the court to
Steagall Act, of the Board's amend- set aside the Board's order of April 10,
ment, which permits bank holding 1975 (Federal Reserve Bulletin, volcompanies to act as investment ad- ume 61, May 1975, page 327), denying
visers to, or sponsors of, an invest- plaintiff's application to acquire
During 1980 the Board of Governors
was named in 33 lawsuits, compared
with 22 in 1979. Of the actions filed in
1980, 9 raised questions under the
Bank Holding Company Act, compared with 16 in 1979. As of December 31, 1980, 33 cases were pending,
11 of which involve the Bank Holding
Company Act. A brief description of
each of these cases and of those
disposed of in 1980 follows.




Litigation 199
Home Owners Savings and Loan Association, Collierville, Tennessee. In
a decision on June 4, 1976, the court
held that plaintiff's application had
been approved by operation of law
because the Board had not acted on it
within 91 days after the submission of
the complete record to the Board.
The district court further held that
it had jurisdiction over plaintiffs
suit.
The Board appealed the decision to
the U.S. Court of Appeals for the
Sixth Circuit (No. 76-2183). On
September 22, 1978, the circuit court
held that the district court lacked
subject-matter jurisdiction, reversed
the district court, and remanded the
case for dismissal without prejudice
to petitioner's right to request the
Board to reconsider its order of
April 10, 1975 (584 F.2d 921).
Memphis Trust then petitioned the
Board accordingly and was denied
reconsideration by the Board's order
of April 25, 1979. Memphis Trust
petitioned for review of this order in
the U.S. Court of Appeals for the
Sixth Circuit (79-3350), claiming that
its original application was approved
by operation of law and alleging that
the Board had not acted on the application within 91 days after the submission of the complete record to the
Board. The court affirmed the
Board's order of February 14, 1980.
In Vickars-Henry Corporation v.
Board of Governors, No. 77-3890
(9th Cir., filed December 13, 1977),
petitioner challenged a Board determination, dated November 15, 1977,
that petitioner is not a bank holding
company for purposes of the Bank
Holding Company Tax Act of 1976.
On October 6, 1980, the court affirmed the Board's order (630 F.2d
629).
In Security Bancorp et al. v. Board



of Governors, Nos. 78-1581 and 782031 (9th Cir., filed March 17 and
May 12, 1978), petitioners challenged
the Board's action in denying Security Bancorp's application to become a
bank holding company through the
acquisition of Security National
Bank, Walnut Creek, California
(Federal Reserve Bulletin, volume 64,
May 1978, page 405). On October 27,
1980, the court issued an opinion
ordering the Board to approve the application (631 F.2d 146). On December 24, 1980, the Board filed a petition for a rehearing en bane.
In Mid-Nebraska Bancshares, Inc.
v. Board of Governors, No. 78-1658
(D.C. Cir., filed July 14, 1978), the
petitioner sought judicial review of a
Board order, dated June 16, 1978
(Federal Reserve Bulletin, volume 64,
July 1978, page 589), denying the application by Mid-Nebraska Bancshares, Inc., Ord, Nebraska, to
become a bank holding company
through the acquisition of Nebraska
State Bank, Ord, Nebraska. Petitioner claimed that the Board's order
was not supported by substantial
evidence and exceeded the Board's
authority under the Bank Holding
Company Act. On February 19, 1980,
the court affirmed the Board's order
(627 F.2d 266), and on March 3,
1980, denied the petition of MidNebraska Bancshares for a rehearing.
In Independent Insurance Agents
of America, Inc., et al. v. Board of
Governors etal., Nos. 79-1280, 1398,
1471 (D.C. Cir., filed March 14,
April 20, and May 9, 1979), petitioners challenged orders of the
Federal Reserve Banks of New York,
Kansas City, and Cleveland approving the applications of First National
State Bancorporation, Newark, New
Jersey, New Mexico Bancorporation,
Inc., Santa Fe, New Mexico, and

200 Litigation
Pittsburgh National Corporation,
Pittsburgh, Pennsylvania respectively, to engage de novo in certain property and casualty insurance agency
activities. Petitioners claimed that the
orders were not based on substantial
evidence, that petitioners were
unlawfully denied hearings on the applications, and that the orders
violated the Administrative Procedure Act and the Board's procedural regulations. On April 21,
1980, the court affirmed the Board's
orders without opinion. Petitioners
then filed a petition for rehearing,
which was denied on June 10, 1980.
On January 12, 1981, the U.S. Supreme Court denied a petition for a
writ of certiorari, which had been
filed by petitioners.
In Credit and Commerce American
Investments, B. V., et al. v. Board of
Governors et al, No. 79-1294 (D.C.
Cir., filed March 16, 1979), petitioners challenged a Board order
(Federal Reserve Bulletin, volume 65,
March 1979, page 254) dismissing
petitioners' application to acquire
Financial General Bankshares, Inc.,
Washington, D.C. The Board found
that it was precluded from approving
the application because the proposed
transaction would violate Maryland
law. The court dismissed the case on
December 12, 1980, pursuant to stipulation by all parties.
In Jackson et al. v. Board of Governors, No. 79-2171 (5th Cir., filed
May 14, 1979), petitioners challenged
a Board order dated May 2, 1979
{Federal Reserve Bulletin, volume 65,
June 1979, page 500), approving the
application of Texas American Baneshares, Inc., Fort Worth, Texas, to
acquire additional shares of Riverside
State Bank, Fort Worth, Texas. Petitioners alleged that Texas American
Bancshares engaged in discriminatory



hiring and promotion practices and
claimed that the Board should have
denied the application for this reason.
On February 8, 1980, the court affirmed the Board's order.
In Connecticut Bankers Association et ai v. Board of Governors, No.
79-1554 (D.C. Cir., filed May 30,
1979), petitioners challenged the
Board's order (Federal
Reserve
Bulletin, volume 65, June 1979, page
506) approving the application by
Citicorp, New York, New York, to
engage de novo, through a subsidiary
in Westport, Connecticut, in the activities of second-mortgage lending
and the sale of credit-related insurance. Petitioners argued that the
Board was in error in denying them a
hearing on the application. On February 8, 1980, the court affirmed the
Board's decision to deny a hearing on
the issues of branching and undue
concentration, and remanded the case
to the Board for a determination on
the issue of voluntary tie-ins (627
F.2d 245).
In County National Bancorporation etal v. Board of Governors, No.
79-1783 (8th Cir., filed September
18, 1979), petitioners challenged the
Board's order of August 27, 1979
(Federal Reserve Bulletin, volume 65,
September 1979, page 763), denying
petitioners' application to acquire TG
Bancshares Co., St. Louis, Missouri,
a multibank holding company. Petitioners allege that the Board relied
upon an improper standard in denying the application.
On September 3, 1980, the court
held that the Board was without
authority to deny approval to a bank
holding company application to acquire a bank under section 3 of the
Bank Holding Company Act for anticompetitive effects unless these effects amounted to a violation of the

Litigation 201
antitrust laws. The Board was
granted a rehearing en bane on October 10, 1980. Oral argument was
heard on December 9, 1980.
In Boggs et al. v. Board of Governors, No. 79-1891 (8th Cir., filed October 19, 1979), petitioners challenged the Board's order of September 21, 1979 {Federal Reserve
Bulletin, volume 65, October 1979,
page 871), approving the application
of Missouri Country Bancshares,
Inc., Liberal, Missouri, to acquire
Bank of Raymondville, Raymondville, Missouri. The court granted
petitioners' motion to dismiss on
January 31, 1980.
In Independent Bank Corporation
v. Board of Governors, No. 79-3652
(6th Cir., filed October 22, 1979),
petitioner challenged the Board's
order of September 21, 1979 (Federal
Reserve Bulletin, volume 65, October
1979, page 867), denying petitioner's
application to acquire The Old State
Bank of Fremont, Fremont, Michigan. Petitioner claimed that the
Board's order was not supported by
substantial evidence. On August 20,
1980, the court granted petitioner's
motion to dismiss the case.
In American Trust Company of
Hawaii et al. v. Board of Governors,
No. 80-1034 (D.C. Cir., filed January 11, 1980), petitioners sought
judicial review of the Board's order
dated December 10, 1979 (Federal
Reserve Bulletin, volume 66, January
1980, page 66), approving the acquisition of Bishop Investment Corp.,
Honolulu, Hawaii, by Crocker National Corporation. On April 30,
1980, American Trust filed a stipulation of dismissal.
In Mercantile Texas Corporation v.
Board of Governors, No. 80-1528
(5th Cir., filed May 15, 1980), petitioner requested that the court review



a Board order (Federal Reserve
Bulletin, volume 66, May 1980, page
423) denying petitioner's application
to acquire Pan National Group, Inc.,
El Paso, Texas. Petitioner claims that
the Board's order is not supported by
substantial evidence. Oral argument
was heard by the court on October 6,
1980.
In Martin-Trigona v. Board of
Governors of the Federal Reserve
System, No. 80-1739 (D.C. Cir., filed
July 2, 1980), petitioner challenged a
Board order of June 3, 1980 (Federal
Reserve Bulletin, volume 66, July
1980, page 587), approving an application by Citicorp to retain Citicorp Homeowners, Inc., Des Peres,
Missouri. On December 23, 1980, the
Board moved to dismiss for petitioner's failure to file his brief in a
timely fashion.
In Republic of Texas Corporation
v. Board of Governors, No. 80-1985
(5th Cir., filed September 11, 1980),
petitioner challenged a Board order
of August 20, 1980 (Federal Reserve
Bulletin, volume 66, September 1980,
page 787), denying petitioner's application to acquire the Citizens National Bank of Waco, Waco, Texas.
Petitioner claims that the application
should be granted by operation of law
because of the Board's alleged failure
to act within 91 days of receipt of the
application. Petitioner also claims
that the Board's order was not supported by substantial evidence.
In Independent Insurance Agents
of America, Inc., and Independent
Insurance Agents of Virginia v.
Board of Governors, No. 80-1611
(4th Cir., filed September 15, 1980),
petitioners seek review of a Board
order dated July 24, 1980 (Federal
Reserve Bulletin, volume 66, August
1980, page 668), approving the application of Virginia National Bane-

202 Litigation
shares, Inc., Norfolk, Virginia, to
engage in the sale of credit-related
property and casualty insurance. Petitioners claim that the Board's action
was not supported by substantial evidence and that approval cannot reasonably be expected to produce benefits to the public that outweigh the
adverse effects. Petitioners also claim
that the Board's denial of their request for a hearing was unlawful.
In Independent Insurance Agents
of America, Inc., and Independent
Insurance Agents of Missouri v.
Board of Governors, No. 80-1879
(8th Cir., filed September 19, 1980),
petitioners seek review of a Board
order dated August 22, 1980 {Federal
Reserve Bulletin, volume 66, September 1980, page 799), approving
the application of Mercantile Bancorporation, St. Louis, Missouri, to
engage in the sale of credit-related
property and casualty insurance.
Petitioners claim that the Board's action was not supported by substantial
evidence and that approval cannot
reasonably be expected to produce
benefits to the public that outweigh
the adverse effects. Petitioners also
claim that the Board's denial of their
request for a hearing was unlawful.

Board determination of November 17,
1980, that petitioner continued to be
a bank holding company subject to
the Board's jurisdiction under the
Bank Holding Company Act, notwithstanding the fact that petitioner's
subsidiary bank has reserved the right
to require 14 days advance notice of
withdrawal from its demand deposit
accounts.
In Wilshire Oil Company of Texas
v. Board of Governors et al., No. 804156 (D. N.J., filed December 31,
1980), plaintiff seeks a declaratory
judgment that its subsidiary bank is
not a bank within the meaning of the
Bank Holding Company Act and also
injunctive relief against the ceaseand-desist and civil-money-penalty
proceedings brought by the Board
against Wilshire and its directors for
failure to divest its nonbanking assets
and activities, as required by the
Bank Holding Company Act.

Other Litigation Involving
Challenges to Board
Procedures and Regulations
In a case related to the failure of the
United States National Bank, San
Diego, California, Roberts Farms,
In Welch Bancshares, Inc. v. Board Inc. v. Comptroller of the Currency
of Governors, No. 80-1971 (10th et al., No. 75-0268 (S.D. Cal., filed
Cir., filed September 16, 1980), peti- November 20, 1975), plaintiff sought
tioner sought review of a Board order damages on the grounds that the
dated August 19, 1980 (Federal Federal bank regulatory agencies
Reserve Bulletin, volume 66, Sep- negligently supervised the bank. The
tember 1980, page 789), denying peti- case has been stayed indefinitely
tioner's application to acquire Welsh pending the outcome of similar suits.
State Bank of Welsh, Welsh, OklaIn Merrill v. Federal Open Market
homa. On October 20, 1980, the Committee et al., No. 75-0736
court dismissed the case upon peti- (D.D.C., filed May 8, 1975), plaintiff
tioner's motion.
brought suit under the Freedom of
In Wilshire Oil Company of Texas Information Act to compel the Comv. Board of Governors, No. 80-2568 mittee to disclose immediately upon
(D.C. Cir., filed December 24, 1980), adoption its domestic policy directives
petitioner sought judicial review of a and also the memoranda of discussion




Litigation 203
of its meetings. By order of March 9,
1976 (413 F. Supp. 494), the court
ruled that the Committee's domestic
policy directives must be made
available to the public upon adoption
and that factual portions of the
memoranda of discussion that could
be reasonably segregated must also be
disclosed. The Committee appealed
the ruling on the domestic policy
directive (No. 76-1379) to the U.S.
Court of Appeals for the District of
Columbia. That court, on November
10, 1977 (565 F.2d 778), affirmed the
ruling of the district court that the
Committee's domestic policy directives must be publicly released upon
their adoption by the Committee. The
Board then filed a petition for a writ
of certiorari with the U.S. Supreme
Court.
On June 28, 1979, the Supreme
Court vacated the decision of the
court of appeals and remanded the
case to the district court for consideration of whether immediate
disclosure of the Committee's
domestic policy directives would
significantly harm the U.S. government's monetary policy functions or
its commercial interests, in which case
the Committee's present policy of
delaying public disclosure of each
directive until a new directive is in
force would be consistent with the
Freedom of Information Act (443
U.S. 340). Both parties moved for
summary judgment; and oral argument was held on January 8, 1981.
The Court subsequently directed the
parties to submit further pleadings.
In Hansen v. The National Commission on Observance of International Women's Year et aL, No.
77-1158 (D. Ida., filed September 21,
1977), plaintiff, a U.S. congressman,
brought suit against the National
Commission on Observance of Inter


national Women's Year and numerous federal agencies and officials, including the Chairman of the Board of
Governors, to enjoin any expenditure
of federal funds in connection with
the activities of the commission. The
court granted defendants' motion to
dismiss for lack of standing on
February 2, 1978, and the plaintiff
appealed the case to the U.S. Court
of Appeals for the Ninth Circuit. The
Court of Appeals affirmed the district court judgment dismissing the
suit on September 18, 1980 (No.
78-2210).
In Emch v. United States et al,
No. 77-C-677 (E.D. Wis., filed
November 18, 1977), plaintiff, a
shareholder of the parent company of
the American City Bank & Trust Co.,
N.A., Milwaukee, Wisconsin, a
failed bank, alleged that the Board
and other bank regulatory agencies
were negligent in supervising and examining the bank. On May 8, 1979,
the court dismissed the case without
prejudice and on August 15, 1979,
denied plaintiff's motion to file an
amended complaint. Plaintiff has
filed an appeal.
Three cases were pending in 1980
involving challenges to the Board's
employment practices. On June 29,
1977, the complaint in Hilliard v.
Burns, No. 76-1655 (D.D.C., filed
December 8, 1976), was dismissed.
Plaintiff has filed a notice of appeal
from that decision (D.C. Cir. No.
77-1700), and the case is pending. In
Hadigian v. Board of Governors, No.
76-1694 (D.D.C., filed September 17,
1976), the court granted, on December 6, 1978, the Board's motion for
summary judgment. The court held
that the Board's action was neither
arbitrary nor capricious (463 F. Supp.
437). On January 29, 1980, the circuit
court affirmed the district court's

204 Litigation
decision (612 F.2d 586). In Wiley v.
United States et al., No. 79-2374
(D.D.C., filed September 7,1979), the
court granted the defendants' motion
for summary judgment on June 30,
1980.
In Bollow v. Board of Governors et
al., No. Cl6-911 (N.D. Ca., filed
May 12, 1976), plaintiff, a former
employee of the Federal Reserve
Bank of San Francisco, seeks
damages against the Board and the
Reserve Bank in connection with the
termination of plaintiff's employment at the Reserve Bank. On September 23, 1977, the court granted
the Board's motion for summary
judgment. On November 4, 1977,
plaintiff appealed the action. The
case is pending before the Court of
Appeals for the Ninth Circuit (No.
79-4414).
In Independent Bankers Association of Texas v. First National Bank
in Dallas et al, No. CA 3-78-0918-F
(N.D. Tex., filed July 26, 1978), the
plaintiff alleged that the Board and
the Federal Reserve Bank of Dallas
are unlawfully permitting the collection of share drafts drawn on federal
credit unions. On July 25, 1980, the
court dismissed the case on plaintiff's
motion.
In Cundari v. United States, No.
215-79C (Ct. Cl., filed May 17,
1979), plaintiff alleged that the
monetary policies of the United States
caused inflation that eroded the
value of the plaintiff's assets and thus
deprived him of his property without
due process. He also alleged that U.S.
monetary policy violated his right to
equal protection because, as a retiree
on a fixed income, he is more severely
affected by inflation than employed
persons. Plaintiff sought $500,000 in
damages and asked that the court enjoin defendants from pursuing infla


tionary policies. On May 2, 1980, the
court granted the Board's motion for
summary judgment.
In Tangalos v. United States et al.,
No. 79C-1987 (N.D. 111., filed May
16, 1979), plaintiff sought a declaration that a certain Treasury bill was
his property and an injunction preventing the government from making
payment on the bill to another person. On June 26, 1980, the court
dismissed the case pursuant to plaintiff's stipulation.
In Riegle v. Federal Open Market
Committee et al., No. 79-1703
(D.D.C., filed July 2, 1979), plaintiff, a member of the U.S. Senate,
sought to enjoin the presidents and
first vice presidents of the Federal
Reserve Banks from serving as members of the Federal Open Market
Committee and to enjoin the Committee from permitting such service.
Plaintiff alleged that the provisions
of the Federal Reserve Act governing
appointment of the Reserve Bank
members of the Federal Open Market
Committee violate the Appointments
Clause of the Constitution, Article II,
Section 2, Clause 2. On October 26,
1979, the court granted defendant's
motion to dismiss for lack of standing; and on November 9, 1979, the
court denied plaintiff's motion to
alter that judgment. Plaintiff filed an
appeal with the U.S. Court of Appeals for the District of Columbia
Circuit on January 14, 1980.
In Gregory et al. v. Board of
Governors, No. 79-1787 (D.D.C.,
filed July 27, 1979), plaintiffs sued
under the Freedom of Information
Act claiming that the Board had improperly withheld portions of
memoranda containing staff advice
and material derived from examination reports that concern the acquisition of a failed bank in which plain-

Litigation 205
tiffs were shareholders. On March 3,
1980, the court partially granted and
partially denied each of the cross motions for summary judgment. The
court upheld the Board's position
respecting the confidentiality of information derived from reports of examination and the confidentiality of
advice given to the Board by its staff.
The court ordered disclosure of the
names of certain staff members who
had written two staff memoranda to
the Board, as well as general information regarding a particular commercial loan. The Board appealed the
later ruling with the U.S. Court of
Appeals for the District of Columbia
Circuit (No. 80-1462).
In American Bankers Association
v. Board of Governors et al., No.
79-2066 (D.D.C., filed August 7,
1979), plaintiff sought a declaration
that the guidelines (Federal Register,
volume 44, January 4, 1979, page
1222) published by the financial institutions regulatory agencies for the
enforcement of the Truth in Lending
Act (12 U.S.C. 1601 et seq.) and
Regulation Z (12 C.F.R. Part 226) are
void; it also sought to enjoin the
Board of Governors, the Comptroller
of the Currency, and the Federal
Deposit Insurance Corporation from
enforcing the guidelines. Plaintiff
alleged that the agencies were not
authorized to adopt or enforce such
guidelines; and that their adoption
was arbitrary and capricious, not according to proper administrative procedure, and in violation of the Truth
in Lending Act. The court granted the
defendants' motion to dismiss for
lack of ripeness on February 29,
1980.
In Gordon v. Board of Governors
et aly No. 79-2893 (5th Cir., filed
August 10, 1979), and Gordon v.
Board of Governors et al, No.




C79-1427A (N.D. Ga., filed August
31, 1979), petitioner challenged the
action of the Federal Reserve Bank of
Atlanta in declining to investigate
plaintiff's allegations of fraud by two
national banks that acted as trustees
for certain real estate syndications in
which plaintiff apparently invested
and lost money. The U.S. Court of
Appeals for the Fifth Circuit dismissed the action on March 19, 1980,
upon the Board's motion. Petitioner
applied for and was denied certiorari
by the U.S. Supreme Court on October 6, 1980 (49 U.S.L.W. 3247).
In the district court action,
plaintiff asked the court to compel
defendants to investigate his allegations. The Northern District of
Georgia dismissed the case on June
19, 1980. Plaintiff appealed to the
U.S. Court of Appeals for the Fifth
Circuit (No. 80-7557) and filed an additional suit on the same basis in the
U.S. District Court for the Northern
District of Georgia (No. C80-1245A).
In Gordon v. Board of Governors
et al, Nos. C80-1362A and C801265A (M.D. Ga., filed July 25, and
August 18, 1980, respectively), plaintiff brought suit under the Racketeer
Influenced and Corrupt Organizations Act. Both of these cases were
dismissed without prejudice in December 1980.
In Securities Industry Association
v. Board of Governors et al, Nos.
80-2730 and 80-2314 (D.D.C. and
D.C. Cir. respectively, both filed October 24, 1980), the Securities Industry Association seeks review of the
Board's statement of September 26,
1980, denying in part petitioner's request that the Board prohibit Bankers
Trust Company, a state member
bank, from selling third-party commercial paper. Both cases are pending.

206 Litigation
In Mid America Bancorporation,
Inc., et al. v. Board of Governors,
No. 4-80 Civil 546 (D. Minn., filed
October 31, 1980), plaintiffs requested an injunction against a temporary cease-and-desist order issued
by the Board against plaintiffs on October 20, 1980, and against thenpending Board administrative proceedings on a Notice of Charges and a
Notice of Assessment of Civil Money
Penalty against plaintiffs. The district
court granted the Board's motion for
summary judgment on December 18,
1980. Plaintiffs appealed to the U.S.
Court of Appeals for the Eighth Circuit (No. 80-2186) on December 19,
1980. On January 14, 1980, the court
dismissed plaintiffs' appeal with prejudice.
In Otero Savings & Loan Association v. Board of Governors et al, No.
80-1066 (D. Colo., filed August 15,
1980), plaintiff sought declaratory
and injunctive relief, alleging that defendants exceeded their authority and
acted arbitrarily in refusing to process
plaintiff's drafts through the Federal
Reserve clearing and collection system. On August 15, 1980, the district
court issued a temporary restraining
order and on September 3, 1980, a
preliminary injunction. The defendant, the Federal Reserve Bank of
Kansas City, appealed the injunction,
and it is pending in the U.S. Court of
Appeals for the Tenth Circuit.
In Albert A. Rapoport v. Board of
Governors et al., Nos. 80-0351 and
80-0468 (D.D.C., filed February 4
and February 14, 1980), plaintiff
brought an individual action and a
class action under the Federal Tort
Claims Act for damages arising out
of alleged negligence of defendants in
overstating the money supply on October 6, 1979. On May 21, 1980, the
court dismissed the plaintiff's indi-




vidual action and, on May 23, 1980,
dismissed plaintiff's class action.
In Peter A. Lounsbury et al. v.
Board of Governors et al., No.
H.-80-184 (D. Conn., filed March
24, 1980), petitioners sought declaratory and injunctive relief against the
fiscal and monetary policies of the
U.S. federal government. On July 14,
1980, the court dismissed the case for
lack of standing.
In Ulysses S. Crockett, Jr. v.
United States et al., No. 80-310CIV-5 (E.D.N.C, filed April 4,
1980), plaintiff seeks to enjoin
various aspects of the U.S. government's fiscal and monetary policy.
The United States has filed a motion
to dismiss.
In Louis J. Roussel v. Board of
Governors et al., No. 80-1079
(D.D.C. filed April 29, 1980), plaintiff sought declaratory and injunctive
relief against the Board's order of
June 11, 1975, removing Mr. Roussel
from office. The court dismissed the
case for lack of jurisdiction on October 27, 1980. On November 21,
1980, plaintiff filed a notice of appeal
with the U.S. Court of Appeals for
the District of Columbia Circuit (No.
80-2432).
In Berkovitz et al. v. Government
of Iran et al., No. C80-1197 (N.D.
Cal., filed June 6, 1980), plaintiffs
brought suit against the government
of Iran for damages arising out of the
murder of Martin Berkovitz, a U.S.
citizen, and for imposition of a trust
with respect to any assets of the government of Iran subject to the control
of the United States. On September
19, 1980, the court entered a stipulated stay of all proceedings pending
further order of the court, and scheduled a status conference for March
16, 1981.
In John L. Lewis v. United States,

Litigation 207
No. 80-3093 DWW (CD. Cal., filed and agreements after deleting inforJuly 15, 1980), plaintiff filed an ac- mation identifying financial institution under the Federal Tort Claims tions and third parties as well as inAct seeking damages for injuries sus- formation not relevant to the request.
tained in an automobile accident in- The court entered a consent order
volving the Federal Reserve Bank of dismissing the suit on November 18,
1980.
San Francisco. The case is pending.
In William D. Bryan v. Board of
In A. G. Becker, Inc. v. Board of
Governors, No. 80-2175 (D.D.C., Governors et al., No. C78-664V
filed August 25, 1980), plaintiff seeks (W.D. Wash., filed September 12,
declaratory and injunctive relief, pur- 1980), plaintiff sought damages and
suant to the Government in the Sun- injunctive and declaratory relief
shine Act, against the Board for fail- against the Board and others. Plaining to allow the public to attend tiff asked the court inter alia to reBoard meetings at which the Board strain the Federal Reserve System
considered a petition filed by plain- from dealing in U.S. government setiff. In an opinion dated November curities. On January 24, 1980, de26, 1980, the court granted in sub- fendants filed a motion to dismiss,
stantial part the Board's motion for and on February 20, 1980, all parties
summary judgment, holding that the filed a stipulation of dismissal
Board acted properly in closing the without prejudice. However, the
meetings to public observation but plaintiff filed an amended complaint
had failed to provide public notice of for damages on October 12, 1980,
meetings at the earliest practicable and the Board countered with a second motion to dismiss on October 31,
time.
In A. G. Becker, Inc. v. Board of 1980.
Governors et aL, No. 80-2614 and
In Nebraska Bankers Association
80-2258 (D.D.C. and D.C. Cir. re- et al. v. Board of Governors et al.,
spectively, both filed October 14, No. 80-6-257 (D. Neb., filed Septem1980), plaintiff seeks review of the ber 25, 1980), plaintiffs sought action
Board's statement of September 26, for declaratory and injunctive relief
1980, denying in part Becker's peti- against defendants' enforcement poltion that the Board prohibit Bankers icy, contained in its policy guide, with
Trust Company, a state member bank, respect to reimbursable violations of
from selling third-party commercial the Truth in Lending Act and Regulapaper. Both cases are pending.
tion Z. The defendants have moved
In Consumers Union of the United to dismiss for lack of ripeness.
States, Inc. v. Board of Governors et
In Thomas R. Waters and Edward
al, No. 80-2176 (D.D.C, filed Giles v. Board of Governors et al.,
August 26, 1980), plaintiff sued for No. 80-232 (D. Colo., filed February
declaratory and injunctive relief 21, 1980), plaintiffs sued under the
under the Freedom of Information Freedom of Information Act, claimAct, seeking access to cease-and- ing that the Board had improperly
desist orders and settlement agree- withheld certain documents. On
ments against banks for violations of August 13, 1980, plaintiffs filed a
the Equal Credit Opportunity and motion to amend their complaint,
Truth in Lending Acts. The Board re- which eliminated the Board as a
leased copies of the subject orders defendant.



208 Litigation
In Angela Belk v. Government of
Iran et al., No. 80-6936 (D.S.C.,
filed April 14, 1980), plaintiff, the
wife of William Belk, a hostage in
Iran, sued the government of Iran for
damages. Plaintiff also sought to
have the Secretary of State, the
Secretary of the Treasury, the Chairman of the Federal Reserve Board,
the Comptroller of the Currency, and
the Director of the Foreign Assets
Control place all Iranian assets subject to the control of the United
States in a trust account. On June 3,
1980, plaintiff filed a voluntary nonsuit, without prejudice.
In Corbin v. United States, No.
209-80 (Ct. Cl., filed May 5, 1980),




plaintiff sought damages as a result
of actions of the Comptroller of the
Currency, the Federal Deposit Insurance Corporation, and the Federal
Reserve Bank of New York with respect to the failure of Franklin National Bank. On October 8, 1980,
defendants filed a motion to dismiss
or for summary judgment.
In 9 to 5 Organization for Women
Office Workers v. Board of Governors, No. 80-2905-C (D. Mass., filed
December 30, 1980), plaintiff sued
under the Freedom of Information
Act, claiming that the Board unlawfully withheld information regarding
a wage survey conducted by a consortium of employers in Massachusetts.

209

Legislation Enacted
Depository Institutions
Deregulation and
Monetary Control
Public Law 96-221, approved March
31, 1980, consists of nine titles.
Title I (Monetary Control Act)
makes the following changes, among
others, to facilitate the implementation of monetary policy:
1. Authorizes the Board of Governors of the Federal Reserve System to
obtain, directly or indirectly, from all
depository institutions, reports of
their liabilities and assets that the
Board determines are necessary or
desirable for monitoring and controlling monetary and credit aggregates.
For these purposes, the Board may
classify depository institutions and
impose different requirements on
each class. The Board is to endeavor
to avoid imposing unnecessary burdens on reporting institutions and
duplicating other reporting requirements.
2. Changes reserve requirements,
as follows:
(a) Reserve requirements are imposed on all depository institutions
that maintain transaction accounts
(including demand deposits, negotiable order of withdrawal (NOW) accounts, share draft accounts, savings
deposits subject to automatic transfers, and any other account that the
Board determines to be used to make
payment to third parties) or nonpersonal time deposits, solely for the
purpose of implementing monetary
policy. A depository institution is an
institution that is eligible to apply for
federal deposit insurance. The reserve



requirements, under regulations of
the Board, are 3 percent against
transaction accounts of $25 million or
less; between 8 and 14 percent, with
an initial ratio of 12 percent, against
that portion of total transaction accounts in excess of $25 million (the
$25 million base is subject to annual
adjustments for the next succeeding
calendar year, beginning in 1981, to
reflect increases or decreases in total
transaction accounts); 0 to 9 percent,
with an initial ratio of 3 percent,
against nonpersonal time deposits.
Reserves on transaction accounts are
to be uniformly applied to all
depository institutions, but those on
nonpersonal time deposits may vary
according to maturity.
(b) If at least five members of
the Board find that extraordinary circumstances require such action, the
Board, after consultation with the
Congress, may impose a reserve requirement at any ratio on any liability
of depository institutions for periods
of 180 days.
(c) A supplemental reserve requirement of not more than 4 percent
of its total transaction accounts may
be imposed on every depository institution, after consultation with the
Federal Deposit Insurance Corporation, the Federal Home Loan Bank
Board, and the National Credit Union Administration Board, upon the
affirmative vote of at least five
members of the Board. The supplemental reserve may be imposed
only under these circumstances: its
sole purpose is increasing reserves to
a level essential for the conduct of
monetary policy; it is not imposed to

210 Legislation Enacted
reduce the costs of basic reserve requirements; it is not imposed to increase the balances needed for clearing purposes; and at the time it is imposed, total basic reserves are not less
than those that would be required if
the initial ratios for basic reserves
were in effect. Interest is to be paid
on supplemental reserves at a rate not
more than the rate earned on the System's securities portfolio.
(d) Foreign branches, subsidiaries, and international banking
facilities of nonmember depository
institutions arfe to maintain the same
reserves required by the Board of
such entities of member banks.
(e) Under transitional adjustment
provisions, reserve requirements for
nonmember depository institutions
generally are to be phased in over an
eight-year period, and changes in
reserve requirements for member
banks generally are to be phased in
over a four-year period. Transitional
adjustments are not applicable to any
category of deposits or accounts first
authorized pursuant to federal law in
any state after April 1, 1980.
(f) Reserves may be maintained
in balances at the Federal Reserve
Bank of which the depository institution is a member or at which it maintains an account. Reserves of nonmember depository institutions may
be held in a correspondent depository
institution holding required reserves
at a Federal Reserve Bank, in a
Federal Home Loan Bank, or in the
National Credit Union Administration Central Liquidity Facility if such
reserves are passed through to a
Federal Reserve Bank. By regulation
identical for all depository institutions, the Board may authorize the
use of vault cash to satisfy all or a
portion of the required reserves. Reserves held by a depository institution



may be used to satisfy state and
federal liquidity requirements.
3. Entitles any depository institution holding transaction accounts or
nonpersonal time deposits to the
same discount and borrowing privileges as a member bank.
4. Opens access to Federal Reserve
services to all depository institutions
and requires the Board, by September 1, 1980, to publish for comment
pricing principles and a proposed fee
schedule covering the following services: currency and coin services of a
nongovernmental nature, check clearing and collection, wire transfer,
automated clearinghouse, settlement,
securities safekeeping, and Federal
Reserve float. The Board is to begin
putting the fee schedule into effect by
September 1, 1981.
5. Removes collateral requirements for Federal Reserve notes held
in the vaults of the Federal Reserve
Banks.
6. Expands the kinds of eligible
collateral for Federal Reserve notes to
include obligations of, or fully
guaranteed as to principal and interest by, a foreign government or
agency of a foreign government, and
any other assets that may be purchased by Federal Reserve Banks.
7. Permits a member bank to keep
on deposit with any depository institution that is authorized to have access to the discount window a sum in
excess of 10 percent of its own paidup capital and surplus.
8. Abolishes the penalty rate on
Federal Reserve advances to depository institutions that are secured
by "ineligible" paper.
Title II (Depository Institutions
Deregulation Act) is intended to provide for the orderly, complete phaseout of limitations on the maximum
rates of interest and dividends that

