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Federal Reserve Bank
o f New York

SEVENTY-SEVENTH
ANNUAL REPORT
For the Year
Ended
Decem ber 31, 1991

Second Federal Reserve D istrict

FEDERAL RESERVE BANK OF NEW YORK

April 30, 1992

To the D epository Institutions in the
Second Federal R eserve D istrict
I am pleased to send you the Seventy-seventh A n nual R eport o f the Federal
R eserve B ank o f N ew Y ork. In this y ear’s report Edw ard Frydl, V ice President
and A ssistant D irector o f Research, has prepared a provocative essay that traces
the origins, m agnitude, and im plications of the m assive buildup in corporate and
household debt over the 1980s, w ith particular em phasis on the role that this
phenom enon has played in helping to explain the protracted period o f subpar
econom ic grow th we have experienced during the past several years. W hile Mr.
F ry d l’s analysis m ay not be w ithout som e elem ents o f controversy, I believe it
provides a useful perspective on som e o f our current econom ic and financial
problem s ju st as it suggests that substantial progress is being m ade in unw inding
som e o f those earlier excesses and thus helping to pave the way for a return to
im proved patterns o f econom ic and financial perform ance.
I hope our readers will benefit from this im portant and insightful essay.

Contents:

Page

OVERHANGS AND HANGOVERS: COPING WITH THE
IMBALANCES OF THE 1980s........................................................

THE REAL ESTATE OVERHANG.................................................................................

THE DEBT OVERHANG.................................................................................................. ... 11
Corporate Leverage............................................................................................................. ... 13
The Household Debt Buildup............................................................................................. ... 16
CONSEQUENCES OF THE OVERHANGS................................................................... ... 19
The Macroeconomic Consequences................................................................................... ... 19

Profitability....................................................................................................................... ... 19
Slow Credit Growth.............................................................................................................. 25
IMPLICATIONS FOR THE FUTURE............................................................................. ... 29

Financial Statements............................................................................................................ ... 31
Changes in Directors and Senior Officers......................................................................... ... 34
List of Directors and Officers............................................................................................. ... 37

Seventy-seventh Annual Report
Federal Reserve Bank o f New York

OVERHANGS AND HANGOVERS: COPING WITH
THE IMBALANCES OF THE 1980s
Edward J. Frydl
Vice President and
Assistant Director o f Research

In the spring of 1991 economic activity appeared to be following a familiar cyclical
pattern, recovering from a mild downturn that seemed clearly linked to concerns
about the Gulf War and the related spike in oil prices. Indicators such as industrial
production, durable goods orders, and housing starts appeared to be tracing out a
pattern of recovery from their troughs that was broadly consistent with earlier cycles
(Chart 1). By the fall, however, it was apparent that no sustained recovery had
emerged, and consumer confidence, which had bounced back with the end of the
war, was again plummeting.
This renewed flattening in economic activity focused attention on some peculiar
features of this cycle. First, credit expansion, whose pronounced deceleration had
begun in 1990, continued to slow last year to its lowest rate of growth in the postwar
period. Behind this slowdown were factors affecting both the demand for and
supply of credit. Clearly, the further retrenchment in economic activity that began
in the summer of 1991 was a prominent feature reducing business needs for credit
last year. On the other side of the market, some lenders continued or extended the
restraints on their supply of credit that had begun in 1990. Banks, pressed to upgrade
their capital positions, widened their spreads above funding costs on loans and
became more selective in providing credit. The worsened credit quality of many
classes of borrowers, particularly the commercial real estate sector, made all lenders,
regardless of their capital condition, more cautious.
Slow credit growth, combined with complaints from businesses that credit
availability was being withdrawn from them, led many observers to attribute the
uneven economic performance of the U.S. economy to a prolonged and intensifying
“credit crunch.” More specifically, restrictions on lending by banks were viewed as
going over and above what was warranted by economic fundamentals.

Chart 1. THE FAILURE TO RECOVER
Some indicators, such as industrial production, showed that apparently a typical
recovery process began but was cut short in late summer. However, other
cyclical measures, notably employment, indicated that a recovery never
got started.
Reference
trough=100

Reference
trough=100

Industrial Production around
110 _ Recession Troughs
LX
" \/*

y.
4

'
/
Average of four
y
recent recoveries ♦

Nonagricultural EEmployment

I1
f
Ave rage of four
/ ~
receiit recoveries /

102.0

101.5 / V

101.0 -

100.5

\\ •

99.5
-9

-6

-3

Months before trough

Months after trough

1991
\-D e c

100.0

-12

\
Dec _

j
/.

102.5 _ around Recessio n Troughs

ii ii ii ii ii i

-12
9 -6 -3
Months before trough

i i i i i it i i i i

Months after trough

The recession began after an extended period of unusually slow growth,
suggesting that some enduring factors - - real estate and debt overhangs and
intensified competitive pressures - - are weighing against economic performance
and inhibiting recovery.

1984

http://fraser.stlouisfed.org/
6
Federal Reserve Bank of St. Louis

1985

1986

1987

1988

1989

1990

1991

U.S. banks did indeed tighten the terms and conditions under which they would
supply credit, but sustained caution in lending was not unwarranted. In large part
this caution represented a needed return to prudent standards of creditworthiness in
assessing loans. A too-easy credit supply in much of the 1980s was a principal
factor leading to damaging imbalances in investment, manifested principally as an
unprecedented overhang of commercial real estate, and in the indebtedness of the
household and business sectors. Unbalanced investment and overleveraging were
com bining to damage the economy by depressing construction, bankrupting
enterprises, inhibiting lending, and feeding a pervasive financial and economic
conservatism among businesses and consumers. Resolving these excesses in real
estate and debt will take time and will exert a drag on economic performance during
the period of adjustment.
The real estate and debt overhangs are not the only structural features that have
created problems for the economy. U.S. businesses have had to cope with an
environment of increased competition that has made it difficult to improve profit
margins by boosting prices even when demand shows some pickup. This difficulty
in restoring profitability was acute in 1991 and contributed to a second peculiarity of
the current cycle: the failure of employment, unlike other indicators of business
activity, to show even the beginnings of a normal recovery. Firms met any
expansion in demand more by working the existing labor force longer and harder
rather than by adding new jobs to payrolls. This lack of jobs growth was a drag on
personal income and a key feature in the economy’s stall in the final months of
1991.
Pressure on profit m argins cam e in part from dom estic factors such as
deregulation in a number of industries or from new kinds of competition such as the
commercial paper market’s encroachment on traditional commercial and industrial
bank loans. Another source of competitive pressure on the profitability of U.S.
companies came from abroad. The world has moved toward a more open trading
system at the same time that capital has become highly mobile internationally. In
this environment the productivity of labor in low-wage countries is greatly enhanced
by foreign investments that provide modem capital goods. The goods produced by
this combination are very competitive in international markets and put pressure on
profit margins and wage levels in high-wage industrial countries. A principal
mechanism for coping with this competitive pressure, apart from exchange rate
changes, has been for industrial countries to introduce new products or to improve
production processes. For the United States, exports were strong in recent years, but
import-competing industries still appeared to be suffering from a competitive

disadvantage, even with a lower dollar, that showed up in part as difficulty in
bouncing back from recession.
The overhangs in commercial real estate and debt reflect excesses of the previous
expansion, while the chronic international competitive pressures reflect a deficiency
in productivity-enhancing investments. Still, both represent structural imbalances
that have exerted a drag against the usual forces of recovery. This essay seeks to
ch aracterize those structural im balances and assess th eir im plications for
macroeconomic recovery.

THE REAL ESTATE OVERHANG
In the 1980s an excess of commercial real estate arose, especially in sectors such as
office space and retail space, that was unprecedented in the postwar period. By
the middle of the decade many measures of capacity showed severe overbuilding
(Chart 2). While downtown office building vacancy rates were only 4 percent early
in the decade, they exceeded 16 percent by 1985 and have yet to drop below that
level. Although the trend in suburban vacancies has been moderately downward in
recent years, excess capacity in suburban office markets has been even worse than in
downtown markets, with vacancy rates hovering above 20 percent from 1985 to
1991. Furthermore, the overbuilding of office space, typically a localized problem,
became geographically pervasive in the past ten years. By 1991 only two of the
twenty-five largest metropolitan regions had vacancy rates below 15 percent. Total
returns on investments in office buildings had been in pronounced continuous
decline throughout the 1980s; by 1991 returns were negative.
Despite these accumulating excesses, the value of commercial real estate put in
place continued to expand into 1990. Net investment in structures began to slow by
the mid-1980s but remained positive throughout the decade, even at the record high
vacancy rates.
By 1991 the overhang in office space, measured as one estimate of square feet per
service sector employee, had reached levels more than 60 percent higher than the
relatively stable average for 1950-80. Depending on assumptions about how
intensively office space will be utilized, this overhang represents the equivalent of
about ten years of service sector employment growth (at a growth rate of about 3
percent per year). Of course, as office rentals become cheap, space may find
nontraditional uses to take up some of the slack. And old buildings that are fully
depreciated may be razed at an accelerated pace, providing part of the needed
adjustment.

