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FEDERAL RESERVE BANK OF NEW YORK April 15, 1983 To the Depository Institutions in the Second Federal Reserve District I am pleased to present our sixty-eighth Annual Report, which this year reviews major episodes of financial strain during 1982. These disturbances created periods of difficulty in domestic and international markets. But the financial markets, aided by prompt official actions, proved resilient enough to absorb the problems and, for the most part, to continue functioning effectively. Not all of the basic factors that contributed to these financial strains have been eliminated. However, both private financial institutions and national and international authorities are taking actions to resolve the remaining issues and to lessen the dangers of new disturbances. So it is fair to say that lessons have been learned from 1982's incidents, and they are being applied. Anthony M. Solomon President Federal Reserve Bank of New York SIXTY-EIGHTH ANNUAL REPORT For the Year Ended December 31, 1982 Second Federal Reserve D istrict Contents: Page A YEAR OF FINANCIAL S T R A IN S ....................................................................................................... 5 Domestic Highlights............................................................................................................................. 7 The International S c e n e .................................................................................................................... 18 The View at Year-end........................................................................................................................... 24 Financial Statements........................................................................................................................... 25 Changes in Directors and Senior Officers........................................................................................ 28 List of Directors and O ffice rs ...................... ..................................................................................... 32 Stay-eighth Anmal Report Federal Reserve Bank cf New York A Y E A R O F F IN A N C IA L S T R A IN S The past year saw a flurry of disturbances across a wide range of financial markets both in this country and abroad. Those disturbances were not all the same type. Some disrupted markets immediately, while others represented the winding-up of a long process of financial strain. Some happened because even well-run firms in distressed industries were caught up in a difficult economic setting, while others happened chiefly because of management blunders or questionable practices. But together they increased the sense of concern about the financial structure. Financial flare-ups were to be expected as firms and, in many cases, whole countries struggled to come to grips with the effects of serious economic problems of the preceding years: persistent worldwide inflation and huge increases in the price of oil. Recessions may create financial strains during times of relatively stable prices. But those strains are magnified when a policy of restraint takes hold at the end of a long inflation that has left a legacy of entrenched inflationary expectations in capital markets. As a result, interest rates— especially mediumand long-term rates— decline grudgingly, notwithstanding recession and moderat ing inflation. Firms are caught in a squeeze between declining sales and continued high labor and interest costs, and their ability to handle debt burdens is weakened. This was the story in 1982, not just in the United States, but abroad as well where corporate financial distress was worse than in this country. Globally, the world recession, combined with high real interest rates, hurt the developing countries (LDCs for short) particularly badly, especially those in Latin America. The LDCs had borrowed very heavily in recent years; commercial bank claims on them rose from $114 billion at the end of 1977 to $314 billion by 5 mid-1982. As the markets for their exports shrank, many LDCs were ill-positioned to service their growing debts and now face difficult adjustments. Against this background, another theme with serious implications for financial markets was playing out: a boom and bust cycle in oil markets. The sharp run-up in prices after the second oil shock aggravated the financial situation of firms highly dependent on petroleum products or on energy generally. Some industries, such as airlines, were seriously hurt. At the same time, the surge in oil prices created opportunities in other areas, particularly the oil field supply industries, which rode a giant wave of new drilling activity that carried well into 1981. So buyers of oil, both countries and firms, borrowed to cover their higher costs, and sellers or prospective sellers of oil and their suppliers borrowed to finance new investment. But because of the deepening recession, conservation efforts, and rundowns of oil inventories, the petroleum market began weakening, and by 1982 oil prices were easing. This relieved some cost pressures on users of petroleum, but the relief was limited as OPEC (Organization of Petroleum Exporting Countries) members sought to constrain production to prevent significant price weakness. Even so, the shifting balance in the market spelled immediate trouble for many participants in the oil business, and the financial repercussions were felt widely, from Dome Petroleum to Penn Square to Mexico. Concern with the health of the financial structure peaked last August and September, after the extent of Mexico’s liquidity problem became apparent. By then, the financial world had already seen a number of shocks. The market reactions that emerged showed an unusual pattern. Investments in the United States were favored, but not U.S. banking system obligations. As a result, the dollar rose even in the face of declining U.S. interest rates. There was greater than normal interest rate tiering in the domestic certificate of deposit (CD) market. At the same time, the differential between domestic CDs and short-term Treasury bills, the most favored instrument, widened sharply to peak at about 300 basis points. This flight to quality abated, however, after official institutions began playing an active role. By November, rate relationships in these markets had returned to normal. Reactions in the international loan market were much more severe. Basically, the market was truncated. While industrial country and East Asian borrowers retained access to funds at attractive rates, Eastern European and Latin American borrowers faced enormous difficulties just keeping credit lines open— not to mention raising new funds. Overall, the financial markets proved resilient enough to absorb most of the shocks they faced last year. However, prompt official actions were necessary to 6 maintain orderly conditions and to help the markets function effectively. The nature of these official actions varied from problem to problem. In some cases, the Federal Reserve was able to backstop markets by taking timely steps on its own. In other cases, the official response was more complex and involved concerted actions by many central banks and governments, regulatory agencies, and international organizations. But the result was that problems were managed and adverse consequences were contained. Domestic Highlights Rarely has the market for U.S. Government securities attracted the attention that it received during 1982. Even before the failure of Drysdale Government Securities, Incorporated (Drysdale) in the spring, huge Federal deficits for fiscal 1982 and beyond were a source of concern not only to market participants but to the general public as well. To finance the deficit and off-budget items, the Treasury borrowed $135 billion in fiscal 1982. By almost any measure, the Government’s funding requirement during last year was at or near record levels. Federal Government borrowing climbed to more than 5 percent of the nation’s gross national product and accounted for more than 35 percent of total funds raised in the credit markets. Only once in the past two decades— in the deep recession year of 1975— had Government borrowing reached such high proportions. A record 79 percent of the economy’s net private saving was absorbed by Treasury borrowing. These towering financing needs, which will continue for some time, make it especially important that the Government securities market operate effectively. But beyond that, disarray in an important financial market like the Government securities market, if it is not put right, will inevitably cause problems for the implementation of monetary policy. And Government securities dealers, of course, play a crucial role in keeping the market functioning efficiently. The number of dealers and the volume of activity in the Government securities market have multiplied in recent years against the background of heavy Treasury debt issuance and greatly increased variability in interest rates. Average daily transaction volume during 1982 was over $30 billion, more than triple the trading volume of 1978. Among the new dealer firms entering this more volatile and active th e g o v e rn m e n t s e c u r it ie s m a rk e t. 7 market was Drysdale. While it was not one of the primary dealers that report to the Federal Reserve Bank of New York, Drysdale traded on such a large scale relative to its capital that its failure jeopardized the smooth functioning of the market. Drysdale was able to do this for two reasons. First, it raised working capital by exploiting a market practice regarding