Legislation Enacted 211
may be paid on deposits and accounts
by depository institutions. It extends
the authority to impose such limitations for six years, subject to standards designed to ensure a phaseout
to market rates of interest. To accomplish these purposes Title II has
the following provisions:
1. Establishes the Depository Institutions Deregulation Committee
(Deregulation Committee) consisting
of the Secretary of the Treasury and
the Chairmen of the Board of Governors of the Federal Reserve System,
of the Board of Directors of the
Federal Deposit Insurance Corporation, of the Federal Home Loan Bank
Board, and of the National Credit
Union Administration Board, as voting members; and the Comptroller of
the Currency as a nonvoting member.
2. Transfers to the Deregulation
Committee the authorities in the Federal Reserve Act, the Federal Deposit
Insurance Act, and the Federal Home
Loan Bank Act to prescribe rules
governing the payment of interest and
dividends and the establishment of
classes of deposits or accounts, and to
administer the differential between
ceiling rates for thrift institutions and
for commercial banks on certain categories of deposits.
3. Directs the Deregulation Committee to exercise, by regulation, the
authority vested in it (a) to provide
for the orderly phaseout and elimination of the limitations on the maximum rates of interest and dividends
that may be paid on deposits and accounts as rapidly as economic conditions warrant, and (b) to work toward
providing all depositors with a
market rate of return on their savings
with due regard for the safety and
soundness of depository institutions.
4. Requires the Deregulation Committee to vote, not later than Sep


tember 30, 1981, on whether to increase limitations on the maximum
rates applicable to passbook and
similar savings accounts by at least lA
of 1 percent, and also vote not later
than March 31, 1983, 1984, 1985, and
1986, on whether to increase the limitations on the maximum rates applicable to all categories of deposits
and accounts by at least Vi of 1 percent.
5. Authorizes the Deregulation
Committee to set ceilings on all
categories of deposits and accounts
different from the targets and to
create new categories not subject to
limitations or with limitations set at
market rates or by any other method.
6. Requires each member of the
Deregulation Committee to make an
annual report to the Congress on the
economic viability of depository institutions that includes the following:
(a) An assessment of whether the
removal of any differential between
the rates paid by banks and those
paid by thrift institutions will
adversely affect the financing of
housing or the viability of the thrift
industry.
(b) Recommendations for measures to encourage savings, to provide
for the equitable treatment of small
savers, and to ensure a steady and
adequate flow of funds to thrift institutions and the housing market.
(c) Findings concerning disintermediation of savings deposits from
insured institutions to uninsured
money market investments, which
pay market rates to savers.
(d) Recommendations for legislative and administrative actions to
maintain the economic viability of
depository institutions.
7. As of March 31, 1986, repeals
the authorities to impose interest rate
ceilings on deposits, terminates all

212 Legislation Enacted
authorities transferred to the Deregulation Committee, and terminates the
Deregulation Committee.
Title III (Consumer Checking Account Equity Act) enacts the following provisions, among others:
1. Authorizes the continuation of
authority (a) for banks to provide
automatic transfer services, (b) for
the establishment of remote service
units by savings and loan associations, and (c) for the offering of share
draft accounts by federally insured
credit unions.
2. Effective December 31, 1980,
extends nationwide the authority
under federal law of depository institutions to offer NOW accounts.
NOW accounts may consist solely of
funds that are held entirely by one or
more individuals or by an organization operated primarily for religious,
philanthropic, charitable, educational, or other similar purposes and
not operated for profit.
3. Effective March 31, 1980, increases the insurance of accounts of
federally insured banks, savings and
loan associations, and credit unions
to $100,000.
4. Increases the interest rate ceiling
for loans from federal credit unions
to 15 percent. Under certain circumstances, the National Credit
Union Administration Board is given
authority to establish higher interest
ceilings for up to 18 months.
5. Permits the Federal Home Loan
Bank Board to authorize the Federal
Home Loan Banks to engage in certain collection and settlement functions in connection with instruments
of members of any Federal Home
Loan Bank or institutions eligible for
membership. A Federal Home Loan
Bank is to make reasonable charges
for clearing services consistent with
the principles set forth in the Federal



Reserve Act for the pricing of services.
6. Permits the National Credit
Union Administration Board to authorize the Central Liquidity Facility or
its agent members to engage in the
same collection and settlement functions authorized for the Federal
Home Loan Banks.
Title IV (Powers of Thrift Institutions and Miscellaneous Provisions)
has the following provisions, among
others:
1. Provides various new investment authorities, under regulations
of the Federal Home Loan Bank
Board, for federally chartered savings
and loan associations, including the
following:
(a) The removal of any geographical lending restriction, a 90
percent loan-to-value limit in place of
the existing $75,000 limit, and the
elimination of the first-lien restrictions on residential real estate loans.
(b) Authority to invest up to 20
percent of assets in consumer loans,
commercial paper, and corporate
debt securities.
(c) Authority to invest in shares
or certificates of open-end investment
companies registered with the Securities and Exchange Commission if
the company's portfolio is restricted
to investments that savings and loan
associations may make directly.
(d) Authority to offer credit
cards.
(e) Authority to exercise trust
and fiduciary powers.
2. Authorizes a state stock savings
and loan association to convert to a
federal stock charter if the association existed in stock form for at least
four years preceding March 31, 1980.
3. Authorizes savings and loan
associations to issue mutual capital certificates under the regulations

Legislation Enacted 213
of the Federal Home Loan Bank
Board.
4. Authorizes a federal mutual
savings bank to make commercial,
corporate, and business loans up to 5
percent of its assets if the loan is
made in its home state or within 75
miles of its home office.
5. Authorizes a federal mutual
savings bank to accept demand deposits in connection with a commercial, corporate, or business loan relationship.
6. Directs the President to establish an interagency task force consisting of the Secretary of the
Treasury, the Secretary of Housing
and Urban Development, and representatives of the Federal Home Loan
Bank Board, the Board of Governors
of the Federal Reserve System, the
Board of Directors of the Federal
Deposit Insurance Corporation, the
Comptroller of the Currency, and the
National Credit Union Administration Board. The task force is to conduct a study and to make recommendations by June 30, 1980, regarding
the options available to provide
balance to the asset-liability management problems inherent in the thrift
portfolio structure, the options
available to make thrift institutions
more competitive, and the options
available to federal agencies to assist
thrift institutions in times of
economic difficulty.
Title V (State Usury Laws) provides, in part, the following:
1. Preempts state usury limitations, subject to express reinstitution
by state action from April 1, 1980, to
April 1, 1983, on loans secured by a
first lien on residential real property.
Also, state restrictions on the rate or
amount of interest that may be paid
on deposits or accounts at federally
insured depository institutions are



similarly preempted. The Federal
Home Loan Bank Board is given
authority to issue rules and regulations and to publish interpretations
governing these provisions.
2. Preempts state usury laws by
permitting a lender to charge a rate
not more than 5 percent above the
Federal Reserve discount rate, including any surcharge thereon, subject to express reinstitution by state
action, in the case of business or
agricultural loans in the amount of
$25,000 or more. Subsequently, Public Law 96-399, effective October 8,
1980, reduced the amount of business
or agricultural loans that would be
preempted to $1,000 and, retroactive
to April 1, 1980, defined and clarified
the terms for preemption of the usury
rate on business and agricultural
loans.
3. Preempts state usury ceilings to
permit federally insured state banks,
branches of foreign banks, insured
savings and loan associations, insured
credit unions, and small business investment companies to charge interest
on loans at a rate not more than 1
percent above the basic Federal Reserve discount rate.
Title VI (Truth In Lending
Simplification and Reform Act) includes the following provisions,
among others:
1. Reduces the number and detail
of Truth in Lending disclosures.
2. Separates the disclosures from
other information in certain transactions.
3. Requires the use of brief explanations for key terms.
4. Requires the Board to issue
model forms and clauses that, if used
properly, insulate creditors from civil
liability.
5. Authorizes the Board and other
enforcement agencies to require reim-

214 Legislation Enacted
bursement to consumers when the actual annual percentage rate or finance
charge exceeds that shown on the disclosure statement.
6. Exempts agricultural credit
from coverage under Truth in Lending.
7. Requires creditors to make
good-faith estimates of all required
disclosures within three business days
of certain mortgage applications.
8. Simplifies, for small open-end
creditors, the rules for identifying
transactions on periodic billing
statements.
9. Permits open-end creditors to
send a summary of billing-error rights
and obligations once rather than
twice a year.
10. Modifies the application of the
three-day right of rescission in certain
mortgage transactions.
11. Directs the Board to compile
and distribute on an experimental
basis information concerning annual
percentage rates for representative
types of nonsale credit.
Title VII (Amendments to the National Banking Laws) makes a
number of changes in the laws
relating to national banks and the
operations of the Comptroller of the
Currency. The following amendments, among others, relate to the
Federal Reserve System:
1. Permits the Board to extend the
deadline for the divestiture of impermissible real estate interests under the
Bank Holding Company Act from
December 31, 1980, to December 31,
1982, after considering whether the
company has made a good-faith effort to divest the real estate interests
and whether the extension is necessary to avert substantial loss.
2. Amends the provision of the
Bank Holding Company Act prohibiting acquisition of a bank outside




the holding company's home state,
to include, subject to certain limitations, until October 1, 1981, a trust
company within the definition of a
bank.
3. Amends the Bank Holding
Company Act to prevent the Board
from rejecting an application for the
formation of a one-bank holding
company solely because the transaction involves a bank stock loan of 25
years or less. This does not prohibit
the Board from rejecting an application because other financial arrangements are unsatisfactory; and
the Board is to consider transactions
involving bank stock loans having a
maturity of 12 years or more on a
case-by-case basis, and not to approve any transaction if the Board
believes it may jeopardize the safety
or soundness of the bank.
Title VIII (Financial Regulation
Simplification Act) reflects the concern of the Congress that regulations
of the federal financial regulatory
agencies often impose costly, duplicative, and unnecessary burdens on
both financial institutions and consumers. It also reflects the belief that
regulations should be simple and
clearly written, achieve legislative
goals effectively and efficiently, and
not impose unnecessary costs and
paperwork. Consistent with these
findings the law provides that any
regulation issued by a federal financial regulatory agency shall, to the
maximum extent practicable, insure
the following:
1. Clear establishment of its need
and purpose.
2. Consideration of meaningful alternatives.
3. Minimization of compliance
costs, paperwork, and other burdens.
4. Avoidance of conflicts, dupli-

Legislation Enacted 215
cation, and inconsistencies with
regulations of other agencies.
5. Timely participation and comment by others.
6. Simplicity and clarity.
The federal financial regulatory
agencies are to establish programs of
periodic review of existing regulations
to determine whether they achieve
these policies and to revise regulations that do not do so.
Title IX (Foreign Control of
United States Financial Institutions)
prohibited the Board, the Comptroller of the Currency, the Board of
Directors of the Federal Deposit Insurance Corporation, and the Federal
Home Loan Bank Board from approving, subject to certain limitations, the acquisition by a foreign
person of a total of 5 percent or more
of the stock or assets of a domestic
financial institution. This moratorium expired on July 1, 1980.
Federal Trade
Commission Improvements
Public Law 96-252, approved May
28, 1980, concerns the Federal Trade
Commission. Among its other provisions, it deals with those who allegedly have violated a federal law for
which the Board of Governors of the
Federal Reserve System has rulemaking authority. If the person acted in
good-faith reliance on, and in conformity with, a rule, regulation, or
statement of interpretation or of approval of the Board, that reliance can
be a defense in a proceeding against
the person by the Commission or by
the Attorney General upon request of
the Commission.
The Board is also required to act
promptly on requests for statements
of interpretation or of approval of
conduct and practices subject to laws
for which the Board has rulemaking




authority and the Commission has
enforcement authority.
Silver Futures Market
Public Law 96-276, approved June 17,
1980, among other things, provides
that the Commodities Future Trading
Comission shall establish a joint
working group with the Board of
Governors of the Federal Reserve
System, the Department of the Treasury, and the Securities and Exchange
Commission to analyze the events in
the silver cash and futures markets
from September 1979 through March
1980. The group is to report its findings to the appropriate committees of
the Congress, together with recommendations for legislative changes
that could prevent similar events in
any futures market.
Increase in Debt Ceiling
Public Law 96-286, approved June
28, 1980, temporarily increased the
public debt limit to $925 billion
through February 28, 1981. Subsequently, Public Law 96-556, approved December 19, 1980, increased
that temporary ceiling to $935.1
billion.
An earlier authorization (Public
Law 96-264, approved June 6, 1980)
extended the temporary debt limit of
$879 billion through June 30, 1980.
Small Business
Regulatory Flexibility
Public Law 96-354, approved September 19, 1980, effective January 1,
1981, includes, among others, the
following provisions:
1. Requires each agency to publish
an agenda twice a year listing expected regulations with a significant
impact on small entities (small busi-

216 Legislation Enacted
nesses, small organizations, and small
governmental jurisdictions).
2. Requires that any proposed regulation published in the Federal
Register must be accompanied by a
preliminary analysis of the impact of
the regulation on small entities and a
statement of alternatives that could
minimize that impact consistent with
the objectives of the law.
3. Requires the agency head to
take specific steps to assure that small
entities are given an opportunity to
present their views on proposed regulations.
4. Requires a final analysis of the
impact on small entities when the
final rule is adopted.
5. Requires each agency to establish within six months a plan for a
periodic review that will enable it to
make changes to minimize the economic impact of its regulations on
small entities. All regulations are to be
reviewed within 10 years.
6. Requires the Chief Counsel for
Advocacy of the Small Business Administration to monitor agency compliance and report to the Congress
annually.
Management of the Public Debt
Public Law 96-377, approved October 3, 1980, has the following provisions:
1. Authorizes the Secretary of the
Treasury, with the approval of the
President, to fix the investment yield
of U.S. savings bonds above 5Vi percent if the aggregate of increases in
any six-month period does not exceed
1 percent.
2. Effective October 1, 1980, increases to $70 billion the amount of
long-term U.S. government bonds
that may be issued with interest rates
above the 4.25 percent statutory ceilDigitizeding.FRASER
for


Bretton Woods Agreements
Public Law 96-389, approved October 7, 1980, authorizes the U.S. Governor of the International Monetary
Fund to consent to an increase in the
quota of the United States in the
Fund; it also directs the Secretary of
the Treasury to establish and chair a
commission to assess, and make recommendations about, the policy of
the U.S. government on the role of
gold in domestic and international
monetary systems, and to transmit to
the Congress a report not later than
October 7, 1981.
The commission, in addition to the
Secretary of the Treasury, consists of
three members of the Board of Governors and two members of the Council of Economic Advisers to be
designated by the Secretary of the
Treasury; one majority and one
minority member each from the Joint
Economic Committee of the Congress, the Committee on Banking,
Housing, and Urban Affairs of the
Senate, and the Committee on Banking, Finance and Urban Affairs of the
House, to be designated by the
Speaker of the House and President
of the Senate; and four distinguished
private citizens with business, financial, or academic backgrounds to be
designated by the Secretary of the
Treasury.
Housing and
Community Development and
Home Mortgage Disclosure
Public Law 96-399, approved October 8, 1980, does the following,
among other things:
1. Authorizes the Federal Home
Loan Mortgage Corporation and the
Federal National Mortgage Association to adjust the loss limits for mortgages that can be sold to those cor-

porations each year in accordance
with the annual increase in the national average price of a one-family
home as determined by the Federal
Home Loan Bank Board. The initial
loan limits are established at $93,750
for a single-family residence,
$120,000 for a two-family residence,
$145,000 for a three-family residence,
and $180,000 for a four-family residence.
2. Authorizes the Secretary of
Housing and Urban Development to
undertake a demonstration program
for negotiated interest rates on FHAinsured home mortgages (excluding
graduated-payment mortgages).
Under this program, after disclosure
by the mortgagee to the borrower of
the current maximum rate for FHA
mortgages and a good-faith estimate
of the number of points associated
with that rate, the mortgagee and the
borrower may negotiate a rate and
specify it and the required discount
points in a commitment agreement
that binds the mortgagee for at least
30 days. The number of negotiatedrate mortgages insured in any fiscal
year may not exceed 10 percent of all
the mortgages that are insured by the
FHA during the preceding fiscal year,
or a total of 50,000 mortgages,
whichever is greater. The Secretary of
HUD is to monitor this program and
report to the Congress by March 1,
1982.
Public Law 96-399 also extends the
Home Mortgage Disclosure Act for a
period of five years and, among other
provisions, makes the following additions:
1. Requires the Federal Financial
Institutions Examination Council to
compile and disclose aggregate data
about home mortgage loans by census
tract for each standard metropolitan
statistical area (SMSA), with further
Digitizedcategorization according to location,
for FRASER


Legislation Enacted 217
age of housing stock, income level,
and racial characteristics. The Board
of Governors is to provide the staff
and data processing resources for
preparing these compilations and
tables.
2. Requires the Federal Financial
Institutions Examination Council, in
consultation with the Department of
Housing and Urban Development, to
establish a central depository in each
SMSA for disclosure reports of individual institutions.
3. Provides that lending information may be reported by county rather
than by census tract in counties with a
population of 30,000 or less.
4. Directs the Federal Financial Institutions Examination Council to
conduct a study to be submitted to
the Congress by March 1, 1981, on
the feasibility and usefulness of requiring depository institutions to
compile and disclose information
with respect to small business loans.
Sunset of Credit Control
Public Law 96-508, approved
December 8, 1980, in addition to increasing the authorization and extending the duration of the Council
on Wage and Price Stability, provides
for termination of the Credit Control
Act on June 30, 1982.
Paperwork Reduction
Public Law 96-511, approved
December 11, 1980, in order to minimize the burden of federal paperwork on those preparing reports, to
minimize the cost of obtaining information, and to maximize the usefulness of such information to the
federal government, contains the
following amendments, effective
April 1, 1981, among others, to the
Federal Reports Act:

218 Legislation Enacted
1. Makes the OMB the single point
for clearing information-collection
requests imposed upon the public by
the federal agencies and independent
regulatory agencies.
2. Gives the OMB a maximum of
90 days in which to approve or disapprove information-collection requests
and a maximum of 60 days to comment on information-collection requirements of proposed agency rules
and regulations.
3. Allows any independent regulatory agency to override an OMB
disapproval of a proposed information-collection request or regulation
by a majority vote of its members.
Each such override, together with the
reasons for it, is to be reported to the
OMB.
Farm Credit
Public Law 96-592, approved
December 24, 1980, revises and expands the lending authority of the




Farm Credit System, and includes
these provisions:
1. The Governor of the Farm
Credit Administration is to consult
regularly with the Board of Governors of the Federal Reserve System in
connection with the effect of the
Farm Credit System's lending activities on national monetary policy.
2. The Farm Credit Administration is to consult closely on a continuing basis with the Board of Governors
to ensure that the regulations carrying
out the export-and-import-loan and
related authority of the banks for
cooperatives conform to national
banking policies, objectives, and
limitations. Any regulation that poses
unresolved differences between the
Farm Credit Administration and the
Board of Governors about conformance must be submitted to the Congress and is subject to a legislative
veto by both of the Houses of the
Congress.

219

Banking Supervision and Regulation
The Federal Reserve is one of three
federal regulatory agencies with responsibilities for supervising and
regulating commercial banks. A description of how the System carried
out these responsibilities during 1980
follows.
Supervision for
Safety and Soundness
Examinations and Inspections
The on-site review of operations is the
primary mechanism for ensuring the
safety and soundness of banking organizations. Examinations of state
member banks and Edge corporations and inspections of bank holding
companies entail (1) an appraisal of
the quality of the institution's loans
and investments; (2) an evaluation of
management, along with internal operations, policies, and procedures; (3)
an assessment of the key financial
factors of capital, earnings, and liquidity; and (4) a review for compliance with applicable laws and
regulations.1
State Member Banks
There were 997 state member banks
at the end of 1980. They constituted 7
1. Compliance with consumer and civil
rights laws is handled by the Board of Governors' Division of Consumer and Community
Affairs and by specially trained examiners at
the Federal Reserve Banks. These regulatory
responsibilities are covered 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.



percent of all commercial banks, but
because they typically were larger
than average size, they held around
one-fifth of all commercial bank
assets.
In 1980, state member banks were
examined annually, except when significant weaknesses call for more frequent examination. System personnel
conducted 1,006 such examinations.
Edge and Agreement Corporations
Edge corporations are chartered by
the Board to conduct an international
banking business. Agreement corporations are state-chartered companies that enter into an agreement
with the Board to limit their operations to international banking. The
Federal Reserve examined 122 of the
126 Edge and 5 agreement corporations in operation at year-end.
Bank Holding Companies
During 1980, the number of bank
holding companies rose by 576 to a
total of 3,057. These organizations
control commercial banks that hold
about three-fourths of the total assets
of U.S. commercial banks.
Most large bank holding companies, as well as small companies
with significant nonbank assets, are
inspected at least every 18 months;
the others at least every three years.
The inspection focuses on the operations of the parent holding company
and its nonbank subsidiaries because
these entities are not already examined by the federal banking agencies. System staff prepared 866
holding company inspection reports
in 1980.

220 Banking Supervision and Regulation
Overseas Operations
of U.S. Banking Organizations
International examinations of state
member banks, Edge corporations,
and bank holding companies are conducted at the banking organization's
head office in the United States,
where the ultimate responsibility for
overseas facilities resides. To verify
and supplement the results of the
head-office examinations, on-site reviews of significant overseas facilities
are performed at least every three
years.
In 1980, the Federal Reserve examined ten foreign branches of state
member banks and eight overseas
subsidiaries of Edge corporations and
bank holding companies.
Improvements to
Examinations and Inspections
During the year, the Federal Reserve
took a number of steps including the
following to enhance its examination
and inspection programs.
Bank Examinations
In cooperation with the other banking agencies, the Federal Reserve
developed and implemented a uniform examination policy for classifying delinquent consumer installment
loans and a uniform guideline for internal controls over foreign exchange
operations. System staff also helped
prepare policies and procedures for
examining the banks that participate
in the Clearing House Interbank
Payments System (CHIPS).
Bank Holding Company Inspections
The year 1980 was the first full year
of experience with the uniform rating
system for bank holding companies.
This system, which complements the
uniform rating system previously



adopted for banks, provides standardized information on all holding
companies, including those that exhibit potentially unsafe or unsound
characteristics.
During the year, the Federal Reserve completed its Bank Holding
Company Supervision Manual. This
manual contains Board policies and
formal inspection procedures.
Futures and Forward Contracts
The rapid growth and occasional
abuses in trading in futures and forward contracts resulted in two policy
actions by the Board of Governors
during 1980. In March, along with
the other banking agencies, the Board
issued revised guidelines for banks
that engage in futures, forward, and
standby contracts on U.S. government and agency securities. In August
it approved a policy statement on
bank holding company participation
in such contracts.
Frequency of Examinations
and Inspections
The Board adopted a new policy on
the frequency of examinations and inspections that emphasized the supervision of institutions that have problem characteristics and that are thus
most in need of frequent, on-site
reviews.
Surveillance Program
In addition to the on-site effort, a
Systemwide surveillance program
monitors the financial condition of
banks and holding companies by providing computer-assisted analysis of
periodic financial reports these
organizations submit to the Federal
Reserve Banks. The surveillance information is used in scheduling examinations, thereby enabling limited

Banking Supervision and Regulation 221
examiner resources to be directed to
those organizations most in need of
supervisory attention.

Specialized Examinations
The Federal Reserve conducts certain
specialized examinations.
Electronic-Data-Processing
Examinations
The Federal Reserve examines the
electronic-data-processing activities
of state member banks, as well as independent centers that provide EDP
services to these banks. During the
year, System EDP examiners conducted on-site reviews of 153 state
member banks and 92 data centers.
The Federal Reserve cooperated
with the other federal supervisors in
preparing and publishing the EDP
Examination Handbook. The handbook, which includes a uniform
report of examination, constitutes a
comprehensive reference work.
Trust Examinations
The Federal Reserve examines trust
departments of state member banks
and trust companies that are members of the Federal Reserve System.
These examinations determine
whether the trust functions are conducted in accordance with applicable
fiduciary principles and with other
laws and regulations. Of the 386 institutions exercising trust powers that
are under the Board's supervision,
376 were examined in 1980.
Examinations of
Transfer Agents
Trust 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 transfers of



securities, and exchange or convert
securities. Of the 165 state member
banks and bank holding companies
that were registered with the Board of
Governors as transfer agents, 93 percent were examined during 1980.
To reduce the reporting burden on
transfer agents, the Board amended
Regulation H to eliminate the requirement that a current list of issuers
serviced by the agent be filed with the
Board. Together with the other supervisory agencies, the Federal Reserve is
considering additional changes to the
regulation aimed at reducing the
amount of data required in the registration statements that transfer
agents prepare.
Examinations of
Municipal Securities Dealers
and Clearing Agencies
As a result of 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.
Forty-four of the 48 state member
banks registered with the Board as
dealing in municipal securities for
their trading accounts were examined
in 1980.
A clearing agency acts as a custodian of securities for the settlement of
securities transactions by bookkeeping entries. All four of the clearing
agencies registered with the Board
were examined in 1980; one examination was conducted jointly with the
Securities and Exchange Commission.
Enforcement Actions and
Civil Money Penalties
Under the Financial Institutions
Supervisory Act, the Board has the

222 Banking Supervision and Regulation
authority to enter into written agreements or cease-and-desist actions
with state member banks, bank
holding companies, and persons
associated with these 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 cease-and-desist order,
of the Bank Holding Company Act,
or of certain provisions of the Federal
Reserve Act.
Forty enforcement actions, most of
which dealt with unsafe and unsound
banking practices, were initiated in
1980; 30 were completed by year-end.
The completed actions took the form
of 18 written agreements, 10 ceaseand-desist orders, and 2 temporary
cease-and-desist orders. Seven of the
30 actions involved state member
banks; 16, bank holding companies
or their subsidiaries; and 7, individuals participating in the affairs
of the financial institutions.
In two instances, civil money penalties were assessed for violations of
the Bank Holding Company Act. In
January 1981, a bank holding company and a principal stockholder
resolved these violations by paying
substantial fines.
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 that was consistent with valid interests of confidentiality.
The Federal Reserve also took steps
to coordinate its disciplinary actions
with those of the other supervisory agencies. In July, the Board issued a policy statement on the assessment of civil money penalties.
First, the policy specified the factors



to be considered in deciding whether,
and in what amount, civil money penalties should be imposed; and second,
it established procedures for exchanging information among the banking
agencies about assessment actions
taken.

Staff Training
To keep pace with the rapidly changing and increasing responsibilities of
its staff, the Federal Reserve completed a revision of its core training
curriculum during 1980.
During the year, the Federal
Reserve conducted nine banking
schools—four introductory, four intermediate, and one advanced—as
well as three financial analysis
schools and one holding company applications school. For its consumer
compliance examiners, the System offered one basic and one advanced
consumer affairs school.
Training is also offered in such
specialized areas as international
banking, trust activities, electronic
data processing, consumer protection, and civil rights. The Federal
Reserve assisted in the development
and staffing of these specialized
courses, which are under the auspices
of the interagency Federal Financial
Institutions Examination Council.
In 1980, about 450 System employees attended in-house schools and 200
others completed specialty courses of
the Examination Council. Staff from
state banking departments and several foreign supervisory authorities
also attended the System schools.
Regulation of
U.S. Banking Structure
The Board of Governors administers
the Bank Holding Company Act, the

Banking Supervision and Regulation 223
Bank Merger Act, and the Change in
Bank Control Act. As a result, the
Federal Reserve passes on a variety of
proposals that directly or indirectly
affect U.S. banking structure at the
local, regional, and even national
level. The Board also has primary responsibility for regulating the international operations of U.S. banking
organizations.

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. And, once
formed, a holding company must receive the Board's approval before acquiring more banks or related, nonbanking companies.
In deciding a bank holding company application, the Board considers
the likely effects of the proposal on
competition, the convenience and
needs of the community, the applicant's financial and managerial resources, and the prospects of both the
applicant and the firm to be acquired.
In 1980, the Board—and, under
delegated authority, the Federal

Reserve Banks and the Office of the
Secretary of the Board—acted on
1,574 bank holding company applications. The System approved 681 proposals to organize holding companies
and denied 9; 177 bank acquisitions
were approved, while 8 were denied;
and 665 requests to acquire nonbank
companies that are closely related to
banking were approved and 4 rejected. Data on all holding company
decisions are shown in the accompanying table.
To shorten the processing of applications that are objected to by
third parties, the Board adopted new
procedures. The new procedures provide for greater, direct public participation in contested cases.
In 1980, the Board and the Reserve
Banks initiated a program to explain
more fully System policies and procedures concerning applications. A
series of informative booklets on how
the Federal Reserve processes and
decides various kinds of applications
will be distributed. The first two
pamphlets, which are in the final
stages of preparation, explain how
the System handles holding company
and bank branch applications.

Bank Holding Company Decisions by the Federal Reserve, 1980
Direct action
Proposal

Board of Governors
Approved

Formation of holding
company
Retention of subsidiary bank.
Acquisition
Bank
Nonbank
Certain grandfathered,
nonbank company . . .
VIerger of holding companies
Total




Delegated authority
Office of the
Secretary

Reserve Banks

Total

Denied

Approved

Approved

9

2
0

638
1

• • • 6 9 0
•••
2

33
58

8
4

16
3

128
196

•••
408

185
669

0
4

0
3

0
0

0
4

17
-

17
11

137

24

21

967

425

1,574

41
1

0

Permitted

224 Banking Supervision and Regulation

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
surviving bank of the merger is a state
member bank, the Federal Reserve
has primary jurisdiction.
Before passing on a bank merger,
the Federal Reserve considers the
competitive effects of the proposal
and the financial and managerial
resources and prospects of the existing and proposed institution, as
well as the community's convenience
and needs. The Board must also consider the views of certain other agencies on the competitive factors involved in the transaction.
During 1980, the Federal Reserve
approved twenty-nine merger applications, four of which were approved by the Board and the remainder by the Reserve Banks under
delegated authority. As required by
law, a description of each merger is
contained in table 20 in the Statistical
Table section of this REPORT.
When one of the other two federal
banking agencies 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 122 reports on
competitive factors to the Comptroller of the Currency and 156 such
reports to the Federal Deposit Insurance Corporation.
At midyear, the Board, along with
the Comptroller of the Currency and
the FDIC, adopted standard terminology for assessing competitive factors in bank merger cases that should



guarantee greater 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 responsible agency 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.
Eleven changes in ownership of the
stock of state member banks were
reported in 1980; 63, for holding
companies. All but three of the proposed changes were processed by the
Reserve Banks; only one was denied.
During 1980, System personnel prepared a manual on "Procedures for
Processing Change in Control Notices." The manual, which has been
distributed to the Reserve Banks,
should lead to more effective and
consistent processing of these notices.
International Activities of
U.S. Banking Organizations
The Board has three principal
statutory responsibilities in connection with the international operations
of U.S. banking organizations. They
are (1) to issue licenses for foreign
branches of member banks and regulate the scope of their activities; (2) to
charter and regulate Edge corporations; and (3) to authorize and regulate overseas investments by member

Banking Supervision and Regulation 225
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 1980, the Board approved the opening of 22 foreign
branches.
By the end of 1980, 159 member
banks were operating 799 branches in
foreign countries and overseas areas
of the United States, a net increase of
10 for the year. One hundred twentyfour national banks were operating
674 of these branches, while 35 state
member banks were operating the remaining 125 branches. Assets of
foreign branches expanded by 13 percent during the year, totaling an
estimated $320 billion at year-end.

tions, such as finance companies and
leasing companies, as well as in foreign banks.
In 1980, the Board approved the
establishment of 15 Edge corporations and the operation of 59
branches by established Edge corporations. These actions resulted in
Edge corporations supplying international banking services for the first
time in Minneapolis, Seattle, Atlanta,
Cleveland, and Philadelphia.
Foreign Investments
The Board has authority under the
Federal Reserve Act and the Bank
Holding Company Act to authorize
foreign investments by member
banks, Edge and agreement corporations, and bank holding companies.
In 1980, the Board reviewed and
approved 81 foreign investment proposals. Most were for additional investments in various financial enterprises, such as a merchant bank in the
United Kingdom, a commercial bank
in Hong Kong, and a consumer finance company in Thailand.

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 somewhat
broader foreign investment powers
than member banks, being able to invest in foreign financial organiza-

Capitalization and Activities
of Edge Corporations




The International Banking Act (IBA)
removed the statutory limit on
liabilities of an Edge corporation
under which the corporation's debentures, bonds, and promissory notes
could not exceed 10 times the corporation's capital and surplus. The
Board established a new capital requirement of 7 percent of risk assets
for Edge corporations engaging in international banking in the United
States to permit these corporations to
compete more effectively with other
international organizations that are
more highly leveraged.
The 7 percent standard has, in fact,

226 Banking Supervision and Regulation
led to some added leveraging by Edge
corporations. Nonetheless, 50 of the
66 banking Edge corporations had
ratios more than twice the new standard on September 30, 1980, so their
capitalization in relation to risk assets
remained high by international banking standards.
Two other important changes arising from the IBA permitted Edge corporations (1) to be owned by foreign
banks and (2) to establish branches
within the United States. By year-end
1980, the Board had authorized 8
foreign banks to establish Edge corporations and had allowed 17 Edge
corporations to operate 63 domestic
branches. These branches represented
the conversion of 26 existing corporations to branches and the establishment of 37 new offices.
Delegation of Applications
The Board, in exercising its responsibility to formulate policies and procedures in the applications area,
delegates certain regulatory functions
—including the authority to approve,
but not deny, certain types of applications—to the Reserve Banks and to
the Board's Division of Banking
Supervision and Regulation and Office of the Secretary.
In September 1979, the Board issued revised rules that delegated additional authority to the Reserve Banks
to approve bank holding company
and bank merger applications. During 1980, the first full year under expanded delegation, 89 percent of all
holding company and merger applications were acted on under delegated
authority. In contrast, only 78 percent were processed by the Reserve
Banks in 1978, the last full year
before expanded delegation.



Most benefits that were expected
from increased delegation were
achieved. Routine cases were removed from the Board's agenda and
more efficient use was made of Board
and Reserve Bank staff.
Timely Processing
of Applications
Although the number of holding
company applications increased by 40
percent from 1979 to 1980, the
System still acted on 91 percent of
these proposals within 90 days of the
filing of a complete application. In
fact, for the last four years, the
Federal Reserve has completed at
least 90 percent of holding company
proposals within 90 days.
Twenty-two of the 29 bank merger
applications were processed within 90
days; of the 7 that took longer, 6 involved one applicant that was involved in lengthy protest proceedings.
The System also prepared 278 reports
of competitive factors on proposed
mergers for the other two banking
agencies; all but a few were completed within a 30-day limit. Of the 74
change-of-control notices, 72 were
handled well within 90 days.
The System also measures its performance in processing international
applications against a 90-day standard. During 1980, the Federal Reserve acted on 238 international applications, 95 percent of which were
decided in 90 days or less.
Public Notice of
Board Decisions
Each action by the Board or its
delegated representative on a bank
holding company, bank merger,
change in control, or international
banking case is effected by an order

Banking Supervision and Regulation 227
or announcement. Orders set forth
the essential facts of the application,
the basis for the decision, and the
decision made. 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 Federal Reserve Bulletin and the
weekly H.2 release.2 Announcements
of applications and notices received
by the System, but not yet acted on,
are also made in the H.2 release.

Nearly all of the 472 grandfathered
bank holding companies achieved
compliance. Seventy-nine firms sold
their banking subsidiaries, thereby
ceasing to be bank holding companies. Most of the remainder retained their holding company status
by ceasing impermissible nonbanking
activities or by qualifying these activities under various statutory exemptions. At year-end, one company
was involved in litigation with the
Board over the divestiture requirements of the act.

Board Policy Decisions

Financial Factors in Small
One-Bank Holding Company
Formations
One-bank holding companies are
often formed to facilitate the sale of
locally owned, small banks. In evaluating such formations, the Board
previously required small one-bank
holding companies to repay all acquisition debt within 12 years, and to
maintain a satisfactory level of
capital in the bank subsidiary. On
March 28, the Board issued a new
policy that facilitated the transfer of
ownership in small banks without
diluting bank safety and soundness.
Under the revised policy, the
holding company's debt-to-equity
ratio must decline to 30 percent
within 12 years. The 30 percent ratio
can be achieved through debt repayment, retention of earnings to build
up equity, or a combination of the
two. Gross capital in the subsidiary
bank should at no time fall below 8
percent of assets so long as the debtto-equity ratio of the holding company exceeds 30 percent.