Chart 2. THE COMMERCIAL REAL ESTATE OVERHANG

Continued large additions of
commercial real estate. . .

in the face of extremely high
vacancy rates. . .

led to a massive overhang ..

and diminished returns.

Square
feet

Service Sector Office Space
Square feet per service
90 __ sector employee

Percent

Total Return on Commercial
Property Investment
1

J
/

_
10

J
I

m Fi IA a A

5
70

✓

11111111111111111111111111111 i i .i 1li.li li m l
1948 50 55 60 65 70 75 80 85 90

Retail

V *

W 'i\'\

i
-5
1978

—

Office V

i 1 i i
80
82

i i
84

1 i i i
86 88

i i
90 91

On the demand side, however, demographic and labor market trends do not
provide much support for rapid service sector growth in the years ahead. In fact,
while the 1980s are popularly thought of as a decade of especially rapid services
expansion, employment growth in that sector had slowed noticeably compared with
growth during the preceding two decades (see table). Services did account for all of
the net job creation in the 1980s, but the pace of overall services employment
growth decelerated because of a slowdown in the growth of government services
positions. Governments across the board are hard pressed by their fiscal problems
and are unlikely to step up the pace of hiring. Even in the private services sector,
sustaining the trend in employment growth will be difficult. The entry of the baby
boom generation into the labor force has been exhausted. Also, the long trend of
increasing female participation in the work force may have crested, ending a
stimulus to the growth of both the supply of service sector workers and the demand
for a wide variety of services to meet the needs of two-earner households. All in all,
heavy investments were made in commercial structures that could have been
supported only if service sector employment growth had accelerated, even as
evidence of the opposite tendency was developing.

SERVICE SECTOR EM PLOYM ENT GROW TH
Average Annual Growth Rates

Total

Private

Government

1949-59

2.3

2.0

3.3

1959-69

3.4

3.2

4.2

1969-79

3.3

3.4

2.7

1979-89

2.7

3.2

1.1

Several factors combined to create the overinvestment in commercial real estate.
The 1981 tax act produced strong incentives for investments in structures. Added to
these incentives were powerful changes in the availability of finance. Deregulation
of the th rift industry allow ed savings and loan institutions to make direct
investments in real estate projects. More important, savings institutions that had
been damaged by the squeeze on their earnings from high interest rates in the early
1980s tried aggressively to grow their way back to a stronger financial position by
pursuing new business.
Thrifts were not alone. Commercial banks were also rapidly expanding into
commercial real estate lending. Banks had seen their shares erode in traditional
markets (Chart 3). Nonbank issuers were cutting into the general credit card market.
The securitization of credit card and auto loan receivables made institutional
portfolio investors a growing source of credit to these borrowers. In the business
credit markets, multinational and larger regional banks were put at a disadvantage
by the expansion of the commercial paper market and by the slippage in their
creditworthiness from the overhang of developing country debt carried on their
balance sheets. To make up for these falling shares in consumer and business credit
markets, banks moved aggressively to increase their presence in nonresidential
mortgages.
These combined incentives were strongest in the first half of the 1980s. The pace
of commercial nonresidential construction doubled between 1980 and 1985, and
vacancy rates rose sharply. Although the 1986 tax act removed many of the fiscal
incentives supporting the real estate boom, investment in the commercial sector
continued to pile on to an already glutted market. Availability of finance based on
optimistic assumptions for real estate prices supported this bubble for several years.
By early 1990, however, the full dimensions of the real estate problem became clear.
Estimates of the financing needs of the Resolution Trust Corporation, the vehicle for
disposing of troubled thrift real estate exposures, had to be revised upward. In this
environment, real estate lenders drastically altered their expectations and financial
institutions curtailed real estate lending.
THE DEBT OVERHANG
Excess investment in commercial structures was not the only imbalance arising from
heavy debt growth. The 1980s in fact witnessed a widespread leveraging of the U.S.
economy. The traditional stable linkage between private sector debt and GDP broke
down completely in the last decade, and by 1991 an extra $2 trillion of private sector

Chart 3. TRENDS IN BANK LENDING
As commercial banks lost market
share in their traditional
business. . .
Percent

, Percent of Total Short and
I Intermediate Business Credit

52
51

Percent

Bank Business Credit

and consumer markets,. . .

~~
_

Bank Consumer Credit
53 — Percent of Total Consumer Credit

—

51 “ \

—

50 —

—

48 —

47 -

—

1111I I 111i i 111111111I I 1111111II 11I I 1111 11

/\l \

48 —

90 91

“

46 Ill l l l l l l l l l l l i i l i l l l l l l l l i 1LU.Jl 111.U1111111
1980
82
84
86
88
90 91

they sought to expand in the commercial real estate market.

—
-

47 —

46 45 ml
1980

“”

debt had been created over and above what would have been expected on the basis
of the past relationship between private sector debt and GDP (Chart 4). Certainly,
only part of this unusually rapid debt growth was generated by bad debts that were
purely speculative. Most of the growth represented an economic use of financial
and tax incentives for debt.

Corporate Leverage
Private sector debt has ballooned in both the business and household sectors.
Corporate leveraging was driven by two processes: debt-financed acquisitions and

Chart 4. THE DEBT OVERHANG
The relatively stable relationship between private debt and output broke down
in the 1980s as businesses and households both increased their leverage.

* Calculated relative to the average private sector debt-to-GDP ratio for 1964-84 (0.9569).

stock repurchases, through which existing management reduced outstanding equity
by buying stock from the public for the company’s own account (Chart 5). The
takeover boom of the 1980s differed crucially in the character of its financing from
the previous merger wave of conglomerations in the 1960s. In the earlier episode,
acquiring companies often took over other enterprises in unrelated lines of business
through an exchange of stock, thereby avoiding the creation of debt. In the 1980s,
acquisitions were typically effected through cash tenders financed by debt.
The leveraged buyout (LBO) of companies by their management or some other
narrow set of individual buyers was an especially debt-reliant form of acquisition.
Before the 1980s, LBOs had played a familiar but limited role in corporate finance,
typified by the case of management at a particular plant buying out and taking
private the plant operations from the parent corporation. In such a case equity was
put into the hands of knowledgeable production management. Because of the high
debt burden created, the technique was usually limited to operations generating
stable cash flows.
In the 1980s the riskiness of LBO deals increased for a number of reasons. Deal
sizes grew larger to accommodate larger targets. Firms with more cyclical earnings
streams became LBO candidates, and the paydown of high initial debt came to
depend on sales of diverse corporate assets. These asset sales often consisted of the
divestment of entire lines of business, in effect unwinding the conglomerates put
together in the earlier merger wave. Buyers were willing for some time to pay
premium prices for these assets, often because they were competitors in the same
line of business and the purchases resulted in increases in market concentration. But
leveraged buyouts were carried to the point where prospective asset sales, crucial to
reducing the debt burden to manageable proportions, became speculative, relying
more on a hoped-for general rise in asset values and less on the prospects of selling
to specific buyers who had a clear business purpose behind their demands. In a
nutshell, some highly leveraged acquisitions depended on the combined good
fortune of no recession and no falloff in asset prices in order to service debt
obligations without difficulty.
Both bank lending and bond issuance were important sources of debt finance for
acquisitions. One particularly significant development was the emergence of
original-issue junk bonds as a source of takeover finance, especially for hostile
takeovers. This development, pioneered by the securities firm Drexel Burnham,
increased the risk to firms of the hostile takeover event and prompted greater use of
defensive leveraging. Potential targets may have reduced their attractiveness by
acquiring other companies in a leveraged manner. Or they may have repurchased

Chart 5. CORPORATE LEVERAGE
Leverage increased in the
business sector. . .

as companies retired equity . . .

through both acquisitions and stock repurchases.

their shares in the open market, using available cash or even borrowing to do so. Of
course, not all share repurchases represented defensive leveraging. Much of the
activity was conducted by huge firms such as Exxon or IBM that were safely beyond
any risk of takeover, even by the standards of the RJR-Nabisco acquisition.
The tax structure in the United States has always favored corporate leverage
because it allows the deduction from corporate tax liabilities of interest paid on debt
but not of dividends paid on equity. This incentive was not fully exploited,
however, in earlier periods. The factors that changed business attitudes toward
indebtedness in the 1980s are not straightforward and easy to pin down. It is
plausible, however, that the readier availability of finance for use in increasing leverage
by way of acquisitions or otherwise helped to change attitudes among potential
borrowers. In any case, the combination of debt-financed acquisitions, defensive
leveraging, stock buybacks to improve returns on equity, and increased availability of
takeover finance created a m ajor leveraging of the corporate sector through
indebtedness and decapitalization. Between 1984 and 1990, U.S. corporations
borrowed some $400 billion from banks and other lenders and another $650 billion in
the securities markets. This raised the aggregate corporate debt-to-assets ratio to a
postwar record level of 32 percent (Chart 5). At the same time, corporations retired
$640 billion of equity through acquisitions and stock repurchases.