the pricing of repurchase agreements (RPs). Under an RP, securities are sold with an agreement to buy them back at a specified price and future date. The difference between the repurchase price and the original sale price is the interest earned by the investor. Before the Drysdale default, the provider of coupon-bearing securities was generally not paid the value of the interest that had accrued since the last coupon payment. When a payment date was near, the securities were therefore worth more to the buyer than the price realized by the seller. However, when securities are sold outright, accrued interest is paid to the seller. The asymmetry of the pricing conventions for the two types of transactions allowed dealers to raise capital temporarily by buying securities through an RP, without paying for the accrued interest, then selling them outright and realizing the accrued interest. With low coupon securities, the accrued interest did not amount to much, but with high coupon securities it could be substantial. The second factor enabling Drysdale to trade on a disproportionate scale was its reliance on “blind” brokering, a market practice of not disclosing the names of the participants in a transaction. Blind brokering by banks was a key element in Drysdale’s operations. A number of banks had built up very large volumes of business with the firm. Even though they viewed themselves merely as agents between Drysdale and their customers, these banks provided anonymity to Drysdale and thereby enabled it to raise funds on a huge scale. By screening its identity from its counterparties, Drysdale escaped the normal tendency for market participants to limit their volume of financing transactions with any one firm. Drysdale used its working capital to build up positions on which it apparently incurred sizable trading losses. The extent of these was first revealed on May 17, when the firm failed to meet a liability for interest payments on securities it had borrowed. Market participants became unwilling to deal with Drysdale, and it was forced to stop trading. The Federal Reserve acted promptly to maintain an orderly market. On the day of the default, Federal Reserve officials met with the commercial banks and the Government securities dealers who were involved in the problem and discussed the possibilities for, and consequences of, alternative courses of action. The major clearing banks involved soon decided to meet the interest payments due on the securities, although reserving judgment on the question of legal liability. Federal Reserve officials informed commercial banks that the discount window stood ready to assist them in dealing with any unusual liquidity problems. The Federal Reserve also lent out $2 billion worth of securities from its portfolio, on a short-term, fully collateralized basis, so that the positions generated as a result of Drysdale’s activities could be unwound in an orderly fashion. The immediate effect of the Drysdale collapse was a widespread review and tightening of credit procedures. This process contributed to the demise of another dealer firm, Lombard-Wall, Incorporated (Lombard). The Lombard failure, in turn, opened up a new question: the legal status of an RP. During the bankruptcy proceeding, some Lombard customers were unable for a time to liquidate holdings obtained from the firm under RPs, while others were delayed in getting back securities that had been provided to the firm under RP arrangements. These developments had a detrimental effect on confidence in the market for RPs. RP activity declined and the spread between the overnight dealer loan and RP rates narrowed in the weeks after the Drysdale failure, as market attention to risks increased. Just before the Drysdale default, there were $103 billion in RPs outstanding. During the next five weeks, the volume contracted to $87 billion (Chart 1). Some small firms and lesser known players were forced out of the market and had to rely on bank loans to finance their positions. Despite the increase in bank loans and the reduction of RP volume, the spread between the interest rates on dealer loans and RPs narrowed. Since the dealer loan rate is usually higher than the rate on an RP, the narrowing of the spread suggests that the impact of the supply and demand shifts was swamped by an increase in the perceived riskiness of RPs. The Federal Reserve sought to call attention to the potential risks involved in RPs even prior to the Drysdale default through a letter addressed to commercial banks. But, after the Drysdale and Lombard failures, further steps to improve trading practices and to strengthen monitoring of market developments were needed. The first necessary change was to alter the market practice of not including accrued interest when valuing RPs. The Federal Reserve changed its own accounting procedures in August, and by early October a market wide changeover took place. The Federal Reserve also strengthened its procedures for examining the securities activities of banks. In August, the Federal Reserve Bank of New York appointed a senior officer to head a unit devoted to closer market surveillance. This unit works with the Government securities industry to set up and carry out improved market practices. In addition to reducing the risks involved with RP transactions, the unit’s early concerns have been dealer capital adequacy and “ when issued” trading— the 9 C h a rt 1. R E PU R CH A SE A G R E E M E N T S 1981 1982 Amounts outstanding on Wednesdays. trading of securities before they are issued. This type of transaction, a form of forward trading without margin requirements, is risky because a firm can build up a sizable exposure by dealing with many counterparties. t h e c o m m e r c i a l b a n k i n g s y s t e m . The commercial banking system came under strain in 1982, as the recession caused liquidity problems for many business borrowers and led to a surge of business failures (table). Major international borrowers also had severe difficulties servicing bank debt. All in all, however, commercial banks got through the problems of last year in somewhat better shape than during the previous period of major financial strains, the mid-1970s. Asset quality at the nation’s large banks worsened during 1982, with the deterioration being most pronounced among the regional banks. But the situation 10 did not appear to be so bad as during the 1974-75 recession, when banks encountered problems with real estate investment trusts. Although the ratio of net charge-offs to loans at the twenty-five largest bank holding companies rose to 0.46 percent in 1982 from 0.32 percent in 1981, it was still below the postwar peak of 0.61 percent in 1975. And, for major New York bank holding companies, the comparison was even more favorable—0.36 percent in 1982 versus 0.76 percent in 1975. Based on preliminary data, the ratio of nonperforming assets to total loans at the twenty-five largest bank holding companies was 3.1 percent at the end of 1982, still well below the postwar high of 4.4 percent reached in 1976. But the greatest asset quality imponderables for these banks— some of their loans to developing countries— are not included in nonperforming assets. If the status of most of these international loans does not hold up, the overall asset quality problem for the big banks could reach the proportions of the mid-1970s. While key profit measures have declined from their 1979 peak, earnings for the banking system as a whole are also holding up better than they did after the 1974-75 recession. The rate of return on equity for all banks averaged 12.4 percent in the first half of 1982, compared with 13.2 percent in 1981 and 11.6 percent in 1975-76. Large banks fared better than small banks last year. Although complete nationwide earnings data for the whole of 1982 are not yet available, the twenty-five largest bank holding companies showed a rate of return on equity of 13.8 percent last year versus 14.8 percent in the previous year. Other preliminary information suggests B U S I N E S S F A IL U R E S IN T H E U N I T E D S T A T E S A N D S E L E C T E D F O R E IG N C O U N T R I E S Number of failures United States United Kingdom Germany 1973.......................... 9,571 2,575 3,996 2,718 1974.......................... 10,046 3,720 5,976 2,512 1975.......................... 11,629 5,398 6,948 2,863 1976.......................... 9,851 5,939 6,804 2,976 1977.......................... 7,988 5,831 6,924 4,131 Canada 1978.......................... 6,720 5,086 6,924 5,511 1979.......................... 7,757 4,537 5,484 5,648 1980.......................... 11,782 6,890 6,312 6,595 1981....... .................. 17,217 8,596 8,496 8,055 1982.......................... 