In 1980, the Board of Governors announced several policy actions for
regulating the expansion of banks
and bank holding companies.
"Grandfather" Rights of
Holding Companies
Under the 1970 Amendments to the
Bank Holding Company Act, onebank holding companies that acquired nonbank activities between
mid-1968 and year-end 1970 had until
December 31, 1980, to divest such
nonbank activities; to obtain Board
approval to keep them; or to cease to
be a bank holding company by divesting their bank holdings.
In December 1978 and again in December 1979, the Board urged bank
holding companies that had not filed
divestiture plans to do so well in advance of the deadline. In May 1980,
the Board announced a program for
orderly compliance with the December 31, 1980, deadline. As part of the
program, the Reserve Banks contacted those companies that had not
filed specific plans for meeting the
deadline.
2. "Actions of the Board; Applications and
Reports."



Investments in Foreign Companies
with U.S. Operations
By statute, a U.S. banking organization may invest in a foreign company

228 Banking Supervision and Regulation
only if that company does not engage
in business in the United States, except for such business that the Board
determines to be incidental to the
company's international or foreign
activities. The Board had previously
limited incidental business to those
activities that may be undertaken by
an Edge corporation. In 1980, the
Board broadened this interpretation
by establishing the following criteria
for such U.S. operations to be considered incidental: (1) The foreign
company is predominantly engaged in
international or foreign business; (2)
the U.S. activities are banking or
closely related to banking; and (3) the
U.S. investor does not own more than
25 percent of, or otherwise control,
the foreign company.
Supervision and Regulation of
Foreign Banking Operations
in the United States
During the 1970s, foreign entities
rapidly expanded their operations in
the United States; today they are a
significant element in the U.S. banking system. At midyear 1980, some
150 foreign banks operated 332
branches and agencies in the United
States with assets of $123 billion.
Foreign banks also owned a controlling interest in 55 U.S.-chartered
banks with assets of $65 billion, while
foreign individuals and foreign nonbank companies held majority interests in another 40 U.S. banks with
assets of $5 billion. Together, foreign
entities now control 12 percent of
U.S. banking assets.
This section highlights the actions
taken by the Federal Reserve to improve the supervision and regulation
of foreign banking operations in the
United States, as a result of their



rapid growth and the passage of the
International Banking Act of 1978.
International Banking Act
The International Banking Act (IBA)
created a systematic, federal role for
supervising and regulating foreign
banks in the United States. At the
same time, the act preserved the dual
system of federal and state responsibilities by dividing supervisory and
regulatory powers among the three
federal bank agencies and the several
states.
The act assigned primary supervisory authority to the states in the
case of uninsured, state-chartered
branches and agencies of foreign
banks. The Board was named the
primary federal supervisor of such
branches and agencies, but it was to
rely, to the extent possible, on supervision by the various states. The
Federal Deposit Insurance Corporation, because of its potential creditor
status, received examination authority over insured, state-chartered
branches, while the Comptroller of
the Currency became the supervisor
of federally chartered branches and
agencies.
Since a foreign bank may operate
in several states under both federal
and state charters, the IBA assigned
to the Board residual authority to
review the overall U.S. operations of
foreign banks. The Board also was to
be responsible for implementing provisions of the act dealing with the interstate banking activities of foreign
banks and their nonbanking operations in the United States.
Home-State Designations
The IBA allowed foreign banks to
conduct a full-service banking
business in only one state, except for

Banking Supervision and Regulation 229
grandfathered facilities in other
states, which could be retained. This
full-service banking state is designated the "home state.'' In October
1980, the Board issued an amendment
to Regulation K giving foreign banks
180 days to select their home state. A
one-time change in that selection was
allowed, provided that banking operations in the previous home state
that had not been grandfathered were
subsequently limited.
Rules on Interstate Branches
and Agencies
The IBA permits the establishment of
agencies and limited-service branches
outside a foreign bank's home state.
It distinguishes agencies from
branches by permitting the former to
hold only credit balances while allowing the latter to accept deposits. The
Board adopted criteria for a credit
balance, and agencies must meet this
definition in conducting their business.3 Branches established outside a
foreign bank's home state must agree
to accept only those types of deposits
that Edge corporations may accept.
Exemptions for Nonbank,
Nonfinancial Business
Foreign banks received a limited exemption under the IBA to engage in
certain nonbank activities in the
United States that are generally impermissible for other banking
organizations. This exemption
reflected a balancing in the act among
the three goals of (1) maintaining the
separation of banking and commerce
in the United States, (2) promoting
competitive equality between U.S.
and foreign organizations, and (3)

3. See Regulation K, Subpart B, section
211.22.



limiting the extraterritorial effects of
U.S. law.
In December, the Board ruled that
a foreign organization must be engaged principally in the banking
business outside the United States to
qualify for the exemption. Qualifying
foreign organizations are permitted,
without the Board's prior approval,
to engage in certain nonbank, nonfinancial businesses in the United
States. Foreign banking organizations, like U.S. ones, still need the
Board's prior approval to engage in
U.S. nonbank activities of a financial
nature.
Examination of Foreign
Branches and Agencies
To improve supervision, the Federal
Reserve and the other two federal
bank supervisors, in cooperation with
several state banking departments,
prepared a new examination report
for branches and agencies of foreign
banks. It is being used, in whole or in
part, by the federal agencies and by
most states that permit foreign
banks to establish branches and
agencies.
Most branches and agencies of
foreign banks are state-chartered and
uninsured. During 1980, System examiners participated with state examiners in 174 coordinated examinations of such branches and agencies.
Reporting System
The federal supervisory authorities
improved their surveillance of U.S.
operations of foreign organizations
by establishing three new reports and
revising a fourth.
In 1980, the three federal banking
agencies instituted a new quarterly
report of condition for U.S. branches

230 Banking Supervision and Regulation
and agencies of foreign banks to
monitor more closely the financial
developments in these entities.
To gather better information on
the financial strength of foreign companies that own U.S. banks or that
operate U.S. branches and agencies,
the Board revised its Annual Report
of Foreign Banking Organizations
and instituted a new report on the
operations and organization of these
firms. These two reports will assist
the Federal Reserve in appraising the
foreign parent's ability to support its
U.S. banking operations.
The Board also adopted a new
quarterly report on intercompany
transactions and balances to monitor
financial flows between foreign bank
holding companies and their U.S.
bank subsidiaries.
Experience with
International Banking Act
A comprehensive system for supervising and regulating foreign banking
operations in the United States is now
in place, and the Board's responsibilities for implementing the International Banking Act are basically completed.
In September 1980, the Board reported to the Congress on its experience under the IBA. Noting that the
statute was still too new to judge its
full impact, the Board undertook to
provide the Congress with a second
report within two years on the developments in this rapidly changing
area.
Enforcement of Other
Laws and Regulations
The preceding sections discussed the
supervision of bank safety and
soundness and the regulation of



banking structure. This section
describes the enforcement of other
laws, rules, and regulations.
Other Banking Regulations
During 1980, steps were taken to
comply with existing duties, accommodate new ones, or curtail regulatory costs in several statutory areas.
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. Some 72 state
member banks, most of which are
small- and medium-sized, 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 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. Effective November 1, 1980, the Board adopted
amendments to this regulation to
simplify its requirements and to conform with recent rule changes made
by the SEC.
Bank Secrecy Act
The Department of the Treasury
relies on System examiners to verify
the compliance of state member
banks and Edge corporations with the
Treasury's Financial Recordkeeping
and Reporting Regulation, which implemented the Bank Secrecy Act. The
regulation requires financial institutions to maintain records and reports
on certain transactions of more than

Banking Supervision and Regulation 231
$10,000. One purpose of the law is to
assist law enforcement personnel in
identifying transactions that may involve funds obtained illegally.
The Federal Reserve, with the other
federal supervisory agencies,
strengthened examination procedures
for verifying compliance with the
Bank Secrecy Act. The procedures,
which were revised in cooperation
with the General Accounting Office
and the Treasury Department, were
incorporated in the System's examination program in early 4981.

cent of capital stock, additions to the
capital base from sales of subordinated debt, and waiver of the six
months' notice of intention to withdraw from membership in the System. The Federal Reserve employs the
applications or notifications process
to enforce 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.

Loans to Insiders
On November 21, 1979, the Board
amended Regulation O to implement
the reporting requirements of Titles
VIII and IX of the Financial Institutions Regulatory and Interest Rate
Control Act of 1978 (FIRA). These
titles require public disclosure of
loans made by an insured bank and
its correspondent banks to executive
officers and principal shareholders of
the bank. Moreover, these officers
and shareholders must report to the
bank's board of directors any loans
that they received from correspondent banks.
In early 1980, field examiners
began checking for compliance with
this act.4
Applications by State Member Banks
The Board's authority over state
member banks covers the authorization of new branches, investments in
bank premises that exceed 100 per-

Commercial Paper Sales
The Board issued a policy statement
on the sale of bank holding company
commercial paper that expressed concern that individuals may purchase
such paper with the misunderstanding
that it is an insured deposit or an
obligation of a subsidiary bank. To
avoid this possibility, commercial
paper obligations of holding companies must state on their face (1) that
they are not insured by the Federal
Deposit Insurance Corporation, and
(2) that they are not obligations of a
bank.
Examiners now review the marketing practices of the holding company
to assure the suitable separation of
commercial paper sales from the
retail deposit-taking function; they
also check for the required information on the face of the commercial
paper obligation.

4. Under section 22(g) of the Federal
Reserve Act, state member banks must include
with their quarterly report of condition a list of

loans to executive officers during the quarter.
As required, these data for 1980 are summarized below.

Period
January 1—March 31
April 1—June 30
July 1—September 30




Number

Amount (dollars)

Interest rates
charged (percent)

981
897
1,151

5,634,884
5,641,287
8,367,239

4-20
4-24
5-19

232 Banking Supervision and Regulation
Stock Repurchases by
Bank Holding Companies
A stock repurchase occurs when a
bank holding company purchases its
own shares from existing shareholders. Oftentimes such purchases
are financed through borrowings, so
that the net effect of the transaction is
to increase bank holding company
debt at the very time that its equity is
decreased. Since 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 provide advance
notice of repurchases that retire 10
percent or more of their consolidated
equity capital.
The Federal Reserve reviewed
about 100 such notifications during
1980, most of which were subject to
Reserve Bank action on the Board's
behalf.
Management Interlocks
The Board amended Regulation L to
carry out the Depository Institutions
Management Interlocks Act (Title II
of the FIRA). The purpose of the Interlocks Act and of Regulation L is to
foster competition by generally prohibiting the managing officials of
state member banks and bank holding companies from serving in a management capacity at another depository institution if the two organizations are large or are located in the
same local area.
Field examiners check for compliance with the new law, and Federal
Reserve staff process applications for
permission to enter into management
interlocks under special circumstances.




Securities Regulation
Under the Securities Exchange Act of
1934, the Board is responsible for
regulating the use of credit for purchasing or carrying securities. The
Congress assigned this task to the
Board in order to restrain the type of
credit-financed speculation that contributed to the stock market crash of
1929.
In fulfilling its responsibility under
the law, the Board imposes limitations on the amount of credit that
might 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.
These regulations apply to stocks
and bonds traded on national securities exchanges, as well as to certain
over-the-counter (OTC) stocks and
bonds that the Board designates as
having characteristics similar to those
of stock listed on the national exchanges. The Board published revised
lists of OTC stocks subject to its
margin regulations on April 4 and
October 3, 1980. The October 3 list
contained the names of 1,305 stocks.
The Board's Division of Banking
Supervision and Regulation monitors
the market activity of all OTC stocks
to determine the stocks that should be
placed on this list.
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

Banking Supervision and Regulation 233
supervisory agencies examine banks
for compliance with Regulation U,
with the Board being responsible for
state member banks that extend
stock-secured credit for the purpose
of buying margin stock.
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 1980,
there were 512 such lenders, 270 of
which were subject to the Board's
supervision. During the year, Federal
Reserve examiners inspected 154
lenders who were subject to Regulation G for adherence to its margin requirements.
On March 6, 1980, the Board approved several technical changes to
Regulation T to reduce the administrative burden placed on
securities brokers and dealers and
their self-regulatory organizations.
On June 12, the Board amended
Regulation T to facilitate the activities of stock specialists and option
marketmakers, who are obligated to
promote fair and orderly markets in
their specialty securities. On June 25,
the,Board adopted an interpretation
of Regulation G that allows greater
employee participation in corporate
stock-option plans. On August 7, the
Board amended Regulation T to permit securities brokers and dealers to
extend credit on fully paid-for mutual
shares, thereby reducing significantly
the inequity that existed between
broker-dealers and other lenders,
who already were permitted to extend
such credit.




Federal Reserve Membership
At the end of 1980, 5,422 banks were
members of the Federal Reserve
Sytem, a net decrease of 3 from the
previous year. Member banks operated 24,379 branches on December
31, 1980, a net increase of 836 for the
year.
Member banks accounted for 37
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 class are provided in table
18 in the Statistical Tables section of
this REPORT.
Regulatory Improvement Project
Under the Board's Regulatory Improvement Project, existing regulations and reporting requirements are
reviewed on a regular basis, and
eliminated or reduced when consistent with the law and the public interest.5 Examples of simplifying or
cost-reducing actions that were discussed earlier include changes in
Regulation F (investor disclosure by
state member banks), Regulation H
(transfer agents), Regulation K (international banking), Regulation T
(margin credit by brokers and dealers), and Regulation Y (delegation of
holding company applications).

5. See the "Regulatory Improvement Project" section of this REPORT for further information.

234

Regulatory Improvement Project
During 1980, the Regulatory Improvement Project, which was created in 1978 as a temporary task
force, was made a permanent part of
the Board's organizational structure
under the Office of the Secretary. The
project's mandate is to improve the
Board's regulations and rulemaking
procedures, and it plays a crucial role
in coordinating the zero-based reviews of all the regulations. These
analyses ensure, among other things,
that "the need for and purpose of
such regulation is established clearly
and that meaningful alternatives" are
considered. Minimizing compliance
costs, paperwork, and other burdens,
as well as simplifying and clarifying
the regulatory language, also are an
essential part of the review process.
In addition, the project this past
year was assigned the task of coordinating the ongoing process of
amending and interpreting the regulations, in compliance with the Financial Regulation Simplification Act
and the Regulatory Flexibility Act. In
implementing these new statutes, the
Federal Reserve, through the Federal
Financial Institutions Examination
Council, expanded the scope of its activities with the other financial regulatory agencies, in order to avoid conflicts, duplication, and inconsistencies among the various regulations.
A major task of the project is improving the Board's Rules of Procedure so as to enhance public participation and comment. A part of
this effort is the broadening of access
to regulatory materials with a newly
created Federal Reserve Regulatory
Service, which is designed to bring



together in a single publication all
Board regulations, interpretations,
and rulings. This service will provide
the public with a comprehensive and
authoritative source of information.
Accomplishments in 1980
The Depository Institutions Deregulation and Monetary Control Act of
1980 (Public Law 96-221), of which
the Financial Regulation Simplification Act is Title VIII, required the
Federal Reserve to conduct an extensive analysis and reevaluation of
several of its major regulations. In
compliance with Title I, the Monetary
Control Act, the Board revised its
regulations on reserve requirements
(Regulation D) and access to the Federal Reserve discount window (Regulation A) to reflect their applicability
to all depository institutions.
In revising Regulation D on reserve
requirements, the Board undertook
several steps "to avoid the imposition
of unnecessary burdens on reporting
institutions and the duplication of
other reporting requirements," as required by the statute. A special committee on reports was established to
develop procedures to minimize the
number of items that depository institutions would have to report on
regularly, while, at the same time,
maintaining sufficient information to
achieve the major objective of enhanced control of the money supply.
It was decided to require depository
institutions with deposits or assets of
less than $15 million to report only on
a quarterly basis (while still maintaining reserves). Such a procedure

Regulatory Improvement Project 235
should not compromise the accuracy
of the macroeconomic data needed to
guide open market operations. To
minimize further the burden on small
institutions, and to provide time for
the Board to explore the kinds of permanent relief that might be available,
the Board postponed implementing
the requirement of maintaining and
reporting reserves for institutions of
less than $2 million.
Regulation D also was redrafted to
incorporate the relevant interpretations pertaining to deposits and
reserves that had been issued in the
past. The Federal Reserve System initiated a series of meetings throughout the country to explain the regulation to the affected institutions.
Similar efforts were made with
respect to Regulation A. To facilitate
an understanding of requirements for
gaining access to the discount window, an explanatory pamphlet was
written to assist small financial institutions with limited legal resources.
In implementing the Truth in Lending Simplification and Reform Act
(Title VI of the Depository Institutions Deregulation and Monetary
Control Act), Regulation Z was completely redrafted and reorganized to
incorporate relevant interpretations
in the regulation and in a new accompanying commentary. The revised
regulation contains a number of provisions that minimize the regulatory
burden. For example, the amount of
detailed information a creditor must
disclose has been reduced substantially. In addition, as the statute requires, the Federal Reserve developed
model forms to assist creditors and to
enhance compliance. The forms
should reduce the legal and managerial expenses of the creditors and
minimize their litigation costs, and
thus should help reduce the cost of



credit. An improvement in compliance, as well as a reduction in the
cost of credit, will benefit all consumers.
In the area of electronic fund
transfers, governed by Regulation E,
the Board gave its permission for a
telephone-notification system for
preauthorized deposits, instead of the
costly and sometimes unreliable mailnotification system, and "grandfathered" certain nonconforming
automated-teller machines to spare
institutions the expense of installing
new machines before the old ones became obsolete.
Concurrently with the analytic
review, some of the Board's regulations were completely redrafted for
simplicity and clarity. For example,
major efforts were directed to simplifying as well as clarifying the language of Regulation Z. A recent complete revision of subparts A and B of
Regulation J (Collection of Checks
and Other Items and Wire Transfers
of Funds), which had contained some
sentences 150 words long, elicited
favorable comments on the increased
conceptual and syntactical clarity of
the regulation and the better understanding of its requirements by bankers, lawyers, and other users.
Work in Progress
Regulations that are currently under
review include Regulation C (Home
Mortgage Disclosure), Regulation Y
(Bank Holding Companies and
Change in Bank Control), and Regulations G, T, U, and X (margin credit
requirements for banks, brokers,
dealers, and borrowers). Staff work
on the analysis and simplification of
these regulations is near completion,
and action by the Board is expected
sometime in the second half of 1981.

236

Federal Reserve Banks
Developments in
Payments Mechanism
The volume of payments by checks
and through automated clearinghouses (ACHs) continued to increase
during 1980. Check volume expanded
by a fairly typical 4 percent to 16
billion items cleared by Federal
Reserve Banks, whereas ACH volume
accelerated by increasing 29 percent
to 227 million payments cleared in
1980. The rapid expansion of transfers cleared through ACHs is attributable to improvements in clearing schedules, increased awareness of
the service by corporations and individuals, recognition of the efficiency of ACHs, and an apparent increase in the willingness of the public
to accept payments that are deposited
directly to their bank accounts. In addition, the direct deposit program for
federal recurring payments improved
significantly, and the continued promotion of the program resulted in an
increase in the volume of regular
government payments as well.
A proposal to extend the operating
hours for the transfer and settlement
of funds transmitted over the
System's wire network was adopted
in late 1980 to accommodate the increased traffic and to establish
uniform deadlines. This change will
be implemented in May 1981 and will
both provide equal access to the
System's wire network for all financial institutions and facilitate sameday settlement of a larger number of
financial transactions.
Federal Reserve check float, an
area of ongoing analysis, declined




during the year, a result of several actions taken to curtail it. The amount
of float fell from a daily average high
in 1979 of $6.7 billion to an average
of $4.2 billion in 1980. Among the actions that contributed to this reduction were improvements to the Federal Reserve's interdistrict and intradistrict transportation systems. A
new system was designed and implemented to utilize more efficient
and reliable transportation methods.
During 1980, plans were developed
to implement the Monetary Control
Act of 1980, which calls for the pricing of System payment services as
well as the elimination or the pricing
of Federal Reserve check float. Implementation of these plans is
scheduled to begin in January 1981.
In addition, work has begun on the
installation of the new Federal
Reserve communications system,
which will aid in the transfer of
payments, especially as more largedollar items are converted from paper
to electronic transfers.
Major steps to modernize the
Federal Reserve communications
system were taken in 1980, closely
adhering to a previously established
timetable. The new system was designed to take account of anticipated
increases in the volume of electronic
payments, extension of access to
nonmember financial institutions, anticipated improvements in the payments mechanism, and the effects of
pricing of services. Unlike the centralized system currently in use, the
new one will be decentralized, thus
extending its versatility and reliability.
Implementation will begin with a

Federal Reserve Banks 237
pilot test in 1981; completion is expected in about 1983.
Examination
The Board's Division of Federal
Reserve Bank Operations examined
the 12 Federal Reserve Banks and
their 25 branches during 1980, 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, and furnished copies of these reports to
the Committee. The procedures that
were followed by the Board's examiners were surveyed and appraised
by a private firm of certified public
accountants, pursuant to the policy
of having such reviews made annually.
Earnings and Expenses
The accompanying table summarizes
the earnings, expenses, and distribution of net earnings of the Federal
Reserve Banks for 1980 and 1979.

Current earnings of $12,802 million in 1980 were 24.2 percent higher
than those in 1979. The principal
changes were increases of $2,407
million on U.S. government obligations, $55 million on foreign currencies, and $35 million on loans.
Current expenses were $791 million, or 14.1 percent more than in
1979. Assessments for expenditures
of the Board of Governors amounted
to $62 million.
The profit and loss account showed
a net deduction of $115 million,
primarily because of net losses of
$199 million on sales of U.S. government obligations, net profits of $96
million on foreign exchange operations, and a one-time deduction of
$8.5 million due to a change in the
rate of depreciation on computers.
Also included were payments of
$634,950 to the Federal Home Loan
Banks and $51,697 to the National
Credit Union Administration for
work performed for the Federal Reserve System under the credit restraint program.
Statutory dividends to member
banks totaled $70 million, $3 million
more than in 1979. This rise reflected
an increase in the capital and surplus
of member banks and a consequent
increase in the paid-in capital stock of
the Federal Reserve Banks.

Earnings, Expenses, and Distribution of Net Earnings
of Federal Reserve Banks, 1980 and 1979
Thousands of dollars
Item
Current earnings
Current expenses
Current net earnings
Net deduction from current net earnings
Assessments for expenditures of Board of Governors
Net earnings before payments to U.S. Treasury
Dividends paid
Payments to U.S. Treasury (interest on Federal Reserve notes).
Transferred to surplus




1980

1979

12,802,319
791,157
12,011,162
115,386
62,231
11,833,545
70,354
11,706,370
56,821

10,310,148
693,559
9,616,589
151,148
50,530
9,414,911
67,194
9,278,576
69,141

238 Federal Reserve Banks
Payments to the Treasury as interest on Federal Reserve notes totaled $11,706 million for the year,
compared with $9,279 million in
1979. This amount consists of all net
earnings after dividends and the
amount necessary to bring surplus to
the level of paid-in capital.
Federal Reserve Bank Premises
During 1980, the Miami Branch occupied its new quarters; and the
Board of Governors authorized construction of a new building for the
Federal Reserve Bank of San Francisco.
Table 8, in the Statistical Tables
section of this REPORT, shows the cost
and book values of bank premises
owned and occupied by the Federal
Reserve Banks, and of real estate acquired for banking-house purposes.
A detailed statement of the earnings and expenses of each Federal
Reserve Bank during 1980 is shown in
table 6, and a condensed historical
statement in table 7, in the Statistical

Tables section of this REPORT. A
detailed statement of assessments and
expenditures of the Board of Governors appears in "Financial Statements," pages 240-44.
Holdings of
Loans and Securities
The accompanying table shows
holdings, earnings, and average interest rates on loans and securities of
the Federal Reserve Banks during the
past three years.
Average daily holdings of loans
and securities during 1980 amounted
to $129,750 million, an increase of
$10,616 million over 1979. Holdings
of U.S. government securities and of
loans increased $10,632 million and
$82 million respectively, and acceptances decreased $98 million.
The average rates of interest on
holdings increased from 8.57 to 9.73
percent on U.S. government securities, from 10.54 to 12.39 percent on
loans, and from 10.86 to 13.43 percent on acceptances.

Loans and Securities of Federal Reserve Banks, 1978-80
Item and year

Total

U.S. government
securities '

Loans

Acceptances

Millions of dollars
2

Average daily holdings
1978
1979
1980 .
.
.
Earnings
1978
1979
1980

115,291
119,134
129,750

114,210
117,564
128,196

876
1,338
1,420

205
232
134

8,449
10,237
12,673

8,367
10,071
12,479

66
141
176

16
25
18

7.58
10.54
12.39

7.85
10.86
13.43

Percent
Average rate of interest
1978
1979
1980
1. Includes federal agency obligations.
2. Based on holdings at opening of business.




7.33
8.59
9.77

7.33
8.57
9.73

Federal Reserve Banks 239

Loan Guarantees for
Defense Production
Under the Defense Production Act of
1950, the Departments of the Army,
Navy, and Air Force; the Defense
Logistics Agency of the Department
of Defense; the Departments of Commerce, Interior, Agriculture, and
Energy; the General Services Administration; the National Aeronautics and Space Administration;
and the Nuclear Regulatory Commission are authorized to guarantee
loans for defense production that are
made by commercial banks and other
private financing institutions. The
Federal Reserve Banks act as fiscal
agents of the guaranteeing agencies
under the Board's Regulation V. The
maximum rate of interest that a
financing institution may charge for a
V-loan is the rate that institution currently charges its most creditworthy
business customers for loans of comparable maturity (unless the governmental guarantor decides that a particular loan bearing a higher rate of
interest is necessary for national
defense purposes).
As of December 31, 1980, only




three guaranteed loans, totaling
$1,542,333, were outstanding. Of
that amount, $472,465 was guaranteed.
Volume and Cost of Operations
Table 9 in the Statistical Tables section of this REPORT shows the volume
of operations in the principal departments of the Federal Reserve Banks
for 1977-80, and table 10 shows the
cost of the larger operations of the
Reserve Banks.
The number of checks handled rose
by 4 percent to 16.5 billion. Transfers
of funds through the Federal Reserve
Banks increased by 23 percent to 43
million transfers, or $78.6 trillion in
value. The number of pieces of paper
money received and counted totaled
9.4 billion, an increase of 6.7 percent
over 1979, and amounted to $104.3
billion. Issues, redemptions, and exchanges of U.S. government securities amounted to $10.3 trillion, an increase of 25 percent. The number of
food stamps redeemed increased by
47 percent to 2.5 billion and totaled
$9.3 billion, an increase of 19 percent.

240

Board of Governors
Financial Statements
The accounts of the Board for the
years 1980 and 1979 were examined

by Arthur Andersen & Co., independent public accountants.

AUDITORS' REPORT

Board of Governors of the
Federal Reserve System
Washington, D.C.
We have examined the balance sheets of the Board of Governors of the Federal
Reserve System as of December 31, 1980 and 1979, and the related statements of
assessments and expenditures and changes in financial position for the years then
ended. Our examinations were 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.
In our opinion, the financial statements referred to above present fairly the financial
position of the Board of Governors of the Federal Reserve System as of December 31,
1980 and 1979, and the results of its operations and the changes in its financial position
for the years then ended, in conformity with generally accepted accounting principles
applied on a consistent basis.
Arthur Andersen & Co.
Washington, D.C,
February 18, 1981.




Financial Statements 241
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
BALANCE SHEETS
December 31
ASSETS

1979

1980
OPERATING FUND

Cash
Receivables and advances
Stockroom and cafeteria inventories at lower of cost
(first-in, first-out) or market
Deferred publication costs (Note 3)
Total operating fund

$

911,190
1,339,004

$

1,771,762
486,531

155,456
285,132

126,984
99,886

2,690,782

2,485,163

1,297,829
60,337,691
7,734,515
5,892,842

1,297,829
60,162,893
7,319,583
3,616,332

PROPERTY FUND, at cost (Notes 1 and 4)
Land and improvements
Buildings
Furniture and equipment
Computer equipment

75,262,877

72,396,637

$ 77,953,659

$74,881,800

$ 2,280,725
740,093

$ 1,845,996
1,825,760

3,020,818

3,671,756

(1,186,593)
856,557

877,644
(2,064,237)

(330,036)

(1,186,593)

2,690,782

2,485,163

Fund balance
Balance, beginning of year
Additions—at cost
Disposals—at cost

72,396,637
6,560,478
(3,694,238)

70,753,283
1,842,978
(199,624)

Total property fund

75,262,877

72,396,637

$ 77,953,659

$74,881,800

Total property fund

LIABILITIES AND FUND BALANCES
OPERATING FUND

Liabilities
Accounts payable
Accrued payroll and related taxes

Commitments and contingencies (Notes 1, 2, and 4)
Fund balance (Note 1)
Balance, beginning of year
Assessments over (under) expenditures
Balance, end of year
Total operating fund
PROPERTY FUND (Note 1)

The accompanying notes are an integral part of these balance sheets.




242 Financial Statements
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
STATEMENTS OF ASSESSMENTS AND EXPENDITURES
Year ended December 31
1980

1979

ASSESSMENTS LEVIED ON FEDERAL RESERVE BANKS (Note 1)

For Board expenses and property additions
For expenditures made on behalf of the Federal Reserve Banks for
printing, issuance, and redemption of Federal Reserve notes

$ 62,230,800

$ 50,529,700

71,440,704

71,600,273

133,671,504

122,129,973

37,069,785
9,835,780
1,585,661
675,718
746,497
1,651,924
791,098
685,918
641,658
509,892
966,949
391,384
489,082
162,870
443,494

33,572,060

56,647,710

50,804,047

4,726,533

1,789,890

61,374,243

52,593,937

Total assessments
EXPENDITURES (Note 1)

Board expenses
Salaries
Retirement and insurance contributions (Note 2)
Travel
Professional fees
Contractual services
Printing and binding
Equipment, office space, and other rentals (Note 4)
Telephone and telegraph
Postage
Stationery, office, and other supplies
Heat, light, and power
Cafeteria operations, net
Repairs and maintenance
Books and subscriptions
Miscellaneous
Board property additions, net of recoveries on disposals of $1,833,945 in
1980 and $53,088 in 1979(Note 1)
Expenditures for printing, issuance, and redemption of Federal Reserve

8,038,006
1,300,277

509,283
649,130
1,420,993
1,199,560
658,307
619,523
487,532
925,294
351,132
507,779
145,794
419,377

71,600,273

notes on behalf of the Federal Reserve Banks (Note 1)

71,440,704
124,194,210

Total expenditures

132,814,947
$ (2,064,237)

ASSESSMENTS OVER (UNDER) EXPENDITURES




$

856,557

The accompanying notes are an integral part of these statements.

Financial Statements 243
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
STATEMENTS OF CHANGES IN FINANCIAL POSITION
Year ended December 31
1980

1979

& 62,230,800

$ 50,529,700

71,440,704
1,833,945

71,600,273
53,088

135,505,449

122,183,061

56,647,710

50,804,047

71,440,704

71,600,273

199,512
483,309
5,877,657

470
939,757
762,751
140,000

6,560,478

1,842,978

SOURCES OF FUNDS

Assessments levied for Board expenses and property additions
Assessments levied for expenditures made on behalf of the Federal
Reserve Banks
Recoveries from disposals of property
Total sources
APPLICATIONS OF FUNDS

Board expenses
Expenditures for printing, issuance, and redemption
Reserve notes on behalf of the Federal Reserve Banks

of

Federal

Additions to property
Land and improvements
Buildings
Furniture and equipment
Computer equipment

Decrease in liabilities

650,938

763,548

1,066,191

197,763

136,366,021

125,208,609

Increase in receivables, inventories, and deferred costs
Total applications

(860,572)

DECREASE IN CASH

CASH BALANCE, beginning of year
CASH BALANCE, end of year

1,771,762
i

4,797,310

911,190

$ 1,771,762

The accompanying notes are an integral part of these statements.




(3,025,548)

244 Financial Statements
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1980 AND 1979
(1) SIGNIFICANT ACCOUNTING POLICIES

In preparing its financial statements, the Board has
applied accounting principles which, in its 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 governmental units.
A summary of significant accounting policies is shown
below.
Accounting for Assessments, Board Expenses, and
Property A ddit ions—Assessments made by the Board
on the Federal Reserve Banks for Board expenses and
additions to property are calculated based upon expected cash needs and are accrued when assessed.
Board expenses and property additions are recorded
on the accrual basis of accounting.
Accounting for Assessments and Expenditures
Made on Behalf of the Federal Reserve Banks—
Assessments and expenditures made on behalf of the
Federal Reserve Banks for the printing, issuance, and
redemption of Federal Reserve notes are recorded on
the cash basis. This treatment produces results which
are not materially different from those which would
have been produced using the accrual basis of accounting.
Accounting for 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 disposal.
When property is acquired or sold, the property accounts in the Property Fund are increased or reduced
at cost, with a corresponding increase or decrease in
the Property Fund balance.
Accounting for Employee Annual Leave—The
Board does not accrue for salary expense related to
employee annual leave that has been earned and would
be paid if not taken prior to termination of employment. As of December 31, 1980, vested employee annual leave is approximately $2,489,000.
(2)

RETIREMENT PLANS

There are two major retirement programs for
employees of the Board. Approximately 86 percent of
the employees are covered by the Federal Reserve
Board Plan. All new members of the staff who do not
come directly from a position in the government are
covered by this Plan. The second Plan, the Civil Service Retirement Plan, covers all new employees who
come directly from 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, Board contributions
match employee payroll deductions. Under the Federal Reserve Board Plan, the Board funds currently all
normal costs and all past service costs, as actuarially
determined.




Additionally, employees of the Board participate in
the Federal Reserve System's Thrift Plan. Under this
Plan, the Board adds a fixed percentage to allowable
employee savings.
Board contributions to all retirement plans totaled
approximately $9,110,000 in 1980 and $7,404,000 in
1979.
As of January 1, 1980 (date of most recent actuarial
review), the accumulated plan benefits for the Federal
Reserve Board Plan were as follows:
As of
January 1, 1980
Actuarial present value of
accumulated plan benefits
Vested
Nonvested

$43,991,227
3,161,989
$47,153,216

The assumed rate of return used in determining the
present value of accumulated plan benefits was 8 percent.
As of January 1, 1980, net assets available for
benefits exceeded the actuarial present value of accumulated plan benefits.

(3)

FEDERAL RESERVE REGULATORY SERVICE

The Board plans to begin publication of the Federal
Reserve Regulatory Service in 1981. This monthly
looseleaf service will contain Board regulations, interpretations, staff rulings, and other regulatory
materials. The service will be distributed without
charge throughout the Federal Reserve System and to
federal depository libraries, and will also be sold to
depository institutions, legal firms, and others. Costs
incurred for the development of the service of
$185,246 in 1980 and $99,886 in 1979 have been deferred and will be amortized against future subscription revenues beginning in 1981.

(4) 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, 1980, fixed future rental commitments are approximately $884,000 for 1981.
The Board has been named as a defendant in 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 does not maintain insurance against loss
of its buildings and furniture and equipment from fire
or other casualties. Coverage for other customarily insured risks, such as workers' compensation insurance
and comprehensive general liability insurance, is carried by the Board.