The Household Debt Buildup
Households as well as corporations boosted their reliance on debt in the 1980s
(Chart 6). Most household debt is in the form of residential mortgages, which
totaled $2.7 trillion in 1991, or 67 percent of total household debt. Likewise, most
of the increase in household debt was explained by the $1.3 trillion rise in residential
mortgages in 1981-89, a period during which the ratio of mortgage debt to home
values rose from 36 percent to 50 percent.
The factors behind this increased reliance on mortgage debt by households are not
clear. High real interest rates, a hallmark of the 1980s, should themselves, of
course, work to reduce the use of debt by increasing its cost. High rates should also
encourage holders of low-rate mortgages to turn these over less frequently. A
consequence of holding onto mortgages is that the housing stock should support a
lower, not a higher, level of mortgage debt over time as more of the original debt
gets amortized. Yet in spite of incentives created by higher rates to reduce mortgage
debt, it increased sharply relative to home values.
Most likely, the key to this anomalous behavior lies in the increased level and rate

Chart 6. HOUSEHOLD LEVERAGE
Leverage increased in the
household sector. . .

as homeowners borrowed against
their equity. . .

and increased their reliance on installment credit.

of change of house prices. As house prices rose, some new homeowners who
otherwise would have preferred to take a higher initial equity than that required by
mortgage lenders may have been forced into higher than desired leverage in order to
buy a house. Also, homebuyers may have adapted their financial risk taking to the
trend of rising house prices and may have counted on rising prices to support a more
leveraged position. Such behavior, of course, can create a troubling financial
condition if households have leveraged beyond the ability of their other assets to
support the mortgage debt in a weak housing market.
Supply-side factors may also have spurred greater leveraging through mortgages.
The 1980s saw the development of a deep, liquid market in mortgage-backed
securities that allowed mortgage originators to pass off their exposures to a broader
range of ultimate investors. Originators, then, may have adopted a more relaxed
attitude on loan-to-value ratios, more readily accom m odating dem ands for
leveraging and indicating to borrowers a willingness to write large mortgages. The
credit risk on the loan would quickly be passed through the mortgage pool to the
guarantors or investors in the secondary market, making the originator less
concerned about the degree of leverage on the loan.
Another supply-side innovation that may have contributed to the leveraging of the
housing stock was the easy availability of home equity loan accounts. These made
available to homeowners a credit line backed by the equity interest in a house — in
effect, a prearranged second mortgage. The accounts were fairly popular and
substituted somewhat for other avenues of consumer borrowing, partly because they
retained tax deductibility for interest payments, a feature that other kinds of
household debt lost through tax reform.
Nonmortgage debt also rose strongly relative to personal disposable income in the
1980s. Increased competitiveness among credit suppliers played a key role. Captive
finance subsidiaries of automobile companies consistently resorted to subsidized
financing terms as a competitive technique to sell cars. All lenders on auto loans
extended the maturity they offered; this practice reduced monthly cash payments,
making the financing affordable to a broader range of car buyers.
In the revolving credit markets, the high profitability of the credit card business
attracted new entrants into the market. Existing issuers become more aggressive in
their marketing, seeking new customers among households previously regarded as
of marginal creditworthiness. In consequence, the number of cards and credit card
indebtedness surged.

CONSEQUENCES OF THE OVERHANGS
The excesses in real estate and leveraging have left a legacy of weakened borrowers
and lenders. In the corporate sector, the burden of debt service, as measured by the ratio
of interest cost to cash flow for nonfinancial corporations, reached record postwar
levels in 1991, higher even than at the trough of the 1981-82 recession. This burden of
debt has weighed heavily on businesses (Chart 7). The financial strains have shown up
as a widespread increase in the downgradings of corporate debt, an increased default
rate on corporate bonds, and a sharp increase in business failures, measured both by the
number of failing firms and the value of failed liabilities.
Signs of financial strain have also been readily apparent in the household sector.
Delinquency rates on broad classes of consumer credit, especially auto loans and
credit card loans, were at unusually high levels in recent years. By 1991 mortgage
delinquencies had moderated somewhat from the peak reached a few years earlier
(although they have been turning up again in the most recent quarters), but they still
averaged over the 1980-91 period a higher rate than in the 1970s. The pace of
mortgage foreclosures started—an indicator of extreme stress—has risen decidedly
from 1981 to 1991. Also showing a dramatic surge after 1985 was the number of
personal bankruptcies.
With many real estate, corporate, and household borrowers in default, credit
strains have been passed back to financial institutions (Chart 8). Loan loss rates at
commercial banks have risen to levels last seen in the Depression as all broad
categories of bank loans have deteriorated. Still, commercial banks, large ones
especially, have coped well with these difficulties and have managed to achieve
impressive improvements in their capital positions. Nonbank lenders exposed to the
commercial real estate sector, including finance and insurance companies, have also
suffered a sharp rise in bad loans. The legacy of the overhangs of the 1980s is a
hangover of damaged creditworthiness in the 1990s.
The Macroeconomic Consequences
The fallout of the real estate and debt overhangs has shown up in two principal
features of the macroeconomic environment. First, corporate profitability has been
depressed; second, credit growth has plummeted.

Profitability
The increased debt burden on the corporate sector and the associated servicing costs

Chart 7. THE DEBT HANGOVER: WEAKENED BORROWERS
A legacy of the 1980s debt buildup
has been a heavy burden on
corporate cash flow. . .

and household incomes,.

leading to higher defaults for
businesses. . .

and consumers.

Percent
1.0

Delinquency Rate on Residential
Mortgages

0.9

Loans 90 days or more
past due

0.8
0.7

0.6
0.5
0.4
0.3 I I I I l I I l I I I I I I I I I I
1972
75
80
85
90

Chart 8. THE DEBT HANGOVER: WEAKENED LENDERS
The aftermath of the debt binge shows damaged balance sheets at banks and
other financial intermediaries.
Percent
1.4

Loan Loss Rates at U.S. Banks
S -

_ Percentage of Total Loans

1.2 -

1.0 -

0.8 0.6 -

0.4

1982 83 84 85 86 87 88 89 90 91

Percent

Loan Loss Rate at Finance
/-

2.5 — Companies
Percentage of Net Receivables
2.4

2.3 -

2.2 -

2.1 -

2.0 —

1.9 1.8

V
1

1980 81 82 83 84 85 86 87 88 89 90 91

have been a major factor pushing down the profitability of business enterprises in
the 1980s (Chart 9). Corporate profits, whether measured relative to GDP or to the
net worth of corporations, did not recover after the 1981-82 recession to levels that
prevailed in the 1970s. If, however, the interest costs paid out by corporations are
added to profits to provide a rough measure of income paid to capital in the
corporate sector, then a rebound shows up after the recession of the early 1980s,

Chart 9. PRESSURE ON PROFITS
The higher debt burden of the 1980s contributed to a squeeze on corporate
profits that has prompted many firms to shrink and restructure, inhibiting a
recovery in employment.

Note: Profits of nonfarm nonfinancial corporations before tax are adjusted for inventory valuation and
capital consumption.

although the measure still remains well short of its performance in the 1960s. This
finding suggests that an important factor behind the continued downtrend in
profitability in the 1980s, at least for the corporate sector, is the additional interest
burden created by a higher level of corporate indebtedness in an era of high real
interest rates.
Strains on profitability have been a chronic problem of recent years, and they
grew acute in the recessionary environm ent. W hat makes them especially
troublesome in this cyclical episode, however, is their resistance to the typical and
relatively quick resolution of cost reduction through inventory destocking.
Inventories in general, and particularly in manufacturing, have been kept under tight
control. Although retail inventories exclusive of autos are at higher than usual
levels, overall the inventory cycle has been very muted in the recent recession.
Firms, then, cannot easily lessen the pressures on profits from their heavy interest
burden by cutting inventories.
An alternative remedy for the profit squeeze is to try to restore margins through
price increases. Companies in many industries— including autos, airlines, and
primary metals—attempted this approach on different occasions with a conspicuous
lack of success. In many sectors, price increases could not be sustained or price cuts
could not be avoided. Even if listed prices were maintained, discounting and
incentives to purchase became a commonplace. Competitive pressures, whether
from domestic or international sources, were too intense to allow price increases to
get much ahead of costs. The recurrent faltering of attempts to recover from this
persistent squeeze on profits must have made firms more reluctant to rehire workers
to meet the resurgence of consumption demand after the Gulf War. The lack of
recovery in hiring retarded personal income growth and colored the gloomy
background of consumer confidence.
The inability of many firms to pass on cost increases, particularly those stemming
from higher interest costs, arose in a number of ways. Deregulation in some
domestic industries—airlines and banking are prime examples—led to intensified
price competition that revealed substantial structural excess capacity.
On the international side, competitive pressures remained formidable, despite an
improvement in the relative cost competitiveness of U.S. producers. Since 1985 the
depreciation of the dollar has dominated all other factors influencing the production
costs of U.S. goods relative to those of other countries. This improved cost
competitiveness has contributed to a substantial reduction in the U.S. merchandise
trade deficit from a peak value of nearly $160 billion in 1987 to an annual rate of
less than $75 billion in the first three quarters of 1991. This improvement has come