25,346 12,039 11,916 10,726 11 that small banks suffered a sharper decline in profit rates in 1982 and may be in even a weaker position than in the mid-1970s. Conventional measures of the liquidity position of the banking system continued their long-standing trend decline in 1982. But interpreting the true extent of any liquidity deterioration is very difficult because these measures do not take account of significant institutional changes that have worked to improve bank liquidity. For one, deposit deregulation, along with the greater interest rate volatility since the 1970s, has induced banks to improve their asset-liability management techniques. Such improvements allow a bank to operate a given scale of business with lower holdings of liquid assets. Furthermore, the money markets in which banks fund themselves— CDs, Federal funds, Eurodollars, and commercial paper— have become more fully developed during the last decade. The gain in liquidity from the greater depth of these markets is not captured by the simple indicators. The capital position of the banking industry, however, strengthened significantly in 1982. Fifteen large bank holding companies raised over $3 billion in capital primarily by issuing unconventional capital instruments: $1.7 billion through issues of adjustable-rate perpetual preferred stock and $1.3 billion through issues of mandatory convertible securities— an initial debt obligation that must be converted to equity later. The ratio of primary capital to assets for the twenty-five largest bank holding companies is estimated to have increased from 4.96 percent at the end of 1981 to 5.30 percent at the end of 1982. While the overall condition of commercial banks thus appeared to be relatively strong compared with the mid-1970s, the number of bank failures during 1982 was about twice as high as in 1976, the previous peak. However, the average size of the banks that failed was smaller during 1982 than in 1976. Of the thirty-four commercial banks insured by the Federal Deposit Insurance Corporation (FDIC) that failed, twenty-four had less than $20 million in deposits and only four had more than $100 million in deposits. In twenty-seven of the thirty-four failures, depositors received full protection since the liabilities of the failed bank were taken over by an assuming bank. In the remaining seven cases, the banks were liquidated. The most prominent commercial bank to fail during 1982 was Penn Square National of Oklahoma City. Since the mid-1970s that bank had increased its assets some fifteenfold, chiefly through loans to the booming local oil and gas companies. But the growth of its own assets greatly understated Penn Square’s involvement in energy-related credits. The bank also originated and then sold about $2 billion in energy loans to other banks. As its credits to marginal businesses became 12 uncollectible with the continued weakening in energy prices and drilling activity, Penn Square’s loan losses mounted. The Comptroller of the Currency declared Penn Square insolvent on July 5, and it was placed under FDIC receivership. With a shortage of time and facing large uncertainties regarding losses on both the actual and off-balance-sheet claims of the bank, the FDIC concluded it could not arrange an assisted merger. Its decision to liquidate the bank resulted in the largest deposit payout since the creation of the FDIC. But close to half of Penn Square’s deposits, or about $190 million, were uninsured. This large fraction of uninsured deposits was in part the result of the bank’s need to replace funds it had lost during a sharp runoff in demand deposits early in the year. Penn Square increased its reliance on money brokers to sell its CDs, offering above-market rates. Many thrift institutions, attracted by these high yields, invested in Penn Square CDs. To ease the resulting liquidity problems for these institutions, the FDIC issued certificates to the uninsured depositors, representing claims against the bank’s assets, and the Federal Reserve accepted these certificates from depository institutions as collateral for discount window borrowings. The failure of Penn Square was one of a series of incidents that raised questions about the soundness of specific commercial banks. Some banks that were big purchasers of Penn Square loans could issue CDs only at a spread over the rates offered by other major banks. Liquidity in the secondary CD market was impaired, since purchasers were reluctant to take delivery on certain bank names that normally traded on a no-name basis. This rate tiering in the CD market led some banks to rely more heavily on the interbank Eurodeposit market as a source of funds. But by the end of the year tiering was no longer severe. Fear of illiquidity was one factor behind a general reluctance to hold bankrelated instruments— CDs and also commercial paper issued by bank holding companies. Heightened concern over bank credit quality, prompted by the surfacing of the Mexican debt problem, was another major factor. Investor resistance to bank liabilities contributed to a widening of the spread between interest rates on CDs and Treasury bills to over 260 basis points in September. And the volume of outstanding large bank CDs declined during the last third of the year. But, even though the decrease started in September when the CD-Treasury bill rate spread peaked, it is difficult to attribute the runoff solely to reluctance by banks to issue CDs at relatively high rates. Weakening loan demand also reduced the need for CD funding. And, by December, some banks were cutting back on CD issuance in anticipation of, or in response to, big inflows to the new money market deposit accounts. By the end of the year, more normal market conditions were 13 C h a rt 2 . D O M ESTIC INTEREST R ATES reestablished. The reduced supply of outstanding CDs, the increased supply of Treasury bills, and the diminution of credit-quality concerns led to a narrowing of the CD-Treasury bill rate spread to about 55 basis points in December (Chart 2). The large losses suffered by banks that purchased loans from Penn Square raises questions about the quality of credit risk assessments in participations. Selling off loans may be a solid, reasonable practice when done under adequate safeguards, but in the case of Penn Square the practice was abused. Buyers did not take enough care in determining the riskiness of the loans purchased. In the aftermath of the Penn Square failure, banks are showing greater concern over the quality of participations accepted and over the internal management mechanisms that back up credit-quality checks. 14 Throughout most of 1982 the thrift industry continued to suffer from the earnings problem that had plagued it for the past several years. This problem stemmed from the maturity mismatch between thrift assets and liabilities coupled with the deregulation of interest rate ceilings on deposit accounts that together have exposed the industry to a severe squeeze in periods of high interest rates. But this sensitivity to interest rates, which was the source of the industry’s problem, also meant that thrift institutions were poised to receive a significant benefit from the fall in short-term interest rates that began in July. From January through June, while interest rates remained high, both mutual savings banks and savings and loan associations (S&Ls) suffered losses at a record rate (Chart 3). With the bulk of the industry’s portfolio locked into long-term, fixed th e t h r if t Chart 3. in d u s try . PROFIT R AT E A T THRIFT IN S TI T U T IO N S Profit rate is defined as the ratio of net income to average assets. 15 rate m ortgages m ade at the relatively low rates that had prevailed in the past, the average yield on assets inched up very slowly in response to the high interest rates. For exam ple, the yield on the m ortgage portfolio of S&Ls during the first half was 10.29 percent, an increase o f only 108 basis points from two years earlier. The two main channels by which this yield can increase— turning over the m ortgage portfolio and investing new deposit flows at the prevailing higher rates— were partially blocked. The m ortgage repaym ent rate for S&Ls was at a relatively low level o f about 7 percent during the first half, and their deposit outflows (before the crediting o f interest paym ents) am ounted to $8.8 billion through June. Thrift liabilities are m uch more interest-rate sensitive than assets because of their short m aturity. W ith about three quarters of S&L deposits paying a marketrelated interest rate, the average rate paid on deposits responds relatively quickly to changes in m arket rates. The average rate paid on their deposits was 11.29 percent during the first half o f 1982, up from 8.57 percent two years earlier. As the negative spread betw een rates on assets and liabilities w idened, thrift industry losses accelerated. W ith the decline in short-term interest rates that started in July, the thrift earnings picture began to turn around. The average contract rate on m ortgage loans closed during the second half was 14.29 percent, well above the average yield on the m ortgage portfolio. The m ortgage repaym ent rate for S&Ls increased to about 11 percent in the second half, and they received $2.4 billion in net new deposits during that period because o f large shifts into the new money m arket deposit accounts in D ecem ber. The average money market certificate rate declined to 10.17 percent in the second h alf from 13.21 percent in the first half. This resulted in a marked slowing in the rate o f loss at S&Ls; the picture at mutual savings banks was much the same. Pressures on the industry, especially during the first half of 1982, resulted in a record num ber o f consolidations o f thrift institutions. For the year as a w hole, there were forty-four Federal Savings and Loan Insurance Corporation (FSLIC)-assisted m ergers, alm ost tw ice the num ber during 1981. Sixteen of these crossed state lines. In addition to the officially assisted cases, 381 other mergers between S&Ls took place last year. O ver 200 of these consolidations were voluntary, w hile the FSLIC supervised the rest. There were eight FD IC-assisted mergers of mutual savings banks during the year. Besides the aid that was tied in with the m ergers, official agencies made substantial loans to the thrift industry through more usual channels. O utstanding advances from the Federal Home Loan Bank system — the first recourse for 16 assistance to its m em ber thrift institutions— averaged $67.2 billion during 1982, up $9.9 billion from a year earlier. The Federal Reserve plays a secondary role to the Federal Home Loan Banks in support of the industry, and borrowing by thrift institutions at the discount window averaged $96 million during 1982. But it was clear from the start that an answ er to the industry’s problem had to go beyond the provision o f liquidity. To that end, the Federal Reserve joined with other regulatory agencies to support legislative actions on the thrift problem known as the R egulators’ B ill. This bill aimed to give greater flexibility to the FDIC and FSLIC in dealing w ith problem s o f depository institutions. It sought to expand the types of financial assistance that the insurers could provide and to give Federal regulators tem porary explicit authority to approve both interstate and interindustry m ergers in em ergency situations. This latter point was of particular concern to the Federal Reserve. A lthough the Federal Reserve had the authority to sanction acquisitions o f thrift institutions by com m ercial bank holding com panies, it preferred to get clarifying legislation from the Congress. Action on the R egulators’ Bill was delayed, how ever, as the Congress considered more com prehensive legislation. But the course of events affecting the thrift industry required a resort to nontraditional m ergers, and the Federal Reserve approved two interindustry acquisitions last year, including one by Citicorp, located in New York, of Fidelity Savings and Loan, located in California. In O ctober, the Congress enacted com prehensive legislation— the D epository Institutions Act o f 1982— dealing with the problem s of banks and thrift institutions. In addition to the m ajor parts of the R egulators’ B ill, the act contains a num ber o f other provisions. A capital infusion program was set up for mortgage lenders with earnings problem s and low net worth utilizing income capital certificates— a new equity security that S&Ls may issue to the FSLIC in exchange for cash or securities but that has no fixed m aturity and that pays interest only when the issuing institution has positive net incom e. The asset and liability powers of Federal thrift institutions were broadened. The act also overrode state laws restricting the enforcem ent o f m ortgage due-on-sale clauses. The elem ent o f the act that has had the most immediate impact on thrift and financial institutions generally was a directive to the D epository Institutions D eregulation Com m ittee to authorize a new deposit account that would compete with money m arket m utual funds. The new account requires a minimum average balance o f $2,500 and allows six third-party transfers per m onth, including at most three by check. The impact of the new money fund account on an institution’s earnings largely depends 17 on two main factors that work in offsetting directions: first, how much new money is attracted to the institution by the account and, second, how much money is shifted to the account from other lower yielding deposits within the institution. In the time between its authorization on December 14,1982 and mid-March 1983, the new money fund account attracted well over $300 billion to banks and thrift institutions. Close to 20 percent of the inflow is estimated to have come from money market mutual funds, while another 25 percent shifted from existing passbook deposits. Most estimates of the earnings impact of the new account suggest that it will be negative on average for the thrift industry during the first year it is offered. The negative impact is likely to be greatest for mutual savings banks because of their relatively high holdings of passbook deposits. Th e International Scene s e c t o r s . Record num bers of firms were pushed into bankruptcy in m ajor nations abroad in 1982 (table on page 11). The industries hit the hardest— agriculture, airlines, chem icals, steel, and oil— cut across national borders. M ost of the failed firms were sm all, but giant com panies suffered financial strains, too. Some o f these, like M assey-Ferguson of Canada, found them selves caught in the collapse o f com m odities prices that depressed the market for agricultural equipm ent. O thers, like Dome Petroleum , had recently taken on a large am ount of expensive debt to acquire oil assets that suddenly depreciated in value. Still others, like G erm any’s A EG -Telefunken and B ritain’s Laker A irways, were under capitalized or were losers in crowded industries going through severe price com petition. The distress o f some corporations had adverse financial consequences for both banks and other firms. Banks experienced a rise in loan losses and nonperform ing loans. In C anada, for instance, loan losses tripled and nonperform ing loans about doubled in 1982; some three quarters of the losses were on dom estic loans. Corporations generally faced a higher risk prem ium in their borrow ing costs. For exam ple, the spread betw een the rates of interest on German bank deposits and com m ercial and industrial loans rose from less than 2 Vi percentage points in August 1981 to over 4 percentage points in O ctober 1982. The bond m arket in Canada provided further evidence. The spread between the rates of interest on long-term governm ent and corporate bonds rose from around 1 percentage point to c o rp o ra te 18 over 2 percentage points in 1982. Thus, corporate distress fed back through higher interest spreads into corporate costs. Chart 4. Index INTERNATIONAL ECO N O M IC INDICATORS In 1 9 8 2 t h e c o m b i n a t i o n o f . . . a n d c o n tin u e d h ig h re a l in terest ra te s a w o rld w id e recession . . . in m a j o r c o u n t r i e s . . . INDUSTRIAL P R O D U C T I O N 1978=100, s e a s o n a ll y a d ju st e d 105 ABROAD* UNITED STATES ^ W e i g h t e d a v e r a g e of in d u st ri a l p ro d u c t io n in C a n a d a , Fr anc e, G e r m a n y , Italy, J a p a n , a n d the U n i t e d K i n g d o m -1 -1 I I I I I I I 1 I 1 I I 1981 1 I I ' 1982 _L_L . . . not o n ly le d to fu rth e r d e clin e s . . . a n d a s l o w d o w n in i n f l a t i o n in c o m m o d i t i e s p r i c e s . . . but a lso c re a te d con d ition s of w id e s p r e a d fin a n c ia l strain . 19 In 1982, financial distress and bankruptcy plagued the private sectors of some less developed countries, too. The m ost highly publicized of these cases is Grupo A lfa, M exico’s largest private industrial conglom erate. H igher interest rates, the depreciation o f the peso, and recession in the United States exposed the weakness of A lfa’s strategy o f grow th through acquisition financed by foreign currency borrow ings. Though the steel and petrochem ical subsidiaries of the conglom erate made profits, many acquisitions did not. The firm ’s belatedly reported 1981 results showed a loss o f over $200 m illion. As a consequence, Alfa had problem s servicing its debt that led to protracted and complex negotiations with its creditor banks, which together hold $2.4 billion in claims on the group. A nother prom inent exam ple was the acute and widespread financial distress in the private sector in Chile. And the amounts of international bank loans to corporate borrow ers there were well above what was at stake in Grupo Alfa. Distress among m anufacturers in Chile stemmed largely from the governm ent’s policy o f fixing the exchange rate at 39 pesos to the dollar from the second quarter o f 1979 to the second quarter of 1982 and trying to hold it there with extrem ely high interest rates. But the gains o f the dollar against other m ajor currencies in the period turned this “ fixed” rate into an effective appreciation of the peso at a time when dom estic real w ages were rising strongly. Chilean m anufacturers com peting in w orld m arkets found their profit m argin crushed and bankruptcies becam e epidem ic. The problem s o f m anufacturers spread to local banks: by D ecem ber 1982, over a tenth o f the Chilean banking system ’s loans were nonperform ing. The official responses to corporate distress varied across countries. In industrial countries, large corporations like A EG -Telefunken and Dome were offered governm ent assistance in the context o f a reorganization of their finances. In most cases, though, business failures were allow ed to run their course. In M exico, the governm ent had granted subsidies to Grupo Alfa in the past but may lim it its future aid to helping arrange sell-offs o f some o f the group’s subsidiaries. In Chile, the governm ent in early 1983 responded to financial distress by liquidating three banks and assum ing the m anagem ent of five others. g l o b a l i n t e r b a n k m a r k e t . The financial climate of 1982— high interest rates and w orries about the solvency of traditional business borrow ers— created a background o f concern in the global interbank market. In such conditions, an unexpected jo lt can have serious effects if interbank credit lines are cut back all at once as a safety m easure. One disturbance that looked at first as if it th e 20 could have broad-ranging spillover effects was the default in July of Banco A m brosiano H olding of Luxem bourg, a nonbank subsidiary of Banco A m brosiano of M ilan. This was the largest failure to hit the Eurom arket since the H erstatt collapse in 1974, but in the end the international financial markets managed to absorb the shock w ithout m uch w ider consequences. Still, the Am brosiano case did lead com m ercial bankers to turn a critical eye on their lending to foreign banks. And these concerns were reinforced when the overseas affiliates o f Latin A m erican