Statistical Tables




246 Tables
1. Detailed Statement of Condition of All Federal Reserve
Banks Combined, December 31, 1980
Thousands of dollars

ASSETS
Gold certificate account
Special drawing rights certificate account
Coin
Loans and securities
To depository institutions
Acceptances held under repurchase agreements
Federal agency obligations
Bought outright. .^
Held under repurchase agreements
U.S. government securities
Bought outright
Bills
Notes
Bonds
Total bought outright
Held under repurchase agreement

11,160,104
2,518,000
394,198
1,809,852
776,489
8,739,259
525,050
43,687,650
58,718,310
16,892,536
119,298,496
2,029,250

Total U.S. government securities

121,327,746

Total loans and securities

133,178,396

Cash items in process of collection
Transititems
Other cash items

12,497,582
3,005,108

Total cash items in process of collection
Bank premises
Land
Buildings (including vaults)
Building machinery and equipment
Construction account

338,351
118,701
63,308

Total bank premises
Less depreciation allowance

520,360
153,127

Bank premises, net
Other assets
Furniture and equipment
Less depreciation
Total furniture and equipment, net
Denominated in foreign currencies '
Interest accrued
Premium on securities
Overdrafts
Prepaid expenses
Suspense account
Real estate acquired for banking-house purposes
Allother

15,502,690
87,768

367,233
455,001

158,055
48,732
109,323
5,103,256
2,062,123
270,362
123,812
53,996
454,364
14,798
86,911

Total other assets

8,278,945

TOTAL ASSETS

171,487,334




Tables 247

LIABILITIES
Federal Reserve notes
Outstanding (issued to Fe'deral Reserve Banks)
Less held by Federal Reserve Banks

140,184,518
15,941,812

Total Federal Reserve notes, net
Deposits
Depository institutions
U.S. Treasury—General account
Foreign—Official accounts
Other deposits
Officers' and certified checks
International organizations
Allother 2

124,242,706
27,457,943
3,062,267
411,441
41,225
191,828
383,066

Total other deposits
Deferred availability cash items

616,119
11,032,882

Other liabilities
Exchange-translation account
Unearned discount
Discount on securities
Sundry items payable
Suspense account
All other

- 113,617
761
2,193,523
26,282
147,436
5,127

Total other liabilities

2,259,512

TOTAL LIABILITIES

169,082,870

CAPITAL ACCOUNTS
Capital paid in
Surplus
Other capital accounts

1,202,232
1,202,232

3

TOTAL LIABILITIES AND CAPITAL ACCOUNTS
1. Includes $108.5 million in U.S. government
securities held under repurchase agreement against
receipt of foreign currencies and $2,993.6 million in
foreign currencies warehoused for the U.S. Treasury.
2. In closing out the other capital accounts at yearend, the Reserve Bank earnings that are payable to the
Treasury for December are included in this account
pending payment.




171,487,334

3. During the year, this item includes the net earnings, expenses, profit and loss items, and accrued
dividends, which are 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.

2. Statement of Condition of Each Federal Reserve Bank, December 31, 1980 and 1979
Millions of dollars
Total

Item

Boston

1980

1979

1980

11,161
2,518
397

11,112
1,800
403

577
128
27

1,594
215

428
1,026

776
8,739
525

Philadelphia

New York

1979

1980

Richmond

Cleveland

1979

1980

1980

1980

1979

1979

992
93
25

3,013
665
24

2,841
459
21

560
121
19

924
91
21

847
201
49

646
149
42

961
229
42

1,293
161
45

106
0

31
6

663
0

54
457

37
17

16
0

70
132

55
0

189
0

61
104

704

0

0

776

704

0

0

0

0

0

0

8,216
493

399
0

397
0

2,272
525

2,025
493

379
0

393
0

660
0

660
0

718
0

673
0

119,299 116,291
1,167
2,029

5,450
0

5,625
0

31,010
2,029

28,664
1,167

5,179
0

5,560
0

9,013
0

9,343
0

9,799
0

9,524
0

133,177 128,325

1979

ASSETS
Gold certificate account
Special drawing rights certificate account
Coin
Loans
Secured by U.S. government and agency obligations .
Other
Acceptances held under repurchase agreement
Federal agency obligations
Bought outright
Held under repurchase agreement
U.S. government securities
Bought outright '
Held under repurchase agreement

Interdistrict Settlement Account
TOTAL ASSETS




2

5,955

6,059

37,275

33,564

5,612

5,969

9,875

10,058

10,706

10,362

15,504
457

Total loans and securities
Cash items in process of collection
Bank premises
Other assets
Denominated in foreign currencies
AH other

15,694
408

403
100

457
103

2,351
20

2,090
14

425
53

440
54

479
24

662
23

3,035
89

2,822
83

5,104
3,177

2,483
2,722

145
122

77
164

1,374
751

646
575

195
151

102
160

414
294

211
160

255
252

132
202

0

0

-82

-871

+ 2,859

+ 1,266

-837

-739

-322

-628

+ 219

-362

11,323

15,788

14,738

171,495

162,947

7,375

7,099

48,332

41,476

6,299

7,022

11,861

LIABILITIES
Federal Reserve notes
Deposits
Reserve accounts 3
U.S. Treasury—General account
Foreign—Official accounts
All other

124,241

4

TOTAL LIABILITIES

5,767

35,601

29,935

5,276

5,457

9,463

9,027

10,786

10,304

743
0
10
11

661
258
9
42

6,521
3,062
145
437

7,321
1,252
207
719

576
0
14
8

825
249
12
45

1,529
0
30
16

1,101
358
26
73

1,637
0
18
24

1,308
316
16
74

35,708

764

970

10,165

9,499

598

1,131

1,575

1,558

1,679

1,714

11,037
2,265

8,927
2,667

257
97

152
144

1,384
570

711
751

237
96

239
105

437
196

376
172

2,989
210

2,431
173

169,089

Other liabilities and accrued dividends

6,191

29,792
4,075
429
1,412

31,546

Total deposits
Deferred-availability cash items

113,355

27,456
3,062
411
617

160,657

7,309

7,033

47,720

40,896

6,207

6,932

11,671

11,133

15,664

14,622

1,203
1,203
0

1,145
1,145
0

33
33
0

33
33
0

306
306
0

290
290
0

46
46
0

45
45
0

95
95
0

95
95
0

62
62
0

58
58
0

171,495

162,947

7,375

7,099

48,332

41,476

6,299

7,022

11,861

11,323

15,788

14,738

140,184

125,301

7,007

6,405

38,710

32,636

6,515

6,142

10,225

9,615

12,006

11,022

15,943

1 ,946
1

816

638

3,109

2,701

1,239

685

762

588

1,220

718

124,241

113,355

5,767

35,601

29,935

5,276

5,457

9,463

9,027

10,786

10,304

11,161
2,518

577
128
0

992
93
31

3,013

2,841

459
318

560
121
0

924
91
14

847
201
0

646
149
54

961
229
0

1,293

665
0

110,562

11,112
1,800
894
111,495

5,486

5,289

31,923

29,018

4,595

5,113

8,415

8,766

9,596

9,437

124,241

125,301

6,191

6,405

35,601

32,636

5,276

6,142

9,463

9,615

10,786

11,022

CAPITAL ACCOUNTS
Capital paid in
Surplus
Other capital accounts
TOTAL LIABILITIES AND CAPITAL
ACCOUNTS
FEDERAL RESERVE NOTE STATEMENT
Federal Reserve notes
Issued to Federal Reserve Bank by Federal
Reserve Agent and outstanding
Less held by issuing Bank, and forwarded for
redemption 5
Federal Reserve notes, net

6

Collateral held by Federal Reserve for notes issued to
Bank
Gold certificate account
Special drawing rights certificate account
Other eligible assets
U.S. government and agency securities
TOTAL COLLATERAL
For notes see end of table.




0

6,191

161
131

2. Statement of Condition of Each Federal Reserve Bank, December 31, 1980 and 1979—Continued
Millions of dollars

1980

St. Louis

Chicago

Atlanta

Item

1979

1980

1979

1980 i

Minneapolis

1979

1980

Dallas

Kansas City

1979

1980

1979

1980

San Francisco

1979

1980

1979

ASSETS
Gold certificate account
Special drawing rights certificate account . . . .
Coin

525
64
39

1,722
411
23

1,591
300
31

465
106
24

474
79
33

225
42
12

232
32
17

501
111
44

473
75
49

572
132
30

451
86
29

1,253
293
65

670
211
51

81
0

11
111

183
3

73
78

51
0

14
47

25
9

21
10

88
50

28
22

46

27
107

55
3

37
84

0

0

0

0

0

0

0

0

0

0

0

0

0

0

317
0

340
0

1,373
0

1,304
0

351
0

349
0

156
0

183
0

409
0

363
0

519
0

448
0

1,186
0

1,081
0

4,323
0

4,819
0

18,746
0

18,454
0

4,794
0

4,948
0

2,131
0

2,585
0

5,591
0

5,134
0

7,080
0

6,336
0

16,183
0

15,299
0

4,721

5,281

20,305

19,909

5,196

5,358

2,321

2,799

6,138

5,547

7,646

6,918

17,427

16,501

2,041
35

Loans
Secured by U.S. government and agency
obligations

465
79
38

1,563
31

1,730
16

2,114
16

656
14

690
13

699
28

994
28

1,521
22

1,511
20

1,370
13

1,519
12

794
43

832
11

379
157

186
151

729
417

375
395

150
102

77
95

160
84

79
80

215
126

104
135

294
157

144
137

794
564

350
468

392

-446

-967

-769

-391

-346

-448

-765

-71

+ 366

+ 401

7,394 24,386 23,962

6,322

6,473

3,123

3,496

8,607

Other
Acceptances held under repurchase agreement
Federal agency obligations
Bought outright
Held under repurchase agreement
U.S. government securities
Bought outright '
Held under repurchase agreement
Total loans and securities
Cash items in process of collection
Bank premises
Other assets
Denominated in foreign currencies
All other
Interdistrict Settlement Account
TOTAL ASSETS




2

7,523

8,280 10,615

+ 329

+ 31 + 2,965

9,625 21,264 22,059

LIABILITIES
Federal Reserve notes
Deposits
Reserve accounts 3
U.S. Treasury—General account
Foreign
All other
Total deposits ..
Deferred-availability cash items
Other liabilities and accrued dividends 4
TOTAL LIABILITIES

3,670

3,550

19,437

18,505

4,835

4,748

1,807

1,909

5,758

5,000

7,198

5,959

14,219

13,194

1,852
0
27
8

2,151
230
23
33

3,495
0
52
39

3,689
284
45
150

742
0
11
9

840
225
9
40

655
0
11
5

675
175
10
22

1,350
0
15
12

1,459
306
13
42

2,312
0
21
19

2,471
85
17
51

6,044
0
57
29

7,291
337
42
121

1,
887

2,437

3,586

4,168

762

1,114

671

882

1,
377

1,820

2,352

2,624

6,130

7,791

1,
667

1,135
98

672
337

590
363

569
84

457
84

529
40

572
61

1,
269

1 ,264

119

99

98

790
127

798
110

237
290

202
508

7,
343

7,220

24,032

23,626

6,250

6,403

3,047

3,424

503
8,

8,182

10,467

9,491

20,876

21,695

90
90
0

87
87
0

177
177
0

168
168
0

36
36
0

35
35
0

38
38
0

36
36
0

52
52
0

49
49
0

74
74
0

67
67
0

194
194
0

182
182
0

7,523

7,394

24,386

23,962

6,322

6,473

3,123

3,496

8,607

8,280

10,615

9,625

21,264

22,059

5,606

5,289

2,265

2,530

6,750

5,803

8,216

6,551

16,185

14,531

CAPITAL ACCOUNTS
Capital paid in
Surplus
Other capital accounts ...

TOTAL LIABILITIES AND
CAPITAL ACCOUNTS
FEDERAL RESERVE NOTE
STATEMENT
Federal Reserve notes
Issued to Federal Reserve Bank by Federal
Reserve Agent and outstanding
Less held by issuing Bank, and forwarded
for redemption 5
Federal Reserve notes, net (
Collateral held by Federal Reserve Agent for
notes issued to Bank
Gold certificate account
Special drawing rights certificate account . . .
Other eligible assets
U.S. government and agency securities
TOTAL COLLATERAL

5,678

5,242

21,021

19,535

2,008

1,692

1,584

1,030

771

541

458

621

992

803

1,018

592

1,966

1,337

3,670

3,550

19,437

18,505

4,835

4,748

1,807

1,909

5,758

5,000

7,198

5,959

14,219

13,194

465
79
0

525
64
9

474
79
51

225
42
0

232
32
24

501
111
0

473
75
42

572
132
0

4,644

1,
591
300
89
17,555

465
106
0

3,126

1,722
411
0
17,304

4,264

4,685

1,540

2,242

5,146

5,213

6,494

451
86
94
5,920

1,253
293
0
12,673

670
211
37
13,613

3,670

5,242

19,437

19,535

4,835

5,289

1,807

2,530

5,758

5,803

7,198

6,551

14,219

14,531

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 sale-purchase transactions.
2. Includes U.S. government securities held under repurchase agreement against
receipt of foreign currencies and foreign currencies warehoused for the U.S. Treasury.
Assets shown in this line are revalued monthly at market exchange rates.
3. Includes reserves of member banks, Edge Act corporations, and U.S. agencies and
branches of foreign banks.




4. Includes exchange-translation account reflecting the monthly revaluation at market
exchange rates of foreign exchange commitments.
5. Beginning September 1980, Federal Reserve notes held by the Reserve Banks are exempt from the collateral requirement.
6. Includes Federal Reserve notes held by U.S. Treasury and by Federal Reserve
Banks other than the issuing Bank.

252 Tables
3. Federal Reserve Bank Holdings of U.S. Government and
Federal Agency Securities, December 31, 1978-80
Millions of dollars

Description
U.S. government securities—Total.
Within 90 days
91 days to 1 year
1-5 years
5-10 years
Over 10 years
Held outright '
Treasury bills—Total
Within 3 months
3-6 months
After 6 months
Treasury notes—Total
Dec. 31, 1978—H
U
Jan. 31,1979—L
Feb. 15, 1979—H
Feb. 28, 1979—M
Mar. 31,1979—N
Apr. 30, 1979—P
May 15, 1979—D
May 31, 1979—Q
June 30, 1979—E
R
July31,1979-S
Aug. 15, 1979—A
J
Aug. 31,1979—T
Sept. 30, 1979—F
U
Oct. 31,1979—V
Nov. 15, 1979—B
K
C
Nov. 30, 1979—W
Dec. 31, 1979—G
X
Jan. 31,1980—K
Feb. 15, 1980—G
Feb. 29, 1980—L
Mar. 31, 1980—C
Apr. 30, 1980—N
May 15, 1980—A
May 31, 1980— P
June 30,1980—D
Q
July 31, 1980—R
Aug. 15, 1980—B
H
Aug. 31, 1980—S
Sept. 30, 1980—E
T
Oct. 31,1980—U
Nov. 15, 1980—J
Nov. 30, 1980—V
Dec. 31, 1980—F
W
Jan. 31,1981—P
Feb. 15, 1981—A
C
Feb. 28, 1981— Q
Mar. 31, 1981—H
R
Apr. 30, 1981—S
May 15, 1981—D
M
May 31, 1981— T
June 30, 1981—J
U
July 31, 1981—V
 1981—F
Aug. 15,
http://fraser.stlouisfed.org/ N

Federal Reserve Bank of St. Louis

Coupon
(percent)

Increase or decrease ( - )

December 31

1980

1979

121,328 117,458 110,562
28,279 26,841 24,097
30,187 37,230 29,465
34,505 27,864 31,608
13,354 12,774 14,717
15,002 12,748 10,675

3,870
1,438
-7,043
6,641
580
2,254

6,896
2,744
7,765
-3,744
-1,943
2,073

42,159
20,661
14,911
6,586
54,855
244
643
151
1,731
368
640
159
550
239
157
291
159
669
880
440
230
333
455
890
250
366
475
137
568
365
1,461
334
724
437
5,272
177
294
858
699
2,435
657
416
153
686
309
693
250
33
0
0
351
1,007
0
203
0
0
182
1,034
0
70
0
0
297
1,297

-1,556
-164
3,858
-5,250
2,224

3,085
2,432
-4,205
4,859
1,639
-244
-643
-151
-1,731
-368
-640
-159
-550
-239
-157
-291
-159
-669
-880
-440
-230
-333
-455
-890
-250
-366
-475
-137
-568
38
51
65
85
20

1980

1979

43,688
22,929
14,564
6,195
58,718

45,244
23,093
10,706
11,445
56,494

461
374
1,101
426
226
733
261
191
1,071
411
80
332
351
364
1,364

403
1,512
399
809
457
5,273
177
322
859
714
2,435
688
461
153
725
354
700
307
33
538
383
351
1,074
397
218
698
159
185
1,041
313
80
306
311
343
1,301

8 V*
5'/4
7
57/S
6

/
6'/*
6/4
6/4
67/8

65/»
8/2
7/4

6/4
7
7»>*
7/2

7/2
6/2
7 5/8

7/2
7 3/4
67/8

8
/

8/4
8/2
9
6 3 /4

/
67/8
8^/8
87/8
7'/8
9/4
57/8
97/8
93/4

7
7 3/ 8

9 3 /4
67/8
95/8
9 3 /4
7 3/8

7/2
93/4
63/4
9'/8
9 3/8
7 5/8
8 3/8

1978

-403
-1,512
-399
-809
-457
-5,273
-177
-322
-859
-714
-2,435
-688
-461
-153
-725
-354
-700
-307
-33
-538
78
23
27
29
8
35
102
6
30
98
0
26
40
21
63

0
28
1
15
0
31
45
0
39
45
7
57
0
538
383
0
67
397
15
698
159
3
7
313
10
306
311
46
4

Tables 253

Description
U.S. government securities—Cont
Treasury notes—Cont.
Aug. 31, 1981—W
Sept. 30, 1981—K
X
Oct. 31, 1981—Y
Nov. 15, 1981—B
G
Nov. 30, 1981—Z
Dec. 31, 1981—L
AB
Jan. 31, 1982—N
Feb. 15, 1982—D
Feb. 28, 1982—P
Mar. 31, 1982—G
Q
Apr. 30, 1982—R
May 15, 1982—A
E
K
May 31, 1982—S
June 30, 1982—H
T
July 31, 1982—U
Aug. 15, 1982—B
M
Aug. 31, 1982—V
Sept. 30, 1982—J
W
Oct. 31, 1982—X
Nov. 15, 1982—C
F
Nov. 30, 1982—Y
Dec. 31, 1982—L
Z
Feb. 15, 1983—A
Mar. 31, 1983—D
May 15, 1983—C
G
June 30, 1983—E
Aug. 15, 1983—K
J
Sept. 30, 1983—F
Nov. 15, 1983—B
L
Dec. 31, 1983—H
Feb. 15, 1984—A
Mar. 31,1984—D
May 15, 1984—C
G
June 30, 1984—E
Aug. 15, 1984—B
Sept. 30, 1984—F
Dec. 31, 1984—H
Feb. 15, 1985—A
May 15, 1985—C
D
Aug. 15, 1985—B
E
May 15, 1986—A
Aug. 15, 1986—B
Feb. 15, 1987—B
May 15, 1987—C
Nov. 15, 1987—A
May 15, 1988—A
Nov. 15, 1988—B
May 15, 1989—A
Nov. 15, 1989—B
Aug. 15, 1990—A
 1990—B
Nov. 15,

http://fraser.stlouisfed.org/
For notes see end of table.
Federal Reserve Bank of St. Louis

Coupon
(percent)

95/8
63/4

10 V*
125/8
73/4

7
12'/s
7!/4
11 3/8
11 Vi

6'/8
13 7 /s

77/8
15
IP/8
8
7
914
93/8
814
8 >

8 7 /8
8</8
9
11 Vs
8 3 /8
H7/8
12 Vs

V/s
7'/8
137/8
93/8
15 Vs
8
914

7>
IP/8
87/8
914
Il7/s
93/4
7

9>
10 Vi
IVA

1414
9'/4
1314
87/s
7'/4
14
8
10 3/8
14 3/8
8>/4
95/8
77/8

8
9
12
75/8
8'/4
83/4
9'/4
103/4
103/4

13

Increase or decrease ( - )

December 31
1980

1979

1978

1980

1979

571
181
408
596
1,600
119
649
177
577
462
59
545
245
632
496
1,447
53
1,019
359
119
705
1,000
1,162
1,074
570
76
550
420
770
239
364
459
350
2,144
12
113
851
426
3,189
1,079
284
101
1,935
221
3,913
531
69
500
505
385
339
252
1,448
38
260
1,624
79
1,158
1,987
1,659
498
616
1,754
1,139
459
1,942
1,186
220

563
131
405
527
1,600
116
594
167
571
0
59
0
245
0
0
1,447
53
1,018
0
115
0
0
1,162
1,068
0
64
0
0
770
227
0
459
0
2,138
9
95
837
408
0
0
284
101
0
156
3,913
0
69
0
0
385
0
0
1,448
38
0
1,624
0
1,137
1,987
1,657
0
616
1,751
1,130
451
422
0
0

0
72
0
0
1,597
113
0
124
0
0
56
0
235
0
0
1,444
30
1,018
0
93
0
0
1,161
0
0
62
0
0
754
209
0
0
0
2,136
0
89
0
0
0
0
0
95
0
0
3,900
0
0
0
0
372
0
0
1,448
0
0
1,618
0
1,086
1,978
0
0
616
1,744
1,087
0
0
0
0

50
3
69
0
3
55
10
6
462
0
545
0
632
496
0
0
1
359
4
705
1,000
0
6
570
12
550
420
0
12
364
0
350
6
3
18
14
18
3,189
1,079
0
0
1,935
65
0
531
0
500
505
0
339
252
0
0
260
0
79
21
0
2
498
0
3
9
8
1,520
1,186
220

563
59
405
527
3
3
594
43
571
0
3
0
10
0
0
3
23
0
0
22
0
0
1
1,068
0
2
0
0
16
18
0
459
0
2
9
6
837
408
0
0
284
6
0
156
13
0
69
0
0
13
0
0
0
38
0
6
0
51
9
1,657
0
0
7
43
451
422
0
0

254 Tables
3. Federal Reserve Bank Holdings of U.S. Government and
Federal Agency Securities, December 31, 1978-80—Continued
Millions of dollars

Description
U.S. government securities—Cont.
Treasury bonds—Total
1975-85—May
1978-83—June
1980—Feb
Nov
1981—Aug
1982—Feb
1984—Aug
1985-May
1986—Nov
1987-92—Aug
1988-93—Feb
Aug
1989-94—May
1990—Feb
May
1992—Aug
1993—Feb
Aug. . . .
Nov. . . .
1993-98—May .
1994-99—May .
1994_Feb
Aug. . . .
Nov. . . .
1995—Feb
May.
1995-2000-Feb
Aug
1996-2001—Aug
1998—Nov
2000-05—May
2002-07—Feb
Nov
2003-08-Aug
Nov
2004-09—May
Nov
2005-10—Feb
May
Nov
Held under RPs
Federal agency obligations
Held outright—Total
Banks for Cooperatives
Export-Import Bank
Federal Farm Credit Banks
Federal Home Loan Banks
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

Coupon
(percent)

414
VA
4
VA
7
63/s
63/8

VA
6»/8
4'/4

4
IVi
4'/8
3'/2
8'/4
714
63/4

77/s

7
8'/2

9
83/4

10 Vs

December 31
1980

1979

1978

1980

1979

16,893
156
87
0
0
124
386
355
47
310
509
24
384
77
84
342
92
70
136
131
159
157
1,004
84
42
34

14,553
156
87
266
74
123
386
355
47
310
509
24
384
77
84
342
92
70
136
118
144
157
1,004
60
32
0
2
0
0
0
566
2,042
488
31
1,493
1,389
265
747
1,534
633
326
0
0
0
1,168

12,465
156
87
266
74
123
371
355
47
310
509
24
380
77
84
342
91

2,340
0
0
-266
-74

2,088
0
0
0
0
0
15
0
0
0
0
0
4
0
0
0
1
0
9
57
23
0
5
60
32
0
0
0
0
0
4
38
8
0
0
0
0
0
873
633
326
0
0
0
84

8,216
35
16
951

7,896
85
69
68
2,189
466

2
28

/lO3/8
\l2 5 /8

8

3/2
8/4

VA
103/s
IP/4
10
123/4

1. Excludes
securities sold under matched salepurchase agreements, and securities held under repurhttp://fraser.stlouisfed.org/
chase agreements.
Federal Reserve Bank of St. Louis

Increase or decrease ( - )

7
282
585
2,053
489
31
1,493
1,389
265
749
1,534
633
820
512
1,070

159
2,029
8,739
35
16
1,459
2,426
75
988
187

2,271

97
1,163
196

70
127

61
121

157
999
0
0
0
2
0
0
0
562
2,004
480
31
1,493
1,389
265
747
661
0
0
0
0
0
1,084

0
0
0
0
0
0
0
0
0
0
0
0
0
13
15
0
0
24
10
34
0
28
7
282
19
11
1
0
0
0
0
2
0
0
494
512
1,070
159
861

320
-50
-53
883
82
-369

196

523
0
0
508
155
-22
-175
-9

1,377

-214
0

3,305

3,237

3,196

68

41

83
37

83
37

83
37

0
0

0
0

117
14
525

117

117

14
494

14

0
0
31

0
0
361

133

NOTE. Details may not add to totals because of
rounding.

Tables 255
Federal Reserve Bank Holdings of Special Short-Term Treasury
Certificates Purchased Directly from the United States, 1972-80
Millions of dollars

Date

j

Amount

1972
Sept. 12

38

1973
Aug. 15
Sept. 7
8
9 '
10
11
12
14

351
73
73
73
42
485
169
319

Amount

Date

Date

Amount

Date

Amount

820
820
832

1977
Sept. 30
Oct. 1
2'
3 '

2,500
2,500
2,500
2,500

1979
Mar. 31

2,600

1973
Sept. 15
16'

319
319

1975
Mar. 15
16 '
17

1974
Nov.

6

131

Aug.

1975
Mar. 11
12
13
14

626
1,043
315
820

1. Sunday or holiday.
NOTE. Under authority of section 14(b) of the
Federal Reserve Act.
Throughout the period shown the interest rate paid
on such securities was lA percent below the prevailing




5
6
7
11
12
13
15

656
965
474
204
543
399
481

Apr.

1 '
2
3

2,600
1,283
376

discount rate of the Federal Reserve Bank of New
York. For data for earlier years, beginning with 1942,
see previous ANNUAL REPORT. NO holdings in 1980
nor on dates not shown.

256 Tables

Millions of dollars
Type of transaction

Jan.

Feb.

Mar.

Apr.

Treasury bills
Gross purchases
Gross sales
Exchange
Redemptions

0
1,722
0
790

187
1,590
0
400

1,370
0
0
0

2,428
108
0
0

Others within 1 year
Gross purchases
Gross sales
Maturity shift
Exchange
Redemptions

0
0
383
-403
0

0
0
1,822
-2,177
0

292
0
921
-809
0

109
0
179
-459
0

I to 5 years
Gross purchases
Gross sales
Maturity shift
Exchange

0
0
-383
403

0
0
-374
1,377

355
0
-921
809

373
0
-179
459

5 to 10 years
Gross purchases
Gross sales
Maturity shift
Exchange

oooo

0
0
-1,364
450

107
0
0
0

62
0
0
0

Over 10 years
Gross purchases
Gross sales
Maturity shift
Exchange

oooo

U.S. government securities
Outright transactions
(excluding matched sale-purchase transactions)

0
0
-84
350

81
0
0
0

64
0
0
0

All maturities
Gross purchases
Gross sales
Redemptions

0
1,722
790

187
1,590
400

2,206
0
0

3,036
108
0

53,025
55,557

54,541
54,584

55,658
54,636

57,316
57,479

5,704
6,872

5,407
4,787

6,682
6,379

3,029
3,952

-1,140

1,486

2,168

Matched sale-purchase transactions
Gross sales
Gross purchases
Repurchase agreements
Gross purchases
Gross sales

-1,148
Net change in U.S. government securities..
Federal agency obligations
Outright transactions
Gross purchases
Gross sales
Redemptions
Repurchase agreements
Gross purchases
Gross sales

668
0
2
3,049
3,543

2,403
2,372

483
563

45

-494

1,883
1,834

586

0
-171

2,582

Net change in federal agency obligations . .
Bankers acceptances
Outright transactions, net

0
-704

0
205

Repurchase agreements, net

-704

205

0
-34
-34

2,345

-903

1,497

Net change in bankers acceptances

 in System Open Market Account
Total net change


-171

Tables 257

July

June

Sept.

Aug.

Oct.

Nov.

Dec.

Total

838
232
0
0

322
0
0
0

0
2,264
0
950

0
47
0
0

200
237
0
0

991
531
0
700

0
600
0
500

1,331
0
0
49

7,668
7,331
0
3,389

155
0
1,670
-5,276
0

121
0
412
-1,479
0

0
0
311
-788
0

137
0
2,423
-3,134
0

0
0
589
-1,459
0

0
0
596
-420
0

0
0
2,368
-879
0

100
0
754
-967
0

912
0
12,427
-18,251
0

405
0
-1,302
3,000

465
0
-412
1,479

0
0
-311
788

541
0
-720
1,750

0
0
-589
1,459

0
0
-596
420

0
0
-2,368
500

0
0
-754
967

2,138
0
-8,909
13,412

133
0
-25
1,300

164
0
0
0

0
0
0
0

236
0
-1,703
1,000

0
0
0
0

0
0
0
0

0
0
0
220

0
0
0
0

703
0
-3,092
2,970

216
0
-342
976

129
0
0
0

0
0
0
0

320
0
0
384

0
0
0
0

0
0
0
0

0
0
0
159

0
0
0
0

811
0
-426
1,869

1,747
232
0

1,200
0
0

0
2,264
950

1,234
47
0

200
237
0

991
531
700

0
600
500

1,431
0
49

12,232
7,331
3,389

49,934
50,965

50,590
52,076

48,370
46,023

72,315
71,645

55,766
56,207

55,787
56,462

40,944
41,129

79,754
78,734

674,000
675,496

7,717
4,811

12,810
15,258

10,719
10,110

2,783
3,016

3,203
2,743

20,145
19,808

24,169
23,924

11,534
11,381

113,902
113,040

5,452

238

-4,952

284

863

771

-670

516

3,869

0
0
0

0
0
2

0
0
2

*oo

May

0
0
91

0
0
21

0
0
0

0
0
22

668
0
145

1,611
1,258

3,035
3,351

1,737
1,242

1,082
1,132

977
1,188

5,922
5,734

4,825
4,880

1,889
1,767

28,895
28,863

353

-318

492

-50

-302

167

-55

99

555

0
366

0
7

0
-64

0
-33

0
222

0
67

0
-43

0
253

0
73

-64

-33

222

67

-43

253

73

-4,523

202

784

1,005

-768

868

4,497

366
6,171

-73

$500,000.
* Less than
http://fraser.stlouisfed.org/
NOTE. Sales, redemptions
reduce System of St. Louis
Federal Reserve Bank holdings; all

and negative figures
other figures increase

them. Details may not add to totals because of rounding.

258 Tables
6. Earnings and Expenses of Federal Reserve Banks, 1980
Dollars
Item

Total

Boston

New York

Philadelphia

Cleveland

CURRENT EARNINGS

175,835,241
18,214,755

11,139,456

19,440,276
18,214,755

31,248,389

10,369,402

12,478,609,389
123,354,719
6,305,232

576,017,695
3,487,982
200,091

3,260,843,560
34,073,256
3,321,053

554,382,814
4,689,169
191,051

953,866,750
9,974,390
259,345

12,802,319,336

590,845,224

3,335,892,900

590,511,423

974,469,887

Salaries
Retirement and other
benefits
Fees
Travel
Postage
Other shipping
expenses
Communications...
Materials and
supplies
Bank premises
Taxes on real estate
Depreciation
Utilities
Rent
Other building
expenses . . . .
Furniture and
equipment
Rentals
Depreciation . . . .
Cost of Federal Reserve currency .
All other
Contra—Expense ' .

385,640,414

25,301,019

86,062,107

18,792,631

23,159,590

110,792,473
6,586,411
12,702,997
14,422,139

7,554,588
288,692
670,728
641,192

24,353,744
2,123,210
2,080,450
2,207,436

6,295,654
265,401
401,782
593,033

6,963,759
353,605
908,627
891,334

76,076,259
13,823,022

4,348,228
819,875

10,054,223
3,013,580

3,266,678
647,729

5,603,200
793,501

33,737,841

2,331,977

6,415,326

1,635,949

1,988,271

15,102,618
9,760,793
16,351,188
10,077,225

2,922,503
1,874,955
1,845,108
405,611

2,524,679
244,797
3,591,791
6,336,999

1,225,982
1,461,057
1,651,807
24,400

903,700
670,076
997,768
141,319

7,162,771

479,951

790,023

760,558

281,210

41,079,873
19,387,239

1,595,798
1,534,408

7,395,275
3,228,062

1,070,464
1,524,508

3,107,261
1,356,580

73,124,423
24,813,621
-2,145,520

3,778,604
1,992,513
-149,758

14,844,238
5,002,306

3,361,052
1,318,631
-1,504

4,895,982
1,659,698
-152,159

TOTAL 2 . . .
Reimbursements and
recoveries

865,969,678

58,235,992

180,268,246

44,295,812

54,523,322

74,812,417

7,561,496

16,670,575

4,100,917

5,754,554

791,157,261

50,674,496

163,597,671

40,194,895

48,768,768

Loans
Acceptances
U.S. government
securities
Foreign currencies..
All other
TOTAL
CURRENT EXPENSES

Net expenses




Tables

259

6.—Continued
St. Louis

Minneapolis

Kansas City

Dallas

San Francisco

Atlanta

Chicago

17,374,400

13,702,974

27,056,315

6,852,559

5,049,341

8,398,459

1,016,533,101
6,128,922
253,335

468,479,938
9,126,749
436,372

1,952,245,414
17,548,677
568,053

506,659,174
3,605,830
190,912

237,724,958
3,843,798
294,692

570,198,456
5,162,833
201,257

1,664,859,598
716,797,93
18,630,315
7,082,79*I
180,357
208,71'I

1,040,289,758

491,746,033

1,997,418,459

517,308,475

246,912,789

583,961,005

736,337,052

1,696,626,331

29,827,709

33,987,415

48,589,427

19,758,996

16,668,502

25,080,619

20,605,461

37,806,938

8,034,429
451,717
1,041,490
1,132,571

9,490,398
311,584
1,279,782
1,171,737

14,362,834
460,164
1,648,821
1,525,752

5,865,030
492,289
629,220
1,120,328

4,224,663
406,800
659,834
921,460

7,269,543
360,847
1,104,674
1,721,673

5,283,737
334,662
808,531
787,029

11,094,094
737,440
1,469,058
1,708,594

8,747,939
1,059,833

7,691,493
1,462,549

10,797,986
1,561,741

4,542,386
535,369

2,915,567
651,392

4,862,494
916,951

4,977,877
984,312

8,268,188
1,376,190

3,073,162

3,152,089

4,379,240

1,902,314

1,186,339

2,404,304

2,154,696

3,114,174

1,203,532
2,166,106
1,687,297
827,767

742,221
469,077
1,282,017
437,958

2,058,707
500,701
1,415,824
906,911

386,358
359,991
820,941
151,013

1,602,655
831,581
522,102
61,501

470,276
540,090
820,339
32,338

508,049
187,832
804,916
28,811

553,956
454,530
911,278
722,597

739,608

435,295

1,443,511

489,469

498,620

283,261

652,877

308,388

4,823,665
1,255,120

4,237,755
1,338,247

6,761,526
1,174,918

2,535,762
1,146,798

1,128,425
744,222

3,088,142
1,638,700

1,998,582
1,340,071

3,337,218
3,105,605

8,191,403
1,797,747
- 194,432

6,631,342
2,254,720
- 244,947

8,549,266
1,582,742
-323,156

2,879,262
1,195,216
- 140,022

1,347,936
1,226,870
-57,212

3,952,861
1,568,760
-484,139

5,143,576
2,295,958
-155,735

9,548,901
2,918,460
-242,456

73,340,554 2

76,130,732

107,396,915

44,670,720

35,541,257

55,631,733

48,741,242

87,193,153

5,431,132

5,958,351

8,529,467

3,612,000

2,368,433

4,502,415

2,838,362

7,484,715

67,909,422

70,172,381

98,867,448

41,058,720

33,172,824

51,129,318

45,902,880

79,708,438

Richmond

For notes see end of table.