principally by way of a rapid advance in U.S. exports. Competition in the American
market from imports, however, has remained quite strong despite the weaker dollar.
Import prices in dollars have risen more slowly than general price indicators in the
United States, and import-to-income ratios have drifted up since 1985. In part these
developments may reflect especially vigorous efforts by the export industries of
trade com petitors to achieve productivity enhancem ents that offset the cost
disadvantages of the weaker dollar. Or they may reflect a stubborn attempt to hold
on to market share in the United States by tolerating lower profit margins here while
trying to make up the difference in the domestic market or in other export markets.
All in all, foreign sellers have remained determined competitors in the U.S. market.
The inability of U.S. businesses to raise prices aggressively in a competitive
environment and thereby restore profitability that had been eroded by debt costs
provoked a change in business behavior. Managers became more conservative in
controlling costs and more reluctant to add labor. Many firms, in fact, committed to
permanent staff reductions and were willing to take sizable special charges against
earnings to carry out these steps.
These attempts to control costs through shrinkage by eliminating staff jobs and
selectively closing plants, offices, or outlets are an important element of a total
restructuring. They represent a shift to a more efficient scale of operation under
existing cost structures. Equally important, however, if not more important, are
efforts to shift the entire cost structure through productivity-enhancing investment.
Investment requires financing, either out of retained earnings or through equity
issuance or borrowing. Building up retained earnings depends on the slow process
of restoring profitability. While the equity markets have indeed come alive in recent
months as a source of new funding for corporations after eight years of massive net
equity retirement, only a small part of these funds are going directly to finance new
investment. The majority are being used to restructure balance sheets and a good
part are simply going to cover losses. Borrowing in securities markets has been
extremely heavy recently, but again most of these funds are being directed to
balance sheet restructuring, especially the refinancing of old high-rate debt.
Borrowing from banks is depressed by both low demand and the apparent reluctance
of some depository institutions to lend. The full benefits of restructuring await the
revival of investment. Firms now are directing their efforts toward balance sheet
restructuring to reduce the burden of heavy leverage built up in the 1980s. Net
credit demands are likely to be subdued until this balance sheet restructuring has
gone farther. This process has contributed to the second major macroeconomic
feature of the current cycle: a precipitous slowdown in credit growth.

Slow Credit Growth
Last year saw a continuation of the sharp deceleration in the growth of credit to the
private sector that began early in 1990. Private credit expansion had been slowing
since 1985, but growth rates had stayed within a familiar range of fluctuation until
1990. By then it was clear that a significant deceleration was under way (Chart 10).
This developm ent coincided with a rise in com plaints from businesses that
commercial banks had restricted credit—the emergence of a credit crunch.
The term “credit crunch” usually connotes some restriction, or rationing, of the
supply of credit. It can be equated with conditions in which the market supply of
credit to a particular borrower or class of borrowers reaches a maximum regardless
of the interest rate that the borrower is willing to pay, leaving the borrower with
some frustrated demand for credit. Typically, these conditions emerge because of
new concerns about the underlying creditworthiness of the borrower. The borrower
wants to get a bigger loan at the prevailing rate of interest than lenders are prepared
to give. The borrower may even be willing to pay a premium, but offering to pay
above-market rates does not induce more supply. In this regard the credit markets
differ from other markets: in a credit crunch environment, higher bids only create
greater lender uncertainty about the financial condition of the borrower.
Some commentators have applied the credit crunch designation to what can better
be described as increases in the costs of financial intermediation. As banking
system loan losses have risen, credit rating agencies have downgraded the standing
of many banks, raising their cost of capital. At the same time, banks have faced a
need to improve their capitalization to satisfy stock market desires for a stronger
capital ratio and to gain leeway for regulatory approval of expanded powers.
Motivated by both higher costs of raising capital in the markets and the desire to
improve their capital ratios, banks have increased their lending margins and
tightened terms and conditions to borrowers. These measures may have elicited
complaints from borrowers because even when credit was available, the costs were
higher and the conditions tighter than what borrowers anticipated on the basis of the
funding costs to banks.
Restrictions on credit supplies have probably played a role in this cyclical episode
(Chart 11). To be sure, to some extent restricted credit is always a characteristic of
downturns, since the ability of some borrowers to service debt is damaged by
recessions. The present cycle is no exception. In fact, for overextended sectors such as
commercial real estate and heavily indebted companies, the damage to creditworthiness
from the recession has been so bad that creditor caution is entirely justified.

Chart 10. THE SLIDE IN CREDIT GROWTH
By 1991 credit growth had decelerated to the lowest rates in postwar experience.

The sharp slowdown occurred in both business and household credit.

Percent
18
16
14
12

Credit to Nonfarm Nonfinancial
Businesses
__ Growth from Two Quarters Earlier

A mAVI
A I
i A Aa I An
I \\N
11 11
If

8
6
4

i y

2 0 ■Ill 1 1 1 II 1 1 1 11 1 1 1 1 1 1 II 1 1 1 1 1 1
1952 55 60 65 70 75 80

14
12

\ -

W V \ / u

Percent
_ Credit to Households
20
Growth from Two Quarters Earlier
18
i 1
16

~
_

1 1 1 11-1

85 9091

U
A
■ i\\ ni \ a /A w A x\ - v \ v/ vV V* Vv ;
'I

i l l

■

4 1—
1J 111 1 I 1 I I I 1 1 1 1jJ-Ll 1 1.1
2 1 111 -LLLl.l I 1 11 1—1—1—
1952 55 60 65 70 75 80 85 9091

Chart 11.

A BANK CREDIT CRUNCH?

Much of the slowdown in bank-provided credit has been warranted.
The deceleration in lending was fastest at banks . . .
or with higher capital needs . . .

in weaker economic regions .

Percent

Total Loanis at U.S. Ban ks

20 _ Four-Quart er Growth Rate

High-cap ital banks
(BIS capital ratio > 8%) -

10
5 —

Low-cap ital banks \
(BIS capita 1ratio < 8%) 1

N "
\

0
-5
-10

_
\
L.... 1.... 1 . - ..I.... I .J__ ... i _ L J__

1989

1990

1991

Concerns about a credit crunch, however, do not focus on credit restrictions that
are a consequence of a weak economy, but rather on restrictions that are unusual in
the cyclical context and that may have worked to bring about a downturn.
A variety of surveys provided evidence that lenders in 1990-91 did restrict the
availability of lending, not only for commercial real estate and highly leveraged
acquisitions, but also for nonmerger commercial and industrial loans. Furthermore,
lenders desired for several reasons to improve their capital ratios and were reluctant
to expand their assets. This feature of the 1990-91 cyclical episode was generally
not evident in earlier downturns.
By and large, reductions in credit supply were warranted. The overhangs in real
estate and debt were partly brought about by a too-easy supply of credit based on
optimistic assumptions of borrower performance and a highly competitive financial
environment. The restoration of prudent lending standards by depository institutions
required a slowdown in credit growth.
Improvements in bank capital positions have been encouraged (and in some cases
required) by regulators, rating agencies, and even the stock market. Strengthened
capitalization of the banking system is a structural improvement that will protect the
Bank Insurance Fund and the creditors of banks and give bank management leeway
to pursue a wider range of potentially profitable business. The broad support for this
long-term policy of seeking a stronger capital base for banking warrants carrying out
the policy independent of cyclical business conditions.
Borrowers have sometimes charged that the restrictions on credit supply that
prevailed in 1990-91 were not justified by fundamental economic and financial
factors. Rather, they saw these restrictions as brought about by overzealous
regulators determined not to repeat with banks the delays experienced in dealing
with thrift problems. The frustrations of borrowers are understandable and incidents
of a heavy regulatory hand may have occurred. As we have seen, however, the
overhangs of real estate and debt, together with the need to improve bank capital
positions, provide a sufficient fundamental explanation for the recent restrictions on
credit supply.
Finally, measured credit has also been growing slowly because of a fundamental
reason that has been underem phasized in analyses of the recent credit cycle:
declining demand. Whatever factors may have touched off the economic recession,
the dynamics of the down phase of the cycle have become since m id-1990 the
compelling determinant of credit growth. Of course, the relative effects of demand
versus supply declines have varied over time and across regions, an observation that
may help explain why bankers and businessmen view the causes of the credit