banks in the interbank market came under liquidity pressure in the late summer. The condition of foreign agencies of M exican and B razilian banks posed special difficulties. The Federal Reserve took a num ber of steps to lim it the scope o f the liquidity problem for these agencies: it pointed out to com m ercial bankers the difficulty that an end to lending would pose for the overall effort to restructure the debts o f these countries; it m onitored the cash position of the agencies on a daily basis and coordinated efforts to m aintain the integrity o f the clearing m echanism . These disturbances in the interbank m arket had a num ber of consequences. Tiering developed; some bank borrow ers in the m arket had to pay unusual prem ium s that depended on their nationality. And the growth of the interbank market appears to have slowed in 1982, with episodes of outright contraction occurring at tim es during the year. The extent of this slowdown depends on how the interbank m arket is m easured, but through the first three quarters of 1982 one broad measure o f the global interbank m arket grew at an annual rate of only 7 percent. This was a significant slowdown in a market that had been averaging an annual rate o f increase o f around 20 percent over the past decade or so, but it did not signal a chain reaction o f credit contraction. The slowing occurred in step with a marked shift in the location of interbank business: the reported liabilities of banks abroad to each other declined $13 billion, while the liabilities of international banking facilities and other banks in the United States to banks outside the U nited States rose $22 billion in the period between D ecem ber 1981 and Septem ber 1982. p a y m e n t s c r i s e s i n d e b t o r n a t i o n s . The world recession of 1982 hit the nonoil-developing countries very hard. They had to grapple with two consequences o f the dow nturn, low commodities prices and weak markets for exports. C om m odities prices continued to decline throughout 1982 and reached a thirty-year low relative to the prices of m anufactured goods. Since the 1 percent 21 rise in the volum e o f LDC exports last year did not suffice to overcom e these price declines, earnings on foreign sales fell significantly. In this environm ent, developing countries reduced their imports sharply— in fact, the aggregate LDC current account deficit fell from $90 billion in 1981 to about $65 billion last year. But these im port cutbacks were carried out differently throughout the developing w orld. In the Far East, reductions were the result of planned policy actions. They were effected relatively sm oothly, and Asian countries kept open their access to the international credit markets throughout the year. In consequence, this group o f LDCs managed to maintain growth at 4 percent— certainly slow er than the average they had achieved over preceding years but still an im pressive showing given world economic conditions. In Latin A m erica, im port adjustm ents were frequently forced by a shutoff in the flow o f international credit and the resulting contractions were often drastic. Mexico and Argentina, for instance, compressed their import volumes some 40 percent. This wrenching of Latin American economies was concentrated in the latter half of 1982. Most countries in the region continued to grow and maintained access to international capital until the Mexican payments crisis arose in the late summer. That crisis had broad spillover effects on the willingness of lenders to extend credit to other countries in Latin America. The stoppage of credit flows, in turn, forced severe contractions on economies in the region that reversed most of the growth gains that had taken place earlier in the year. The paym ents crises that developed for m ajor debtor countries in 1982 were a consequence of the interplay betw een the world recession and delayed policy adjustm ents by the borrow ers. The decline in the price of oil cut two w ays, reducing the im port bill o f some m ajor debtors, like Brazil, while lowering the export receipts o f others, like M exico. The greatest num ber o f these paym ents disturbances occurred in Eastern Europe and Latin A m erica. Financial difficulties arose for some Eastern European countries, like H ungary, because they were caught in the backwash of problems from the Polish debt crisis o f 1981. Other borrowers in Eastern Europe not only were plagued by the coolness of lenders toward the area but also added to their own problem s o f access to credit through inappropriate financial policies. In Latin A m erica, where the m ost serious payments difficulties were concentrated, the strains brought on by international recession were also com pounded by national policies last year. Some governments were slow to adjust their expenditure growth or exchange rates in the face of deteriorating world econom ic conditions. 22 C h a r t 5. S PR EAD B E TW EE N YIELDS O N M E X I C A N A N D W O R L D B A N K B O N D S 1982 Nacional Financiera SA, Mexican State Financing Agency, DM 150 million 11 percent bonds issued March 1982, due 1990. World Bank DM 200 million 8 1 /2 percent bonds issued April 1982, due 1992. The evolution of the Latin A m erican financial crisis last year proceeded through two phases. In the first phase, which ran through July, credit continued to flow to most borrowers: m ajor country banking system claims on Latin Am erica grew at an annual rate o f 13 percent in the first half o f 1982. The exception was A rgentina, to which bank lending rose at only a 4 percent pace in the same period, a consequence of the Falklands war. W hile no other borrowers experienced a shutdown of funds during this tim e, creditors were starting to reassess lending to the area. This showed up as an increase in the cost of credit to Latin Am erica as m easured by average spreads on syndicated Eurocredits. The second phase em erged with great rapidity. Domestic capital flight from M exico in A ugust— in the m idst o f a changeover of adm inistrations— drained the country’s reserves and showed the unsustainable position of M exico’s international paym ents. Perceptions o f risk, as m easured by relative yields on international M exican bonds (Chart 5), clim bed rapidly to peak around the time of the 23 International M onetary Fund (IM F)/W orld Bank m eetings in September. O ver a m atter of w eeks, regular credit lines were cut back and normal flows of funds to M exico and to other Latin A m erican countries were curtailed. This led to a liquidity crisis for Brazil and aggravated A rgentina’s existing problem s. The need for im m ediate liquidity assistance was obvious. Official actions to provide that liquidity support to M exico, B razil, and Argentina followed a broadly sim ilar pattern. All three countries received official short-term bridging finance from the U nited States and other countries, as well as new credit extensions and rollovers of existing loans from banks. This assistance was needed to m aintain paym ents flows until negotiations on program s of m edium -term private credits and IM F conditional standby arrangem ents could be com pleted. By early 1983, IM F program s for all three countries were in place. Th e View at Year-end The reaction o f financial m arkets to the strains of 1982 suggests that those markets are fragile but not brittle. Official action in various forms was needed, and the tim ely response o f the authorities successfully backstopped the markets at times when their orderly functioning was clearly threatened. By Decem ber, the disruptions in the G overnm ent securities and bank CD markets had subsided and dom estic financial m arkets were generally operating in an orderly way, though still with lively recollections o f earlier difficulties. The biggest uncertainty overhanging the financial markets at the end of the year concerned the paym ents position o f m ajor debtor countries. W hile arrangem ents betw een these countries and the IM F have been established, further progress depends on responsible actions by all the main participants. The borrowing countries need to im plem ent the stabilization program s they have agreed upon. The banks m ust continue to lend in the context of IM F program s. And, of m ajor im portance, the governm ents o f the main creditor countries must increase the resources of the IM F. W ithout that financial w herew ithal, the Fund will not be able to carry out its critical task of restoring normal flows of funds internationally and prospects for a world recovery will be seriously hurt. 24 Financial Statements S T A T E M E N T O F E A R N IN G S A N D E X P E N S E S F O R T H E C A L E N D A R Y E A R S 1 9 8 2 A N D 1 9 8 1 (in dollars) 1982 1981 Total current earnings.................................................................. 5,092,376,638 4,411,180,562t Net expenses............................................................................... 199,209,486 178,651,077+ Current net earnings 4,893,167,152 4,232,529,485t Profit on sales of United States Government securities and Federal agency obligations....................................................................... 27,142,214 All other..................................................................................... 17,408 Total additions 27,159,622 76,354,576 Loss on foreign exchange (net)....................................................... 37,253,441 78,027,922 _ 34,318,309 Additions to current net earnings: _ 76,354,576* Deductions from current net earnings: Loss on sales of United States Government securities and Federal agency obligations (net)................................................................ All other..................................................................................... 2,282,034 7,415,728t Total deductions 39,535,475 119,761,9591 Net deductions............................................................................. 12,375,853 43,407,383t Assessment for the Board of Governors........................................... 15,383,800 16,066,500 Net earnings available for distribution 4 ,8 65 ,4 07,499 4 ,1 73,055,602t Distribution of net earnings: Dividends paid............................................................................. 19,582,450 18,797,197 Transferred to surplus.................................................................. 12,929,400 12,676,500 Payments to United States Treasury (interest on Federal Reserve notes).................................................................. 4,832,895,649 4,141,581,905t Net earnings distributed 4,8 65 ,4 07,499 4 ,173 ,0 5 5,602t SUR PLUS A C C O U N T Surplus— beginning of year.......................................................... 318,683,300 306,006,800 Transferred from net earnings........................................................ 12,929,400 12,676,500 Surplus— end of year 3 31 ,612,700 31 8,683,300 ★ Includes $75,731,032 of contingent expenses and interest received from the Federal Deposit Insurance Corporation in connection with assumed indebtedness of Franklin National Bank, t Revised. 25 S T A T E M E N T O F C O N D IT IO N In dollars A s s e ts D EC. 3 1 , 1 9 8 2 D EC . 3 1 , 1 98 1 Gold certificate account....................................................... 3,211,909,363 3,160,256,297 Special Drawing Rights certificate account............................ 1,335,000,000 951,000,000 Coin................................................................................. 31,564,944 18,029,133 Total 4,578,474,307 4,129,285,430 Advances.......................................................................... 90,470,000 559.300.000 Acceptances held under repurchase agreements....................... 1,479,978,181 194,755,208 Bought outright*................................................................ 42,656,356,801 37,188,008,336 Held under repurchase agreements........................................ 3,704,305,000 3,216,090,000 United States Government securities: Federal agency obligations: Bought outright.................................................................. 2,811,153,205 2,656,642,982 Held under repurchase agreements........................................ 587,795,000 268.910.000 Total loans and securities 51,330,058,187 44,083,706,526 Cash items in process of collection........................................ 1,629,966,743 705,454,435 Bank premises.................................................................. 24,757,834 22,742,263 Other assets-. Due from Federal Deposit Insurance Corporation for indebtedness assumed................................................... 285,333,333 428,000,000 All othert.......................................................................... 2,509,328,674 2,253,678,634 Total other assets 4,449,386,584 3,409,875,332 871,255,883 656,060,339 Interdistrict settlement account........................................... T o ta l A s s e ts 6 1 f2 2 9 ,1 7 4 ,9 6 1 5 2 ,2 7 8 ,9 2 7 ,6 2 7 ★includes securities loaned— fully secured........................................................................... 280,200,000 953,835,000 t Includes assets denominated in foreign currencies revalued monthly at market rates. 26 S T A T E M E N T O F C O N D IT IO N In dollars Liabilities D EC . 3 1 , 1 9 S 2 D EC. 3 1 , 1 98 1 Federal Reserve notes (net)................................................. 44,812,432,506 39,632,632,296 Depository institutions........................................................ 8,882,084,540 5,075,029,515 Reserves and other deposits: United States Treasury— general account.............................. 5,033,451,366 4,300,773,123 Foreign— official accounts................................................... 170,570,230 266,904,089 Other ............................................................................... 586,685,060 540,482,761 Total deposits 14,672,791,196 10,183,189,488 Deferred available cash items 484,833,832 949,428,750 All other*.......................... 595,892,027 876,310,493 1,080,725,859 1,825,739,243 Other liabilities: Total other liabilities T o ta l L ia b ilitie s 6 0 ,5 6 5 ,9 4 9 ,5 6 1 5 1 ,6 4 1 ,5 6 1 ,0 2 7 C a p ita l A c c o u n ts Capital paid in ......... 331.612.700 318.683.300 Surplus..................... 331.612.700 318.683.300 T o ta l C a p ita l A c c o u n t s 6 6 3 ,2 2 5 , 4 0 0 6 3 7 ,3 6 6 , 6 0 0 T o ta l L ia b ilitie s and C a p ita l A c c o u n t s 6 1 ,2 2 9 ,1 7 4 ,9 6 1 5 2 ,2 7 8 ,9 2 7 ,6 2 7 ★ Includes exchange translation account balances reflecting the monthly revaluation of outstanding foreign exchange commitments. 27 Changes in Directors and Senior Officers In November 1982, the Board of Governors of the Federal Reserve System appointed John Brademas a Class C director of the Bank for the three-year term beginning January 1, 1983 and designated him Chairman of the board of directors and Federal Reserve Agent for the year 1983. As Chairman and Federal Reserve Agent, Mr. Brademas, who is President of New York University, New York, N.Y., succeeded Robert H. Knight, who resigned as a Class C director effective December 31,1982. Mr. Knight, who is a senior partner in the New York law firm of Shearman & Sterling, had been serving as a Class C director since February 1976 and as Chairman and Federal Reserve Agent since January 1978; he also served as Deputy Chairman in 1976 and 1977. As a Class C director, Mr. Brademas succeeded Boris Yavitz, Professor and former Dean of the Graduate School of Business at Columbia University, New York, N.Y., who had been serving as a Class C director since June 1977 and as Deputy Chairman since January 1978. Also in November, the Board of Governors appointed Gertrude G. Michelson Deputy Chairman for the year 1983. Mrs. Michelson, who is Senior Vice President of R.H. Macy & Co., Inc., New York, N. Y., has been serving as a Class C director since February 1978. As Deputy Chairman, she succeeded Mr. Yavitz. At the same time, the Board of Governors appointed Clifton R. Wharton, Jr., a Class C director of the Bank for the unexpired portion of Mr. Knight’s term, ending December 31, 1983. Mr. Wharton is Chancellor of the State University of New York, Albany, N. Y. In December 1982, member banks in Group 1 elected Alfred Brittain III a Class A director and reelected William S. Cook a Class B director, each for a three-year term beginning January 1, 1983. Mr. Brittain, Chairman of the Board of Bankers Trust Company, New York, N.Y., succeeded Gordon T. Wallis, Chairman of the Board of Irving Trust Company, New York, N.Y., who served as a Class A director from January 15, 1980 through December 31, 1982. Mr. Cook, President of Union Pacific Corporation, New York, N.Y., has been a Class B director since August 6, 1980. changes in d i r e c t o r s . Buffalo Branch. In November 1982, the Board of Governors of the Federal Reserve System appointed M. Jane Dickman a director of the Buffalo Branch for a three-year term beginning January 1, 1983; in addition, the board of directors of this Bank designated her Chairman of the Branch board for the year 1983. Miss Dickman, a partner in the accounting firm of Touche Ross & Co., Buffalo, N.Y., has been a director of the Branch since January 1977. As Chairman and a Board-appointed Branch 28 director, she succeeded Frederick D. Berkeley, Chairman of the Board and President of Graham Manufacturing Co., Inc., Batavia, N.Y., who had been a director of the Branch since February 1977 and Chairman of the Branch board since January 1979. At the same time, the Bank’s board appointed Frederick G. Ray, who is Chairman of the Board and President of Rochester Savings Bank, Rochester, N.Y., and Donald I. Wickham, who is President of Tri-Way Farms, Inc., Stanley, N.Y., directors of the Buffalo Branch for three-year terms beginning January 1, 1983. On the Branch board, Mr. Ray succeeded Arthur M. Richardson, Chairman of the Board of Security Trust Company, Rochester, N.Y., who had been serving as a Branch director since January 1980. As a Bank-appointed director, Mr. Wickham succeeded Miss Dickman. The following changes in official staff at the level of Vice President and above have occurred since the publication of the previous Annual Report: Geri M. Riegger, Vice President and Automation Adviser, resigned from the Bank effective March 17, 1982. Ms. Riegger joined the Bank’s staff as an officer in 1977. Jorge A. Brathwaite, formerly Assistant Vice President, was appointed Vice President, effective April 1, 1982, and assigned to the Government Bond and Safekeeping Function. c h a n g e s in s e n i o r o f f i c e r s . Effective June 18, 1982: Sam Y. Cross, formerly Senior Vice President, was appointed Executive Vice President, with responsibility for the Foreign Group. Ronald B. Gray, formerly Senior Vice President, was appointed Executive Vice President, with responsibility for the Bank Supervision Function. Peter D. Stemlight, formerly Senior Vice President, was appointed Executive Vice President, with responsibility for the Open Market Operations Function. Paul B. Henderson, Jr., formerly Senior Vice President, was appointed Senior Adviser for Strategic Developments and assigned responsibility for advising the President, the First Vice President, and the Planning and Budgetary Control Committee on strategic developments. Henry S. Fujarski, formerly Vice President, was appointed Senior Vice President and assigned responsibility for the Operations Group (consisting of the Cash Processing, Check Processing, Electronic Payments, and Government Bond and Safekeeping Functions). 