12,247,609

12,956,061

260 Tables
6. Earnings and Expenses of Federal Reserve Banks, 1980—Continued
Dollars
Item

Total

Boston

New York

Philadelphia

Cleveland

PROFIT AND LOSS

Current net earnings
Additions to current
net earnings
Profit on foreign
currency transactions 3
All other
Total additions . . . .
Deductions from
current net
earnings
Losses on sales of
U.S. government securities
All other
Total deductions
Net deductions from
current net
earnings
Assessment for
expenditures of
Board of Governors 4
Net earnings before
payments to U.S.
Treasury

12,011,162,076

540,170,728

3,172,295,229

550,316,528

925,701,119

96,118,696
4,502,792

2,787,442
22,958

24,318,030
209,126

3,748,629
9,319

7,977,852
16,870

100,621,488

2,810,400

24,527,156

3,757,948

7,994,722

199,348,220
16,659,123

9,403,767
316,466

50,330,254
1,315,286

9,141,236
413,798

15,589,711
1,522,934

216,007,343

9,720,233

51,645,540

9,555,034

17,112,645

115,385,855

6,909,833

27,118,384

5,797,086

9,117,923

62,230,800

1,775,100

15,742,400

2,428,200

5,119,700

11,833,545,421

531,485,795

3,129,434,445

542,091,242

911,463,496

Dividends paid
Payments to U.S.
Treasury (interest on Federal
Reserve notes) ..

70,354,516

1,979,868

17,866,143

2,649,084

5,666,776

11,706,369,955

529,189,477

3,095,446,252

538,877,458

905,500,670

Transferred to
surplus
Surplus, January 1 ..

56,820,950
1,145,411,250

316,450
32,797,800

16,122,050
289,884,750

564,700
45,389,450

296,050
94,893,900

Surplus, December 31

1,202,232,200

33,114,250

306,006,800

45,954,150

95,189,950




Tables

261

6.—Continued
Richmond

Atlanta

Chicago

St. Louis

Minneapolis

Kansas City

Dallas

San Francisco

972,380,336

421,573,652

1,898,551,011

476,249,755

213,739,966

532,831,687

690,434,172

1,616,917,893

4,902,053
25,204

7,305,021
45,108

14,033,330
158,504

2,883,561
10,611

3,075,798
31,692

4,133,104
108,080

5,671,003
41,993

15,282,873
3,823,327

4,927,257

7,350,129

14,191,834

2,894,172

3,107,490

4,241,184

5,712,996

19,106,200

16,347,840
565,653

7,798,479
589,747

31,496,833
1,764,860

8,272,097
2,215,644

4,043,489
430,413

9,041,188
746,878

11,293,644
1,677,656

26,589,682
5,099,788

16,913,493

8,388,226

33,261,693

10,487,741

4,473,902

9,788,066

12,971,300

31,689,470

11,986,236

1,038,097

19,069,859

7,593,569

1,366,412

5,546,882

7,258,304

12,583,270

3,188,100

4,723,800

9,153,900

1,878,300

1,975,200

2,666,400

3,699,800

9,879,900

957,206,000

415,811,755

1,870,327,252

466,777,886

210,398,354

524,618,405

679,476,068

1,594,454,723

3,666,118

5,355,123

10,341,003

2,112,599

2,244,182

3,013,706

4,268,321

11,191,593

950,087,482

407,036,932

1,851,065,549

463,536,637

206,336,172

518,866,449

669,089,897

1,571,336,980

3,452,400
58,232,800

3,419,700
86,658,250

8,920,700
167,898,000

1,128,650
34,597,200

1,818,000
36,256,150

2,738,250
49,055,200

6,117,850
67,409,750

11,926,150
182,338,000

61,685,200

90,077,950

176,818,700

35,725,850

38,074,150

51,793,450

73,527,600

194,264,150

1. This item includes expenses for labor and
materials temporarily capitalized and charged to activities when the products are consumed.
2. The total expense for Richmond has been adjusted to exclude $2,526,109, which was allocated to
the expenses of other Federal Reserve Banks for
operation of the Federal Reserve Communications
System.




3. Includes unrealized gains and losses.
4. For additional details, see the last three pages of
the section "Board of Governors, Income and Expenses."
NOTE. Details may not add to totals because of
rounding.

7. Earnings and Expenses of Federal Reserve Banks, 1914-80
Dollars
Period, or Federal
Reserve Bank

All Banks
1914-15

Current
earnings

Current
expenses

Net additions
or
deductions ( - )

Assessments
for expenditures of
Board of
Governors

Payments to U.S. Treasury
Dividends
paid

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

217,463
1,742,775
6,804,186
5,540,684
5,011,832

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
26,628,458
26,739,327
26,207,133
28,909,469

-3,743,907
-6,314,796
-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

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

*193O
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

27,533,141
26,322,110
25,562,571
28,422,677
27,869,374
30,171,545
28,194,457
27,052,234
27,186,684
27,025,391

-93,136
311,451
-1,413,192
-12,307,074
-4,430,008
-1,736,758
485,817

809,585
718,554
728,810
800,160

2,389,555

1,405,898
1,679,566
1,748,380
,724,924
,621,464

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

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

27,461,466
31,123,609
36,877,718
41,129,934
46,879,564
46,376,762
54,975,323
62,753,308
69,466,518
74,235,176

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
2,296,357
2,340,509
2,259,784
2,639,667
3,243,670
3,242,500

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

275,838,994
1950 ...
394,656,072
1951 ...
456,060,260
1952 ...
513,037,237
1953 ...

1954 ...
438,486,040


77,138,071
91,373,589
100,572,489
109,415,220
105,558,331

36,294,117
-2,127,889
1,583,988
-1,058,993
-133,641

3,433,700
4,095,497
4,121,602
4,099,800
4,174,600

13,082,992
13,864,750
14,681,788
15,558,377
16,442,236

-1,631,274
2,232,134

1,372,022

Franchise
tax

Under
section 13b

Transferred
to surplus
Interest on
(section 13b)
Federal Reserve
notes

Transferred
to surplus
(section 7)

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
17,308
2,011,418
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

75,223,818
166,690,356
193,145,837
196,628,858
254,873,588
291,934,634
342,567,985
276,289,457

-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
21,849,490
28,320,759
46,333,735
40,336,862
35,887,775

1955
1956
1957
1958
1959

412,487,931
595,649,092
763,347,530
742,068,150
886,226,116

105,865,923
115,842,696
124,306,103
131,804,455
138,232,106

-265,456
-23,436
-7,140,914
124,175
98,247,253

4,194,100
5,339,800
7,507,900
5,917,200
6,470,600

17,711,937
18,904,897
20,080,527
21,197,452
22,721,687

251,740,721
401,555,581
542,708,405
524,058,650
910,649,768

32,709,794
53,982,682
61,603,682
59,214,569
-93,600,791

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

147,348,575
155,009,475
169,481,234
179,700,557
188,740,689
195,713,790
198,379,526
209,351,250
228,152,172
259,953,236

13,874,702
3,481,628
-55,779
614,835
725,948
1,021,614
996,230
2,093,876
8,519,996
-557,553

6,533,700
6,265,100
6,654,900
7,572,800
8,655,200
8,576,396
9,021,600
10,769,596
14,198,198
15,020,084

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

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980

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
12,802,319,335

300,145,586
344,550,798
379,371,852
450,705,676
506,424,874
551,488,714
606,948,264
623,859,582
652,617,206
693,559,531
791,157,259

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
-115,385,855

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
62,230,800

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
70,354,516

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
11,706,369,955

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
56,820,950

TOTAL, 1914-80 99,591,612,871 10,019,971,928-1,302,956,629

651,376,408

1,372,600,088

149,138,300

Boston
4,821,372,804
684,255,253 -50,136,582
New York
25,528,575,661 2,114,262,707 -332,864,511
5,230,362,529
Philadelphia
544,031,459 -55,187,279
Cleveland
7,904,022,417
732,016,989 -111,560,848
7,471,337,266
Richmond
794,747,418 -78,129,914
4,921,774,051
Atlanta
798,038,573 -86,103,227
15,793,606,416 1,328,885,491 -209,211,130
Chicago
3,906,987,994
St. Louis
560,795,360 -48,593,068
2,153,477,875
Minneapolis
394,571,869 -32,223,773
4,105,087,191
Kansas City
602,130,861 -53,581,621
4,721,163,319
Dallas
513,886,290 -74,200,981
952,349,658 -171,163,696
San Francisco . . . 13,028,845,348

27,758,586
173,560,486
33,862,218
57,475,990
33,883,276
43,483,160
96,459,872
21,736,172
17,077,915
26,931,509
35,241,373
83,905,851

65,594,198
387,566,424
80,663,494
125,462,096
67,565,028
81,348,221
192,627,677
46,099,722
34,378,908
55,428,200
70,626,127
165,239,993

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

TOTAL

651,376,408

1,372,600,088

149,138,300

-3,657

1,330,904,399

3,942,891,461
22,109,116,197
4,449,761,739
6,764,167,279
6,423,145,457
3,808,421,064
13,748,798,539
3,186,181,616
1,632,950,658
3,304,086,961
3,948,686,001
11,444,272,910

135,411
-433,413
290,661
-9,906
-71,517
5,491
11,682
-26,515
64,874
-8,674
55,337
-17,089

43,209,075
343,263,371
60,284,372
108,423,743
67,565,008
95,344,490
192,147,454
40,845,478
41,951,363
55,933,400
77,805,078
204,131,567

2,188,893 84,762,479,882

-3,657

2,188,893 84,762,479,882

Aggregate for
each Federal
Reserve
Bank,
1914-80

99,591,612,871 10,019,971,928-1,302,956,629

1. The $1,330,904,399 transferred to surplus was reduced by direct charges of
$500,000 for charge-off on Bank premises (1927), $139,299,557 for contributions to
capital of the Federal Deposit Insurance Corporation (1934), and $3,657 net upon
Digitizedelimination of sec. 13b surplus (1958); and was increased by $11,131,013 transferred
for FRASER



280,843
369,116
722,406
82,930
172,493
79,264
151,045
7,464
55,615
64,213
102,083
101,421

1,330,904,399 '

from reserves for contingencies (1945), leaving a balance of $1,202,232,198 on Dec. 31,
1980.
NOTE. Details may not add to totals because of rounding.

264 Tables

Dollars
Cost

Federal
Reserve
Bank
or branch

Land

Buildings
(including
vaults^ '

Building machinery and
equipment

Total ''

Net
book
value

21,635,346
27,840

78,715,046
89,202

5,425,128
44,538

105,775,520
161,580

New York
Annex ..
Buffalo . . .

3,436,277
477,862
673,076

20,313,125
1,136,219
2,828,712

12,415,981
745,855
1,626,091

36,165,383
2,359,936
5,127,879

99,547,675
134,907
16,475,954
680,556
2,608,640

Boston..
Annex

Philadelphia .

1,876,601

51,803,403

5,119,481

58,799,485

1,074,281
1,997,249
1,658,376

5,946,303
13,541,025
4,640,384

4,097,395
7,521,727
3,058,355

11,117,979
23,060,001
9,357,115

2,803,988
16,558,460
4,631,702

Richmond..
Annex . . .
Baltimore ..
Charlotte...

3,912,575
522,733
4,618,738
347,071

55,384,403
3,725,466
9,598,916
1,069,026

14,314,312
3,616,991
1,203,478
875,432

73,611,290
7,865,190
15,421,132
2,291,529

69,409,742
4,724,151
13,176,753
1,236,926

Atlanta
Birmingham
Jacksonville
Annex
Miami
Nashville
New Orleans

1,202,255
1,788,628
164,004
107,925
1,667,108
592,343
3,080,344

6,130,454
2,073,598
1,706,794
76,236
16,520,939
1,474,678
2,754,272

3,558,581
1,019,618
784,732
15,842
1,016
1,175,891
1,469,911

10,891,290
4,881,844
2,655,530
200,003
18,189,063
3,242,912
7,304,527

5,724,884
3,105,759
952,918
158,876
18,194,907
1,522,890
5,159,232

Chicago.
Annex ,
Detroit..

4,511,942
50,000
797,734

15,291,192
302,248
2,974,336

11,331,231
93,916
1,965,587

31,134,365
446,164
5,737,657

13,620,684
385,311
2,462,526

St. Louis ..
Little Rock
Louisville .
Memphis ..

700,378
1,051,214
700,075
1,135,623

4,255,733
2,257,261
2,900,582
4,517,077

3,316,660
1,018,004
1,159,753
2,126,755

8,272,771
4,326,479
4,760,410
7,779,455

2,784,294
2,969,566
2,490,004
5,739,654

Minneapolis
Helena

1,394,384
65,680

27,735,548
101,000

7,763,560
61,907

36,893,492
228,587

27,726,210
90,315

Kansas City
Denver
Oklahoma City.
Omaha

1,338,736
2,997,746
646,386
1,030,226

11,876,441
3,209,227
2,428,278
1,749,968

4,337,977
2,351,642
1,702,342
817,214

17,553,154
8,558,615
4,777,006
3,597,408

10,097,500
5,711,432
3,657,965
2,114,312

Dallas
El Paso
Houston
San Antonio .

3,687,482
262,477
1,959,770
448,596

5,070,507
798,892
1,408,574
1,808,303

3,570,804
393,301
735,552
570,847

12,328,793
1,454,670
4,103,896
2,827,746

7,124,381
827,546
3,286,725
1,780,141

San Francisco.
Annex
Los Angeles ..
Portland
Salt Lake City.
Seattle

12,274,532
247,201
644,238
207,381
480,222
274,772

22,619,721

2,174,233

37,068,486

32,138,384

131,114
4,809,559
1,798,391
2,001,299
2,085,175

62,078
2,390,534
649,432
824,151
1,193,580

440,393
7,844,331
2,655,204
3,305,672
3,553,527

9,134,390

52,815,268

Cleveland .
Cincinnati.
Pittsburgh.

Other
real
estate 3

350,400
4,096,500
1,997,387
2,101,049
1,824,158

•

TOTAL..

87,767,427 401,658,627

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 pur-




118,701,415 608,127,469 455,000,632

1,224,363

1,675,944
503,252
944,254

283,753

139,735
434,135
457,973

14,797,799

poses, and Bank premises formerly occupied and being held pending sale.
NOTE. Details may not add to totals because of
rounding.

Tables 265
9. Volume of Operations in Principal Departments of Federal
Reserve Banks, 1977-80
Operation

1980

1979

1978

1977

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
Issues, redemptions, and exchanges of
U.S. government securities
Transfers of funds
Food stamps redeemed

9,432
3,197
17,700
705
117
15,716
301
43
2,541

O

(2)
8,839
2,969
18,756

O
8,537
2,621
18,654 r

8,186
2,609
16,563

718
117
15,067

721
125
14,107

740
139
13,312

335
35
1,730

281
29
1,906

286
25
1,901

Amounts (millions of dollars)
Loans
Currency received and counted
Currency verified and destroyed
Coin received and counted
Checks handled
U.S. government checks
Postal money orders
Allother
Issues, redemptions, and exchanges of
U.S. government securities
Transfers of funds
Food stamps redeemed
r

267,957
104,333
20,183
2,703

220,628
93,119
22,638
2,765

138,928
81,175
16,443
2,495

77,511
75,933
14,952
2,239

598,569
6,164
8,038,026

511,044
6,323
8,514,670

439,907
5,534
7,111,254

416,386
5,661
5,499,856

10,252,027
78,594,862
9,268

8,186,706r
64,231,109
7,779

8,036,749
50,482,656
7,251

8,835,730
43,165,467
7,422

Revised.
1. Packaged items handled as a single item are
counted as one piece.




2. Number handled (in thousands): 1980, 25;
1979, 38; 1978, 31; 1977,12.

266 Tables
10. Principal Operations of Federal Reserve Banks—Expense, Ratio of Expense for
Each Operation to Total Expenses, and Average Number of Employees, 1977-80
Expenses in thousands of dollars; number of employees in thousands; ratios in percent
Operation and item

1980

1979

1978

1977

Check clearing operations '
Expense
Ratio to total expenses
Average number of employees .

322,912
37.3
6.5

279,094
36.6
6.3

259,983
36.4
6.3

246,981
36.2
6.5

Currency function
Expense
Ratio to total expenses
Average number of employees .

193,123
22.3
1.8

180,974
23.7
1.9

187,864
26.3
2.0

182,875
26.8
2.2

Fiscal agency operations
Expense
Ratio to total expenses
Average number of employees .

92,348
10.7
1.9

83,521
11.0
1.9

76,837
10.7
1.9

73,002
10.7
2.0

Bank supervision
Expense
Ratio to total expenses
Average number of employees ,

85,913
9.9
1.6

67,752
8.9
1.4

58,303
8.2
1.3

52,702
7.7
1.3

Other operations 2
Expense
Ratio to total expenses
Average number of employees .

171,674
19.8
1.9

150,878
19.8
2.2

131,713
18.4
2.2

126,318
18.6
2.2

9.9

9.4

9.8

10.1

TOTAL EXPENSES.

865,970

762,219

714,700

681,878

Less reimbursements .

74,812

68,786

62,084

58,018

791,157

693,433

652,616

623,860

General administration and support
Average number of employees

3

Net expenses
1. Includes automated clearinghouse and noncash
collections.
2. Includes mainly economic research and statistics,
foreign operations, and lending and credit.

3. General administration and support costs are allocated to each operation.

11. Number and Salaries of Officers and Employees of
Federal Reserve Banks, December 31, 1980
President
Federal Reserve
Bank (including
branches)

Annual
salary
(dollars)

Total

Employees

Other officers

Number

Annual
salaries
(dollars)

Number
PartFulltime
time

Annual
salaries
(dollars)

Number

Annual
salaries
(dollars)

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta

96,660
125,000
78,500
87,000
78,000
95,000

48
132
39
36
65
68

1,950,600
6,395,700
1,552,400
1,396,500
2,528,350
2,606,925

1,359
4,185
1,061
1,439
1,952
2,292

200
94
104
70
107
30

23,647,868
76,756,025
17,101,600
21,095,555
28,515,984
30,788,141

1,608
4,412
1,205
1,546
2,125
2,391

25,695,068
83,276,725
18,732,500
22,579,055
31,122,334
33,490,066

Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

102,000
81,000
80,000
68,000
73,600
105,000

72
43
38
52
35
76

2,864,500
1,743,030
1,497,900
1,926,500
1,340,100
3,004,975

2,941
1,274
973
1,566
1,343
2,032

185
93
3
80
26
83

43,990,195
18,240,478
14,179,425
22,415,059
18,386,321
33,151,806

3,199
1,411
1,015
1,699
1,405
2,192

46,956,695
20,064,508
15,757,325
24,409,559
19,800,021
36,261,781

1,069,700

704

28.807.480

22,417

1,075

348,268,457

24.208

378,145,637

TOTAL....




Tables

267

12. Federal Reserve Bank Interest Rates, December 31, 1980
Percent per annum
Loans to depository institutions
Federal Reserve
Bank

Short-term
adjustment credit '

Loans to all others
under last paragraph
of sec. 13 3

Extended credit
Seasonal credit F Special credit

2

14

13

Boston

16

New York

Philadelphia ..
Cleveland
Richmond . . . .
Atlanta
Chicago
St. Louis
Minneapolis...
Kansas City . . .
Dallas
San Francisco .

13

14

1. Rate applied to discounts of eligible paper and
advances secured to the satisfaction of the Federal
Reserve Bank. A 3 percent surcharge was in effect at
year-end for short-term adjustment credit borrowings
by institutions with deposits of $500 million or more
who had borrowed in successive weeks or in more than
four weeks in a calendar quarter.
2. This rate is applicable to advances when excep-

tional circumstances or practices involve only a particular depository institution as described in section
201.3(b)(2) of Regulation A.
3. This rate applies to advances to individuals, partnerships, or corporations that are secured by direct
obligations of, or obligations fully guaranteed as to
principal and interest by, the U.S. government or any
of its agencies.

13. Member Bank Reserve Requirements
Percent of deposits
Through July 13, 1966
Net demand deposits 2

Effective date '

Time deposits
(all classes
of banks)

Central reserve
city banks
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—June 24, 16
July 29, Aug. 1 .
1958—Feb. 27, Mar. 1 .
Mar. 20, Apr. 1 .
Apr. 17
24
1960—Sept. 1

Reserve city
banks

Country
banks

13
19 Vi
22 3/4

10
15
17/ 2
20
17/2
20

7
IO/2
12/4
14
12
14

22
21
20

16

7/2

15
14
13
12

7
6

26
223/4
26
24
22
20
22
24
26
24
23/2
23
22 Vi
22
23
24
22
21
20
191/2
19
181/2
18
17 Vi

Nov. 24

Dec. 1
1962—July 28
Oct. 25,
 Nov. 1 .

http://fraser.stlouisfed.org/ of table.
For notes see end
Federal Reserve Bank of St. Louis

I6/2

' V9/2'
19
I8/2
18
19
20
19

13
14
13

18

12

17/2

II/2

17
I6/2

11

3
4/2
5/4
6

5
6

Tables 268
13*. Member Bank Reserve Requirements—Continued
Percent of deposits
July 14, 1966, through Nov. 8, 1972 (deposit intervals in millions of dollars)
Time deposits 4
(all classes of banks)

Net demand
deposits 2
Country
banks

Reserve
city banks

Effective date '

Over
5

0-5

Over
5

0-5

5

Other
time

Savings

5

1967—Mar 2
16
16'/2
17

1968—Jan. 11, 18
1969—Apr 17
1970—Oct 1

17
17'/2

12
12'/2

45
31/2

3

12

45
31/2

16>/2

1966—July 14 21
Sept. 8, 15

Over
5

0-5

3

5
6

121/2
13
5

Nov. 9, 1972, through) Nov. 12, 1980 (deposit intervals irl millions of dollars)
Net demand deposits 2'6

Time and savings deposits

4

Time 7
Effective date
0-2

2-10

10100

Over
400

100400

30179
days
1972—Nov. 9
16
1973—July 19
1974—Dec 12
1975_Feb. 13
Oct. 30
1976—Jan. 8
Dec 30

10

8

12

16'/2

8

17'/2

Over 5, by
maturity

0-5, by
maturity !

Savings

180
days 4 yrs.
or
to
4 yrs. more

35

30179
days

35

180
days 4 yrs.
or
to
4 yrs. more
55

13
..

IVi

10

12

13

"\S'"
17/2
16'/?

6
3
3

1

914

IP/4

3

12 /4

I

9

21/2 '

3
19

3
2»/2

9

16'/4

Beginning Nov. 13, 1980

Type of deposit, and
deposit interval

Depository institution requirements
after implementation of the
Monetry Control Act l0
Percent

Net transaction accounts
$O-$25 million
Over $25 million

Effective date

3
12

11/13/80
11/13/80

l

Nonpersonal time deposits '2
By original maturity
Less than 4 years
4 years or more
Eurocurrency liabilities
All types
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 minus war

loan and Series E bond accounts during the period
Apr. 13, 1943-June 30, 1947).
http://fraser.stlouisfed.org/

Federal Reserve Bank of St. Louis

11/13/80
11/13/80
11/13/80
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 Vi 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

269

13.—Continued
reserves against (a) net balances due from domestic
offices to their foreign branches and (b) foreignbranch 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. 14, 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 Regulations D and M as described in "Record of Policy Actions of the Board of Governors," in previous A N NUAL 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 requirements as
savings deposits, effective Jan. 5, 1967. Negotiable
order of withdrawal (NOW) accounts were 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. Beginning 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 certain other liabilities. This supplementary requirement 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
 notapplied to balances above a specified
base, but was
applicable to banks having obliga-



tions 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 reduced to zero 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
statement weeks 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 by IVi 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 16 Vi 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. For existing nonmember banks and thrift institutions, there is a phase-in period ending Sept. 3, 1987.
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. For existing agencies and branches of
foreign banks, the phase-in ends Aug. 12, 1982. All
new institutions will have a two-year phase-in beginning with the date that they open for business.
11. Transaction accounts include all deposits on
which the account holder is permitted to make
withdrawals by negotiable or transferable instruments,
payment orders of withdrawal, telephone and preauthorized transfers (in excess of three per month), for
the purpose of making payments to the third persons
or others.
12. In general, nonpersonal time deposits are time
deposits, including savings deposits, that are not
transaction accounts and in which the 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.

270 Tables
14. Maximum Interest Rates Payable on Time and Savings Deposits
Percent per annum
Nov. 1, 1933—July 19, 1966
Effective date
Type of deposit

Nov. 1,
1933

Feb. 1,
1935

Jan. 1,
1936

3

2/2

2/2

3

3

2/2

2/2

3

3
3
3

2/2

2/2

3

2/2
2/2

2
1

2/2

Savings
12 months or more ..
Less than 12 months .
Postal savings '
12 months or more . .
Less than 12 months .
Other time 2
12 months or more ..
6-12 months
90 days to 6 months..
Less than 90 days
(30-89 days)

Jan. 1,
1957

1

July 17, Nov. 24, Dec. 6,
1965
1964
1963

Jan. 1
1962
4
3/2

4 \
V/iJ

4

4

3/2

3/2/

4

1

\

4

4

4

4

]

4

4/2I

1

3/2 Y
2/2 J

4 f

5

July 20, 1966—June 30, 1973
Effective date
Type of deposit

Savings
Other time 2
Multiple maturity 3
30-89 days
90 days to 1 year
1-2 years
2 years or more
Single-maturity
Less than $100,000
30 days to 1 year
1-2 years
2 years or more
$100,000 or more
30-59 days
60-89 days
90-179days
180 days to 1 year . . . .
J year or more

July 20,
1966

Sept. 26,
1966

Jan. 21,
1970

4

4

4/2

4
L

4
4

4

4/2

5

5

5

5/2
5 3 /4

j
*

5

5
5

5/2

5/2
5 3 /4

5

>•

(4)
(4)
(4)
(4)

5 3 /4

y

5/2

\

Mar. 28, 1966.
2. For exceptions with respect to foreign time
deposits, see ANNUAL REPORT for 1962,

6

5/2

I

J
1. Closing date for the Postal Savings System was
p. 129;

1965,

p. 233; 1968, p. 69.
3. Multiple-maturity time deposits include deposits
that are automatically renewable at maturity without
action by the depositor and deposits that are payable
after written notice of withdrawal.
4. The limit on rates on single-maturity time deposits
of $100,000 or more has been suspended. The maximum rates that became effective Jan. 21, 1970, and
the dates when they were suspended are as follows:
30-59 days
6/4 percent) r
, 4 1Q7ft
60-89 days
6/2 percent J J u n e M » 1 9 7 °
90-179 days
6VA percent)
180 days to 1 year
7 percent V May 16, 1973
1 year or more
7 Vi percent j
Rates on multiple-maturity time cfeposits in denominations of $100,000 or more were suspended July 16,
1973, when the distinction between single- and
multiple-maturity deposits was eliminated.
5. For authorized states only, federally insured commercial banks, savings and loan associations,
cooperative banks, and mutual savings banks in
Massachusetts and New Hampshire were first permitted to offer negotiable order of withdrawal (NOW)
accounts on Jan. 1, 1974. Authorization to issue
NOW accounts was extended to similar institutions
throughout New England on Feb. 27, 1976, and in




Apr. 19
1968

J

f\V

(4)

New York State on Nov. 10, 1978, and in New Jersey
on Dec. 28, 1979. Similar institutions in all states were
authorized to issue NOW accounts on Dec. 31, 1980.
6. Effective Oct. 30, 1980, the minimum maturity or
notice period for time deposits was decreased from 30
days to 14 days for commercial banks.
7. Effective Aug. 1, 1979.
8. Until July 1, 1979, minimum denomination was
$1,000 except for deposits representing funds contributed to an individual retirement account (IRA) or
a Keogh (H.R. 10) plan established pursuant to the Internal Revenue Code. The $1,000 minimum requirement was removed for such accounts in December
1975 and November 1976 respectively.
9. Between July 1, and Oct. 31, 1973, there was no
ceiling for certificates maturing in four years or more
with minimum denominations of $1,000; however, the
amount of such certificates that an institution could
issue was limited to 5 percent of its total time and savings deposits. Sales in excess of that amount, as well as
certificates of less than $1,000, were limited to the 6/2
percent ceiling on time deposits maturing in 2/2 years
or more.
Effective Nov. 1, 1973, ceilings were reimposed on
certificates maturing in four years or more with minimun denomination of $ 1,000. There is no limitation on
the amount of these certificates that banks can issue.
10. Before Nov. 27, 1974, no distinction was made
between the time deposits of governmental units and
of other holders insofar as Regulation Q ceilings on

Tables 271
14.--Continued
Beginning July 1, 1973
Effective date
Type of deposit

Savings
Negotiable order of
withdrawal
accounts 5
Other time (multipleand singlematurity) 2 ' 3
Less than $100,000
14-89days 6 . . . .
90 days to 1 year
1-2 Vi years
2 Vi -4 years
4-6 years 8
6-8 years 8
8 years or more 7
Governmental
units
Individual retirement accounts and
Keogh
(H.R. 10)
plans ''
Money market
certificates 12
Small saver certifcates 14
Variable ceiling—4 years
or more
$100,000 or more..

July 1,
1973
5

Nov. 1, Nov. 23, Dec. 23,
1973
1974
1974
5

July 6,
1977

June 1,
1978

July 1,
1979

M a r . 14,
1980

Dec. 31,
1980

714

0°)

C°)

5'/4

514

514

5

5

5

5

5

514

5

5

5

51/2

51/2

51/2

51/4
51/2

5 V*
53/4

514

5Vl

6
"

5

6

6

6

6

6

6

61/2

61/2

61/2
7 VA

61/2
1 VA

6«/2
7>/4

IVI

IVI

IVA
IVA

61/2
7»/4
73/4

61/2

714

C)

6V2

5

5

5
5!/2
6

5

5

5
5'/2
6
6l/2
9

5

714

7

714

53/4

71/2
7 3 /4

IVi
IVA,

(4)

(4)

rates payable were concerned. Effective Nov. 27,
1974, governmental units were permitted to hold savings deposits and could receive interest rates on time
deposits with denominations of less than $100,000, regardless of maturity, as high as the maximum rate
permitted on such deposits at any federally insured
depository institution. Effective June 1, 1978, the
maximum rate on such governmental-unit time deposits was set as high as the maximum permitted on
such deposits maturing in more than 6 months (26
weeks) at any federally insured commercial bank,
mutual savings bank, or savings and loan association.
11. Three-year minimum maturity.
12. Nonnegotiable time deposits of $10,000 or more
with maturities of 26 weeks.
13. Effective June 1, 1978, commercial banks,
mutual savings banks, and savings and loan associations were authorized to offer money market certificates at a rate of interest tied to the discount yield
or the most recently insured six-month U.S. Treasury
bills. The most recent rates and effective dates are
published monthly in the Federal Reserve Bulletin, p.
A9.
14. Nonnegotiable time deposits with maturities of
2 Vi years or more.
15. Effective Jan. 1,1980, federally insured commercial banks, mutual savings banks, and savings and
loan associations were authorized to offer small saver
certificates at a maximum rate of interest tied to the
average 21/2 year yield for U.S. Treasury securities as
determined monthly by the U.S. Treasury. Effective
Feb. 27, 1980, an interest rate limit of 12 percent (for
thrift institutions) and 113/4 percent (for commercial
banks) was placed on these instruments. Effective
June 2, 1980, the Depository Institutions Deregulation




(4)

8

8

8

8

8

8

8

( 13 )

C5)
(4)

8

(>3)

IVA

IVA

IVA

IVi

C5)

O

(4)

( 16 )

(4)

Committee established a minimum ceiling rate of 914
percent for commercial banks and 9Vi percent for
thrift institutions. The most recent rates and effective
dates are published monthly in the Federal Reserve
Bulletin, p. A9.
16. Effective July 1, 1979, member banks were
authorized to offer variable-ceiling accounts with no
required minimum denomination and with maturities
of four years or more. The maximum rate for member
banks was 114 percentage points below the average
yield on four-year U.S. Treasury securities. Authorization to issue such instruments was terminated on Jan.
1, 1980.
NOTE. Before Mar. 31, 1980, the maximum rates
that could be paid by federally insured commercial
banks, mutual savings banks, and savings and loan
associations were established by the Board of Governors of the Federal Reserve System, the Board of
Directors of the Federal Deposit Insurance Corporation, and the Federal Home Loan Bank Board under
the provisions of 12 CFR 217, 329, and 526, respectively. Title II of the Depository Institutions Deregulation and Monetary Control Act of 1980 (P.L. 96-221)
transferred the authority of the agencies to establish
maximum rates of interest payable on deposits to the
Depository Institutions Deregulation Committee. The
maximum rates on time deposits in denominations of
$100,000 or more with maturities of 30-89 days were
suspended in June 1970; such deposits maturing in 90
days or more were suspended in May 1973. For information regarding previous interest rate ceilings on all
types of accounts, see earlier issues of the Federal
Reserve Bulletin, the Federal Home Loan Bank
Board Journal, and the Annual Report of the Federal
Deposit Insurance Corporation.

272 Tables
15. Margin Requirements
Percent of market value
For credit extended under Regulation T (brokers and dealers), U (banks),
G (others than brokers, dealers, or banks), and X (borrowers)
Effective date

1934—Oct. 1
1936—Feb. 1
Apr. 1
1937—Nov. 1
1945—Feb. 5
July 5
1946—Jan. 21
1947—Feb. 1
1949—Mar. 3
1951—Jan. 17
1953-Feb. 20
1955_jan.4
Apr. 23
1958—Jan. 16
Aug. 5
Oct. 16
1960-July28
1962—July 10
1963—Nov. 6
1968—Mar. 11
June 8
1970—May 6
1971—Dec. 6
1972—Nov. 24
1974—Jan. 3
1977—Jan. 1

Margin
stocks

Short sales,
T only

25—45
25-55
40
50
75
100
75
50
75
50
60
70
50
70
90
70
50
70
70
80
65
55
65
50
50

50
50
75
100
75
50
75
50
60
70
50
70
90
70
50
70
70
80
65
55
65
50
50

Writing options,
T only2

O
O

55

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-




Convertible
bonds

O

50
60
50
50
50
50
50

30

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 273
16.