slowdown so differently. Demand-side and supply-side effects have been further
muddied by the emergence of discouraged borrowers: some businesses may not
have bothered to seek new credit, knowing that their lenders had become more
restrictive. To bankers, however, this reluctance to seek credit would appear as a
falloff in credit demands. Still, the persistently sluggish behavior of spending since
the onset of the recession accounts for much of the weakness in credit growth.
IM PLICATIONS FOR THE FUTURE
The overhangs that are the legacy of financial excesses in the 1980s have exerted a
drag on the overall economy. But adjustm ent is advancing in many sectors.
Households have been paying down their installment debt, reducing the burden on
th eir personal incom es. B usinesses have begun a vigorous balance sheet
restructuring that is reducing the degree of leverage and the cost of debt service.
These steps are contributing importantly to lowering the interest burden on corporate
cash flow. Companies have also aggressively sought to control noninterest costs
through the elimination of excess capacity and the reduction of overhead staff levels.
Financial institutions, banks especially, have faced up to the damage on their loan
portfolios, increasing their loss reserves and strengthening their capital base.
All of these actions are part of the process of adjustment and recovery that will
restore financial health to the economy and prepare the way for an economic
upswing. Central bank policy has aided this process of restoration and can continue
to do so. It is important, however, to clarify what central banking actions are
appropriate and helpful. Occasionally, commentators have called for a relaxation of
supervisory criteria on capital, asset quality, and other features of bank performance.
These rules have been put in place to promote a long-run improvement in the
financial strength of the banking system. Some, such as the Basle Accord capital
standards, have been negotiated in an international context to ensure fairness. An
abrupt reversal of the commitment to these rules and standards would undercut the
credibility of efforts for a structural improvement in banking and would risk
undermining confidence in the banking system. Nor is it clear that easier prudential
standards would be much help now in starting a recovery, since the downward
dynamics of the cycle have likely made weakness in demand the chief drag on
business activity.
As usual, monetary policy is the principal vehicle for dealing with the economic
cycle even in this period of burdensome overhangs. Some aspects of the current
environment improve the potency of the stimulus that comes from lower interest

rates. Lower rates, of course, alleviate the squeeze on profitability that has been a
major block to recovery in hiring. The adoption by business of a more conservative
attitude toward capital structures in 1990-91 will hasten this process as firms take
advantage of opportunities to refinance, recapitalize, and deleverage. And as banks
succeed in strengthening their capital positions, they will be more forthcoming as
providers of credit to finance recovery.
The lingering effects of the real estate and debt overhangs can be expected to
create pressures to use monetary policy as the remedy to ease the strains on specific
sectors. But a monetary policy stance that packs enough stimulus to resuscitate the
commercial real estate sector quickly or to cut short the restructuring of balance
sheets will almost certainly carry the risk of renewed high inflation. That temptation
must be resisted. The appropriate pitch for policy is to complement and facilitate
the process of economic and balance sheet restructuring in a context of stable
financial conditions. That process is now under way.

Financial Statements
STATEMENT OF EARNINGS AND EXPENSES FOR
THE CALENDAR YEARS 1991 AND 1990
In Dollars

1991

1990

Total current earnings...............................................
Net expenses.............................................................
Current net earnings
Additions to current earnings:
Profit on sales of U.S. government
securities and federal agency obligations (net).........
Profit on foreign exchange........................................
Allother....................................................................
Total additions..........................................................
Deductions from current net earnings.......................
Net additions (deductions)
Assessments by the Board of Governors:
Board expenditures...................................................
Federal Reserve currency costs.................................
Total assessments

8,321,208,854
214.693.548
8,106,515,306

8,196,655,958
196.357.085
8,000,298,873

49,980,606
97,121,050
37.427
147,139,083
14.052.900
133,086,183

23,246,076
579,774,990
25.801
603,046,867
16.102.575
586,944,292

31,222,600
100.248.786
131.471.386

28,184,700
65.406.596
93.591.296

Net earnings available for distribution

8,108,130,103

8.493.651.869

43,267,767
104,367,350

38,420,160
59.374.800

Distribution of net earnings:
Dividends paid..........................................................
Transferred to surplus...............................................
Payments to U.S. Treasury
(interest on Federal Reserve notes)...........................

7.960.494.986

8.395.856.909

Net earnings distributed

8,108,130,103

8.493.651.869

Surplus — beginning of year....................................
Transferred from net earnings...................................

667,053,050
104.367.350

607,678,250
59.374.800

Surplus—end of year

771,420,400

667,053,050

Surplus Account

STATEMENT OF CONDITION
In Dollars

Assets

Dec. 31,1991

Dec. 31,1990

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

3,913,778,047
3,395,000,000
15.532.123

3,501,358,554
3,395,000,000
16.252.698

Total

7,324,310,170

6,912,611,252

Advances...................................................................
U.S. government securities:
Bought outright*.......................................................
Held under repurchase agreements...........................
Federal agency obligations:
Bought outright.........................................................
Held under repurchase agreements...........................
Total loans and securities

7,000,000

22,850,000

105,022,220,206
15,345,150,000

86,783,322,275
17,013,250,000

2,382,137,667
552.850.000
123,309,357,873

2,340,985,421
1.340.750.000
107,501,157,696

968,700,956
127,101,346
10.525.101.074
11,620,903,376
(12.000.155.993^

569,605,138
76,092,357
11.217.985.098
11,863,682,593
(1.043.533.098^

Other assets:
Cash items in process of collection...........................
Bank premises...........................................................
All other**................................................................
Total other assets
Interdistrict settlement account.................................

Total assets

130,254,415,426 125,233,918,443

*Includes securities loaned — fully secured..........
676,950,000
1,625,675,000
**Includes assets denominated in foreign currencies revalued monthly at market rates.

http://fraser.stlouisfed.org/
32
Federal Reserve Bank of St. Louis

STATEMENT OF CONDITION
In Dollars
Liabilities
Federal Reserve notes (net).......................................

Dec. 31,1991
100,834,171,266

Dec. 31,1990
102,696,522,537

Reserve and other deposits:
Depository institutions..............................................
U.S. Treasury — general account.............................
Foreign — official accounts......................................
Other.........................................................................
Total deposits

6,460,525,291
17,696,902,345
858,904,306
639.546.133
25,655,878,075

9,933,722,931
8,960,212,141
259,448,612
156.425.233
19,309,808,917

Other liabilities:
Deferred availability cash items................................
All other*..................................................................
Total other liabilities
Total liabilities

865,763,335
1,355J6L950
2.221.525.285
128,711,574,626

381,862,038
1.511.618.851
1.893.480.889
123,899,812,343

Capital accounts
Capital paid in...........................................................
Surplus.......................................................................
Total capital accounts
Total liabilities and capital accounts

771,420,400
771.420.400
1.542.840.800
130,254,415,426

667,053,050
667.053.050
1.334.106.100
125,233,918,443

*Includes outstanding foreign exchange commitments revalued at market rates.

C h anges in D irectors and S en ior O fficers
CHANGES IN DIRECTORS. In July 1991, the Board of Governors of the Federal
Reserve System designated Ellen V. Futter Chairman of the Board and Federal Reserve
Agent for the year 1992. Ms. Futter, President of Barnard College, New York, N.Y., has
been serving as a Class C director since January 1988 and as Deputy Chairman since
September 1988. As Chairman and Federal Reserve Agent, she succeeded Cyrus R. Vance,
presiding partner of the New York law firm of Simpson Thacher & Bartlett, who had been
serving as a Class C director and as Chairman and Federal Reserve Agent since January
1989. (Mr. Vance, whose term as a Class C director does not expire until December 31,
1992, is continuing to serve in that capacity.)
Also in July, the Board of Governors reappointed Maurice R. Greenberg a Class C direc
tor for a three-year term beginning January 1, 1992, and appointed him Deputy Chairman
for the year 1992. Mr. Greenberg, who is Chairman and Chief Executive Officer of
American International Group, Inc., New York, N.Y., has been serving as a Class C director
since June 1988.
Member banks in Group 1 elected Thomas G. Labrecque a Class A director in December
1991, for a three-year term beginning January 1, 1992. Mr. Labrecque, Chairman and Chief
Executive Officer of The Chase Manhattan Bank (National Association), New York, N.Y.,
succeeded John F. McGillicuddy, Chairman and Chief Executive Officer of Manufacturers
Hanover Trust Company, New York, N.Y., who had served as a Class A director since
February 1988.
On April 15, 1992, member banks in Group 1 elected Robert E. Allen a Class B director
for the term ending December 31,1994. Mr. Allen, Chairman and Chief Executive Officer
of AT&T, New York, N.Y., succeeded Richard L. Gelb, Chairman and Chief Executive
Officer of Bristol-Myers Squibb Company, New York, N.Y., who had served as a Class B
director from January 1986 through December 1991.
Buffalo Branch. In August 1991, the board of directors of this Bank appointed Charles
M. Mitschow a director of the Buffalo Branch for a three-year term beginning January 1,
1992. On the Branch Board, Mr. Mitschow, Senior Executive Vice President, Marine
Midland Bank, N.A., Buffalo, N.Y., succeeded Robert G. Wilmers, Chairman and Chief
Executive Officer of Manufacturers and Traders Trust Company, Buffalo, N.Y., who had
served as a director of the Branch since January 1989.
Also in August, the board of this Bank designated Herbert L. Washington Chairman of
the Board of the Buffalo Branch for the year 1992. Mr. Washington, owner of HLW Fast
Track, Inc., Rochester, N.Y., has been serving as a director of the Branch since June 1990.
As Chairman of the Board, he succeeded Mary Ann Lambertsen, Vice President-Human
Resources, Goulds Pumps, Inc., Seneca Falls, N.Y., who had been a director of the Branch
and Chairman of the Branch Board since January 1986.
At the same time, the board of this Bank reappointed Richard H. Popp a Branch director
for a three-year term beginning January 1, 1992. Mr. Popp, Operating Partner of Southview