29 Edwin R. Powers, Vice President, formerly assigned to the Government Bond and Safekeeping Function, was assigned responsibility for the Administrative Services Group (consisting of the Accounting, Protection, and Service Functions). H. David Willey, formerly Vice President, Foreign Relations Function, resigned from the Bank effective July 1, 1982. Mr. Willey joined the Bank’s staff in 1964 and became an officer in 1969. Edward J. Geng was appointed an officer of the Bank with the title of Senior Vice President, effective September 28, 1982, and assigned to the Open Market Operations Function, with responsibility for surveillance of the U.S. Government securities markets. Prior to joining the Bank, Mr. Geng was Senior Vice President of Baer American Banking Corporation. He had previously been an Assistant Vice President of this Bank and Special Assistant to the Secretary of the Treasury. Cathy E. Minehan, formerly Assistant Vice President, was appointed Vice President, effective October 1, 1982, and assigned responsibility for the Accounting Function. Irwin D. Sandberg, Vice President, formerly assigned to the Open Market Operations Function, was assigned to the Foreign Relations Function effective October 1, 1982. Effective January 1, 1983, he was appointed Senior Vice President, with responsibility for the Foreign Relations Function. Effective October 22, 1982: Ralph A. Cann, III, Vice President, formerly assigned to the Building Services Function, was assigned responsibility for the Service Function. Paul Meek, Monetary Adviser, Open Market Operations Function, was appointed Vice President and Monetary Adviser and assigned supervisory responsibility for the operations of that Function. Richard Vollkommer, Vice President, formerly assigned to the Service Function, was assigned responsibility for the Cash Processing Function. Effective January 1, 1983: Peter Fousek, formerly Senior Vice President and Director of Research, was appointed Executive Vice President and Director of Research. Suzanne Cutler, formerly Vice President, was appointed Senior Vice President and assigned responsibility for the Management Planning Group. Roger M. Kubarych, formerly Vice President and Deputy Director of Research, was appointed Senior Vice President and Deputy Director of Research. 30 Peter J. Fullen, formerly Assistant Vice President, was appointed Vice President and assigned responsibility for the Data Processing Function. Richard J. Gelson, formerly Assistant Vice President, was appointed Vice President and assigned to the Research and Statistics Function. Israel Sendrovic, Vice President, was assigned responsibility for the Automation Group (consisting of the Data Processing and Systems Development Functions). Herbert W. Whiteman, Jr., Vice President, formerly assigned to the Data Processing Function, was assigned responsibility for the Pricing and Promotion Function. Susan C. Young, formerly Assistant Vice President, was appointed Vice President and assigned responsibility for the Systems Development Function. Thomas C. Sloane, Senior Vice President and Senior Adviser, retired on March 1,1983. Mr. Sloane joined the Bank’s staff in 1952 and became an officer in 1959. From August 1979 to March 1980, Mr. Sloane served as alternate to Thomas M. Timlen, First Vice President, who was acting chief executive of the Bank during that period. member o f f e d e r a l a d v i s o r y c o u n c i l — 1 9 8 3 . The board of directors of this Bank selected Lewis T. Preston, Chairman of the Board of Morgan Guaranty Trust Company of New York, New York, N. Y., to serve during 1983 as the member of the Federal Advisory Council representing the Second Federal Reserve District. On the Council, Mr. Preston succeeded Donald C. Platten, Chairman of the Board of Chemical Bank, New York, N.Y., who was this District’s member in 1980, 1981, and 1982. 31 Directors of the Federal Reserve Bank of New York DIRECTORS Term expires Dec. 31 Class Group 1985 A 1 P e t e r D. K i e r n a n ......................................................................................................................... .................................. Chairman and President, Norstar Bancorp Inc., Albany, N.Y. 1983 A 2 R o b e r t A . R o u g h ......................................................................................................................... .................................. 1984 A 3 W i l l i a m S. C o o k ................................................................................................................. .................................. President, Union Pacific Corporation, New York, N.Y. 1985 B 1 J o h n R . O p e l ................................................................................................................................... .................................. 1983 B 2 E d w a r d L. H e n n e s s y , J r ........................................................................................................... .................................. Chairman of the Board, Allied Corporation, Morristown, N.J. 1984 B 3 J o h n B r a d e m a s , Chairman and Federal Reserve A gent......................................... .................................. 1985 C 1984 C 1983 C A l f r e d B r it t a in m .................................................................................................................... .................................. Chairman of the Board, Bankers Trust Company, New York, N.Y. President, The National Bank of Sussex County, Branchville, N.J. Chairman of the Board, International Business Machines Corporation, Armonk, N.Y. President, New York University, New York, N.Y. G e r t r u d e G . M ic h e l s o n , Deputy Chairm an.......................................................... .................................. Senior Vice President, R.H. Macy & Co., Inc., New York, N.Y. C l if t o n R . W h a r t o n , J r ............................................................................................................ .................................. Chancellor, State University of New York, Albany, N. Y. D IR E C T O R S — B U F F A L O B R A N C H M. J a n e D ic k m a n , Chairman.......................................................................................................................... 1985 Partner, Touche Ross & Co., Buffalo, N.Y. J oh n R ollin s B u r w e l l .......................................................................................................................................... President, Rollins Container Corp., Rochester, N.Y. 1983 C ar l F. U l m e r ............................................................................................................................................................ President, The Evans National Bank of Angola, Angola, N.Y. 1983 E dw ar d W . D u f f y ................................................................................................................................................... Chairman of the Board, Marine Midland Bank, N.A., Buffalo, N.Y. 1984 G eo r g e L. W e s s e l ................................................................................................................................................... President, Buffalo AFL-CIO Council, Buffalo, N.Y. 1984 F red er ic k G. R a y ................................................................................................................................................................... Chairman of the Board and President, Rochester Savings Bank, Rochester, N.Y. 1985 D on a ld I. W ic k h a m ................................................................................................................................................. President, Tri-Way Farms, Inc., Stanley, N.Y. 1985 M E M B E R O F F E D E R A L A D V IS O R Y C O U N C IL — 1 9 8 3 L e w is T. P r e s t o n .................................................................................................................................................................... Chairman of the Board, Morgan Guaranty Trust Company of New York, New York, N.Y. 32 1983 Officers of the Federal Reserve Bank of New York A n th o n y M. S o lo m o n , President T h o m a s M. T im le n , First Vice President Sam Y. C r o s s , Executive Vice President Foreign Group R o n a ld B. G r a y , Executive Vice President Bank Supervision Jam es H. O l tm a n , General Counsel PETER FOUSEK, Executive Vice President Research and Statistics P e t e r D. S t e r n l i g h t , Executive Vice President Open Market Operations A U D IT AUTOMATION GROUP J o h n E. F l a n a g a n , General Auditor R o b e r t J. A m b ro se , Assistant General Auditor L eo n R. H o lm e s , Assistant General Auditor W illia m M . S c h u l t z , Adviser L o r e t t a G. A n s b ro , Manager, I s r a e l S e n d r o v ic , Vice President and Director of Research Auditing Department D A T A P R O C E S S IN G H. A l l a n V irg in ia , Manager, Audit Analysis Department P e t e r J. F u l l e n , Vice President H o w a r d F. C ru m b , Assistant Vice President G e o r g e L u k o w ic z , Assistant Vice President R o n a ld J. C l a r k , Manager, ADMINISTRATIVE SERVICES GROUP E d w in R. P o w e r s , Vice President A C C O U N T IN G C a th y E. M in e h a n , Vice President J o h n M. E ig h m y , Assistant Vice President D o n a l d R. A n d e r s o n , Manager, Accounting Department K a t h l e e n A. O ’N e il, Manager, Accounting Department Communications Planning Department Jam es H. G a v e r , Manager, Analytical Computer Department and Analysis and Administrative Support Staff P e t e r M . G o r d o n , Manager, Computer Operations Support Department J o h n C. H e i d e l b e r g e r , Manager, Telecommunications Operations Department K e n n e th M . L e f f l e r , Manager, Technical Services Department R ic h a r d P. P a s s a d in , Manager, General Purpose Computer Department J e ro m e P. P e r l o n g o , Manager, Computer Operations Support Department P R O T E C T IO N ROBERT V. M u r r a y , Assistant Vice President s y s te m s S E R V IC E R a lp h A. C a n n , III, Vice President R o n a ld E. L o n g , Assistant Vice President M a t th e w C. D r e x l e r , Manager, Building Planning Department Jo sep h C. M e e h a n , Manager, Building Operating Department J a s o n M. S t e r n , Manager, Records, Printing, and Postal Services Department R u th A n n T y l e r , Manager, Service Department d ev elo p m en t S u s a n C. Y o u n g , Vice President Om P. B a g a r i a , Manager, Funds Transfer Systems Staff B a r b a r a R. B u t l e r , Manager, Data Systems Department V ie r a A. C r o u t , Manager, Operations Systems Department P a t r i c i a Y. J u n g , Manager, Data Systems Department H a r r y Z. M e l z e r , Manager, Common Systems Department 33 Officers (Continued) B A N K S U P E R V IS IO N R o n a ld B. G r a y , Executive Vice President A. M a r s h a l l P u c k e t t , Vice President F r e d e r i c k C. S c h a d r a c k , Vice President * N e a l M. S o ss, Vice President S te p h e n G. T h ie k e , Vice President G e o r g e R. J u n c k e r , Chief Compliance Examiner L eo n K o r o b o w , Assistant Vice President R o b e r t A. O ’S u l l i v a n , Chief Financial Examiner B e n e d ic t R a f a n e l l o , Adviser W illia m L. R u t l e d g e , Assistant Vice President Jam es P. B a r r y , Assistant Chief Examiner J ohn M. C a s a z z a , Assistant Chief Examiner F r a n k l i n T. L o v e , Manager, Supervision Support Department A. J o h n M a h e r , Assistant Chief Examiner T h o m a s P. M c Q u e e n e y , Assistant Chief Examiner G e r a l d P. M in e h a n , Manager, Foreign Banking Applications Department D o n a l d E. S ch m id , Manager, Bank Analysis Department B e ts y B u t t r i l l W h ite , Manager, Banking Studies Department E C O N O M IC A D V I S E R R i c h a r d G. D a v is , Senior Economic Adviser FOREIGN GROUP Sam Y. C r o s s , Executive Vice President F O R E IG N E X C H A N G E M a r g a r e t L. G r e e n e , Vice President CHARLES M . L u c a s , Assistant Vice President P e t e r S. H o lm e s , Foreign Exchange Trading Officer P a t r i c i a H. K u w a y a m a , Manager, LEGAL Jam es H. O ltm a n , General Counsel E r n e s t T. P a t r ik i s , Deputy General Counsel D o n N. R in g s m u th , Assistant General Counsel D o n a ld L. B i t t k e r , Assistant Counsel R o b e r t N. D a v e n p o r t, J r . , Assistant Counsel J e f f r e y F. I n g b e r , Assistant Counsel J o y c e E. M o ty le w s k i, Assistant Counsel B r a d l e y K. S a b e l, Secretary and Assistant Counsel M in d y R. S ilv e r m a n , Assistant Counsel W a l k e r F. T o d d , Assistant Counsel R a le ig h M. T o z e r , Assistant Counsel L O A N S A N D C R E D IT S C h e s t e r B. F e ld b e r g , Vice President R o b e r t T. F a l c o n e r , Assistant Vice President G a r y H a b e r m a n , Manager, Credit and Discount Department R o b e r t C. P lo w s , Manager, Credit and Discount Department MANAGEMENT PLANNING GROUP S u z a n n e C u t l e r , Senior Vice President PERSONNEL R o b e r t a J. G r e e n , Vice President ♦ T e r r e n c e J. C h e c k i, Assistant Vice President C a r l W. T u rn ip s e e d , Assistant Vice President M ic h a e l J. L a n g t o n , Manager, Personnel Department C l i f f o r d N. L ipscom b, Manager, Personnel Department R o b e r t C. S c r iv a n i, Manager, Personnel Department Foreign Exchange Department P L A N N IN G A N D C O N T R O L F O R E IG N R E L A T I O N S R o b e r t M. A b p la n a lp , Assistant Vice President A a r o n S. D r i l l i c k , Manager, Irw in D. S a n d b e r g , Senior Vice President J o h n H o p k in s H e ire s , Adviser G e o r g e W . R y a n , Assistant Vice President G e o r g e R. A r r i n g t o n , Manager, Management Information Department O P E N M A R K E T O P E R A T IO N S Foreign Relations Department G e o r g e H. B o s sy , Manager, Foreign Relations Department F r a n c is J. R e is c h a c h , Manager, Foreign Relations Department and Monetary Adviser *0n leave of absence. M a r y R. C l a r i o n , Assistant Vice President E d w a r d J. O z o g , Assistant Vice President 34 P e t e r D. S t e r n l i g h t , Executive Vice President E d w a r d J. G e n g , Senior Vice President P a u l M e ek , Vice President Officers (Continued) J o a n E. L o v e t t , Manager, Securities Department C h r i s t o p h e r J. M c C u rd y , Research Officer and Senior Economist A n n -M a rie M e u le n d y k e , Manager, Securities Department O F F IC E O F T H E P R E S ID E N T B a r b a r a L. W a l t e r , Assistant to the President G O V E R N M E N T B O N D A N D S A F E K E E P IN G J o r g e A. B r a t h w a i t e , Vice President C a r o l W . B a r r e t t , Assistant Vice President F r a n k C. E isem an , Assistant Vice President H. J o h n C o s t a l o s , Manager, Securities Clearance Department Jo sep h J. G rim sh a w , Manager, Safekeeping Department A n g u s J. K e n n e d y , Manager, Government Bond Department J o h n J. S t r i c k , Manager, Savings Bond Department OPERATIONS GROUP H e n r y S. F u ja r s k i, Senior Vice President C A S H P R O C E S S IN G P R IC IN G A N D P R O M O T I O N R ic h a r d V o llk o m m e r, Vice President Jo sep h P. B o t t a , Assistant Vice President M a r t i n P. C u s ic k , Manager, H e r b e r t W . W h ite m a n , J r . , Vice President B r u c e A. C a s s e l l a , Bank Services Officer E u g e n e P. E m o n d , Bank Services Officer M a r c o s T. J o n e s , Manager, Currency Verification Department * Jo sep h F. D o n n e l l y , Manager C h a r l e s E. R o c k e y , Manager, Paying and Receiving Department A n th o n y N. S a g li a n o , Manager, Currency Verification Department Pricing Administration Department P U B L IC I N F O R M A T I O N P e t e r B a k s t a n s k y , Vice President R ic h a r d H. H o e n ig , Assistant Vice President C H E C K P R O C E S S IN G Jam es O. A s to n , Vice President t R o b e r t C. T hom a n , Vice President (Utica Office) L o u is J. B r e n d e l , Regional Manager (Jericho Office) F re d A. D e n e s e v ic h , Regional Manager (Head Office) W h itn e y R. I rw in , Regional Manager (Cranford Office) J o h n F. S o b a l a , Assistant Vice President STEVEN J. G a r o f a l o , Operations Analysis Officer D o n a l d R. M o o r e , Manager, Check Processing Department T h o m a s E. N e v iu s, Manager, Check Adjustment Department J a n e t L. W y n n , Operations Analysis Officer and Assistant Secretary E L E C T R O N IC P A Y M E N T S H e n r y F. W ie n e r, Assistant Vice President R o b e r t W. D a b b s, Manager, Electronic Payments Department D a v id S. S la c k m a n , Manager, Electronic Payments Department *On leave of absence. t Retires June 1,1983. R ESEA R CH A N D S T A T IS T IC S P e t e r F o u s e k , Executive Vice President and Director of Research R o g e r M. K u b a r y c h , Senior Vice President and Deputy Director of Research MARCELLE V. A r a k , Vice President R ic h a r d J. G e ls o n , Vice President J e f f r e y R. S h a f e r , Vice President Jo h n W e n n in g e r , Assistant Vice President *M. A k b a r A k h t a r , Manager N a n c y B e rc o v ic i, Manager, Statistics Department Jam es R. C a p r a , Manager, Domestic Research Department Steph en V. O. C l a r k e , Research Officer and Senior Economist E d n a E. E h r l i c h , International Adviser E d w a r d J. F r y d l , Manager, Financial Markets Department W illia m J. G a s s e r , Manager, External Financing Department G e r a l d H a y d e n , Manager, Research Support Department S u s a n F. M o o r e , Manager, Statistics Department L e o n a r d G. S a h lin g , Manager, International Research Department 35 Officers (Continued) S E C R E T A R Y ’S O F F I C E B r a d l e y K. S a b e l, Secretary and Assistant Counsel S T R A T E G IC D E V E L O P M E N T S ; S E C U R IT Y AN D CO N TR O L T h e o d o r e N. O p p en h eim er, Assistant Secretary J a n e t L. W y n n , Operations Analysis Officer Developments and Assistant Secretary Jo h n C h o w a n s k y , Adviser P a u l B. H e n d e r s o n , J r . , Senior Adviser for Strategic OFFICERS — BUFFALO BRANCH J o h n T. K e a n e , Vice President and Branch Manager P e t e r D. L u c e , Assistant Vice President G a r y S. W e in tr a u b , Cashier A C C O U N T IN G ; B A N K S E R V IC E S A N D P U B L IC I N F O R M A T I O N ; C H E C K R o b e r t J. M c D o n n e ll, Operations Officer C O L L E C T IO N , L O A N S , A N D F IS C A L A G E N C Y ; P E R S O N N E L ; S E R V IC E G a r y S. W e in tr a u b , Cashier B U IL D IN G O P E R A T IN G ; C A S H ; P R O T E C T IO N M A N A G E M E N T IN F O R M A T IO N H a r r y A. C u r t h , J r . , Operations Officer P e t e r D. L u c e , Assistant Vice President 36
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