Principal Assets and Liabilities, and Number of Insured Commercial Banks,
by Class of Bank, December 31, 1979 and 1978 '
Asset and liability items shown in millions of dollars
Insured commercial banks
Insured
nonmember
banks

Member banks

Item
Total
Total

National

State

December 31, 1979
Loans and investments, total ..
Loans
Gross
Net
Investments
U.S. Treasury securities . .
Other 2
Cash assets, total

1,126,776

816,872

633,358

183,514

309,903

851,362
822,085
275,414
87,695
187,719
190,283

631,520
610,824
185,353
58,063
127,290
159,290

490,267
143,091
44,125
98,966
106,748

141,253
137,107
42,262
13,938
28,324
52,542

219,842
211,261
90,061
29,632
60,429
30,994

Deposits, total
Interbank
Other demand
Other time
Total equity capital

1,085,739
67,058
371,032
647,649
96,962

781,939

594,962
33,640
207,086
354,236
54,290

186,977
30,691
65,986
90,299
16,525

303,800
2,727
97,959
203,114
26,146

14,351

5,424

4,447

977

8,927

Number of banks

64,331
273,072
444,535

70,815

473,717

December 31, 1978
Loans and investments, total . .
Loans
Gross
Net
Investments
U.S. Treasury securities . .
Other 2
Cash, assets, total

1,012,788

737,762

572,022

165,740

275,027

751,737
726,4%
261,052
89,136
171,916
176,937

560,305
542,493
177,456
60,114
117,342
149,992

435,316
421,026
136,705
45,282
91,423
102,612

124,989
121,467
40,751
14,832
25,919
47,380

191,432
184,003
83,595
29,020
54,574
26,945

Deposits, total
Interbank
Other demand
Other time
Total equity capital

1,009,089
62,991
346,162
599,936
87,216

739,175
60,461
255,285
423,427
64,447

560,967
31,685
195,344
333,937
49,196

178,208
28,776
59,941
89,490
15,251

269,914
2,529
90,877
176,508
22,769

14,378

5,563

4,563

1,000

8,815

Number of banks

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.

274 Tables
17. Member Bank Reserves, Federal Reserve Bank Credit, and Related
Items—Year-End 1918-80, and Month-End 1980
Millions of dollars
Factors supplying reserve funds
Federal Reserve Bank credit outstanding
U.S. government
securities

Total

Bought
out
right

Held
under
repurchase
agreement

Loans

Float

All
other

:

Other
Federal
Reserve
assets 3

Total

Treasury
currency

outstanding 5

2,498
3,292

2,873
2,707

1,795
1,707

3,355
,563
,405
,238
,302

2,639
3,373
3,642
3,957
4,212

1,709
1,842
1,958
2,009
2,025

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

21
20
14
15
5

372
378
41
137
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

5
3
10
4
7

12
39
19
17
91

38
28
19
16
11

0 2,486 10,125
0 2,500 11,258
0 2,612 12,760
0 2,601 14,512
0 2,593 17,644

2,476
2,532
2,637
2,798
2,963

0
0
0
0
0

3
3
6
5
80

80
94
471
681
815

10
14
10
4

0 2,274 21,995
0 2,361 22,737
0 6,679 22,726
0 12,239 21,938
0 19,745 20,619

3,087
3,247
3,648
4,094
4,131

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

0
0
0
0
0

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

20,725
23,605
24,034
25,318
24,888

53
196
663
598
44

67
19
156
28
143

1,368
1,184
967
935

3
5
4
2
1

0
0
0
0
0

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
24,610
23,719
26,252
26,607

394
305
519
95
41

108
50
55
64
458

1,585
1,665
1,424
1,296
1,590

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
30,478
28,722
33,582
36,506

400
159
342
11
538

33
130
38
63
186

1,847
2,300
2,903
2,600
2,606

29
70
66
49
75
74
51
110
162
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

199
201

287
234
436
80
536

0 1,766
0 2,215
0 2,687
0 1,144
0
618
4
723
4
320

119
40
78
27
52

294
575
262
146
273
355
390

375
315
617
228
511

367
312
560
197
488

3
57
31
23

643
637
582
1,056
632

63
45
63
24
34

729
817
1,855
2,437
2,430

686
775
1,851
2,435
2,430

43
42
4
2
0

251
638
235
98
7

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

2,184 2,184
2,254 2,254
6,189 6,189
11,543 11,543
18,846 18,846
24,262
23,350
22,559
23,333
18,885

239
300

239
300

287
234
436
134
540




0
0

Gold
stock 4

Special
drawing
rights
certificate
accounts

Tables

275

17.—Continued

Factors absorbing reserve funds

Currency
in
circulation

Treasury
cash
holdings 6

Deposits, other
than member bank
iCSvi Two, rr i

Federal Reserve Banks

Treasury

Foreign

Other
Federal
Reserve
accounts 3

Other
Federal
Reserve
liabilities
and
capital 3

Other

Member bank
reserves

With
Federal
Reserve
Banks

Currency
and
coin 7

Required

8

Excess 8

4,951
5,091

288
385

51
31

96
73

25
28

118
208

0
0

1,636
1,890

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

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

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

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

5,587
6,606
7,027
8,724
11,653

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
20,449
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

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
706

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
796

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

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

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

17,081
17,387
17,454
17,049
18,086

2,544
2,823
3,262
4,099
4,151

18,988
20,114
20,071
20,677
21,663

637
96
645
471
574

Digitized fornotes see last two pages of table.
For FRASER


276 Tables
17. Member Bank Reserves, Federal Reserve Bank Credit, and Related
Items—Year-End 1918-80, and Month-End 1980—Continued
Millions of dollars
Factors supplying reserve funds
Federal Reserve Bank credit outstanding
U.S . government
securities 9

Bought
out
right 10

Treasury
currency
outstanding 5

Loans

Float '

All
other 2

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
47,17'1
52,03
56,62^I
63,584

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

Period

Total

Special
drawing
rights
certificate
accounts

Other
Federal
Reserve
assets 3

Held
under
repurchase
agreement

Gold
stock 4
Total

1965
1966
1967
1968
1969

40,768
44,316
49,150
52,937
57,154

40,478
43,655
48,980
52,937
57,154 ' 0

1970
1971
1972
1973
1974

62,142
70,804
71,230
80,495
85,714

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

67,91*$
76,51*5
78,55
86,072
92,20*]

10,732
10,132
10,410
11,567
11,652

400
400
400
400
400

7,149
7,710
8,313
8,716
9,253

1975
1976
1977
1978
1979
1980p

94,124
104,093
111,274
118,591
126,167
130,592

92,789
100,062
108,922
117,374
124,507
128,038

1,335
4,031
2,352
1,217
1,660
2,554

211
25
265
1,174
1,454
1,809

3,688
2,601
3,810
6,432
6,767
4,467

1,126
991
954
587
704
776

3,312
3,182
2,442
4,543
5,613
8,739

102,46 1
110,892
118,745
131,327
140,705
146,383

11,599
11,598
11,718
11,671
11,172
11,160

500
1,200
1,250
1,300
1,800
2,518

10,218
10,810
11,331
11,831
13,083
13,427

1980
Jan. ..
Feb. ..
Mar. ..
Apr. ..
May . .
June ..
July...
Aug. ..
Sept...
Oct. .
Nov. .
Dec. p

124,527
123,418
124,948
127,702
133,507
133,427
128,967
129,203
129,764
130,702
129,977
130,592

124,527
122,766
123,945
127,702
130,248
132,933
127,370
127,887
128,200
128,613
127,697
128,038

0
652
1,003
0
3,259
494
1,597
1,316
1,564
2,089
2,280
2,554

828
3,364
2,502
4,770
602
215
562
1,515
982
1,567
2,284
1,809

4,610
3,154
3,682
3,072
2,475
4,167
2,808
3,468
3,192
2,194
6,792
4,467

0
205
171
0
366
373
310
277
499
566
523
776

5,237
4,414
5,010
5,563
5,155
5,559
5,669
5,328
5,574
6,160
6,539
8,739

135,202
134,555
136,313
141,107
142,105
143,74 1
138,316
139,79 1
140,01 1
141,189
146,115
146,383

11,172
11,172
11,172
11,172
11,172
11,172
11,172
11,172
11,168
11,163
11,162
11,160

2,968
2,968
2,968
2,968
2,968
3,018
3,118
3,268
3,268
3,268
3,368
2,518

13,169
13,259
13,352
13,410
13,530
13,523
13,570
13,614
13,663
13,716
13,779
13,427

1. Beginning with 1960, figures reflect a minor
change in concept; see Federal Reserve Bulletin, vol.
47 (Feb. 1961), p. 164.
2. Data consist principally of acceptances and, until
Aug. 21, 1959, industrial loans, authority for which
expired on that date.
3. Before Apr. 16, 1969, this category includes the
total of Federal Reserve Bank capital paid in, surplus,
other capital accounts, and other liabilities and accrued dividends less the sum of bank premises and
other assets, and was reported as ''Other Federal
Reserve accounts"; thereafter, "Other Federal
Reserve assets" and "Other Federal Reserve liabilities
and capital" are shown separately.
4. Before Jan. 30, 1934, data include gold held in
Federal Reserve Banks and in circulation.
5. 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.




6. 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.
7. Between Dec. 1, 1959, and Nov. 23, 1960, part of
the amount was allowed as reserves; thereafter all was
allowed.
8. 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.
9. Beginning Dec. 1, 1966, these securities include
federal agency obligations held under repurchase
agreements and beginning Sept. 29, 1971, federal
agency issues bought outright.
10. 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.

Tables

277

17.—Continued

Factors absorbing reserve funds

Currency
in
circulation

Treasury
cash
holdings 6

Deposits, other
than member bank
reserves, with
Federal Reserve Banks

Treasury

Foreign

Other
Other
Federal Federal
Reserve Reserve
liaaccounts 3 bilities
and
capital 3

Other

Member bank
reserves "

With
Federal
Reserve
Banks

Currency

ExReand 7 quired * cess 8 '

coin

355
588
653
747
807

211
-147
-773
-1,353
0

0
0
0
0
1,919

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

-238
-232
-182
-700
-901

148
294
325
251
418

,233
,419
,275 13

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

30,033
32,496
32,044
35,268
37,011

-460
1,035
98 I2
-1,360
-3,798

240
494
441

7,285
10,393
7,114
4,196
4,075
3,062

353
352
379
368
429
411

,090
,357
,187
,256
,412
617

0
0
0
0
0
0

2,968
3,063
3,292
4,275
4,957
4,671

26,052
25,158
26,870
31,152
29,792
27,456

8,036
8,628
9,421
10,538
11,429
13,654

35,197
35,461
37,615
42,694
44,217
40,558

-1,103 '
-1,535
-1,265
-893
-2,835

472
525
586
584
554
529
489
467
466
460
449
441

2,931
2,417
2,334
4,561
4,523
3,199
3,954
2,742
4,102
1,864
2,435
3,062

440
450
468

339
350
313

0
0
0

5,682
4,668
4,886
5,066
5,083
5,003
4,540
4,570
4,659
4,713
5,061
4,671

31,492
32,108
32,270
33,282
32,382
33,612
27,920
29,680
28,146
30,518
31,528
27,456

11,731
10,883
10,751
11,285
11,114
11,257
11,543
11,592
12,011
12,028
13,153
13,654

43,224
42,467
43,556
45,034
43,766
43,778
39,759
40,601
41,884
42,032
39,910
40,558

150
174

42,056
44,663
47,226
50,961
53,950

760
1,176
1,344
695
596

668
416
1,123
1,312

135
216
134

57,093
61,068
66,516
72,497
79,743

431
460
345
317
185

1,156
2,020
1,855
2,542
3,113

86,547
93,717
103,811
114,645
125,600
136,829

483
460
392

121,157
121,436
122,943
123,963
125,694
127,097
128,337
129,667
129,917
131,075
134,104
136,829

703

999
840 1J

648

553

0

380
691
436
336
460
368
368
411

1,160
1,332
500
383
363
338
478
617

0
0
0
0
0
0
0
0

11. Beginning November 1979, includes reserves of
member banks, Edge Act corporations, and U.S.
agencies and branches of foreign banks. Beginning
Nov. 13, 1980, includes reserves of all depository institutions.
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
connection with voluntary participation by nonmem-




675
214
737
1,871
-250
-63
1,285
-113
860
-1,551
673
4,899
675

ber 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.

278 Tables
18. Changes in Number of Banking Offices in the United States, 1980
Commercial banks (including stock savings
banks and nondeposit trust companies)
Type of office
and change

All
banks

Member
Total

Noninsured

977

8,926

28

116

-1

-2

-38
-6

-16

-63
-10

Dec. 31,1980

15,296




National

14,708

5,425

4,448

266

90

62

-3

-1
-54
-6

-117
-18

Nonmember
Insured

Total
Banks, Dec. 31,
15,171
1979
Changes during 1980
267
New banks
Voluntary
liquidations ..
-3
Banks converted
into branches.
-118
Other
-18
Interclass changes
Nonmember to
national . . .
Nonmember to
state
member . . .
State member to
national . . .
State member to
nonmember
National to nonmember . . .
National to state
member . . .
Noninsured to
insured
Noninsured to
insured
mutual . . . .
Insured mutual
to federal
mutual
-3
Net change.
125

Mutual
savings
banks

State

Insured

Noninsured

357

324

139

60

1

-1
-2

-4
16

16

-16

-2
-11

-11
-41

-41

11
41

-5

-1

128

-3

-23

20

74

14,836

5,422

4,425

997

9,000

57
414 '

-3
-1

323

137

Tables

279

18, -Continued
Commercial banks (including stock savings
banks and nondeposit trust companies)
Type of office
and change

All
banks

Member
Total

Nonmember

Total
Branches and additional offices,
Dec. 31,1979 2 . . 39,277
Changes during 1980
2,397
De novo
116
Banks converted ..
-287
Discontinued
Sale of branch . . . .
Interclass changes
Nonmember to
national . . .
Nonmember to
state
member . . .
State member to
national . . .
State member to
nonmember
National to state
member . . .
National to nonmember . . .
Noninsured to
insured
mutual . . . .
Insured mutual
to federal
mutual . . . .
-30
Facilities reclassified as
branches...
-4
Other
Net change. 2,200
Dec. 31,1980 2 .
Banking facilities,
Dec. 31,1979 \ .
Changes during 1980
Established
Discontinued
Facilities reclassified as
branches
Net change . . .
Dec. 31,1980

3

Mutual
savings
banks

National

36,403

23,543

18,674

4,869

12,809

2,099
113
-267

1,143
69
-194
-11

946
52
-148
6

197
17
-46

956
44
-73
11

66

66

State

Insured

Noninsured Insured

Noninsured

-1

-5

-75

-322
-53

-57

27

5

322

-53

359

-66
75

75

-262

-17

2,515
271
2
-19

51

53

57
262

-262

-30

-3
1,950

6
-3
836

6
15
946

-18
-110

41,477

38,353

24,379

19,620

4,759

13,923

166

166

143

130

13

23

1
-5

1
-5

1
-3

1
-1

_2

-6
-10

-6
-10

-6
-8

-6
-6

-2

156

156

135

124

1. As of Dec. 31, 1980, 14 state member noninsured
trust companies are included.
2. Figures exclude banking facilities.




11

229
51

-1
21

2,744

380

21

3. Data include facilities provided at military and
other government establishments through arrangements made by the Treasury.

280 Tables
19. Number of Par Banking Offices, December 3L
Par
Total
Member

Nonmember

Area
Branches
and
offices

Branches
and
offices

Banks

Branches
and
offices

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta

348
482
353
656
717
1,823

2,228
4,945
2,458
3,311
5,023
4,423

169
226
213
374
376
563

1,104
1,044
1,385
2,566
3,079
2,269

179
256
140
282
341
1,260

1,124
901
1,073
745
1,944
2,154

Chicago
St Louis
Minneapolis
Kansas City
Dallas
San Francisco

2,790
1,448
1,428
2,331
1,636
640

4,477
2,028
783
1,233
548
7,312

903
387
507
818
737
149

2,647
900
430
731
205
5,203

1,887
1,061
921
1,513
899
491

1,830
1,128
353
502
343
2,109

14,652

38,769

5,422

24,563

9,230

14,206

Banks

Banks

Federal Reserve District
1

TOTAL

State
318
12
24
260
283
323
64
18
18
555

Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire

. ...

New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island




631
113
537
415
4,280
111
603
148
151
1,188

123
5
3
72
56
178
21
6
16
236

407
79
355
205
3,214
72
293
6
149
593

195
7
21
188
227
145
43
12
2
319

214
34
182
210
1,066 2
39
310
142
2
595

435
9
26
1,286
406
656
620
345
269
41

Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida

869
162
247
537
1,130
572
272
760
804
309

72
2
11
466
160
138
170
87
59
17

484
10
195
288
591
197
141
375
354
152

363
7
15
820
246
518
450
258
210
24

385
152
52
249
539
375
131
385
450
157

102
143
376
761
177
725
163
457
9
74

942
954
2,158
273
698
439
36
284
143
158

36
77
206
237
42
146
99
126
4
40

481
497
1,588
143
290
116
26
212
119
100

66
66
170
524
135
579
64
331
5
34

461
457
570
130
408
323
10
72
24
58

169
89
326
79
176
385
500
88
363
16

1,588
244
3,426
1,741
128
2,237
255
586
2,560
232

105
46
156
25
42
256
204
16
221
5

1,197
136
3,097
843
50
1,940
184
357
1,473
119

64
43
170
54
134
129
296
72
142
11

391
108
329 2
898
78
297
71
229
1,087
113

Tables 281
\Jdi

B a n k H I * < >;'• •« i ^
Par
Total
Member

Nonmember

Area
Banks

Branches
and
offices

Banks

Branches
and
offices

Banks

Branches
and
offices

State—Continued
85
152
351
1,472
76
28
229
109
235
635
102

South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming

729
166
1,031
261
286
167
1,409
942
64
525
3

25
60
78
684
28
13
154
24
138
159
72

384
122
462
79
226
45
1,193
643
36
191
1

60
92
273
788
48
15
75
85
97
476
30

345
44
569
182
60
122
216
299
28
334
2

1
3
22
6

1
10
211

Other area
American Samoa
Guam 3
Puerto Rico 4
Virgin Islands 4

3

1
3
22
6

1
15
236
23

1. There were no nonpar banking offices as of Dec.
31, 1980.
2. Includes 1 Los Angeles branch and 17 New York
City branches of 3 insured nonmember Puerto Rican
banks.
3. American Samoa and Guam assigned to the San
Francisco District for check-clearing and collection purposes. All member banks in Guam are branches of
California and New York banks.
4. Puerto Rico and the Virgin Islands assigned to the
New York District for check-clearing and collection purposes. All member branches in Puerto Rico and the




...

5
25
23

Virgin Islands are branches of banks located in California, New York, and Pennsylvania. Certain branches of
Canadian banks (1 in Puerto Rico and 5 in the Virgin
Islands) are included above as nonmember banks; and
nonmember branches in Puerto Rico include 8 other
branches of Canadian banks.
NOTE. Comprises all commercial banking offices on
which checks are drawn, including 156 banking facilities. Number of banks and branches differs from that
in table 18 because this table includes banks in Guam,
Puerto Rico, and the Virgin Islands but excludes banks
and trust companies on which no checks are drawn.

282 Tables
20. Mergers, Consolidations, Acquisitions of Assets or Assumptions of
Liabilities Approved by the Board of Governors, 1980
Barclays Bank of New York, New York, to acquire certain assets and assume certain liabilities of
31 branches of Bankers Trust Company, New York, New York
SUMMARY REPORT BY THE ATTORNEY GENERAL

(No report received.)
BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (2-1-80)

Barclays Bank of New York (Applicant), with assets of $589 million, is a subsidiary of Barclays
Bank International, Limited, London, England. Applicant proposes to acquire 31 branches of
Bankers Trust Company (Bank). Depositls at these branches amount to $371 million. The instant
proposal represents part of a plan by Bank to sell the bulk of its retail branches.
In considering the competitive aspects of the case, the relevant market is the New York
metropolitan banking market. All of Applicant's 33 offices are in this market, as well as all but 6
of the 31 branches to be acquired. However, because Applicant's offices and the branches to be acquired operate primarily in separate parts of the New York metropolitan market, the proposal
would not eliminate a significant amount of competition.
The proposed acquisition would produce positive public benefits. According to the application,
Bank has already effectively withdrawn from retail banking in the New York metropolitan
market. It has opened no retail banking offices since 1974, and has closed 16 offices since 1977. In
1979, the branches of Bank made no home mortgage loans, and extended less than $9 million in
consumer installment loans. Furthermore, in most cases, Bank's current levels of interest paid on
savings deposits and charged on consumer loans are not fully competitive with those of other
banks in the same market. Finally, according to the application, there is a possibility that if the
branches are not sold, Bank may ultimately close some of them. Applicant, on the other hand, has
indicated its intention to revitalize these branches by providing a wide range of retail banking services at competitive rates, by making capital investments at the branches, and by extending banking hours where appropriate.
The banking factors are consistent with approval.

The Central Trust Company, Reynoldsburg, Ohio, to merge with The Farmers and Citizens Bank,
Lancaster, Ohio
SUMMARY REPORT BY THE ATTORNEY GENERAL

(No report received.)
BASIS FOR APPROVAL BY THE SECRETARY, BOARD OF GOVERNORS (6-10-80)

The Central Trust Company (Applicant), with assets of $151 million, proposes to merge The
Farmers and Citizens Bank (Bank), with assets of $64 million. Applicant is a subsidiary of The
Central Bancorporation, Inc., Cincinnati (Bancorporation), which ranks eighth among Ohio's
commercial banking organizations, with 4.1 percent of the deposits.
In considering the competitive aspects of this case, the relevant market is the Columbus banking
market, where Bancorporation holds 2.1 percent of area deposits and ranks fifth among 25 commercial banking organizations. If the instant merger is consummated, Bancorporation would hold
3.5 percent of area deposits and would continue to rank fifth in the Columbus market.
The nearest offices of the participating banks are about seven miles apart, with no offices of
other banks in the intervening area. The instant proposal would have a slightly adverse effect on
competition.
The proposed merger would produce positive public benefits. Following the merger, drive-in
facilities would be built at Bank's Carroll and Rushville branches; a more constructive and aggressive lending policy would be implemented at Bank's offices; and certain services, not now
available, would be furnished to customers of such offices by subsidiaries of Bancorporation.
Convenience and need considerations, including those relating to the Community Reinvestment
Act, are sufficient to outweigh the slightly adverse competitive effects that would result from the
proposed merger.
The financial condition of the participating banks is considered generally satisfactory.



Tables 283

Manufacturers Hanover Trust Company, New York, New York, to acquire certain assets and assume certain liabilities of eight branches of Bankers Trust Company, New York, New York
SUMMARY REPORT BY THE ATTORNEY GENERAL (8-8-80)

The proposed transaction would have no substantial competitive impact.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (8-5-80)

Manufacturers Hanover Trust Company (Applicant), with assets aggregating $47 billion, proposes
to acquire certain assets and assume certain liabilities of eight branches of Bankers Trust Company
(BTC). Deposits at the branches amount to $72 million. Applicant, the second largest commercial
bank in the state of New York, is a subsidiary of Manufacturers Hanover Corporation (MHC),
which controls 13.6 percent of the deposits held by commercial banking offices situated in the
state. The instant proposal represents part of a plan of BTC to sell most of its retail branches. Applicant ranks first among one hundred seven commercial banking organizations in the relevant
New York metropolitan banking market, with 15.2 percent of the area deposits, while the
branches of BTC hold 0.06 percent of the market deposits. This market is relatively unconcentrated, with the four largest commercial banking organizations controlling 54.1 percent of the
deposits. The proposed merger would eliminate some direct competition between the subject
banks; however, because of the larger number of competitors in close proximity to each of the offices involved in this proposal, the amount of competition that would be eliminated is not regarded
as significant. Overall, competitive and convenience and need considerations, including Community Reinvestment Act factors, are consistent with approval.
The financial condition of MHC and Applicant is considered to be generally satisfactory.
Bank of New York, New York, New York, to merge with Empire National Bank, Middletown,
New York
SUMMARY REPORT BY THE ATTORNEY GENERAL

(No report received.)
BASIS FOR APPROVAL BY THE BOARD OF GOVERNORS (8-12-80)

Bank of New York (Applicant), with assets of $10 billion, proposes to merge Empire National
Bank (Bank), with assets of $498 million. Applicant is the ninth largest commercial banking
organization in the state of New York, with 3.1 percent of the state's total commercial bank
deposits. The proposed merger would not alter Applicant's rank in the state.
Bank operates forty-one offices in three separate market areas: metropolitan New York, MidHudson, and Middletown. The effect of the proposal on existing competition in the New York unconcentrated metropolitan market would be minimal in view of the nature of the market, the relatively small market share that Applicant would hold following consummation of the proposal, and
Applicant's commitment to divest four offices in that market. Applicant's rank as the eighth
largest among commercial banking organizations would remain unchanged. The effect of the proposal on existing competition in the Mid-Hudson market would also be insignificant and would be
mitigated by the divestiture of Applicant's two offices in that market.
The only market in which competition is an issue in this application is the Middletown market,
where both Applicant and Bank currently compete. Bank, with market deposits of $164.7 million,
ranks first with a 25.3 percent share of the commercial bank deposits. Applicant operates five offices and ranks fourth. Although Bank is the leading competitor, its competitive influence has
been declining in recent years because of financial and managerial conditions. Its market share has
declined from approximately 32 percent in 1973 to 25.3 percent in 1979. Moreover, Applicant has
agreed to divest two of its offices in this market, with deposits of $15.1 million, thereby reducing its
rank from fourth to sixth largest. The Middletown market, which was not highly concentrated in
the past, has become even less so since the relatively recent entry of six of the nation's fourteen
largest banks, including five large New York City banks.
In this case, the Board has also considered the presence of savings and loan associations and
mutual savings banks in the market. While continuing to view commercial banking as the relevant
line of commerce in determining the competitive effects of a proposal, the Board has stated that it
may be appropriate in particular cases and in specific areas to take into consideration direct competition from thrift institutions when evaluating various competitive influences. In view of the ab


284 Tables
20. Mergers, Consolidations, Acquisitions of Assets or Assumptions of
Liabilities Approved by the Board of Governors, 1980—Continued
solute size and significant deposit-taking role of thrift institutions in the Middletown market, as
well as their increasing powers, the Board believes that their influence further diminishes the
adverse competitive effects of the proposed merger. Accordingly, the Board concludes that the
competitive effects of the proposal are seriously adverse, but that denial of the proposal is not warranted in light of the considerations discussed below.
Bank has experienced financial and managerial problems in recent years that have reduced its effectiveness as a competitor. The financial and managerial resources and prospects of the organization that would result from the proposed merger, would have a positive impact on the operations
of Bank without diminishing the prospects of Applicant. The financial and managerial resources
and prospects of Applicant are satisfactory and, as a result of this proposal, Bank's customers will
be served by a stronger banking organization. In terms of convenience and needs, Applicant proposes to expand and improve the services offered at Bank's banking offices by increasing the effective interest rate paid on passbook savings and by offering additional services, including commercial and corporate trust services, cash management, cash disbursement, and economic forecasting
services. Applicant also proposes to offer lease financing, FHA construction credit, and individual
FHA and VA loans. In light of the above, considerations so favor approval as to outweigh the
serious adverse competitive effects associated with this proposal.
The Connecticut Bank and Trust Company, Hartford, Connecticut, to merge with The Danbury
Bank and Trust Company, Danbury, Connecticut
SUMMARY REPORT BY THE ATTORNEY GENERAL

(No report received.)
BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (9-12-80)

The Connecticut Bank and Trust Company (Applicant), with assets of $3 billion, proposes to
merge The Danbury Bank and Trust Company (Bank), with assets of $30 million. Applicant is the
sole banking subsidiary of CBT Corporation, Hartford, Connecticut, which is the largest commercial banking organization in the state, with 17.6 percent of the deposits. If the proposed merger
takes place, CBT Corporation would hold 17.9 percent of the deposits held by commercial banking offices in Connecticut.
Proponents' closest offices are 2.3 miles apart, with offices of other banks situated in the intervening area. The relevant market in the instant proposal is the Danbury banking market, where
Applicant, with 1.7 percent of the area deposits, ranks eighth among eleven commercial banking
organizations. If the proposed merger is consummated, the resulting institution would rank fifth
in the Danbury market, with 9.3 percent of the area deposits. Home office protection would be
removed from Danbury after this merger.
Although affiliation would eliminate existing competition, it would also immediately open the
city of Danbury to branching by other commercial banks and would allow Applicant, the largest
commercial bank in the state, to operate in the core of this banking market. After the merger, ten
commercial banking organizations and numerous thrift institutions would still remain in the Danbury market, providing adequate banking alternatives for businesses and consumers.
The banking factors are consistent with approval.
Security Savings Bank, Marshalltown, Iowa, to merge with State Bank, Gladbrook, Iowa
SUMMARY REPORT BY THE ATTORNEY GENERAL (8-29-80)

The proposed transaction would not have an adverse effect on competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (9-30-80)

Security Savings Bank (Applicant), with assets of $99 million, proposes to merge State Bank, with
assets of $2 million. Applicant's offices are in the Marshalltown banking market, whereas the sole




Tables 285
:o
office of State Bank is in the adjacent Tama County banking market, where it is the smallest of
eight banks, with 1.6 percent of the deposits. Thus there is no effective competition existing between proponents. Further, the Tama County banking market does not appear overly attractive
for de novo entry.
The financial condition of each of the banks is satisfactory, as would be that of the resulting
bank. Applicant proposes to raise interest rates on time and savings deposits at the office now
operated by State Bank from 2 percent to the maximum rate allowed by law, and to offer certificates of deposit. Further, Applicant intends to extend the hours that the Gladbrook office is
open to the public. Convenience and need factors lend weight to approval.
The Central Trust Company, Reynoldsburg, Ohio, to merge with The Millersport Bank Co.,
Millersport, Ohio
SUMMARY REPORT BY THE ATTORNEY GENERAL

(No report received.)
BASIS FOR APPROVAL BY THE SECRETARY, BOARD OF GOVERNORS (10-17-80)

The Central Trust Company (Applicant), with assets of $166 million, proposes to acquire The
Millersport Bank Co. (Bank), with assets of $8 million. Applicant, a subsidiary of Central Bancorporation, Cincinnati, Ohio (Bancorporation), operates 21 offices, 15 in the Columbus banking
market and 6 in the Zanesville market. The sole office of Millersport Bank is in the Columbus
banking market, 13 miles from the nearest office of Applicant.
Bancorporation's only commercial banking subsidiary in the Columbus banking market is Applicant. Bancorporation ranks fifth among 24 banking organizations in the Columbus market,
with 3.3 percent of the total area deposits. If the instant proposal were consummated, the resulting
bank would rank fifth in the market, with 3.5 percent of the deposits. The proposed acquisition
would have no significant effect on competition.
The instant proposal would improve the level of services at the office now operated by Bank.
Equipment leasing, international banking services, commercial construction lending, and trust services would be made available through the Millersport office of the resulting bank.
Bank's condition is considered reasonably satisfactory; Bancorporation's, sound; and Applicant's, satisfactory. The proposed acquisition would not alter this situation.
First Virginia Bank-South Central, Brookneal, Virginia, to merge with The Farmers and Merchants Bank, Inc., of Amherst, Amherst, Virginia
SUMMARY REPORT BY THE ATTORNEY GENERAL (10-17-80)

The proposed transaction would not have a significantly adverse effect upon competition.
BASIS FOR APPROVAL BY THE FEDERAL RESERVE BANK (11-10-80)

First Virginia Bank-South Central (Applicant), a subsidiary of First Virginia Banks, Inc., Falls
Church, Virginia (FVB), has assets of $7 million and proposes to merge The Farmers and Merchants Bank, Inc., of Amherst (Bank), with assets of $11 million. Bank's sole branch is at
Madison Heights. The nearest offices of proponents are 37 road miles apart. While Applicant does
not now operate a branch, it has received permission to establish a branch in Campbell County, in
the Timbrook Square shopping center, 13 miles from the nearest office of Bank. FVB is not now
represented in the Lynchburg banking market, where Bank ranks sixth among seven banking
organizations, with 2.2 percent of the area deposits. In Virginia, FVB ranks seventh among commercial banking organizations, with approximately 7 percent of the deposits.
Banking factors are consistent with approval. Convenience and need factors lend weight to approval, for FVB could provide additional services at the offices now operated by Bank.




286 Tables
20. Mergers, Consolidations, Aequis«iioj., >A
Liabilities Approved by the Board )f (H>V
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 company.
In such cases, the Summary Report by the Attorney General indicates that because the banks are
wholly owned subsidiaries of the same bank holding company, their proposed merger is essentially
a corporate reorganization and therefore would have no effect on competition. The Board of
Governors or the Federal Reserve Bank, 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 involved '

AmeriTrust Company, Cleveland, Ohio
Merger
AmeriTrust Company of Franklin County, Columbus, Ohio
AmeriTrust Company of Lorain County, Lorain, Ohio
AmeriTrust Company of Lake County, Painesville, Ohio
Long Island Trust Company, Garden City, New York
Merger
Long Island Bank, Hicksville, New York

Assets
(millions
of dollars)

Date of
approval by
Board or
Reserve Bank

4,697

2-21-80

25
53
135
918

8-1-80

173

Bank of Virginia, Richmond, Virginia
Merger
Bank of Virginia-Central Valley, Verona, Virginia

2,318

AmeriTrust Company, Cleveland, Ohio
Merger
AmeriTrust Company of Cincinnati, Cincinnati, Ohio
AmeriTrust Company of Portage County, Kent, Ohio
AmeriTrust Company of Medina County, Medina, Ohio

4,697

9-24-80

10
10-3-80

(2)
61
28

1. Each proposed transaction was to be effective under the charter of the first-named bank. The table is in
chronological order of approval.
2. Opened for business on Mar. 26, 1980.

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 bank holding company. In such cases, the
Summary Report by the Attorney General indicates that the transaction would 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, it would have no effect on competition. The
Board or Federal Reserve Bank, whichever approved the application, determined that the proposal
would, in itself, have no adverse competitive effects, and that the financial and convenience and
need factors were consistent with approval.




Tables 287

Name of bank, type of transaction,
and other banks involved '

Bank of Virginia-Wise, St. Paul, Virginia
Mergers
The Southwest Bank of Virginia, St. Paul, Virginia .
Bank of Virginia, Richmond, Virginia
Bank of Frederick County, Stephens City, Virginia
Merger
First Virginia Bank of Frederick County, Stephens City, Virginia
HSB Bank, Hillsdale, Michigan
Merger
Hillsdale State Savings Bank, Hillsdale, Michigan
Soulard Bank & Trust Company, St. Louis, Missouri
Merger
Manufacturers Bank & Trust Company, St. Louis, Missouri
SM Bank, Springfield, Illinois
Merger
Springfield Marine Bank, Springfield, Illinois
The Dime Bank of Northwest Ohio, Continental, Ohio.
Merger
The Dime Bank of Continental, Continental, Ohio
The Dime Bank of Huntsville, Huntsville, Ohio
The Dime Bank of McClure, McClure, Ohio
Ohio Citizens Bank, Toledo, Ohio
Merger
The Ohio Citizens Trust Company, Toledo, Ohio
Graham Drive State Bank, Tomball, Texas ..
Merger
Guaranty Bond State Bank, Tomball, Texas .

Assets
(millions of
dollars)

Date of
approval by
Board or
Reserve Bank

2-5-80
11
2,002
2-25-80
12
3-25-80
61
4-18-80
172
6-9-80
457
6-19-80
16
12
13
6-30-80
560
7-30-80
56

Shelbank, Alabaster, Alabama
Merger
Citizens Bank and Trust Company, Alabaster, Alabama.

8-29-80

Firstate Bank, Abilene, Texas
Merger
The First State Bank, Abilene, Texas

11-4-80
333

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.