http://fraser.stlouisfed.org/
34
Federal Reserve Bank of St. Louis

Farm, Castile, N.Y., has been serving as a director of the Branch since January 1989.
In September 1991, the Board of Governors of the Federal Reserve System appointed
Donald L. Rust a director of the Buffalo Branch for a three-year term beginning January 1,
1992. Mr. Rust, who is Plant Manager of the General Motors Powertrain Division,
Tonawanda, N.Y., succeeded Ms. Lambertsen on the Branch Board.
CHANGES IN SENIOR OFFICERS. The following changes in the official staff at the
level of vice president and above have occurred since the publication of the previous Annual
Report:
Effective March 22, 1991:
Roberta J. Puschel, Senior Vice President was assigned supervisory responsibility for the
Bank Examinations Function, continuing as the officer in charge of the Loans and Credits
Function. Effective July 1, 1991, she was also assigned senior management responsibility
for the Accounting Function.
J. Andrew Spindler, Senior Vice President, was assigned as the officer in charge of the
Payments System Studies Staff, in addition to his supervisory responsibility for the Banking
Studies and Analysis Function.
Christopher J. McCurdy, Vice President, formerly assigned to the International Capital
Markets Staff, was assigned supervisory responsibility for the Payments System Studies
Staff, together with responsibility for special projects within the Bank Supervision Group.
David L. Roberts, Vice President, formerly assigned to the Foreign Group, was assigned
to the International Capital Markets Staff.
Effective July 7, 1991:
Cathy E. Minehan, Senior Vice President, resigned from the Bank to accept appointment
as the First Vice President of the Federal Reserve Bank of Boston, succeeding Robert W.
Eisenmenger. Ms. Minehan joined our Bank’s staff in 1968 and became an officer in 1975.
Robert M. Abplanalp, formerly Vice President, was appointed Senior Vice President and
assigned responsibility for reviewing audit and controls within the Bank, in addition to
senior oversight of the Cash and Check Functions and responsibility for Bankwide coordina
tion of transition planning for the East Rutherford Operations Center.
Thomas C. Baxter, Jr., formerly Associate General Counsel, was appointed to the senior
vice president level in the Legal Function, with the title of Counsel.
Ralph A. Cann, III, formerly Vice President, was appointed Senior Vice President and
assigned senior management responsibility for the Security Control Function, in addition to
supervisory responsibility for the Systems Development Function.
John M. Eighmy, formerly Vice President, was appointed Senior Vice President and
assigned senior management responsibility for the East Rutherford Operations Center.
Joyce M. Hansen, formerly Associate General Counsel, was appointed to the senior vice
president level in the Legal Function, with the title of Counsel.
Joan E. Lovett, formerly Vice President, was appointed Senior Vice President and

assigned as the officer in charge of the Open Market Function.
Carol W. Barrett, Vice President, formerly assigned to the Electronic Payments Function,
was assigned responsibility for the Funds and Securities Group (consisting of the Electronic
Payments and Fiscal Services Functions).
Paul B. Bennett, formerly Vice President and Assistant Director of Research, was
designated Vice President and assigned as the officer in charge of the Electronic Payments
Function.
Mary R. Clarkin rejoined the Bank as a Vice President and was assigned responsibility
for the Accounting Function and the Loans and Credits Function. Ms. Clarkin had resigned
from the Bank as Vice President in the Open Market Function in 1987.
Steven J. Garofalo, formerly Assistant Vice President, was appointed Vice President and
assigned as the officer in charge of the Check Function.
George R. Juncker, Vice President, formerly assigned to the Payments System Studies
Staff, was assigned to the Bank Examinations Function. Effective January 2, 1992, he was
assigned as the officer in charge of Bank Supervision Resource Support.
John F. Sobala, Vice President, formerly assigned to the Check Function, was assigned
as the officer in charge of the Service Function.
Effective September 5, 1991, Suzanne Cutler, Executive Vice President, was assigned
senior responsibility at the Head Office for the operations of the Buffalo Branch, in addition
to her responsibility for the Operations Group.
On September 24, 1991, Sam Y. Cross, Executive Vice President, Foreign Group,
announced his retirement from the Bank. Mr. Cross joined the Bank in 1981 as a Senior
Vice President.
William J. McDonough joined the Bank on January 6, 1992, as an Executive Vice President
and was assigned to the Foreign Group, succeeding Mr. Cross. Mr. McDonough also succeed
ed Mr. Cross as Manager for Foreign Operations of the System Open Market Account.
William L. Rutledge, formerly Vice President, was appointed Senior Vice President,
effective January 2, 1992, and assigned supervisory responsibility for the Banking
Applications Function, the Compliance Examinations and Specialized Examinations
Departments of the Bank Examinations Function, and senior management responsibility for
Bank Supervision Resource Support.
Christine M. Cumming, formerly Assistant Vice President, was appointed Vice
President, effective January 2, 1992, and assigned to the Domestic Banking Department of
the Bank Examinations Function.
In connection with the establishment of the Market Surveillance Function in the Open
Market Group, and the discontinuance of the Dealer Surveillance Function, effective
February 21,1992:
Mary R. Clarkin, Vice President, formerly assigned to the Accounting Function and the
Loans and Credit Function, was assigned as the officer in charge of the Market Surveillance
Function.
Barbara L. Walter, Vice President, formerly assigned to the Dealer Surveillance
Function, was assigned to the Loans and Credit Function.

http://fraser.stlouisfed.org/
36
Federal Reserve Bank of St. Louis

Directors of the Federal Reserve Bank of New York

DIRECTORS

Term expires Dec. 31

Class

V ictor J. R iley , J r ...........................................................................................................................................
Chairman, President, and Chief Executive Officer, KeyCorp, Albany, N.Y.

1992

B arb a ra H a r d in g ............................................................................................................................................
Chairman and Chief Executive Officer, The Phillipsburg National Bank and Trust Company,
Phillipsburg, N.J.

1993

T h om as G . L a b r e c q u e ...................................................................................................................................
Chairman and Chief Executive Officer, The Chase Manhattan Bank (National Association),
New York, N.Y.

1994

J ohn A . G e o r g e s ...............................................................................................................................................
Chairman and Chief Executive Officer, International Paper, Purchase, N.Y.

1992

R an d V . A r a s k o g ............................................................................................................................................
Chairman and Chief Executive, ITT Corporation, New York, N.Y.

1993

R o b e r t E. A l l e n ...............................................................................................................................................
Chairman and Chief Executive Officer, AT&T, New York, N.Y.

1994

C yrus R. V a n c e ................................................................................................................................................
Presiding Partner, Simpson Thacher & Bartlett, New York, N.Y.

1992

E l l e n V . F u t t e r , Chairman and Federal Reserve A gent .................................................................
President, Barnard College, New York, N.Y.

1993

M a u r ic e R . G r e e n b e r g , Deputy Chairman ...........................................................................................
Chairman and Chief Executive Officer, American International Group, Inc., New York, N.Y.

1994

DIRECTORS—BUFFALO BRANCH
W ilbur F. B e h ....................................................................................................................................................
President, Atlanta National Bank, Atlanta, N.Y.

1992

H e r b e r t L. W a s h in g to n , C hairm an ........................................................................................................
Owner, HLW Fast Track, Inc., Rochester, N.Y.

1992

J oseph J. C a s t ig l ia ..........................................................................................................................................
President and Chief Executive Officer, Pratt & Lambert, Inc., Buffalo, N.Y.

1993

S usan A . M c L a u g h l in ....................................................................................................................................
General Credit Manager, Eastman Kodak Company, Rochester, N.Y.

1993

C h arles M . M it s c h o w ..................................................................................................................................
Senior Executive Vice President, Regional Banking, Marine Midland Bank, N.A., Buffalo N.Y.

1994

R ic h a r d H. P o p p ................................................................................................................................................
Operating Partner, Southview Farm, Castile, N.Y.

1994

D o n a ld L. R u s t ................................................................................................................................................
Plant Manager, Tonawanda Engine Plant, GM Powertrain Division, General Motors Corporation,
Tonawanda, N.Y.

1994

Advisory Groups
FEDERAL ADVISORY COUNCIL
SECOND DISTRICT MEMBER AND ALTERNATE MEMBER
C h a r l e s S. S a n f o r d , J r ., Member
Chairman and Chief Executive Officer, Bankers Trust Company, New York, N.Y.
G e o r g e J. V o jta , Alternate Member
Executive Vice President, Bankers Trust Company, New York, N.Y.

ACADEMIC ADVISORY PANEL
B en S. B e rn a n k e
Princeton University
A lan S. B l in d er
Princeton University
P h ill ip D . C agan
Columbia University
R u d ig er W . D orn bu sch
Massachusetts Institute of Technology
M a rtin S. F eldstein
Harvard University
B en ja m in M . F riedm an
Harvard University
P e ter B. K enen
Princeton University
P a u l R. K ru g m a n
Massachusetts Institute of Technology
B u rton G . M al k ie l
Princeton University
F r e d e r ic k S. M ish kin
Columbia University
W ill ia m P oo le
Brown University
R o b er t J. S h iller
Yale University

ADVISORY COUNCIL ON
SMALL BUSINESS AND AGRICULTURE
R ich a r d C. C all
My-T Acres, Inc., Batavia, N.Y.
I rving S. C apla n
President, National Army Stores Corp., Malone, N.Y.
J udy C olum bus
President, Judy Columbus, Inc., Realtors, Rochester, N.Y.
B e n ito R. F ern a n d ez
President, Brooklyn Manor Group, Brooklyn, N.Y.
H enry F. H e n d er so n , J r .
President, H.F. Henderson Industries, West Caldwell, N.J.
C harles L. L ain
President, Pine Island Turf Nursery, Inc., Sussex, N.J.
R o g er A . L ew
President, Wormuth Brothers Foundry, Athens, N.Y.
T oni N orm a n
President, Ranor Inc., Englewood, N.J.
P e t e r G. T e n E y c k II
President, Indian Ladder Farms, Altamont, N.Y.

INTERNATIONAL CAPITAL MARKETS
ADVISORY COMMITTEE
Steering Committee

W illia m L. S ilb er
New York University

R ich a r d B. F ish er
President, Morgan Stanley and Co., Inc.
New York, N.Y.

L a w r en c e H . S u m m ers
International Bank for Reconstruction
and Development

S ir M a rtin J aco m b
Chairman, Postel Investment Management Limited
London, England

L a w r en c e J. W hite
New York University

T h o m a s G. L a b r e c q u e
Chairman and Chief Executive Officer
The Chase Manhattan Bank (National Association)
New York, N.Y.

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38
Federal Reserve Bank of St. Louis

R o b e r t E. R ubin
Senior Partner and Co-Chairman
Goldman Sachs & Co.
New York, N.Y.

Other Members

THRIFT INSTITUTIONS ADVISORY PANEL

M athis C a b ia lla v e tta
Executive Vice President and
Member of the Executive Board
Union Bank of Switzerland
Zurich, Switzerland

D a vid E. A . C arson
President, People’s Bank, Bridgeport, Conn.

P au l G .S . C antor
President
Investment Bank, CIBC
Toronto, Canada
L ew is W . C o lem an
Vice Chairman of the Board
World Banking Group
Bank of America
San Francisco, Calif.
R ich a r d A . D ebs
Chairman
R.A. Debs & Co.
Greenwich, Conn.
J o hn M . H en n essy
President and Chief Executive Officer
CS First Boston, Inc.
New York, N.Y.
K a r e n N . H orn
Chairman and Chief Executive Officer
Bank One
Cleveland, Ohio

H e rbe rt G . C h o r ba jia n
President and Chief Executive Officer, Albany Savings Bank,
Albany, N.Y.
S pen c er S. C row
President, Maple City Savings and Loan Association,
Homell, N.Y.
H en ry D r ew itz
Chairman, Astoria Federal Savings and Loan Association,
Lake Success, N.Y.
J o seph P. G em m ell
Chairman, President and Chief Executive Officer,
Bankers Savings
Perth Amboy, N.J.
W illiam J. L a ra ia
Chairman and Chief Executive Officer,
Apple Bank for Savings
New York, N.Y.
G e ra l d T. M u rphy
President, Garden State Corporate Central Credit Union,
Hightstown, N.J.
W illiam F. O l so n
Chairman and President, Peoples Westchester Savings Bank,
Hawthorne, N.Y.

H id eo I shihara
Deputy President
The Industrial Bank of Japan, Ltd.
Tokyo, Japan
J an K alff
Member of the Board
ABN/Amro Bank
Amsterdam, The Netherlands
H e n ry K a ufm an
President
Henry Kaufman and Company, Inc.
New York, N.Y.
KOICHI KlMURA
Deputy President
Daiwa Securities Co., Ltd.
Tokyo, Japan
A lexis W o lk en stein
Directeur General Adjoint
Credit Lyonnais
Paris, France

Officers of the Federal Reserve Bank of New York
E. G e r a l d C o r r i g a n , President
Jam e s H. O ltm a n , First Vice President
S u z a n n e C u t l e r , Executive Vice President

E r n e s t T . P a t r i k i s , Executive Vice President and

Operations

General Counsel
Legal

C h e s t e r B . F e ld b e r g , Executive Vice President

Bank Supervision
W illia m J. M c D o n o u g h , Executive Vice President

Foreign

I s r a e l S e n d r o v ic , Executive Vice President

Automation and Telecommunications
P e t e r D . S t e r n l i g h t , Executive Vice President

Open Market

a c c o u n t in g

Joseph E. M cC o o l, Manager, Funds Transfer Systems

Department

R o b e rta J. P u sch el, Senior Vice President
R ich ard J. G e lso n , Vice President
Leon R. H olm es, Assistant Vice President
D o n a ld R. A nd erson , Manager, Accounting Department
E liz a b e th G. M ind lin, Manager, Accounting Department

M arie J. V eit, M a n a g e r , Funds Transfer Systems Department
Miriam I. W ie b o ld t, Manager, Administrative and Office

AUDIT

BANK SUPERVISION GROUP

John E. F la n a g a n , General Auditor
R o b e rt J. A m brose, Assistant General Auditor
L o r e tta G. A nsb ro, Audit Officer
E dw ard J. C hurney, Manager, Auditing Department
Ira L evinson, Manager, Audit Analysis Department

C h e ste r B. F eld b erg , Executive Vice President

M ic h a e l J. R ecupero, Manager, Operations Systems

Department

Support Systems Department

AUTOMATION AND
TELECOMMUNICATIONS GROUP
I s r a e l S en d rovic, Executive Vice President
a u t o m a t i o n p l a n n in g a n d s u p p o r t

James H. G aver, Vice President

BANK EXAMINATIONS
R o b e rta J. P u sch el, Senior Vice President
W illia m L. R u tled g e, Senior Vice President
K a th le e n A. O ’N e il, Vice President
R o b e rt A. O ’S u lliv a n , Vice President
C h ristin e M. Cumming, Vice President
N a n cy B er co v ici, Assistant Vice President
James K. H o d g e tts, Assistant Vice President
Leon K orobow , Adviser
Thom as P. M cQ ueeney, Assistant Vice President
M a r g a r e t E. B ru sh, Examining Officer, Domestic

Banking Department
DATA PROCESSING
P e te r J. F u lle n , Vice President
R o n a ld J. C la r k , Assistant Vice President
P e te r M. G ordon , Manager, Operations and

Fred C. Herrim an, Jr., Manager,

Communications Support Department
G e r a ld H ayden, Manager, General Computer
Operations Department
John C. H e id elb er g er, Manager (Evening Officer)
L en n ox A. M yrie, Manager, Fedwire and Communications
Operations Department
Isa a c B. O b s tfe ld , Data Processing Officer

B a rb a ra A. K lein , Manager, Domestic Banking

SECURITY CONTROL
R alp h A. C ann, III, Senior Vice President
H e rb ert W. W hitem an, Jr., Vice President
R ich ard P. Passadin, Security Officer
sy stem s dev elo pm en t

R alp h A. C ann, III, Senior Vice President
Om p. B a g a ria , Vice President
P a tr ic ia Y. Jung, Vice President
M onika K. N ovik , Assistant Vice President
C la u d ia H. C ouch, Manager, Funds Transfer Systems

Department
V iera A. C ro u t, Manager, Advanced Technology Staff
C hristoph er M. K e ll, Systems Development Officer

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40
Federal Reserve Bank of St. Louis

Domestic Surveillance Staff
E liza b eth S. Irw in-M cC aughey, Manager,

Compliance Examinations Department
Department
D ino K os, Manager, International Surveillance Staff
A. John M aher, Manager, Specialized

Examinations Department
W illia m J. M ilu sich , Examining Officer, International

Banking Department
J e a n n ette M. P od gorsk i, Examining Officer, Domestic

Banking Department
A lb e r t J. Rubbo, Examining Officer, Domestic

Banking Department
D o n a ld E. Schmid, Manager, Domestic Banking

Department
A lb e r t T oss, Examining Officer, Report Review S taff
W a lt e r W. Zunic, Examining Officer, International

Banking Department
BANKING APPLICATIONS
W illia m L. R u tle d g e , Senior Vice President
John S. C assid y, Assistant Vice President
D avid L. F an ger, Manager, Banking Applications

Department

Officers (Continued)

BANK SUPERVISION GROUP (Continued)
BANKING STUDIES AND ANALYSIS
J. A ndrew Spindler, Senior Vice President
A r tu r o E s t r e l la , Assistant Vice President
G ary Haberm an, Adviser
B e v e r ly J. H ir tle . Manager, Banking Studies Department
P e ter S. H olm es, Banking Research Officer
M a n u el J. Schnaidm an, Manager, Bank Analysis