289

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




292 Directories and Meetings

Board of Governors of the Federal Reserve System
December 31,1980

Term expires

PAUL A. VOLCKER, of New Jersey, Chairman '
FREDERICK H. SCHULTZ, of Florida, Vice Chairman '

January 31, 1992
January 31, 1982

NANCY H. TEETERS, of Indiana
J. CHARLES PARTEE, of Virginia
HENRY C. WALLICH, of Connecticut
EMMETT J. RICE, of New York
LYLE E. GRAMLEY, of Missouri

January
January
January
January
January

31,
31,
31,
31,
31,

OFFICE OF BOARD MEMBERS

OFFICE OF THE SECRETARY

JOSEPH R. COYNE, Asst. to the Board
DONALD J. WINN, Asst. to the Board
FRANK O'BRIEN, J R . , Special Asst. to the

1984
1986
1988
1990
1994

THEODORE E. ALLISON, Secretary

Board
JOSEPH S. SIMS, Special Asst. to the Board

BARBARA R. LOWREY, Asst. Secretary
JAMES MCAFEE, Asst. Secretary
JEFFERSON A. WALKER, Asst. Secretary

2

LEGAL DIVISION
OFFICE OF STAFF DIRECTOR FOR
MONETARY AND FINANCIAL
POLICY
STEPHEN H. AXILROD, Staff Director
EDWARD C. ETTIN, Deputy Staff

Director
MURRAY ALTMANN, Asst. to the Board
PETER M. KEIR, Asst. to the Board
STANLEY J. SIGEL, Asst. to the Board
NORMAND R. V. BERNARD, Special Asst.

to the Board

Counsel
CHARLES R. MCNEILL, Asst. to the

General Counsel
J. VIRGIL MATTINGLY, J R . , Asst.

General Counsel
GILBERT T. SCHWARTZ, Asst. General

Counsel
DIVISION OF RESEARCH
AND STATISTICS

OFFICE OF STAFF DIRECTOR FOR
MANAGEMENT
JOHN M. DENKLER, Staff Director
EDWARD T. MULRENIN, Asst. Staff

Director
JOSEPH W. DANIELS, S R . , Director of

Equal Employment

NEAL L. PETERSEN, General Counsel
ROBERT E. MANNION, Deputy General

Opportunity

JAMES L. KICHLINE, Director

JOSEPH S. ZEISEL, Deputy Director
MICHAEL J. PRELL, ASSOC.

Director

ROBERT A. EISENBEIS, Senior Deputy

Assoc. Director
JOHN J. MINGO, Senior Deputy ASSOC.

Director

3

ELEANOR J. STOCKWELL, Senior Deputy

Assoc. Director
OFFICE OF STAFF DIRECTOR
FOR FEDERAL RESERVE
BANK ACTIVITIES

JARED J. ENZLER, Deputy ASSOC. Director
J. CORTLAND G. PERET, Deputy Assoc.

WILLIAM H. WALLACE, Staff Director
HARRY A. GUINTER, Asst. Director for

HELMUT F. WENDEL, Deputy

Contingency Planning

Director
Assoc.

Director
MARTHA BETHEA, Asst. Director
ROBERT M. FISHER, Asst. Director
FREDERICK M. STRUBLE, Asst. Director
STEPHEN P. TAYLOR, Asst. Director
LEVON H. GARABEDIAN, Asst. Director

(A dministration)
1. The designations as Chairman and Vice Chairman expire on Aug. 6,1983, and July 27,1983, respetively, unless the services of these members of the
Board shall have terminated sooner.




2. On loan from the Federal Reserve Bank of Richmond.
3. On leave of absence.

Directories and Meetings 293
DIVISION OF INTERNATIONAL
FINANCE
EDWIN M. TRUMAN, Director
ROBERT F. GEMMILL, ASSOC. Director
GEORGE B. HENRY, ASSOC. Director
CHARLES J. SIEGMAN, ASSOC. Director

SAMUEL PIZER, Staff Adviser
JEFFREY R. SHAFER, Deputy Assoc.

Director
DALE W. HENDERSON, Asst. Director
LARRY J. PROMISEL, Asst. Director
RALPH W. SMITH, J R . , Asst. Director

DIVISION OF FEDERAL RESERVE
BANK OPERATIONS
JAMES R. KUDLINSKI, Director
CLYDE H. FARNSWORTH, J R . , Deputy

Director

DIVISION OF CONSUMER AND
COMMUNITY AFFAIRS
JANET O. HART, Director

GRIFFITH L. GARWOOD, Deputy Director
JERAULD C. KLUCKMAN, ASSOC.

Director

GLENN E. LONEY, Asst. Director
DOLORES S. SMITH, Asst. Director

DIVISION OF PERSONNEL
DAVID L. SHANNON, Director

JOHN R. WEIS, Asst. Director
CHARLES W. WOOD, Asst. Director

DIVISION OF SUPPORT SERVICES
DONALD E. ANDERSON, Director
WALTER W. KREIMANN, ASSOC. Director

ROBERT E. FRAZIER, Asst. Director

WALTER ALTHAUSEN, Asst. Director
CHARLES W. BENNETT, Asst. Director
LORIN S. MEEDER, Asst. Director

OFFICE OF THE CONTROLLER

P. D. RING, Asst. Director

GEORGE E. LIVINGSTON, Asst. Controller

DAVID L. ROBINSON, Asst. Director
RAYMOND L. TEED, Asst. Director

DIVISION OF BANKING
SUPERVISION AND REGULATION
JOHN E. RYAN, Director
FREDERICK R. DAHL, ASSOC. Director
WILLIAM TAYLOR, ASSOC. Director
WILLIAM W. WILES, ASSOC. Director

JACK M. EGERTSON, Asst. Director
ROBERT A. JACOBSEN, Asst. Director

DON E. KLINE, Asst. Director
ROBERT S. PLOTKIN, Asst. Director
THOMAS A. SIDMAN, Asst. Director
SAMUEL H. TALLEY, Asst. Director
LAURA M. HOMER, Securities Credit

Officer




JOHN KAKALEC, Controller

DIVISION OF DATA PROCESSING
CHARLES L. HAMPTON, Director
BRUCE M. BEARDSLEY, ASSOC. Director

UYLESS D. BLACK, Asst. Director
GLENN L. CUMMINS, Asst. Director
ROBERT J. ZEMEL, Asst. Director

294 Directories and Meetings

Federal Open Market Committee
December 31, 1980

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)
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)

LAWRENCE K. ROOS (elected by Federal Reserve Banks of Atlanta, St. Louis, and
Dallas)
FREDERICK H. SCHULTZ (Board of Governors)
NANCY H. TEETERS (Board of Governors)
HENRY C. WALLICH (Board of Governors)

WILLIS J. WINN (elected by Federal Reserve Banks of Cleveland and Chicago)

Officers
MURRAY ALTMANN,

Secretary
NORMAND R. V. BERNARD,

Assistant Secretary
NEAL L. PETERSEN,

General Counsel
JAMES H. OLTMAN,

Deputy General Counsel
ROBERT E. MANNION,

Assistant General Counsel
STEPHEN H. AXILROD,

Economist
ALAN R. HOLMES,

Adviser for Market Operations
ANATOL BALBACH,

Associate Economist
JOHN DAVIS,

RICHARD G. DAVIS,

Associate Economist
THOMAS DAVIS,

Associate Economist
ROBERT EISENMENGER,

Associate Economist
EDWARD C. ETTIN,

Associate Economist
GEORGE B. HENRY,

Associate Economist
PETER M. KEIR,

Associate Economist
JAMES L. KICHLINE,

Associate Economist
EDWIN M. TRUMAN,

Associate Economist
JOSEPH S. ZEISEL,

Associate Economist
Associate Economist
PETER D. STERNLIGHT, Manager for Domestic Operations,
System Open Market Account
SCOTT E. PARDEE, Manager for Foreign Operations,
System Open Market Account
During 1980, meetings of the Federal
Open Market Committee were generally
held at monthly intervals. (See "Record




of Policy Actions of the Federal Open
Market Committee" in this REPORT.)

Directories and Meetings 295

December 31, 1980

Members
District No. 1—HENRY S. WOODBRIDGE, JR., President, Rhode Island Hospital Trust
National Bank, Providence, Rhode Island
District No. 2—DONALD C. PLATTEN, Chairman of the Board, Chemical Bank, New
York, New York
District No. 3—WILLIAM B. EAGLESON, J R . , Chairman and President, Girard Bank,
Bala Cynwyd, Pennsylvania
District No. 4—MERLE E. GILLIAND, Chairman and Chief Executive Officer, Pittsburgh
National Bank, Pittsburgh, Pennsylvania
District No. 5—J. OWEN COLE, Chairman of the Board, First National Bank of Maryland, Baltimore, Maryland
District No. 6—ROBERT STRICKLAND, Chairman, Trust Company of Georgia, Atlanta,
Georgia
District No. 7—ROBERT M. SURDAM, Chairman, National Bank of Detroit, Detroit,
Michigan
District No. 8—CLARENCE C. BARKSDALE, Chairman of the Board and Chief Executive
Officer, First National Bank in St. Louis, St. Louis, Missouri
District No. 9—CLARENCE G. FRAME, President and Chief Executive Officer, First National Bank of St. Paul, St. Paul, Minnesota
District No. 10—GORDON E. WELLS, Chairman of the Board, First National Bank of
Kansas City, Kansas City, Missouri
District No. 11—JAMES D. BERRY, Chairman of the Board and Chief Executive Officer, Republic of Texas Corporation, Dallas, Texas
District No. 12—CHAUNCEY E. SCHMIDT, Chairman of the Board, President, and Chief
Executive Officer, The Bank of California, N.A., San Francisco, California

Officers
CLARENCE C. BARKSDALE, President
JAMES D. BERRY, Vice President
HERBERT V. PROCHNOW, Secretary
WILLIAM J. KORSVIK, Associate Secretary

Directors
MERLE E. GILLIAND

CHAUNCEY E. SCHMIDT
HENRY S. WOODBRIDGE, J R .

Meetings of the Federal Advisory
Council were held on February 7-8,
March 14, May 1-2, September 4-5, and
November 6-7, 1980. The Board of
Governors met with the council on
February 8, March 14, May 2, September
5, and November 7, 1980. The council,
which is composed of 12 representatives




of the banking industry, one from each
Federal Reserve District, is required by
law to meet in Washington at least four
times each year, and is authorized by the
Federal Reserve Act to consult with and
advise the Board on all matters within the
jurisdiction of the Board,

296 Directories and Meetings

Consumer Advisory Council
December 31, 1980

WILLIAM D. WARREN, LOS Angeles, California, Chairman
MARCIA A. HAKALA, Omaha, Nebraska, Vice Chairman
JULIA H. BOYD,

Alexandria, Virginia
ROLAND E. BRANDEL,

San Francisco, California
ELLEN BROADMAN,

Washington, D.C.
JAMES L. BROWN,

Milwaukee, Wisconsin
MARK E. BUDNITZ,

Atlanta, Georgia
ROBERT V. BULLOCK,

THE REV. ROBERT J. MCEWEN,

S.J.,

Chestnut Hill, Massachusetts
R. C. MORGAN,

El Paso, Texas
MARGARET REILLY-PETRONE,

Upper Montclair, New Jersey
RENE REIXACH,

Rochester, New York
FLORENCE M. RICE,

New York, New York
RALPH J. ROHNER,

Frankfort, Kentucky

Washington, D.C.

RICHARD S. D'AGOSTINO,

HENRY B. SCHECHTER,

Philadelphia, Pennsylvania
JOANNE FAULKNER,

New Haven, Connecticut
VERNARD W. HENLEY,

Richmond, Virginia
JUAN J. HINOJOSA,

McAllen, Texas
SHIRLEY T. HOSOI,

Los Angeles, California
F. THOMAS JUSTER,

Ann Arbor, Michigan
RICHARD F. KERR,

Cincinnati, Ohio
ROBERT J. KLEIN,

New York, New York
HARVEY M. KUHNLEY,

Minneapolis, Minnesota
Meetings between the Consumer Advisory Council and members of the Board
of Governors were held on January 28-29,
April 28-29, July 30-31, and October
30-31, 1980. The council, which is com-




Washington, D.C.
PETER D. SCHELLIE,

Washington, D.C.
E. G. SCHUHART II,

Amarillo, Texas
CHARLOTTE H. SCOTT,

Charlottesville, Virginia
RICHARD A. VAN WINKLE,

Salt Lake City, Utah
RICHARD D. WAGNER,

Simsbury, Connecticut
MARY W. WALKER,

Monroe, Georgia
LEONOR K. SULLIVAN-ARCHIBALD,

Chairman Emeritus,
St. Louis, Missouri
posed of creditors, consumers, and
others, was established pursuant to the
Equal Credit Opportunity Act to advise
the Board on consumer-related matters.

Directories and Meetings 297
jy/ ttruih hes
December 31, 1980

Chairmen and Deputy Chairmen
of Boards of Directors
Federal Reserve
Bank
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

Chairman and
Federal Reserve Agent
Robert M. Solow
Robert H. Knight
John W. Eckman
Robert E. Kirby
Maceo A. Sloan
William A. Fickling, Jr.
John Sagan
Armand C. Stalnaker
Stephen F. Keating
Joseph H. Williams
Irving A. Mathews
Cornell C. Maier

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 3-4 and December 4-5, 1980.
The Executive Committee of the Conference of Chairmen during 1980 comprised John W. Eckman, Chairman,
Stephen F. Keating, Vice Chairman, and
Robert E. Kirby and Irving A. Mathews,
members.
On December 5, 1980, Mr. Keating was
elected chairman of the conference and of
its Executive Committee to serve for the
succeeding year; Cornell C. Maier was
elected Vice Chairman of the conference
and a member of the Executive Committee; and John Sagan was elected as the
other member of the Executive Committee.

Directors
Class A and Class B directors are elected
by the member banks of a Federal Reserve



Deputy Chairman
Robert P. Henderson
Boris Yavitz
Werner C. Brown
J. L. Jackson
Steven Muller
John H. Weitnauer, Jr.
Stanton R. Cook
William B. Walton
William G. Phillips
Paul H. Henson
Gerald D. Hines
Caroline L. Ahmanson

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.

298 Directories and Meetings
Term
expires
Dec. 31
S\

District 1—BOSTON
Class A
Richard D. Hill
Fred A. White
H. AlanTimm

, . Chairman of the Board, First National Boston
Corporation, Boston, Massachusetts
.. President, Dartmouth National Bank of Hanover, Hanover, New Hampshire
..President, Bank of Maine, N.A., Augusta,
Maine

V*

W*

W Wst

1980
1981
1982

Class B
WestonP. Figgins

..Chairman of the Board, Wm. Filene's Sons
Company, Boston, Massachusetts
Robert D. Kilpatrick . . .President and Chief Executive Officer, Connecticut General Life Insurance Company, Hartford, Connecticut
Senior Vice President, The Stop & Shop ComCarol R. Goldberg
panies, Inc., Boston, Massachusetts

1980
1981
1982

Class C
Robert M. Solow

. . Institute Professor, Massachusetts Institute of
Technology, Cambridge, Massachusetts
Robert P. Henderson. ..President and Chief Executive Officer, Itek
Corp., Lexington, Massachusetts
General Counsel, National Association for the
Thomas I. Atkins
Advancement of Colored People, New York,
New York

1980
1981
1982

District 2—NEW YORK
Class A
Raymond W. Bauer
James Whelden
Gordon T. Wallis
Class B
William S. Sneath
Edward L.
Hennessey, Jr
William S. Cook

Chairman and President, United Counties Trust
Company, Elizabeth, New Jersey
President, Ballston Spa National Bank, Ballston
Spa, New York
Chairman of the Board, Irving Trust Company,
New York, New York
Chairman of the Board, Union Carbide Corporation, New York, New York
Chairman of the Board, Allied Chemical Corporation, Morristown, New Jersey
President, Union Pacific Corporation, New
York, New York

1980
1981
1982

1980
1981
1982

Class C
Robert H. Knight

Partner, Shearman and Sterling, Attorneys,
New York, New York
GertrudeG. Michelson .Senior Vice President, Macy's New York, New
York, New York
Boris Yavitz
Dean, Graduate School of Business, Columbia
University, New York, New York




1980
1981
1982

O

Directories and Meetings 299

BUFFALO BRANCH
Appointed by Federal Reserve Bank
William S. Gavitt
President, The Lyons National Bank, Lyons,
New York
Robert J. Donough ....President, Liberty National Bank and Trust
Company, Buffalo, New York
M. Jane Dickman
Partner, Touche Ross & Co., Buffalo, New
York
Arthur M. Richardson. .President and Chief Executive Officer, Security
Trust Company, Rochester, 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
Frederick D.
Berkeley III
Chairman of the Board and President, Graham
Manufacturing Company, Inc., Batavia, New
York

Term
expires
Dec. 31

1980
1981
1982
1982

1980
1981

1982

District 3—PHILADELPHIA
Class A
John R. Biechler
Robert H. Deacon
Donald J. Seebold
Class B
Harry A. Jensen
Richard P. Hauser
Eberhard Faber

Class C
Werner C. Brown
John W. Eckman
Jean A. Crockett



President and Chief Executive Officer, The
Commonwealth National Bank, Harrisburg,
Pennsylvania
President, The Bank of Mid-Jersey, Bordentown, New Jersey
President, The First National Bank of Danville,
Danville, Pennsylvania
President and Chief Executive Officer, Armstrong Cork Company, 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
Director, Hercules Incorporated, Wilmington,
Delaware
Chairman and Chief Executive Officer, Rorer
Group, Inc., Fort Washington, Pennsylvania
Chairman, Department of Finance, and Professor of Finance, Wharton School, University
of Pennsylvania, Philadelphia, Pennsylvania .

1980
1981
1982

1980
1981
1982

1980
1981
1982

300

Directories and Meetings

District 4—CLEVELAND
Class A
John A. Gelbach
Everett L. Maffett
John W. Alford

Class B
Hays T. Watkins
Jeffery A. Robb
JohnW. Kessler
Class C
Vacant
J.L.Jackson
Robert E. Kirby

Chairman of the Board, Central National Bank,
Cleveland, Ohio
President and Chief Executive Officer, Eaton
National Bank & Trust Co., Eaton, Ohio . . . .
Chairman of the Board and Chief Executive Officer, The Park National Bank, Newark,
Ohio
Chairman and President, Chessie System, Cleveland, Ohio
Managing Partner, Audit Division, Proctor,
Robb and Company, Granville, Ohio
President, John W. Kessler Company, Columbus, Ohio

Term
expires
Dec. 31

1980
1981
1982

1980
1981
1982
1980

President, Falcon Coal Company Inc., Lexington, Kentucky
Chairman and Chief Executive Officer, Westinghouse Electric Corporation, Pittsburgh,
Pennsylvania

1981
1982

CINCINNATI BRANCH
Appointed by Federal Reserve Bank
Walter W. Hillenmeyer, Jr
Chairman and Chief Executive Officer, First
Security National Bank and Trust Company,
Lexington, Kentucky
Lawrence C. Hawkins . .Senior Vice President, University of Cincinnati,
Cincinnati, Ohio
Elden Houts
President, The Citizens Commercial Bank and
Trust Company, Celina, Ohio
Oliver W. Birckhead . . . Chairman of the Board and Chief Executive Officer, The Central Trust Company, N.A.,
Cincinnati, Ohio
Appointed by Board of Governors
LawrenceH. Rogers II .President and Chief Executive Officer, Omega
Communications, Inc., Cincinnati, Ohio
Martin B. Friedman
Director, Formica Corporation, Cincinnati,
Ohio
Sister Grace Marie Hiltz President, Sisters of Charity Health Care Systems, Inc., Cincinnati, Ohio




1980
1981
1981
1982

1980
1981
1982

Directories and Meetings 301

PITTSBURGH BRANCH
Appointed by Federal Reserve Bank
J. David Barnes
President, Mellon Bank, N.A., Pittsburgh,
Pennsylvania
Thomas V. Mansell . . . . President and Chief Executive Officer, First National Bank of Western Pennsylvania, New
Castle, Pennsylvania
R. BurtGookin
Director, H. J. Heinz Co., Pittsburgh, Pennsylvania
William D. McKain
President, Wheeling National Bank, Wheeling,
West Virginia
Appointed by Board of Governors
MiltonG. Hulme, Jr... .President and Chief Executive Officer, Mine
Safety Appliances Company, Pittsburgh,
Pennsylvania
William H. Knoell
President, Cyclops Corporation, Pittsburgh,
Pennsylvania
Robert S. Kaplan
Dean, Graduate School of Industrial Administration, Carnegie-Mellon University, Pittsburgh, Pennsylvania

Term
expires
Dec. 31

1980
1981
1981
1982

1980
1981
1982

District 5—RICHMOND
Class A
Frederic H. Phillips

Senior Vice President, Virginia National Bank,
Roanoke, Virginia
Vincent C. Burke, Jr
Chairman of the Board and Chief Executive Officer, The Riggs National Bank of Washington, D.C., Washington, D.C
WilliamM. Dickson... .President and Senior Trust Officer, First National Bank in Ronceverte, Ronceverte, West
Virginia

Class B
Thomas A. Jordan
Paul G. Miller

Consultant, Asheboro, North Carolina
Chairman of the Board and Chief Executive
Officer, Commercial Credit Company, Baltimore, Maryland
James A. Chapman, Jr. .Chairman of the Board and Chief Executive Officer, Inman Mills, Inman, South Carolina...

Class C
Steven Muller
Maceo A. Sloan
Paul E. Reichardt



President, The Johns Hopkins University and
Hospital, Baltimore, Maryland
Executive Vice President and Chief Operating
Officer, North Carolina Mutual Life Insurance Company, Durham, North Carolina....
Chairman of the Board and Chief Executive Officer, Washington Gas Light Company,
Washington, D.C

1980
1981
1982
1980
1981
1982

1980
1981
1982

302 Directories and Meetings

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
Assistant/Deputy Manager, Baltimore Regional
Chapter of American Red Cross, Baltimore,
Maryland
Hugh D. Shires
President and Chief Executive Officer, The
First National Bank and Trust Company of
Western Maryland, Cumberland, Maryland..
A. R. Reppert
President, The Union National Bank of Clarksburg, Clarksburg, West Virginia

Term
expires
Dec. 31

1980
1981
1982
1982

Appointed by Board of Governors
Catherine Byrne Doehler. Director of Development, Baltimore Regional
Chapter of American Red Cross, Baltimore,
Maryland
Joseph H. McLain
President, Washington College, Chestertown,
Maryland
Edward H. Covell
Vice President, Country Pride Foods Limited,
General Manager, Delmarva Division, Easton,
Maryland

1980
1981
1982

CHARLOTTE BRANCH
Appointed by Federal Reserve Bank
JohnT. Fielder
President, J. B. Ivey and Company, Charlotte,
North Carolina
Hugh M. Chapman
Chairman of the Board, The Citizens & Southern National Bank of South Carolina, Columbia, South Carolina
J. Banks Scarborough . .Chairman and President, Pee Dee State Bank,
Timmonsville, South Carolina
W.B.Apple, Jr
President, First National Bank of Reidsville,
Reidsville, North Carolina

1980
1981
1982
1982

Appointed by Board of Governors
Robert E. Elberson
Henry Ponder
Naomi G. Albanese




President, Chief Executive Officer, and Director, Hanes Corporation, Winston-Salem,
North Carolina
Office of the President, Benedict College, Columbia, South Carolina
Dean, School of Home Economics, University
of North Carolina at Greensboro, Greensboro, North Carolina

1980
1981
1982

Directories and Meetings 303
Term
expires
Dec. 31

District 6—ATLANTA
Class A
HughM. Willson
Guy W. Botts
DanB. Andrews

President, Citizens National Bank, Athens,
Tennessee
Chairman of the Board, Barnett Banks of Florida, Inc., Jacksonville, Florida
President, First National Bank of Dickson,
Dickson, Tennessee

Class B
Ulysses V. Goodwyn . . .Executive Vice President, Southern Natural Resources, Inc., Birmingham, Alabama
Floyd W. Lewis
Chairman of the Board and Chief Executive Officer, Middle South Utilities, Inc., New Orleans, Louisiana
JeanMcArthurDavis ..President, McArthur Dairy, Inc., Miami,
Florida
Class C
William A. Fickling, Jr. President and Chairman, Charter Medical Corporation, Macon, Georgia
Fred Adams, Jr
President, Cal-Maine Foods, Inc., Jackson,
Mississippi
JohnH. Weitnauer, Jr. .Chairman and Chief Executive Officer, Richway, Atlanta, Georgia

1980
1981
1982

1980
1981
1982

1980
1981
1982

BIRMINGHAM BRANCH
Appointed by Federal Reserve Bank
George S. Shirley
President, The First National Bank of Tuskaloosa, Tuscaloosa, Alabama
Guy H. Caffey, Jr
Chairman and Chief Executive Officer, Southern Bancorporation of Alabama and Birmingham Trust National Bank, Birmingham, Alabama
C. Gordon Jones
President and Chief Executive Officer, First National Bank of Decatur, Decatur, Alabama . .
Martha A. Mclnnis . . . . Executive Vice President, Alabama Environmental Quality Association, Montgomery,
Alabama
Appointed by Board of Governors
Harold B. Blach, Jr. . . . President, Blach's, Inc., Birmingham, Alabama
Louis J. Willie
Executive Vice President, Booker T. Washington Insurance Co., Birmingham, Alabama...
William H. Martin III . .President and Chief Executive Officer, Martin
Industries, Inc., Florence, Alabama




1980

1981
1982
1982
1980
1981
1982

304 Directories and Meetings

JACKSONVILLE BRANCH
Appointed by Federal Reserve Bank
C. DuBose Ausley
Chairman of the Board, Capital City First National Bank, Tallahassee, Florida
Robert E. Warfield, Jr. .Chairman and President, The First National
Bank and Trust Company, Eustis, Florida . . .
W. M. Palmer, Jr
Chairman, Florida Crushed Stone Company,
Ocala, Florida
Billy J. Walker
President, Atlantic Bancorporation, Jacksonville, Florida
Appointed by Board of Governors
Joan W. Stein
Partner, Regency Square Shopping Center,
Jacksonville, Florida
Jerome P. Keuper
President, Florida Institute of Technology, Melbourne, Florida
Copeland D. Newbern. .Chairman of the Board, Newbern Groves, Inc.,
Tampa, Florida

Term
expires
Dec. 31

1980
1981
1982
1982

1980
1981
1982

MIAMI BRANCH
Appointed by Federal Reserve Bank
Tully F. Dunlap
Chairman, Florida National Bank, Miami, Florida
Jane C. Cousins
President, Cousins Associates, Inc., Miami,
Florida
Alfred W. Roepstorff ..President, National Bank of Collier County,
Marco Island, Florida
M.G.Sanchez
President and Chief Executive Officer, First
Bankers Corporation of Florida, Pompano
Beach, Florida
Appointed by Board of Governors
David G. Robinson
President, Edison Community College, Fort
Myers, Florida
Roy W. Vandegrift, Jr. .President, Vandegrift-Williams Farms, Inc.,
Pahokee, Florida
David H. Rush
President, ACR Electronics, Inc., Hollywood,
Florida

1980
1981
1981
1982

1980
1981
1982

NASHVILLE BRANCH
Appointed by Federal Reserve Bank
James R. Austin
Chairman and Chief Executive Officer, Peoples
National Bank, Shelbyville, Tennessee
Ruth W.Ellis
President, Mountain Empire Bank, Johnson
City, Tennessee
Charles J. Kane
Chairman and Chief Executive Officer, Third
National Bank in Nashville, Nashville, Tennessee
JohnR. King
President, The Mason and Dixon Lines, Inc.,
Kingsport, Tennessee




1980
1981
1982
1982

Directories and Meetings 305

Appointed by Board of Governors
Robert C. H.
Mathews, Jr
President, R. C. Mathews, Contractor, Inc.,
Nashville, Tennessee
John C. Bolinger, Jr
Management Consultant, Knoxville, Tennessee.
Cecelia Adkins
Executive Director, Sunday School Publishing
Board, Nashville, Tennessee

Term
expires
Dec. 31
1980
1981
1982

NEW ORLEANS BRANCH
Appointed by Federal Reserve Bank
WilliamE. Howard, Jr. .Chairman of the Board, Commercial National
Bank and Trust Company of Laurel, Laurel,
Mississippi
Robert H. Bolton
President, Rapides Bank and Trust Company in
Alexandria, Alexandria, Louisiana
Patrick A. Delaney
President, Whitney National Bank of New Orleans, New Orleans, Louisiana
Ben M. Radcliff
President, Ben M. Radcliff Contractor, Inc.,
Mobile, Alabama
Appointed by Board of Governors
George C. Cortright, Jr. Partner, George C. Cortright Company, Rolling Fork, Mississippi
Horatio C. Thompson. .President, Horatio Thompson Investment, Inc.,
Baton Rouge, Louisiana
LevereC. Montgomery .Chairman, Time Saver Stores, Inc., New Orleans, Louisiana

1980
1981
1982
1982

1980
1981
1982

District 7—CHICAGO
Class A
John F. Spies
Roger E. Anderson
Patrick E. McNarny
Class B
Arthur J. Decio
Dennis W. Hunt
Mary Garst



President, Iowa Trust and Savings Bank, Emmetsburg, Iowa
Chairman of the Board, Continental Illinois
National Bank and Trust Co. of Chicago,
Chicago, Illinois
President, First National Bank of Logansport,
Logansport, Indiana
Chairman of the Board and Chief Executive
Officer, Skyline Corporation, Elkhart, Indiana
President, Hunt Truck Lines, Inc., Rockwell
City, Iowa
Manager of Cattle Division, Garst Company,
Coon Rapids, Iowa

1980
1981
1982

1980
1981
1982

306 Directories and Meetings

Class C
John Sagan
Edward F. Brabec
Stanton R. Cook

Term
expires
Dec. 31
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 .

1980
1981
1982

DETROIT BRANCH
Appointed by Federal Reserve Bank
Lawrence A. Johns
President, Isabella Bank and Trust, Mount
Pleasant, Michigan
Charles R. Montgomery President, Michigan Consolidated Gas Company, Detroit, Michigan
James H. Duncan
Chairman and Chief Executive Officer, First
American Bank Corporation, Kalamazoo,
Michigan
Dean E. Richardson
Chairman, Manufacturers National Bank of Detroit, Detroit, Michigan
Appointed by Board of Governors
Howard F.Sims
President, Sims-Varner Associates, Inc., Detroit, Michigan
Herbert H. Dow
Director and Secretary, The Dow Chemical
Company, Midland, Michigan
Russell G. Mawby
President and Trustee, W. K. Kellogg Foundation, Battle Creek, Michigan

1980
1981
1981
1982

1980
1981
1982

District 8—ST. LOUIS
Class A
Donald N. Brandin
George M. Ryrie
Donald L. Hunt
Class B
Ralph C. Bain
Tom K. Smith, Jr
Mary P. Holt



Chairman of the Board and Chief Executive Officer, The Boatmen's National Bank of St.
Louis, St. Louis, Missouri
President, First National Bank & Trust Co.,
Alton, Illinois
President, First National Bank of Marissa,
Marissa, Illinois
Vice President, Wabash Plastics, Inc., Evansville, Indiana
St. Louis, Missouri
President, Clothes Horse, Little Rock, Arkansas

1980
1981
1982

1980
1981
1982

Directories and Meetings 307

Class C
William H. Stroube

Associate Dean of Faculty Programs, Department of Agriculture, Western Kentucky University, Bowling Green, Kentucky
William B. Walton
Vice Chairman of the Board Emeritus, Holiday
Inns, Inc., Memphis, Tennessee
Armand C. Stalnaker.. .Chairman of the Board, General American Life
Insurance Co., St. Louis, Missouri

Term
expires
Dec. 31
1980
1981
1982

LITTLE ROCK BRANCH
Appointed by Federal Reserve Bank
Thomas E. Hays, Jr. . . . President and Chief Executive Officer, The First
National Bank of Hope, Hope, Arkansas
Gordon E. Parker
President and Chief Executive Officer, The First
National Bank of El Dorado, El Dorado,
Arkansas
Shirley J. Pine
Speech Communication, University of Arkansas
at Little Rock, Little Rock, Arkansas
William H. Bowen
President and Chief Executive Officer, The
Commercial National Bank of Little Rock,
Little Rock, Arkansas
Appointed by Board of Governors
Ronald W. Bailey
Executive Vice President and General Manager,
Producers Rice Mill, Inc., Stuttgart, Arkansas
G. Larry Kelley
President, Pickens-Bond Construction Co., Little Rock, Arkansas
E. Ray Kemp, Jr
Vice Chairman of the Board and Chief Administrative Officer, Dillard Department Stores,
Inc., Little Rock, Arkansas

1980
1981
1981
1982

1980
1981
1982

LOUISVILLE BRANCH
Appointed by Federal Reserve Bank
J. David Grissom
Chairman and Chief Executive Officer, Citizens
Fidelity Bank and Trust Company, Louisville,
Kentucky
Fred B. Oney
President, The First National Bank of Carrollton, Carrollton, Kentucky
Sister Eileen M. Egan.. .President, Spalding College, Louisville, Kentucky
Howard Brenner
Vice Chairman of the Board, Tell City National
Bank, Tell City, Indiana
Appointed by Board of Governors
Richard O. Donegan ...Senior Vice President and Group Executive,
General Electric Company, Louisville, Kentucky
Vacant
James F. Thompson
Professor of Economics, Murray State University, Murray, Kentucky



1980
1981
1981
1982

1980
1981
1982

308 Directories and Meetings

MEMPHIS BRANCH
Appointed by Federal Reserve Bank
Charles S. Youngblood .President and Chief Executive Officer, First Columbus National Bank, Columbus, Mississippi
Stallings Lipford
President, First-Citizens National Bank of Dyersburg, Dyersburg, Tennessee
Bruce E. Campbell, Jr. .Chairman of the Board and President, National
Bank of Commerce, Memphis, Tennessee . . .
Earl L. McCarroll
President, The Farmers Bank & Trust Co.,
Blytheville, Arkansas

Term
expires
Dec. 31

1980
1981
1981
1982

Appointed by Board of Governors
Frank A. Jones, Jr
Benjamin P. Pierce
Patricia W. Shaw

President, Dietz Forge Company, Memphis,
Tennessee
President, Tyrone Hydraulics, Inc., Corinth,
Mississippi
Senior Vice President and Assistant Secretary,
Universal Life Insurance Company, Memphis, Tennessee

1980
1981
1982

District 9—MINNEAPOLIS
Class A
James H. Smaby
Zane G. Murfitt
Henry N. Ness
Class B
Donald P. Helgeson
Russell G. Cleary
Joe F. Kirby

President, Commercial National Bank and Trust
Company, Iron Mountain, Michigan
President, Flint Creek Valley Bank, Philipsburg, Montana
Senior Vice President, The Fargo National
Bank, Fargo, North Dakota
Secretary and Vice President, Jack Frost, Inc.,
St. Cloud, Minnesota
Chairman and President, G. Heileman Brewing
Company, LaCrosse, Wisconsin
Chairman, Western Surety Company, Sioux
Falls, SouthDakota

1980
1981
1982

1980
1981
1982

Class C
Stephen F. Keating
William G. Phillips

Minneapolis, Minnesota
Chairman and Chief Executive Officer, International Multifoods, Minneapolis, Minnesota ..
Sister Generose Gervais . Administrator, St. Mary's Hospital, Rochester,
Minnesota