Department
PAYMENTS SYSTEM STUDIES

J. A ndrew Spindler, Senior Vice President
C hristoph er J. M ccurdy, Vice President
L aw ren ce M. S w eet, Senior International Economist
RESOURCE SUPPORT
W illiam L. R u tled g e, Senior Vice President
G e o rg e R. Juncker, Vice President
James P. B a rr y , Manager, Supervision Support Department

CORPORATE PLANNING GROUP

FUNDS AND SECURITIES GROUP
C a r o l W. B a r r e t t , Vice President
ELECTRONIC PAYMENTS
P a u l B. B en n ett, Vice President
D a n ie l C. B o lw e l l, Assistant Vice President
H. John C o s t a lo s , Assistant Vice President
H enry F. W iener, Assistant Vice President
A ndrew Heikaus, Manager, Funds Transfer Department
P a tr icia H ilt-L u pack, Manager, Securities Transfer

Department
M ich a el W. M ow b ray, Manager, Electronic Operations

Support Department
FISCAL SERVICES
W h itn ey R. Irwin, Vice President
P au lin e E. Chen, Assistant Vice President
C h ristin a H. R yan, Manager, Safekeeping Department
John J. S tric k , Manager, Savings Bond Department
Joanne M. V a lk o v ic , Manager, Government Bond

Department

D o n a ld T. V a n g e l, Vice President
PERSONNEL
C a r l W. Turnipseed, Vice President
M ich ele S. G od frey, Assistant Vice President and Secretary
R ob ert C. S crivani, Assistant Vice President
E v ely n E. K ender, Manager, Personnel Department
E la in e D. M a u r ie llo , Manager, Personnel Department
PLANNING AND CONTROL
N irm al V. M an erik ar, Assistant Vice President
N a th a n B ed n arsh, Manager, Management Information

Department
SECRETARY’S OFFICE
M ich ele S. G od frey, Assistant Vice President and Secretary
R ob ert N. M cC au ley, Research Officer and Senior

Economist, and Assistant Secretary
T h eod ore N. Oppenheimf.r, Assistant Secretary

INTERNATIONAL CAPITAL MARKETS
C h a r le s M. L u cas, Senior Vice President
D avid L. R o b erts, Vice President
B onnie E. Loopesko, Senior International Economist
LEGAL
E rn est T. P a trik is, Executive Vice President and General

Counsel
Thomas C. B a x te r , Jr., Counsel
Joy ce M. H ansen, Counsel
Don N. R ingsm uth, Counsel
B r a d le y K. S a b e l, Counsel
R a leig h M. T ozer, Counsel
HaeRan Kim, Counsel
E ric A. M artin , Counsel
K aren W a lr a v en , Counsel
W eb ster B. W h ite, Counsel

EQUAL EMPLOYMENT OPPORTUNITY
P e ter B a k sta n sk y , Vice President
D o n a ld R. M oore, Equal Employment Opportunity Officer

LOANS AND CREDITS
R o b e rta J. P u sch el, Senior Vice President
B a rb a ra L. W a lte r , Vice President
Jan et K. R o g ers, Assistant Vice President

FOREIGN GROUP

OPEN MARKET GROUP

W illiam J. M cD on ou gh, Executive Vice President
FOREIGN EXCHANGE
M a r g a r e t L. G reene, Senior Vice President
P e ter R yerson Fisher, Assistant Vice President
W ille n e A. Johnson, Assistant Vice President
P a u l DiLeo, Manager, Foreign Exchange Department*
Thomas M. H effern a n , Foreign Exchange Trading Officer
FOREIGN RELATIONS
Irwin D. Sandberg, Senior Vice President
T erren ce J. Checki, Vice President
G eorge W. R yan, Vice President
G eorge H. B ossy, Manager, Developing Nations Staff'
H ild on G. James, Manager, Foreign Relations Department
F rancis J. R eischach, Manager, Foreign Relations

P eter D. S te r n lig h t, Executive Vice President
MARKET SURVEILLANCE FUNCTION
M ary R. C la rk in , Vice President
M arySu e Fisher, Assistant Vice President
E dw ard J. O zog, Assistant Vice President
OPEN MARKET FUNCTION
Joan E. L o v e tt, Senior Vice President
B etsy B u t t r i l l W hite, Vice President
R o b ert W. Dabbs. Assistant Vice President
K enneth J. G u en tn er, Assistant Vice President
S an d ra C. K rieger, Manager, Open Market Department
A nn-M arie M eulen dyk e, Manager, Open Market

Department

Department
*On leave of absence.

Officers (Continued)

OPERATIONS GROUP
Suzann e C u tle r , Executive Vice President
R o b e rt M. A bp lan alp, Senior Vice President
John M. Eighmy, Senior Vice President

PUBLIC INFORMATION
P e te r B a k sta n sk y , Vice President
S tev en M a lin , Manager, Public Information Department

RESEARCH AND STATISTICS GROUP

BANK SERVICES
B ru ce A. C a s s e lla , Bank Services Officer

R ich ard G. D avis, Senior Vice President and Director o f

BUILDING SERVICES
John F. S o b a la , Vice President
P a u l L. M c E v ily , Assistant Vice President
Jason M. S tern , Assistant Vice President
Joseph D. J. D eM artini, Manager, Administrative Support

RESEARCH
M. A kb ar A k h ta r, Vice President and Assistant Director o f

Services Department
Joseph C. M eehan, Manager, Building Services Department
Jerom e P. P e r lo n g o , Manager (Night Officer)
CASH
Joseph P. B o tt a , Vice President
M a r tin P. C usick, Assistant Vice President
R o b e rt G. K raus, Manager, Operations Support Department
Thom as J. L a w le r , Manager
L. W endy Webb, Manager, Paying and Receiving

Department

Research

Research
E dw ard J. F r y d l, Vice President and Assistant Director o f

Research
A. S tev en E n g la n d er, Senior Research Officer*
C h a r le s A. P ig o tt, Senior Research Officer *
L a w ren ce J. R adecki, Senior Research Officer
John W enninger, Senior Research Officer
R ich ard M. C a n to r , Research Officer and Senior Economist
K a u sa r Hamdani, Research Officer and Senior Economist
E th an S. H a rris, Research Officer and Senior Economist
S usan A. H ickok, Research Officer and Senior Economist
B ru ce Kasman, Research Officer and Senior Economist
R o b e rt N. M cC a u ley , Research Officer and Senior

Economist, and Assistant Secretary

M ic h a e l L. Zimmerman, Manager, Currency Verification

Department
CHECK
S tev en J. G a r o fa lo , Vice President
F red A. D en esevich , Regional Manager (Cranford Office)
A ngu s J. Kennedy, Regional Manager (Utica Office)
A n th o n y N. S a g lia n o , Regional Manager (Jericho Office)
K enn eth M. L e ffle r , Check Officer
M a tth e w J. P u glisi, Manager, Check Services Department

D o r o th y M. S o b o l, Research Officer and Senior Economist
C h a r le s S te in d e l, Research Officer and Senior Economist
STATISTICS
S usan F. M o o re, Vice President
P a u la B. S ch w a r tzb erg , Manager, International Reports

and Support Department
*On leave of absence.

SERVICE
R o b e rt V. M u rray, Vice President
W illia m J. K e lly , Manager, Protection Department
Joseph R. P r a n c l, Jr., Manager, Food and Office Services

Department

Officers—Buffalo Branch
James O. A sto n , Vice President and Branch Manager
AUTOMATED SYSTEMS; GENERAL DIRECTION
OF OPERATIONS; MANAGEMENT INFORMATION
P e te r D. L uce, Assistant Vice President

BANK SERVICES AND PUBLIC INFORMATION; CHECK;
PERSONNEL; PROTECTION
R o b e rt J. M c D o n n e ll, Operations Officer

CASH; CENTRAL OPERATIONS; CREDIT,
DISCOUNT, AND FISCAL AGENCY
G ary S. W eintraub , Cashier

BUILDING OPERATING; CASH; SERVICE
D avid P. S ch w a r zm u eller, Operations Officer

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42
Federal Reserve Bank of St. Louis

THE SECOND FEDERAL RESERVE DISTRICT

CANADA

PLATTSBURG
O GDENSBURG

WATERTOWN
GLENS FALLS
UTICA
OSW EGO
SYRACUSE
ROCHESTER

SCHENECTADY

NEW YORK

MASS.
ALBANY

• BUFFALO
BINGHAM TON
JAM ESTOW N

POUG H K EEPSIE

• ELMIRA

CONN.

B RIDGEPORT •

NEWARK <

CRA N FO RD •
NEW BRUNSW ICK « (

JERICH O

HEAD OFFICE TERRITORY
BUFFALO BRANCH TERRITORY

Full text of Annual Report of the Federal Reserve Bank of New York : Seventy-Seventh Annual Report for the Year Ended December 31, 1991

FRASER