1980
1981
1982

Directories and Meetings 309

HELENA BRANCH

Term
expires
Dec. 31

Appointed by Federal Reserve Bank
Harry W. Newlon
President, First National Bank, Bozeman, Montana
Jase O. Norsworthy
President, The N.R.G. Company, Billings,
Montana
LynnD. Grobel
President, First National Bank of Glasgow,
Glasgow, Montana

1981

Appointed by Board of Governors
Patricia P. Douglas . . . .Fiscal Affairs Vice President, University of
Montana, Missoula, Montana
Norris E. Hanford
Fort Benton, Montana

1980
1981

1980
1980

District 10—KANSAS CITY
Class A
Wayne D. Angell
JohnD. Woods
Howard K. Loomis

President, Council Grove National Bank, Ottawa, Kansas
Chairman and Chief Executive Officer, The
Omaha National Bank, Omaha, Nebraska . . .
President, The Peoples Bank, Pratt, Kansas

Class B
James G. Harlow, Jr. ..President and Chief Executive Officer, Oklahoma Gas and Electric Co., Oklahoma City,
Oklahoma
Alan R. Sleeper
Alden, Kansas
Charles C. Gates
President and Chairman of the Board, Gates
Rubber Company, Denver, Colorado
Class C
Joseph H. Williams ....Chairman and Chief Executive Officer, The
Williams Companies, Tulsa, Oklahoma
Doris M. Drury
Professor of Economics, University of Denver,
Denver, Colorado
PaulH. Henson
Chairman, United Telecommunications, Inc.,
Kansas City, Missouri

1980
1981
1982

1980
1981
1982

1980
1981
1982

DENVER BRANCH
Appointed by Federal Reserve Bank
William H. Vernon
Director, and Former Chairman and Chief Executive Officer, Santa Fe National Bank,
Santa Fe, New Mexico
Delano E. Scott
President and Chairman, The Routt County National Bank of Steamboat Springs, Steamboat
Springs, Colorado
Kenneth C. Naramore . .President, Stockmen's Bank & Trust Company,
Gillette, Wyoming



1980
1980
1981

310 Directories and Meetings

Appointed by Board of Governors
AlvinF. Grospiron
Denver, Colorado
Caleb B. Hurtt
President and Corporate Vice President, Martin
Marietta Aerospace Corporation, Denver
Division, Denver, Colorado

Term
expires
Dec. 31
1980
1981

OKLAHOMA CITY BRANCH
Appointed by Federal Reserve Bank
W. L. Stephenson, Jr. .. Chairman and Chief Executive Officer, Central
National Bank & Trust Co. of Enid, Enid,
Oklahoma
V. M. Thompson, Jr
Chairman and Chief Executive Officer, Utica
National Bank and Trust Co., Tulsa, Oklahoma
J. A. Maurer
Chairman, Security National Bank & Trust Co.,
Duncan, Oklahoma

1981

Appointed by Board of Governors
Samuel R. Noble
Chairman of the Board, Noble Affiliates, Inc.,
Ardmore, Oklahoma
Christine H. Anthony . .OklahomaCity, Oklahoma

1980
1981

1980
1980

OMAHA BRANCH
Appointed by Federal Reserve Bank
F. Phillips Giltner
President, First National Bank of Omaha,
Omaha, Nebraska
W. W. Cook, Jr
President, Beatrice National Bank and Trust
Company, Beatrice, Nebraska
Joe J. Huckfeldt
President, Gering National Bank and Trust
Company, Gering, Nebraska
Appointed by Board of Governors
Robert G. Lueder
President, Lueder Construction Company,
Omaha, Nebraska
GretchenS. Pullen
Chairman of the Board, Swanson Enterprises,
Inc., Omaha, Nebraska

1980
1981
1981

1980
1981

District 11—DALLAS
Class A
Frank Junell
Lewis H. Bond
John P. Gilliam




Chairman of the Board, The Central National
Bank of San Angelo, San Angelo, Texas
Chairman of the Board and Chief Executive
Officer, Texas American Bancshares Inc., Ft.
Worth, Texas
President and Chief Executive Officer, First National Bank in Valley Mills, Valley Mills,
Texas

1980
1981
1982

Directories and Meetings 311

Class B
Kent Gilbreath
J. Wayland Bennett

Robert D. Rogers
Class C
Irving A. Mathews
Gerald D. Hines
Margaret S. Wilson

Term
expires
Dec. 31
Professor of Economics, Department of Economics and Finance, Baylor University,
Waco, Texas
Charles C. Thompson Professor of Agricultural Finance and Associate Dean, College of
Agricultural Sciences, Texas Tech University,
Lubbock, Texas
President, Texas Industries, Inc., Dallas, Texas.
Chairman of the Board and Chief Executive Officer, Frost Bros., Inc., San Antonio, Texas..
Owner, Gerald D. Hines Interests, Houston,
Texas
Chairman of the Board and Chief Executive Officer, Scarbroughs Stores, Austin, Texas

1980

1981
1982

1980
1981
1982

EL PASO BRANCH
Appointed by Federal Reserve Bank
ClaudeE. Leyendecker .President, Mimbres Valley Bank, Deming, New
Mexico
Arnold B. Peinado, Jr. . Partner, AVC Development, El Paso, Texas . . .
Ernest M. Schur
Chairman of the Executive Committee, The
First National Bank of Odessa, Odessa, Texas
Arthur L. Gonzales . . . . Chairman of the Board and Chief Executive Officer, First City National Bank of El Paso, El
Paso, Texas
Appointed by Board of Governors
Chester J. Kesey
C. J. Kesey Enterprises, Pecos, Texas
JosefinaA. Salas-Porras. Executive Director, BI Language Services, El
Paso, Texas
A. J. Losee
Shareholder, Losee, Carson, & Dickerson, Professional Association, Artesia, New Mexico ..

1980
1981
1981
1982
1980
1981
1982

HOUSTON BRANCH
Appointed by Federal Reserve Bank
RaymondL. Britton .. .Labor Arbitrator & Professor of Law, University of Houston, Bates College of Law, Houston, Texas
JohnT. Cater
President, Bank of the Southwest National Association, Houston, Texas
Ralph E. David
President, First Freeport National Bank, Freeport, Texas
Will E. Wilson
President and Chief Executive Officer, First
Security Bank of Beaumont, N.A., Beaumont, Texas



1980
1981
1981
1982

312 Directories and Meetings

Appointed by Board of Governors
Gene M. Woodfin
Chairman of the Board and Chief Executive Officer, Marathon Manufacturing Company,
Houston, Texas
George V. Smith, Sr. .. .President, Smith Pipe & Supply, Inc., Houston,
Texas
Jerome L. Howard
Chairman of the Board and Chief Executive Officer, Mortgage & Trust, Inc., Houston,
Texas

Term
expires
Dec. 31
1980
1981
1982

SAN ANTONIO BRANCH
Appointed by Federal Reserve Bank
John H. Garner
President and Chief Executive Officer, Corpus
Christi National Bank, Corpus Christi, TexasJohn H. Holcomb
Owner-Manager, Progreso Haciendas Company, Progreso, Texas
Charles E. Cheever, Jr. . President, Broadway National Bank, San Antonio, 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
Pat Legan
Owner, Legan Properties, San Antonio, Texas .

1980
1981
1981
1982

1980
1981
1982

District 12—SAN FRANCISCO
Class A
Ole R. Mettler

President and Chairman, Farmers & Merchants
Bank of Central California, Lodi, California.
Robert A. Young
Chairman and President, Northwest National
Bank, Vancouver, Washington
Frederick G. Larkin, Jr. Chairman of the Executive Committee, Security
Pacific National Bank, Los Angeles, California

1980
1981
1982

Class B
J. R. Vaughan

Partner, Richards, Watson, Dreyfuss & Gershon, Los Angeles, California
Malcolm T. Stamper . . . President, The Boeing Company, Seattle, Washington
Clair L. Peck, Jnr
Chairman of the Board, C. L. Peck Contractor,
Los Angeles, California




1980
1981
1982

Directories and Meetings 313

Class C
Cornell C. Maier

Chairman, President and Chief Executive Officer, Kaiser Aluminum & Chemical Corp.,
Oakland, California
Alan C. Furth
President, Southern Pacific Company, San
Francisco, California
Caroline L. Ahmanson .Chairman of the Board, Caroline Leonetti,
Ltd., Beverly Hills, California

Term
expires
Dec. 31
1980
1981
1982

LOS ANGELES BRANCH
Appointed by Federal Reserve Bank
James D. McMahon
President, Santa Clarita National Bank, Newhall, California
Harvey J. Mitchell
President, First National Bank of San Diego
County, Escondido, California
Bram Goldsmith
Chairman of the Board, City National Bank,
Beverly Hills, California
Fred W. Andrew
President and Chief Operating Officer, Superior
Farming Company, Bakersfield, California ..
Appointed by Board of Governors
Lola M. MeAlpin-Grant Assistant Dean, Loyola Law School, Los Angeles, California
Harvey A. Proctor
Chairman of the Board, Southern California
Gas Company, Los Angeles, California
TogoW. Tanaka
President, Gramercy Enterprises, Los Angeles,
California

1980
1981
1982
1982

1980
1981
1982

PORTLAND BRANCH
Appointed by Federal Reserve Bank
Kenneth Smith
General Manager, The Confederated Tribes of
Warm Springs, Warm Springs, Oregon
Jack W. Gustavel
President and Chief Executive Officer, First National Bank of North Idaho, Coeur d'Alene,
Idaho
Robert F. Wallace
Chairman of the Board, First National Bank of
Oregon, Portland, Oregon
Merle G. Bryan
President, Forest Grove National Bank, Forest
Grove, Oregon
Appointed by Board of Governors
Loran L. Stewart
Director, Bohemia, Inc., Eugene, Oregon
Jean Mater
Vice President, Mater Engineering, Ltd., Corvallis, Oregon
Phillip W. Schneider . . . Northwest Regional Executive, National Wildlife Federation, Portland, Oregon




1980
1981
1981
1982
1980
1981
1982

314 Directories and Meetings

SALT LAKE CITY BRANCH
Appointed by Federal Reserve Bank
Mary S. Knox
Chairman, Idaho State Bank, Glenns Ferry,
Idaho
Spencer F. Eccles
President and Chief Operating Officer, First
Security Corporation, Salt Lake City, Utah ..
David P. Gardner
President, University of Utah, Salt Lake City,
Utah
Fred H. Stringham
President, Valley Bank and Trust Company,
South Salt Lake, Utah
Appointed by Board of Governors
J. L. Terteling
President, The Terteling Company, Inc., Boise,
Idaho
Wendell J. Ashton
Publisher, Deseret News Publishing Company,
Salt Lake City, Utah
Robert A. Erkins
Geothermal Agri/Aquaculturist, White Arrow
Ranch, Bliss, Idaho

Term
expires
Dec. 31

1980
1981
1981
1982

1980
1981
1982

SEATTLE BRANCH
Appointed by Federal Reserve Bank
Rufus C. Smith
Chairman Emeritus, The First National Bank of
Enumclaw, Enumclaw, Washington
Douglas S. Gamble
President and Chief Executive Officer, Pacific
Gamble Robinson Co., Seattle, Washington .
C. M. Berry
President, Seattle-First National Bank, Seattle,
Washington
Donald L. Mellish
Chairman of the Board, National Bank of
Alaska, Anchorage, Alaska
Appointed by Board of Governors
Virginia L. Parks
Vice President for Finance and Treasurer, Seattle University, Seattle, Washington
GeorgeH.Weyerhaeuser.President and Chief Executive Officer, Weyerhaeuser Company, Federal Way, Washington
Merle D. Adlum
President, Maritime Trades Department, Puget
Sound District Council, AFL/CIO, Seattle,
Washington




1980
1981
1981
1982

1980
1981
1982

Directories and Meetings 315
Presidents and Vice Presidents
Federal
Reserve
Bank

or branch
Boston

President
First Vice President
Frank E. Morris
James A. Mclntosh

New York.. Anthony M. Solomon

T. M. Timlen, Jr.

Buffalo
Philadelphia David P. Eastburn

Richard L. Smoot

Cleveland .. Willis J. Winn

W. H. MacDonald

Cincinnati .
Pittsburgh .
Richmond . Robert P. Black

Vice Presidents
Daniel Aquilino '
T. F. Hunt, Jr.1 l
Richard A. Walker
F. K. Cummings
James W. Grieb
Kenneth H. Kulesza
Stephen K. McNees
D. A. Pelletier
Laurence H. Stone
Richard F. Syron
Herbert

R. W. Eisenmenger ]
Niels 0. Larsen '
T. E. Cimeno, Jr.
Norman S. Fieleke
Luther M. Hoyle, Jr.
Robert J. Listfield
Alicia H. Munnell
Richard E. Randall
Walter T. Sullivan
Thomas Vangell
F. Wass

Peter Fousek l
Ronald B. Gray l
1
P. B. Henderson, Jr. Scott E. Pardee '
Thomas C. Sloane •
Peter D. Sternlight '
James O. Aston
Peter Bakstansky
Suzanne Cutler
Chester B. Feldberg
Henry S. Fujarski
Margaret Greene
Whitney R. Irwin
Roger M. Kubarych
Edwin R. Powers
A. M. Puckett
Geri M. Riegger
Irwin D. Sandberg
F. C. Schadrack, Jr.
Robert C. Thoman
Richard Vollkommer H. W. Whiteman, Jr.
H. David Willey
John T . Keane
K. G. Adack '
John D. Johnson J
Peter M. DiPlacido
James F. Gaylord
A. A. Kudelich
Donald J. Mullineaux
William H. Stone, Jr.

Edward G. Boehne i
Thomas K. Desch
Guy H. Edwards
Hiliary H. Hollo way
Donald J. McAneny
L. C. Murdoch, Jr.
Ronald D. Watson

John M. Davis, Jr.1
W. H. Hendricks '
George E. Booth, Jr. Randolph G. Coleman
R. Thomas King
Harry W. Huning
T. E. Orminston, Jr.
James H. Nash, Jr.
Harold J. Swart
Lester M. Selby
Donald G. Vincel
Robert E Showalter ' Charles A Cerino
Donald C. Benjamin

Welford S. Farmer '
James Parthemos *
Jimmie R. Monhollon John F. Rand !
Joseph F. Viverette l
Elizabeth W. Angle
L. W. Bostian, Jr.
J. A. Broaddus, Jr.
Timothy Q. Cook
George B. Evans
Roy L. Fauber
William C. Glover
R. B. Hollinger, Jr.
Richard L. Hopkins
William D. Martin III
A. V. Myers, Jr.
C. D. Porter, Jr.
Aubrey N. Snellings
Andrew L. Tilton
James F. Tucker

 last page of listing.
For notes see


316 Directories and Meetings
Presidents and Vice Presidents—Continued
Federal
Reserve
Bank
or branch

President
First Vice President

Vice Presidents
R. D. McTeer, Jr.1
William E. Pascoe III
Gerald L. Wilson
l
RnvH 7 F.iihanks
Stuart P. Fishburne
Thomas E. Snider
A. D. Tinkelenberg
John G. Stoides

Baltimore
Charlotte
Culpeper 2 .
A t l a n t a . . . . William F. Ford

Robert P. Forrestal

Birmingham
Jacksonville
Miami
Nashville
New Orleans
Chicago . . . Robert P. Mayo
Daniel M. Doyle

Detroit
St. Louis... Lawrence K. Roos
Donald W.
Moriarty, Jr.

Little Rock.
Louisville
Memphis
For notes see last page of listing.




Harry Brandt l
George C. Guynn '
Arthur H. Kantner !
Billy H. Hargett l
Brown R. Rawlings ' W. R. Caldwell
W. M. Davis
William N. Cox III
Robert E. Heck
Delmar Harrison
William G. Pfaff
John R. Kerr
John M. Wallace
H. Terry Smith
Edward Willingham
Hiram J. Honea
Charles D. East
F. J. Craven, Jr.
Jeffrey J. Wells
James D Hawkins
Brian Carey l
Karl A. Scheld !
Carl E. Vander Wilt !
Paul J. Bettini
George W. Cloos
Robert M. Fitzgerald
Daniel P. Kinsella
Robert A. Ludwig
Dorothy M. Nichols
William Rooney
Ruby L. Sloan
Ruth V. Vilona
Patricia W. Wishart
William C. Conrad '

James R. Morrison '
Harry S. Schultz l
Richard P. Anstee
Harris C. Buell, Jr.
Franklin D. Dreyer
Charles W. Furbee
Joseph C. Kvasnicka
William T. Newport
Louis J. Purol
R. M. Scheider
Adolph J. Stojetz
Eugene J. Wagner
Allen G. Wolkey
F. S. Dominick

Joseph P. Garbarini l
Anatol B. Balback '
!
F. G. Russell, Jr.1
Bradley G. Glass
Ruth A. Bryant
Harold E. Uthoff l
Charles R. Halbrook
Carol B. Claypool
William J. Sneed
James R. Kennedy
Robert W. Thomas
Warren G. Snover
Delmer Weisz
John F. Breen l
Donald L. Henrv
Robert E. Matthews

Directories and Meetings 317
and Vice Presidents—Continued
Federal
Reserve
Bank
or branch

President
First Vice President

Minneapolis E. Gerald Corrigan
Thomas E. Gainor

Helena

Vice Presidents
Melvin L. Burstein !
L. W. Femelius !
Sheldon L. Azine
Phil C. Gerber
Bruce J. Hedblom
Howard L. Knous
Clarence W. Nelson
James R. Taylor
Betty J.

John P. Danforth !
J. A. MacDonald '
Lester G. Gable
Gary P. Hanson
Douglas R. Hellweg
David R. MacDonald
Arthur J. Rolnick
R. W. Worcester
Lindstrom

Kansas City Roger Guffey
James R. Bell '
W. T. Billington !
Henry R. Czerwinski James R. Bowen '
Thomas E. Davis !
James A. Cacy
Cecil B. Foley
Jay K. Mast
G. H. Miller, Jr.
M. L. Mothersead
Barry K. Robinson
Robert E. Scott
Jerry D. Shreeves
Donald A. Slover
Denver . . .
Wayne W. Martin '
James F. O'Meara
Oklahoma
City....
William G. Evans
Omaha . . .
Robert D. Hamilton
Dallas

Ernest T. Baughman
Robert H. Boykin

El Paso
Houston . . .
San Antonio
San
Francisco John J. Balles
John B. Williams

Los Angeles
Portland...
Salt Lake
City
Seattle
1. Indicates Senior Vice Presidents.
2. Culpeper Center is not considered a branch.




Joseph E. Burns !
G. C. Cochran III l
Harry E. Robinson ' Tony J. Salvaggio '
C. J. Pickering
Larry J. Reck
George F. Rudy
Neil B. Ryan
E. W. Vorlop, Jr.
Joel L. Koonce, Jr.
J. Z. Rowe
Carl H. Moore
John J. Carson '
Kenneth A. Grant •
Michael W. Keran '
Donald V. Masten '
Kent O. Sims '
Joseph R. Bisignano
William M. Burke
Robert C. Dietz
H. Peter Franzel
George P. Galloway
Harry W. Green
Warren H. Hutchins
Henry B. Jamison
Hector M. Martin
Rix Maurer, Jr.
Michael J. Murray
Louis E. Reilly
Eugene A. Thomas
Thomas Warren
Richard C. Dunn l
James M. Davis
Angelo S . Carella
A. Grant Holman
Gerald R. Kelly l

318 Directories and Meetings
Conference of Presidents
The presidents of the Federal Reserve
Banks are organized into a Conference of
Presidents that meets from time to time to
consider matters of common interest and
to consult with and advise the Board of
Governors. At a meeting held September
18-19, 1979, Ernest T. Baughman, President of the Federal Reserve Bank of
Dallas, was elected Chairman, and Roger
Guffey, President of the Federal Reserve
Bank of Kansas City, was elected Vice
Chairman, for 1980. Martha T. Sukovich
of the Federal Reserve Bank of Dallas was
appointed Secretary, and Richard K.
Rasdall, Jr., of the Federal Reserve Bank
of Kansas City was appointed Assistant
Secretary.




Conference of
First Vice Presidents
The Conference of First Vice Presidents
of the Federal Reserve Banks was organized in 1969 to meet from time to time,
primarily for the consideration of operational matters. On September 20, 1979,
Robert H. Boykin, First Vice President of
the Federal Reserve Bank of Dallas, was
elected Chairman, and Henry R. Czerwinski, First Vice President of the Federal
Reserve Bank of Kansas City, was elected
Vice Chairman of the conference for
1980. Martha T. Sukovich and Richard K.
Rasdall, Jr., were appointed Secretary
and Assistant Secretary respectively.

Index




321

Index
Acceptances, bankers (See Bankers
acceptances)
Assets and liabilities
Banks, by class, 273
Board of Governors, 241
Federal Reserve Banks, 246-51
Automatic transfer accounts, 192
Balance of payments, review of 1980,
24-29
Bank holding companies
Board policy statements, 78-79, 220,
231
Foreign activities, 219, 220, 225
Inspection, 219, 220, 221-22
Legislation
Enacted, 214
Recommendations, 195, 196, 197
Litigation, 198-202
Nonbanking activities, 73
Number and assets, 219
Policy statements, 78, 227, 231-32
Regulation by Federal Reserve System,
222-28
Bank mergers and consolidations, 22324, 226, 282-87
Bankers acceptances
Authority to purchase and to enter
into repurchase agreements,
87-89
Federal Reserve Banks
Earnings, 238, 258
Holdings, 238, 246, 248, 250
Open market transactions during
1980, 256
Repurchase agreements, 246, 248, 250,
256
Banking offices
Changes in number, 278
Par offices, number, 280
Banking supervision and regulation by
Federal Reserve System
In 1980, 219-33
Litigation, 198, 202, 203, 204, 205,
206, 208




Banking supervision and regulation by
Federal Reserve System—Continued
Policy actions and statement, 78, 227
Regulations (See Regulations, Board
of Governors)
Regulatory improvement project, 167,
169, 234
Board of Governors (See also Federal
Reserve System)
Annual Reports to Congress, 169-90
Consumer Advisory Council, 169,
173, 182, 296
Delegation of authority, actions
under, 223, 226, 231
Discount rates at Federal Reserve
Banks, 80-86
Financial statements, 240-44
Interpretations, 233
Legislative recommendations, 195-97
Litigation, 198-208
Members and officers, list, 292
Policy actions and statements, 65-86,
168,220, 227, 231
Publications (See Publications)
Regulations (See Regulations, Board
of Governors)
Regulatory improvement project, 16768, 169, 233, 234
Salaries, 242
Training (See Training)
Branch banks
Changes in number, 279
Federal Reserve
Bank premises, 238, 264
Directors, 297-314
Vice presidents in charge, 315-17
Foreign, by U.S. banking organizations, 220, 224-26
Bretton Woods Agreements, 216
Capital accounts
Banks, by class, 273
Federal Reserve Banks, 247, 249, 251
Clearing and collection (See Transfers of
funds)

322 Index
Commercial banks
Assets and liabilities, 273
Banking offices, changes in number,
278
Number, by class, 273
Supervision and regulation by
Federal Reserve System, 219-33
Transfers of funds (See Transfers of
funds)
Community Reinvestment Act, 168, 174
Condition statement of Federal Reserve
Banks, 246-51
Consumer Advisory Council, 169, 173,
182, 296
Consumer and community affairs
Annual Reports to Congress, 169-90
Board actions, review, 167-69
Community Reinvestment Act, 168,
174
Consumer Advisory Council, 169, 173,
182, 296
Publications, 167, 169, 176, 178, 180,
187
Training, consumer, 167, 169, 174,
176, 180, 181, 187
Transfers of funds (See Transfers
of funds)
Truth in Lending (See Truth in
Lending)
Credit (See also Loans)
Equal Credit Opportunity Act,
176-83
Farm, legislation, 218
Stocks, 71, 232
Truth in Lending (See Truth in
Lending)
Credit unions, 204, 212

Directors, Federal Reserve Banks and
branches, 196, 297-314
Discount rates at Federal Reserve Banks
(See Interest rates)
Discount window, 65, 192
Discounts and advances by Federal
Reserve Banks (See Federal Reserve
Banks: Loans)
Dividends, Federal Reserve Banks, 237,
260, 262
Earnings of Federal Reserve Banks,
237, 258, 262
Economy in 1980, 4-12
Educational activities, consumer (See
Training)
Electronic fund transfers (See Transfers
of funds)
Equal Credit Opportunity Act, Annual
Report to Congress, 176-83
Examinations and inspections
Bank holding companies (See Bank
holding companies)
Federal Reserve Banks, 237
Foreign operations of U.S. banking
organizations, 219, 220, 224-26
Improvements, 220
Schools, 183, 222
Specialized, 221
State member banks, 177, 219-20,
230-31, 232-33
Expenses
Board of Governors, 240-44
Federal Reserve Banks, 237, 258, 262
Farm credit, legislation, 218

Debt ceiling and public debt, 215, 216

Defense production loans, 239
Depository Institutions Deregulation
and Monetary Control Act of 1980,
209-15
Deposits
Banks, by class, 273
Federal Reserve Banks, 247, 249,
251,275,277
Interest rates (See Interest on deposits)
Reserve requirements (See Reserve
requirements)




Federal Advisory Council, 295
Federal agency securities
Authority to purchase and to enter
into repurchase agreements, 8789, 113, 133, 151, 165
Federal Reserve Bank holdings and
earnings, 238, 246, 248, 250, 254
Futures and forward contracts,
Board policy actions, 220
Open market transactions of Federal
Reserve System during 1980, 256
Repurchase agreements, 246, 248, 250,
254, 256

Index 323
Federal Financial Institutions Examination Council, 173, 183, 217, 222
Federal Financing Bank, 88
Federal Open Market Committee
Audit of System Open Market
Account, 237
Continuing authorizations, review, 112
Litigation, 202, 204
Meetings, 87, 294
Members and officers, 294
Policy actions, 87-166
Federal Reserve Act, legislative recommendation, 195
Federal Reserve Agents, 297
Federal Reserve Banks
Assessments for expenses of Board of
Governors, 242, 260, 262
Bank premises, 238, 246, 248, 250,
264
Branches (See Branch banks)
Capital accounts, 247, 249, 251
Chairmen and deputy chairmen, 297
Condition statement, 246-51
Delegation by Board of authority,
actions under, 223, 226, 231
Directors, 196, 297-314
Discount rates [See Interest rates)
Dividends, 237, 260, 262
Earnings and expenses, 237, 258, 262
Examination or audit, 237
Loans
Discounts and advances, 246, 248,
250, 258, 274, 276
Holdings and earnings, 238
Interest rates, 267
Lending authority, legislation, 65,
192, 210
Volume, 265
Officers and employees, number and
salaries, 266
Operations, volume and cost, 239,
265, 266
Payments mechanism, development
(See Transfers of funds)
Presidents and vice presidents, 315-17
Profit and loss, 260
U.S. government securities (See U.S.
government securities)
Federal Reserve notes
Condition statement data, 246-51




Federal Reserve notes—Continued
Cost of printing, issue, and redemption, 242
Interest paid to U.S. Treasury, 238,
260, 262
Legislation, 210
Federal Reserve Reform Act of 1977,
196
Federal Reserve System (See also Board
of Governors)
Banking supervision and regulation
by, 219-33
Consumer affairs (See Consumer and
community affairs)
Foreign currency operations (See
Foreign currency operations)
Map of Federal Reserve Districts, 289
Membership, 233
Payments mechanism, development
(See Transfers of funds)
Training (See Training)
Federal Trade Commission Act, 183-87,
215
Financial Institutions Regulatory and
Interest Rate Control Act of 1978,
195
Financial Institutions Supervisory Act,
221-22
Financial markets and monetary policy,
13-23
Foreign banks, 65, 195, 197, 226, 228-30
Foreign currency operations
Authorization and directive, 87,
90-92, 112, 113, 125
Federal Reserve earnings on foreign
currencies, 258
Review, 112
Freedom of Information Act, 207

Gold, tables on gold certificate accounts
of Federal Reserve Banks and gold
stock, 246, 248, 249, 250, 251,
274, 276
Government in the Sunshine Act,
litigation, 207

Home Mortgage Disclosure Act, 66,
187, 216-17

324 Index
Insured commercial banks

Margin requirements

Assets and liabilities, 273
Banking offices, changes in number,
278
Interest on deposits (See also Interest
rates)
Foreign banks, 65
Legislation, 211
Maximum rates payable on time and
savings deposits, table, 270
Regulation Q, 65, 70
Interest rates (See also Interest on
deposits)
Federal Reserve Banks
Changes, 80-86
Table on rates, 267
Interlocking relationships, 70, 232
International banking, 65, 69, 197, 210,
219, 220, 224-30
International Banking Act, 65, 195,
197, 225, 228, 230
International developments, review,
24-29
Interpretations, Board of Governors,
72, 73, 182, 198, 233
Investments
Banks, by class, 273
Federal Reserve Banks, 246, 248, 250
Foreign, by U.S. banking organizations, 225, 227-28

Regulation T, 71
Table, 272
Member banks (See also National banks)
Affiliates, legislative recommendations, 195-96
Assets, liabilities, and capital accounts, 273
Banking offices, changes in number,
278
Foreign activities, 224-25
Loans
Borrowings from Federal Reserve
Banks (See Federal Reserve
Banks)
Executive officers and certain
others, 195, 231
Number, 273
Reserve requirements (See Reserve requirements)
Reserves and related items, 274-77
State member banks (See State member
banks)
Transfers of funds (See Transfers of
funds)
Mergers and consolidations, 223-24, 226,
282-87
Monetary Control Act of 1980, 65, 80,
191, 209
Monetary policy
Financial markets relative to, 13-23
Reports to Congress, 30-62
Review of 1980, 3-29
Mortgage loans, legislation, 66, 168,
174, 187, 216-17
Mutual savings banks, 278

Labor market developments, 9

Legislation
Enacted, 209-18
Recommendations, 195-97
Litigation
Bank holding companies, 198-202
Board procedures and regulations,
challenges, 202-08
Loans (See also Credit)
Affiliates of member banks, legislative
recommendations, 195-96
Banks, by class, 273
Defense production, 239
Executive officers of member banks
and certain others, 195, 231
Federal Reserve Banks (See Federal
Reserve Banks)
Mortgages, legislation, 66, 168, 174,
187, 216-17



National banks (See also Member banks)
Assets and liabilities, 273
Banking offices, changes in number,
278
Foreign branches, 225
Legislation, 214
Number, 273
Negotiable order of withdrawal (NOW)
accounts, 184, 192, 209, 212
Nonmember banks
Assets and liabilities, 273
Banking offices, changes in number,
278
Number, 273
Reserve requirements, 65, 66, 191, 209

Index 325
Par banking offices, number, 280
Payments mechanism, development (See
Transfers of funds)
Policy actions
Board of Governors
Discount rates at Federal Reserve
Banks, 80-86
Regulations (See Regulations, Board
of Governors)
Statements and rules, 78-80, 168,
220, 227, 231
Federal Open Market Committee
Authority to effect transactions in
System Open Market Account
Domestic operations, 87-90, 93,
98, 106, 113, 114, 120, 125,
129, 133, 134, 139, 145, 151,
159, 165
Foreign currency operations, 87,
90-92, 112, 113, 125
Review, 112
Presidents and vice presidents of Federal
Reserve Banks
Conferences of Presidents and of First
Vice Presidents, 318
List, 315-17
Salaries of presidents, 266
Price stability, sunset of Credit
Control Act, 217
Prices, 10
Pricing principles for System services, 79
Profit and loss, Federal Reserve Banks,
260
Publications
Consumer, 167, 169, 176, 178, 180,
187
Technical, 168, 173, 220, 221, 223,
224, 227, 232
Regulations, Board of Governors (See
also Regulatory improvement
project)
A, Extensions of Credit by Federal
Reserve Banks, 65, 192
B, Equal Credit Opportunity, 182
C, Home Mortgage Disclosure, 66,
187, 188
Credit Restraint, 75
D, Reserves of Member Banks and
change in title to Reserve Requirements of Depository Institutions, 65, 66



Regulations, Board of Governors—
Continued
E, Electronic Fund Transfers, 67, 167
F, Securities of Member State Banks,
69, 230
G, Securities Credit by Persons other
than Banks, Brokers, or Dealers,
232-33
H, Membership of State Banking
Institutions in the Federal Reserve System, 221
K, International Banking Operations,
65, 69
L, Management Official Interlocks,
70, 232
O, Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks, 231
Q, Interest on Deposits, 65, 70
T, Credit by Brokers and Dealers,
71, 233
Y, Bank Holding Companies and
Change in Bank Control, 73
Z, Truth in Lending, 74, 167-68,
169-73, 205, 207
Regulatory improvement project, 16768, 169, 233, 234
Repurchase agreements
Authority to purchase and to enter
into, 87-89
Bankers acceptances, 87-88, 246, 248,
250, 256
Federal agency securities, 87-89, 246,
248, 250, 254, 256
U.S. government securities, 87-89,
246, 248, 250, 254, 256, 274, 276
Reserve requirements
Depository institutions, 65, 66, 191,
209
Foreign banks, 65, 197
Member banks
Changes, 65, 66
Table, 267
Reserves, member banks
Reserve requirements (See Reserve
requirements)
Reserves and related items, 274-77
Salaries
Board of Governors, 242
Federal Reserve Banks, 266
Schools (See Training)

326 Index
Securities (See specific types)
Securities Acts Amendments of 1975,
221
Silver futures market, 215
Small Business Regulatory Flexibility
Act, 215
Special drawing rights, 246, 248, 250,
274, 276
State member banks (See also Member
banks)
Applications by, 231
Assets and liabilities, 273
Banking offices, changes in number,
278
Control of, changes, 224
Examination, 177, 219, 220, 221-22
230-33
Foreign activities, 219, 220, 225
Mergers and consolidations, 223-24,
226, 282-87
Number, 219, 273
Securities, 69, 230
Supervision and regulation (See Banking
supervision and regulation by Federal Reserve System)
System Open Market Account
Audit, 237
Authority to effect transactions
Domestic operations, 87-90, 93, 98,
106, 113, 114, 120, 125, 129,
133, 134, 139, 145, 151, 159,
165
Foreign currency operations, 87,
90-92, 112, 113, 125
Review, 112
Thrift institutions, 194, 211, 212
Training
Consumer, 167, 169, 174, 176, 180,
181, 187
Interagency, 183
Staff, 222
Transfers of funds
Automatic transfer accounts, 192




Transfers of funds—Continued
Electronic fund transfers, 67, 167-69,
174, 175
Federal Reserve operations, volume
and cost, 239, 265, 266
Negotiable order of withdrawal
(NOW) accounts, 184, 192, 209,
212
Payments mechanism, development,
236
Truth in Lending
Act
Annual Report to Congress, 169-76
Board's actions, review, 167-69
Legislation, 213
Litigation, 205, 207
Regulation Z, 74, 167-68, 205, 207
U.S. government securities
Authority to buy, to enter into repurchase agreements, and to lend,
87-89, 113, 133, 151, 165
Bank holdings, by class of bank, 273
Federal Reserve Banks
Authority to buy directly from U.S.
Treasury, 88
Earnings, 237, 238, 258
Holdings, 238, 246, 248, 250, 252,
274, 276
Futures and forward contracts, Board
policy actions, 220
Litigation, 207
Open market transactions, 256
Repurchase agreements, 246, 248, 250,
254, 256, 274, 276
Special certificates purchased directly
from U.S. Treasury, 255
Usury laws, 174, 213
V loans, 239
Wage stability, sunset of Credit Control
Act, 217


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102